26 CFR 54.4975-11 ''ESOP'' requirements.
(a) In general -- (1) Type of plan. To be an ''ESOP'' (employee
stock ownership plan), a plan described in section 4975(e)(7)(A) must
meet the requirements of this section. See section 4975(e)(7)(B).
(2) Designation as ESOP. To be an ESOP, a plan must be formally
designated as such in the plan document.
(3) Continuing loan provisions under plan -- (i) Creation of
protections and rights. The terms of an ESOP must formally provide
participants with certain protections and rights with respect to plan
assets acquired with the proceeds of an exempt loan. These protections
and rights are those referred to in the third sentence of
54.4975-7(b)(4), relating to put, call, or other options and to buy-sell
or similar arrangements, and in 54.4975-7(b) (10), (11), and (12),
relating to put options.
(ii) ''Nonterminable'' protections and rights. The terms of an ESOP
must also formally provide that these protections and rights are
nonterminable. Thus, if a plan holds or has distributed securities
acquired with the proceeds of an exempt loan and either the loan is
repaid or the plan ceases to be an ESOP, these protections and rights
must continue to exist under the terms of the plan. However, the
protections and rights will not fail to be nonterminable merely because
they are not exercisable under 54.4975-7(b) (11) and (12)(ii). For
example, if, after a plan ceases to be an ESOP, securities acquired with
the proceeds of an exempt loan cease to be publicly traded, the 15-month
period prescribed by 54.4975-7(b)(11) includes the time when the
securities are publicly traded.
(iii) No incorporation by reference of protections and rights. The
formal requirements of paragraph (a)(3) (i) and (ii) of this section
must be set forth in the plan. Mere reference to the third sentence of
54.4975-7(b)(4) and to the provisions of 54.4975-7(b) (10), (11), and
(12) is not sufficient.
(iv) Certain remedial amendments. Notwithstanding the limits under
paragraph (a) (4) and (10) of this section on the retroactive effect of
plan amendments, a remedial plan amendment adopted before December 31,
1979, to meet the requirements of paragraph (a)(3) (i) and (ii) of this
section is retroactively effective as of the later of the date on which
the plan was designated as an ESOP or November 1, 1977.
(4) Retroactive amendment. A plan meets the requirements of this
section as of the date that it is designated as an ESOP if it is amended
retroactively to meet, and in fact does meet, such requirements at any
of the following times:
(i) 12 months after the date on which the plan is designated as an
ESOP;
(ii) 90 days after a determination letter is issued with respect to
the qualification of the plan as an ESOP under this section, but only if
the determination is requested by the time in paragraph (a)(4)(i) of
this section; or
(iii) A later date approved by the district director.
(5) Addition to other plan. An ESOP may form a portion of a plan the
balance of which includes a qualified pension, profit-sharing, or stock
bonus plan which is not an ESOP. A reference to an ESOP includes an
ESOP that forms a portion of another plan.
(6) Conversion of existing plan to an ESOP. If an existing pension,
profit-sharing, or stock bonus plan is converted into an ESOP, the
requirements of section 404 of the Employee Retirement Income Security
Act of 1974 (ERISA) (88 Stat. 877), relating to fiduciary duties, and
section 401(a) of the Code, relating to requirements for plans
established for the exclusive benefit of employees, applying to such
conversion. A conversion may constitute a termination of an existing
plan. For definition of a termination, see the regulations under
section 411(d)(3) of the Code and section 4041(f) of ERISA.
(7) Certain arrangements barred -- (i) Buy-sell agreements. An
arrangement involving an ESOP that creates a put option must not provide
for the issuance of put options other than as provided under
54.4975-7(b) (10), (11) and (12). Also, an ESOP must not otherwise
obligate itself to acquire securities from a particular security holder
at an indefinite time determined upon the happening of an event such as
the death of the holder.
(ii) Integrated plans. A plan designated as an ESOP after November
1, 1977, must not be integrated directly or indirectly with
contributions or benefits under title II of the Social Security Act or
any other State or Federal law. ESOP's established and integrated
before such date may remain integrated. However, such plans must not be
amended to increase the integration level or the integration percentage.
Such plans may in operation continue to increase the level of
integration if under the plan such increase is limited by reference to a
criterion existing apart from the plan.
(8) Effect of certain ESOP provisions on section 401(a) status -- (i)
Exempt loan requirements. An ESOP will not fail to meet the
requirements of section 401(a)(2) merely because it gives plan assets as
collateral for an exempt loan under 54.4975-7(b)(5) or uses plan assets
under 54.4975-7(b)(6) to repay and exempt loan in the event of default.
(ii) Individual annual contribution limitation. An ESOP will not
fail to meet the requirements of section 401(a)(16) merely because
annual additions under section 415(c) are calculated with respect to
employer contributions used to repay an exempt loan rather than with
respect to securities allocated to participants.
(iii) Income pass-through. An ESOP will not fail to meet the
requirements of section 401(a) merely because it provides for the
current payment of income under paragraph (f)(3) of this section.
(9) Transitional rules for ESOP's established before November 1,
1977. A plan established before November 1, 1977 that otherwise
satisfies the provisions of this section constitutes an ESOP if it is
amended by December 31, 1977, to comply from November 1, 1977 with this
section even though before November 1, 1977 the plan did not satisfy
paragraphs (c) and (d) (2), (4), and (5) of this section.
(10) Additional transitional rules. Notwithstanding paragraph (a)(9)
of this section, a plan established before November 1, 1977, that
otherwise satisfies the provisions of this section constitutes an ESOP
if by December 31, 1977, it is amended to comply from November 1, 1977,
with this section even though before such date the plan did not satisfy
the following provisions of this section:
(i) Paragraph (a) (3) and (8) (iii);
(ii) The last sentence of paragraph (d)(3); and
(iii) Paragraph (f)(3).
(b) Plan designed to invest primarily in qualifying employer
securities. A plan constitutes an ESOP only if the plan specifically
states that it is designed to invest primarily in qualifying employer
securities. Thus, a stock bonus plan or a money purchase pension plan
constituting an ESOP may invest part of its assets in other than
qualifying employer securities. Such plan will be treated the same as
other stock bonus plans or money purchase pension plans qualified under
section 401a with respect to those investments.
(c) Suspense account. All assets acquired by an ESOP with the
proceeds of an exempt loan under section 4975(d)(3) must be added to and
maintained in a suspense account. They are to be withdrawn from the
suspense account by applying 54.4975-7(b) (8) and (15) as if all
securities in the suspense account were encumbered. Such assets
acquired before November 1, 1977, must be withdrawn by applying
54.4975-7(b)(8) or the provision of the loan that controls release from
encumbrance. Assets in such suspense accounts are assets of the ESOP.
Thus, for example, such assets are subject to section 401(a)(2).
(d) Allocations to accounts of participants -- (1) In general.
Except as provided in this section, amounts contributed to an ESOP must
be allocated as provided under 1.401-1(b)(ii) and (iii) of this
chapter, and securities acquired by an ESOP must be accounted for as
provided under 1.402(a)-1(b)(2)(ii) of this chapter.
(2) Assets withdrawn from suspense account. As of the end of each
plan year, the ESOP must consistently allocate to the participants'
accounts non-monetary units representing participants' interests in
assets withdrawn from the suspense account.
(3) Income. Income with respect to securities acquired with the
proceeds of an exempt loan must be allocated as income of the plan
except to the extent that the ESOP provides for the use of income from
such securities to repay the loan. Certain income may be distributed
currently under paragraph (f)(3) of this section.
(4) Forfeitures. If a portion of a participant's account is
forfeited, qualifying employer securities allocated under paragraph
(d)(2) of this section must be forfeited only after other assets. If
interests in more than one class of qualifying employer securities have
been allocated to the participant's account, the participant must be
treated as forfeiting the same proportion of each such class.
(5) Valuation. For purposes of 54.4975-7(b) (9) and (12) and this
section, valuations must be made in good faith and based on all relevant
factors for determining the fair market value of securities. In the
case of a transaction between a plan and a disqualified person, value
must be determined as of the date of the transaction. For all other
purposes under this subparagraph (5), value must be determined as of the
most recent valuation date under the plan. An independent appraisal
will not in itself be a good faith determination of value in the case of
a transaction between a plan and a disqualified person. However, in
other cases, a determination of fair market value based on at least an
annual appraisal independently arrived at by a person who customarily
makes such appraisals and who is independent of any party to a
transaction under 54.4975-7(b) (9) and (12) will be deemed to be a good
faith determination of value.
(e) Multiple plans -- (1) General rule. An ESOP may not be
considered together with another plan for purposes of applying section
401(a) (4) and (5) or section 410(b) unless:
(i) The ESOP and such other plan exist on November 1, 1977, or
(ii) Paragraph (e)(2) of this section is satisfied.
(2) Special rule for combined ESOP's. Two or more ESOP's, one or
more of which does not exist on November 1, 1977, may be considered
together for purposes of applying section 401(a) (4) and (5) or section
410(b) only if the proportion of qualifying employer securities to total
plan assets is substantially the same for each ESOP and:
(i) The qualifying employer securities held by all ESOP's are all of
the same class; or
(ii) The ratios of each class held to all such securities held is
substantially the same for each plan.
(3) Amended coverage, contribution, or benefit structure. For
purposes of paragraph (e)(1)(i) of this section, if the coverage,
contribution, or benefit structure of a plan that exists on November 1,
1977 is amended after that date, as of the effective date of the
amendment, the plan is no longer considered to be a plan that exists on
November 1, 1977.
(f) Distribution -- (1) In general. Except as provided in paragraph
(f) (2) and (3) of this section, with respect to distributions, a
portion of an ESOP consisting of stock bonus plan or a money purchase
pension plan is not to be distinguished from other such plans under
section 401(a). Thus, for example, benefits distributable from the
portion of an ESOP consisting of a stock bonus plan are distributable
only in stock of the employer. Also, benefits distributable from the
money-purchase portion of the ESOP may be, but are not required to be,
distributable in qualifying employer securities.
(2) Exempt loan proceeds. If securities acquired with the proceeds
of an exempt loan available for distribution consist of more than one
class, a distributee must receive substantially the same proportion of
each such class. However, as indicated in paragraph (f)(1) of this
section, benefits distributable from the portion of an ESOP consisting
of a stock bonus plan are distributable only in stock of the employer.
(3) Income. Income paid with respect to qualifying employer
securities acquired by an ESOP in taxable years beginning after December
31, 1974, may be distributed at any time after receipt by the plan to
participants on whose behalf such securities have been allocated.
However, under an ESOP that is a stock bonus plan, income held by the
plan for a 2-year period or longer must be distributed under the general
rules described in paragraph (f)(1) of this section. (See the last
sentence of section 803(h), Tax Reform Act of 1976.)
(Sec. 4975(e)(7), (88 Stat. 976; 26 U.S.C. 4975(e)(7)))
(T.D. 7506, 42 FR 44393, Sept. 2, 1977, as amended by T.D. 7571, 44
FR 1978, Jan. 9, 1979)
26 CFR 54.4975-12 Definition of the term ''qualifying employer
security''.
(a) In general. For purposes of section 4975(e)(8) and this section,
the term ''qualifying employer security'' means an employer security
which is:
(1) Stock or otherwise an equity security, or
(2) A bond, debenture, note, or certificate or other evidence of
indebtedness which is described in paragraphs (1), (2), and (3) of
section 503(e).
(b) Special rule. In determining whether a bond, debenture, note, or
certificate or other evidence of indebtedness is described in paragraphs
(1), (2), and (3) of section 503(e), any organization described in
section 401(a) shall be treated as an organization subject to the
provisions of section 503.
(Sec. 4975(e)(7) (88 Stat. 976; 26 U.S.C. 4975(e)(7)))
(T.D. 7506, 42 FR 44394, Sept. 2, 1977)
26 CFR 54.4975-14 Election to pay an excise tax for certain pre-1975
prohibited transactions.
(a) In general. Section 2003(c)(1)(B) of the Employee Retirement
Income Security Act of 1974 (88 Stat. 978) provides an election to pay
an excise tax by certain persons involved prior to 1975 in prohibited
transactions within the meaning of section 503 (b) or (g).
(b) Effect of election. If a valid election is made under this
section with respect to a particular transaction, any loss of exemption
under section 501(a) because of a prohibited transaction within the
meaning of section 503 (b) or (g) shall not apply. Instead, the person
who made the election referred to in this section shall be subject to
the taxes which would have been imposed by section 4975 (a) or (b) as
though section 4975 had imposed a tax in respect of the transaction.
(However, section 4975(f)(1), relating to joint and several liability,
shall not apply to any person who has not made an election under this
section, and interest for late payment of tax shall not begin to accrue
until after the date of the election.) Such an election is irrevocable.
However, the making of the election does not affect the application of
section 6501 for purposes of assessment and collection of tax and
section 6511 for purposes of filing a claim for credit or refund with
respect to taxpayers and to taxable years of taxpayers whose tax
liability is or may be affected by reason of the nonapplication of a
denial of exempt status.
(c) Method of election. A person shall make the election referred to
in this section by filing the form issued for such purpose by the
Internal Revenue Service, including therein the information required by
such form and the instructions issued with respect thereto, and by
paying the tax which the taxpayer indicates is due at the time the
return is filed. To be valid the election must be made prior to the
later of December 6, 1976, or 120 days after the date of notification
referred to in 1.503(a)-1(b) of this chapter (Income Tax Regulations),
relating to loss of exemption for certain prohibited transactions. If
there has been no notification of loss of exemption, the election may be
made at any time. However, these limitations do not preclude an
agreement between the disqualified person and the district director to
extend the time within which the election is permitted.
(d) Computation of section 4975 excise tax. To the extent
applicable, and solely for purposes associated with the payment of a
section 4975 excise tax under the election referred to in this section,
53.4941(e)-1 of this chapter (Foundation Excise Tax Regulations) is
controlling.
(Sec. 2003(c)(1)(B) of the Employee Retirement Income Security Act of
1974 (88 Stat. 978))
(T.D. 7489, 42 FR 27882, June 1, 1977)
26 CFR 54.4975-15 Other transitional rules.
(a)-(c) (Reserved)
(d) Provision of certain services until June 30, 1977 -- (1) In
general. Section 2003(c)(2)(D) of the Employee Retirement Income
Security Act of 1974 (the Act) (88 Stat. 979) provides that section 4975
shall not apply to the provision of services before June 30, 1977,
between a plan and a disqualified person if the three requirements
contained in section 2003(c)(2)(D) of the Act are met. The first
requirement is that such services must be provided either (in) under a
binding contract in effect on July 1, 1974 (or pursuant to a renewal or
modification of such contract); or (ii) by a disqualified person who
ordinarily and customarily furnished such services on June 30, 1974.
The second requirement is that the services be provided on terms that
remain at least as favorable to the plan as an arm's-length transaction
with an unrelated party would be.
For this purpose, such services are provided on terms that remain at
least as favorable to the plan as an arms-length transaction with an
unrelated party would be if, at the time of execution (or renewal) of
such binding contract, the contract (or renewal) is on terms at least as
favorable to the plan as an arm's-length transaction with an unrelated
party would be. However, if in a normal commercial setting an unrelated
party in the position of the plan could be expected to insist upon a
renegotiation or termination of a binding contract, the plan must so
act. Thus, for example, if a disqualified person provides services to a
plan on a month-to-month basis, and a party in the position of the plan
could be expected to renegotiate the price paid under such contract
because of a decline in the fair market value of such services, the plan
must so act in order to avoid participation in a prohibited transaction.
The third requirement is that the provision of services must not be, or
have been, at the time of such provision a prohibited transaction within
the meaning of section 503(b) or the corresponding provisions of prior
law. If these three requirements are met, section 4975 will apply
neither to services provided before June 30, 1977 (both to customers to
whom such services were being provided on June 30, 1974, and to new
customers) nor to the receipt of compensation therefor. Thus, if these
three requirements are met, section 4975 will not apply until June 30,
1977, to the provision of services to a plan by a disqualified person
(including a fiduciary) even if such services could not be furnished
pursuant to the exemption provisions of sections 4975(d)(2) or (6) and
54.4975-6. For example, if the three requirements of section
2003(c)(2)(D) of the Act are met, a person serving as fiduciary to a
plan who already receives full-time pay from an employer or an
association of employers, whose employees are participants in such plan,
or from an employee organization whose members are participants in such
plan, may continue to receive reasonable compensation from the plan for
services rendered to the plan before June 30, 1977. Similarly, until
June 30, 1977, a plan consultant who may be a fiduciary because of the
nature of the consultative and administrative services being provided
may, if these three requirements are met, continue to cause the sale of
insurance to the plan and continue to receive commissions for such sales
from the insurance company writing the policy. Further, if the three
requirements of section 2003 (c)(2)(D) of the Act are met, a securities
broker dealer who renders investment advice to a plan for a fee, thereby
becoming a fiduciary may furnish other services to the plan, such as
brokerage services, and receives compensation therefor. Also, if a
registered representative of such a broker-dealer were a fiduciary, the
registered representative may receive compensation, including
commissions, for brokerage services performed before June 30, 1977.
(2) Persons deemed to be June 30, 1974, service providers. A
disqualified person with respect to a plan which did not, on June 30,
1974, ordinarily and customarily furnish a particular service, will
nevertheless be considered to have ordinarily and customarily furnished
such service on June 30, 1974, for purposes of this section and section
2003(c)(2)(D) of the Act, if either of the following conditions are met:
(i) At least 50 percent of the outstanding beneficial interests of
such disqualified person are owned directly or through one or more
intermediaries by the same person or persons who owned, directly or
through one or more intermediaries, at least 50 percent of the
outstanding beneficial interests of a person who ordinarily and
customarily furnished such service on June 30, 1974; or
(ii) Control, or the power to exercise a controlling influence over
the management and policies of such disqualified person is possessed,
directly or through one or more intermediaries, by the same person or
persons who possessed directly or through one or more intermediaries
control, or the power to exercise a controlling influence over the
management and policies of a person who ordinarily and customarily
furnished such service on June 30, 1974. For purposes of this paragraph
(d)(2) a person shall be deemed to be an ''intermediary'' of another
person if at least 50 percent of the outstanding beneficial interests of
such person are owned by such other person, directly or indirectly, or
if such other person controls or has the power to exercise a controlling
influence over the management and policies of such person.
(3) Examples. The principals of 54.4975-15(d)(2) may be illustrated
by the following examples.
Example (1). A owns 50 percent of the outstanding beneficial
intertests of ABC Partnership which ordinarily and customarily furnished
certain services on June 30, 1974. On July 2, 1974, ABC Partnership was
incorporated into ABC Corporation with one class of stock outstanding.
A owns 50 percent of the shares of such stock. ABC Corporation
furnishes the same services that were furnished by ABC Partnership on
June 30, 1974. ABC Corporation will be deemed to have ordinarily and
customarily furnished such services on June 30, 1974, for purposes of
section 2003(c)(2)(D) of the Act.
Example (2). A and B together own 100 percent of the beneficial
interests of AB Partnership, which ordinarily and customarily furnished
certain services on June 30, 1974. On September 1, 1974, AB Partnership
was incorporated into AB Corporation with one class of stock
outstanding. A and B each own 20 percent of such outstanding class of
stock and together have control over the management and policies of AB
Corporation. AB Corporation furnishes the same services that were
furnished by AB Partnership on June 30, 1974. AB Corporation will be
deemed to have ordinarily and customarily furnished such services on
June 30, 1974, for purposes of section 2003(c)(2)(D) of the Act.
Example (3). On June 30, 1974, M Corporation was ordinarily and
customarily furnishing certain services. On that date, X, Y and Z
together owned 50 percent of all classes of the outstanding shares of M
Corporation. On January 28, 1975, all of the shareholders of M
Corporation exchanged their shares in M Corporation for shares of a new
N Corporation. As a result of that exchange, X, Y and Z together own 50
percent of the common stock of N Corporation, the only class of N
Corporation stock outstanding after the exchange. N Corporation
furnishes the services formerly furnished by M Corporation. N
Corporation will be deemed to have ordinarily and customarily furnished
such services on June 30, 1974, for purposes of section 2003(c)(2)(D) of
the Act.
Example (4). I Corporation ordinarily and customarily furnished
certain services on June 30, 1974. On November 3, 1975, I Corporation
organizes a wholly owned subsidiary, S Corporation, which furnishes the
same services ordinarily and customarily furnished by I Corporation on
June 30, 1974. S Corporation will be deemed to have ordinarily and
customarily furnished such services on June 30, 1974, for purposes of
section 2003(c)(2)(D) of the Act.
Example (5). X Corporation, wholly-owned and controlled by A,
ordinarily and customarily furnished certain services on June 30, 1974.
Y Corporation did not perform such services on that date. On January 2,
1976, X Corporation is merged into Y Corporation and although a received
less than 50 percent of the total outstanding shares of Y Corporation,
after such merger A has control over the management and policies of Y
Corporation. Y Corporation furnishes the same services that were
formerly furnished by X Corporation. Y Corporation will be deemed to
have ordinarily and customarily furnished such services on June 30,
1974, for purposes of section 2003(c)(2)(D) of the Act.
(T.D. 7491, 42 FR 32388, June 24, 1977)
26 CFR 54.4976-1T Questions and answers relating to taxes with respect
to welfare benefit funds (temporary).
Q-1: What does section 4976 provide?
A-1: Section 4976 imposes a tax on employers who provide
disqualified benefits through a welfare benefit fund. The tax imposed
is equal to 100 percent of the disqualified benefit.
Q-2: What constitutes a disqualified benefit?
A-2: A disqualified benefit is (a) any post-retirement medical or
life insurance benefit provided with respect to a key employee (as
defined in section 419A(d)(3)) through a welfare benefit fund if a
separate account is required to be established for such employee under
section 419A(d) and the cost for such coverage is not charged against or
paid from such separate account; (b) any post-retirement medical or
life insurance benefit provided through a welfare benefit fund with
respect to an individual in whose favor discrimination is prohibited
unless the plan of which the fund is a part meets the requirements of
section 505(b) with respect to that benefit; and (c) any portion of the
fund which reverts to the benefit of the employer. A post-retirement
medical or life insurance benefit provided with respect to a key
employee will not constitute a disqualified benefit even though such
benefit is not provided through a separate account if the cost of such
benefit is paid by the employer in the taxable year in which the benefit
is provided and there is not (and there is not required to be) a
separate account with an outstanding credit balance maintained for the
key employee.
Q-3: What is the effective date of section 4976?
A-3: (a) Generally, section 4976 applies to disqualified benefits
provided by a welfare benefit fund after December 31, 1985. However, a
disqualified benefit, as defined in section 4976(b)(1) or (2), is not
subject to section 4976(a) if it is provided from ''existing reserves
for post-retirement medical or life insurance benefits'' that are within
the transition rule set forth in section 512(a)(3)(E)(iii) and Q&A-4 of
1.512(a)-5T (or would be if such transition rule applied to such welfare
benefit fund). For example, if a welfare benefit fund in existence on
July 18, 1984, provides an individual in whose favor discrimination is
prohibited with a post-retirement life insurance benefit after December
31, 1985, that does not meet the requirements of section 505(b) and if
the welfare benefit fund received no contributions after July 18, 1984,
then the disqualified benefit provided by the fund is not subject to
section 4976(a)
(b) A welfare benefit fund will be able to avoid the application of
section 4976(b)(1) and (2) if the employer withdraws from such fund,
before April 7, 1986, any amounts that are not attributable to
''existing reserves for post-retirement medical or life insurance
benefits'' because they were neither actually set aside nor treated as
actually set aside under Q&A-4 of 1.512(a)-5T, on July 18, 1984. The
employer making such a withdrawal must include the amount in income for
the first taxable year ending after July 18, 1984, or, to the extent
that the withdrawn amount is attributable to the following taxable year,
for such following taxable year. Such a withdrawal will not be treated
as an impermissible distribution or reversion under section 501(c)(9),
and will not be treated as a disqualified benefit under section
4976(b)(3). Of course, to the extent that the welfare benefit fund
contains amounts that are attributable to ''existing reserves'' but are
not within the transition rule set forth in Q&A-4 of 1.512(a)-5T (as
applied to welfare benefit funds), for example, because such amounts
exceed the amounts that could have been accumulated under the principles
set forth in Revenue Rulings 69-382, 1969-2 C.B. 28; 69-478, 1969-2
C.B. 29; and 73-599, 1973-2 C.B. 40, the fund will not be able to avoid
the application of section 4976(b)(1) and (2) under this paragraph.
(c) In the case of a plan which is maintained pursuant to one or more
collective bargaining agreements (1) between employee representatives
and one or more employers and (2) which are in effect on July 1, 1985
(or ratified on or before that date), the provision does not apply to
disqualified benefits provided in years beginning before the termination
of the last of the collective bargaining agreements pursuant to which
the plan is maintained (determined without regard to any extension of
the contract agreed to after July 1, 1985). For purposes of the
preceding sentence, any plan amendment made pursuant to a collective
bargaining agreement relating to the plan which amends the plan solely
to conform to any requirement added under section 511 of the Tax Reform
Act 1984 (i.e., requirements under sections 419, 419A, 512(a)(3)(E), and
4976) shall not be treated as a termination of such collective
bargaining agreement.
(T.D. 8073, 51 FR 4336, Feb. 4, 1986)
26 CFR 54.4977-1T Questions and answers relating to the election
concerning lines of business in existence on January 1, 1984
(temporary).
The following questions and answers relate to the election by
employers under section 4977 of the Internal Revenue Code of 1954, as
added by section 531(e)(1) of the Tax Reform Act of 1984 (98 Stat.
886), to treat all employees of any line of business in existence on
January 1, 1984, as employees of one of those lines of business for
purposes of section 132(a) (1) and (2):
Q-1: What does section 4977 provide with respect to the exclusion
from gross income of certain fringe benefits?
A-1: In general, section 4977 provides an elective grandfather rule
that allows an employer under certain circumstances to treat employees
of all lines of business which were in existence on January 1, 1984, as
employees of one of those lines of business for purposes of section
132(a) (1) and (2), but not for purposes of section 132(g)(2).
Q-2: Under what circumstances does the elective grandfather rule of
section 4977 apply?
A-2: If:
(a) An election under section 4977 is in effect with respect to an
employer for any calendar year, and
(b) On and after January 1, 1984, at least 85 percent of the
employees of the employer in all of its lines of business which existed
on January 1, 1984, were entitled to employee discounts or services
provided by the employer in one line of business,
then all employees of any line of business of the employer which was
in existence on January 1, 1984, are treated, for purposes of section
132(a) (1) and (2) (but not for purposes of section 132(g)(2)) as
employees of the one line of business referred to in (b) of this Q/A-2.
Q-3: How does an employer make the election provided for in section
4977?
A-3: An employer must file a statement with the director of the
service center with which the employer's tax returns are filed. The
statement must indicate that the employer is electing to apply the
provisions of section 4977 to one or more of the employer's lines of
business and must contain the following information:
(a) The employer's name, address, and taxpayer identification number;
(b) A description of all of the employer's lines of business in
existence on January 1, 1984; and
(c) For each lines of business which is to have as an employee for
purposes of section 132(a) (1) and (2) an individual but for the
election under section 4977 would not be treated as an employee for
purposes of section 132(a) (1) and (2):
(1) A description of the no-additional-cost service or qualified
employee discount (including, with respect to discounts, the percentage
discount) to be offered to employees pursuant to section 4977 in such
line of business, and
(2) With respect to employees in all of the employer's lines of
business in existence on January 1, 1984, the number of such employees
and the number entitled to the described fringe benefit. Such numbers
may be determined as of a date which does not precede the date the
election is filed by more than 30 days.
Q-4: In order to make a timely section 4977 election, when must an
employer file the election statement?
A-4: Except as otherwise provided in the second sentence of this
answer, the employer must file the election statement before the end of
the calendar year preceding the year for which the election is to apply.
For calendar year 1985, however, the employer has until March 31, 1985,
to file the election statement. However, the Commissioner may, in his
discretion, extend the March 31, 1985 deadline to a later date.
Q-5: Does section 4977 apply to all calendar years following the
calendar year in which the election is made?
A-5: Yes, unless the employer revokes the election.
Q-6: When is a revocation effective?
A-6: A revocation is effective with respect to the calendar year
following the calendar year in which it is filed.
Q-7: If an employer does not make a timely section 4977 election
with respect to 1985, will the employer be entitled to make an election
with respect to any subsequent year?
A-7: No.
Q-8: If an employer revokes a section 4977 election, is the employer
entitled to elect the application of section 4977 for subsequent years?
A-8: No.
(T.D. 8004, 50 FR 758, Jan. 7, 1985)
26 CFR 54.4978-1T Questions and answers relating to the tax on certain
dispositions by employee stock ownership plans and certain cooperatives
(temporary).
Q-1: What does section 4978 provide?
A-1: Section 4978 imposes a tax (as determined under section 4978(b)
and Q&A-2 of this section) on the amount realized on the disposition of
any qualified securities, if:
(a) An employee stock ownership plan or eligible worker-owned
cooperative acquires any qualified securities in a sale to which section
1042 applies;
(b) Such plan or cooperative disposes of any qualified securities
during the 3-year period after the date on which any qualified
securities were acquired in the sale to which section 1042 applies; and
(c) Either (1) the percentage of the total outstanding shares of the
class of employer securities of which the disposed qualified securities
are a part held by such plan or cooperative after such disposition is
less than the percentage of the total outstanding shares of such class
of employer securities held immediately after the sale to which section
1042 applies, or (2) the value of the employer securities held by such
plan or cooperative immediately after such disposition is less than 30
percent of the total value of all employer securities outstanding at
that time. For purposes of this section, the following terms have the
same meanings given to such terms by the identified provisions:
''employee stock ownership plan'' (section 4975(e)(7)); ''qualified
securities'' (section 1042(b)(1)); ''eligible worker-owned
cooperative'' (section 1042(b)(2)); ''employer securities'' (section
409(l)). For purposes of determining what constitutes a disposition to
which section 4978 applies, see Q&A-3 of this section.
Q-2: What is the amount of tax imposed under section 4978?
A-2: Section 4978 imposes a tax of 10 percent of the amount realized
on the disposition of qualified securities. The amount realized that is
subject to tax under section 4978 shall not exceed that portion of the
amount realized that is allocable to qualified securities acquired
within the 3-year period prior to the date of disposition and to which
section 1042 applied (''restricted qualified securities''). In
determining the amount realized (except as otherwise provided in Q&A-3
of this section), any disposition of employer securities with respect to
which the condition contained in provision (c) of Q&A-1 is met shall be
treated, first, as a disposition of restricted qualified securities (on
a first in, first out basis) and, thereafter, as a disposition of any
other employer securities. Thus, for example, if a plan disposes of
more employer securities than the number of restricted qualified
securities held by the plan at that time and immediately after such
disposition the value of the employer securities held by the plan is
less than 30 percent of the total value of all outstanding employer
securities, the portion of the total amount realized that is allocable
to restricted qualified securities subject to tax under section 4978 is
determined by multiplying the total amount realized on the disposition
by a fraction, the numerator of which is the total value of restricted
qualified securities included in the disposition and the denominator of
which is the total value of employer securities in the disposition.
Q-3: What constitutes a ''disposition'' under section 4978?
A-3: (a) Under section 4978, the term ''disposition'' includes any
sale, exchange, or distribution. However, in the case of any exchange
of qualified securities for stock of another corporation in any
reorganization described in section 368(a)(1), such exchange shall not
be treated as a disposition for purposes of section 4978.
(b) Section 4978 shall not apply to any disposition of qualified
securites which is made by reason of:
(1) The death of the employee;
(2) The retirement of the employee after the employee has attained 59
1/2 years of age;
(3) The disability of the employee (within the meaning of section
72(m)(5)); or
(4) The separation of the employee from service for any period which
results in a 1-year break in service (within the meaning of section
411(a)(6)(A)).
Any disposition of employer securities within this paragraph and any
disposition of employer securities with respect to which the condition
contained in provision (c) of Q&A-1 of this section is not met shall be
treated, first, as a disposition of securities that are not restricted
qualified securities and, thereafter, as a disposition of restricted
qualified securites (on a first-in, first-out basis).
(c) If restricted qualified securities held by an employee stock
ownership plan or eligible worker-owned cooperative no longer meet the
definition of qualified securities (''old restricted qualified
securities'') as a result of a transaction changing (1) the status of a
corporation as an employer, or as a member of a controlled group of
corporations including the employer, or (2) the existence of employer
securities of the type described in section 409(l)(1), the disposition
of such securities shall not be treated as a dispostion of restricted
qualified securites to which the tax under section 4978 is imposed if,
within 90 days after such disposition, securities meeting the
requirements of section 409(l) (''new restricted qualified securities'')
that are of equal value to the old restricted qualfied securities (at
the time of the disposition of the old restricted qualified securities)
are substituted for such old restricted qualified securities. However,
for purposes of determining the tax imposed under section 4978, old
restricted qualified securities shall not be treated as if they retained
their status as restricted qualified securities and new restricted
qualified securities derived from the disposition of old restricted
qualified securities pursuant to the preceding sentence shall be treated
as restricted qualified securities for the remaining portion of the
period during which the disposition of the old restricted qualified
securities would have been subject to tax under section 4978.
Q-4: To whom does the tax under section 4978 apply?
A-4: The tax under section 4978 is imposed on the domestic
corporation (or corporations) or the eligible worker-owned cooperative
that made the written statement of consent as described in section
1042(a)(2)(B) and Q&A-2 of 1.1042-1T with respect to the disposition of
the restricted qualified securities.
Q-5: When does section 4978, as enacted by the Tax Reform Act of
1984, become effective?
A-5: Section 4978 applies to the disposition of qualified securities
acquired in a sale to which section 1042 applies. See Q&A-6 of
1.1042-1T for the effective date of section 1042.
(T.D. 8073, 51 FR 4336, Feb. 4, 1986)
26 CFR 54.4979-0 Excise tax on certain excess contributions and excess
aggregate contributions; table of contents.
This section contains the captions that appear in 54.4979.
(a) In general.
(1) General rule.
(2) Liability for tax.
(3) Due date and form for payment of tax.
(4) Special rule for simplified employee pensions.
(b) Definitions.
(1) Excess aggregate contributions.
(2) Excess contributions.
(3) Plan.
(c) No tax when excess distributed within 2 1/2 months of close of
year or additional employer contributions made.
(1) General rule.
(2) Tax treatment of distributions.
(3) Income.
(4) Example.
(d) Effective date.
(1) General rule.
(2) Section 403(b) annuity contracts.
(3) Collectively bargained plans and plans of state or local
governments.
(4) Collectively bargained plans of state or local governments.
(5) Plan years beginning before January 1, 1992.
(T.D. 8357, 56 FR 40550, Aug. 15, 1991; 57 FR 10290, Mar. 25, 1992)
26 CFR 54.4979-1 Excise tax on certain excess contributions and excess
aggregate contributions.
(a) In general -- (1) General rule. In the case of any plan (as
defined in paragraph (b)(3) of this section), there is imposed a tax for
the employer's taxable year equal to 10 percent of the sum of:
(i) Any excess contributions under a plan for the plan year ending in
the taxable year; and
(ii) Any excess aggregate contributions under the plan for the plan
year ending in the taxable year.
(2) Liability for tax. The tax imposed by paragraph (a)(1) of this
section is to be paid by the employer. In the case of a collectively
bargained plan to which section 413(b) applies, all employers who are
parties to the collective bargaining agreement and whose employees are
participants in the plan are jointly and severally liable for the tax.
(3) Due date and form for payment of tax -- (i) The tax described in
paragraph (a)(1) of this section is due on the last day of the 15th
month after the close of the plan year to which the excess contributions
or excess aggregate contributions relate.
(ii) An employer that owes the tax described in paragraph (a)(1) of
this section must file the form prescribed by the Commissioner for the
payment of the tax.
(4) Special rule for simplified employee pensions -- (i) An employer
that maintains a simplified employee pension (SEP) as defined in section
408(k) that accepts elective contributions is exempted from the tax of
section 4979 and paragraph (a)(1) of this section if it notifies its
employees of the fact and tax consequences of excess contributions
within 2 1/2 months following the plan year for which excess
contributions are made. The notification must meet the standards of
paragraph (a)(4)(ii) of this section.
(ii) The employer's notification to each affected employee of the
excess SEP contributions must specifically state, in a manner calculated
to be understood by the average plan participant: the amount of the
excess contributions attributable to that employee's elective deferrals;
the calendar year for which the excess contributions were made; that
the excess contributions are includible in the affected employee's gross
income for the specified calendar year; and that failure to withdraw
the excess contributions and income attributable thereto by the due date
(plus extensions) for filing the affected employee's tax return for the
preceding calendar year may result in significant penalties.
(iii) If an employer does not notify its employees by the last day of
the 12-month period following the year of excess SEP contributions, the
SEP will no longer be considered to meet the requirements of section
408(k)(6).
(b) Definitions. The following is a list of terms and definitions to
be used for purposes of section 4979 and this section:
(1) Excess aggregate contributions. The term ''excess aggregate
contribution'' has the meaning set forth in 1.401(m)-1(f)(8) of this
chapter. For purposes of determining excess aggregate contributions
under an annuity contract described in section 403(b), the contract is
treated as a plan described in section 401(a).
(2) Excess contributions. The term ''excess contributions'' has the
meaning set forth in sections 401(k)(8)(B), 408(k)(6)(C)(ii), and
501(c)(18). See, e.g., 1.401(k)-1(g)(7) of this chapter.
(3) Plan. The term ''plan'' means:
(i) A plan described in section 401(a) that includes a trust exempt
from tax under section 501(a);
(ii) Any annuity plan described in section 403(a);
(iii) Any annuity contract described in section 403(b);
(iv) A simplified employee pension of an employer that satisfies the
requirements of section 408(k); and
(v) A plan described in section 501(c)(18).
The term includes any plan that at any time has been determined by
the Secretary to be one of the types of plans described in this
paragraph (b)(3).
(c) No tax when excess distributed within 2 1/2 months of close of
year or additional employer contributions made -- (1) General rule. No
tax is imposed under this section on any excess contribution or excess
aggregate contribution, as the case may be, to the extent the
contribution (together with any income allocable thereto) is corrected
before the close of the first 2 1/2 months of the following plan year.
Qualified nonelective contributions and qualified matching contributions
taken into account under 1.401(k)-1(b)(5) of this chapter or qualified
nonelective contributions or elective contributions taken into account
under 1.401(m)-1(b)(5) of this chapter for a plan year may permit a
plan to avoid excess contributions or excess aggregate contributions,
respectively, even if made after the close of the 2 1/2 month period.
See 1.401(k)-1(f)(1)(i) and (6)(i) of this chapter for methods to avoid
excess contributions, and 1.401(m)-1(e)(1)(i) of this chapter for
methods to avoid excess aggregate contributions.
(2) Tax treatment of distributions. See 1.401(k)-1(f)(3)(ii) and
(4)(v) of this chapter for rules for determining the tax consequences to
a participant of a distribution or recharacterization of excess
contributions and income allocable thereto, including a special rule for
de minimis distributions. See 1.401(m)-1(e)(3)(v) of this chapter for
rules for determining the tax consequences to a participant of a
distribution of excess aggregate contributions and income allocable
thereto.
(3) Income. See 1.401(k)-1(f)(4)(ii) of this chapter for rules for
determining income allocable to excess contributions. See
1.401(m)-1(e)(3)(ii) of this chapter for rules for determining income
allocable to excess aggregate contributions.
(4) Example. The provisions of this paragraph (c) are illustrated by
the following example.
Example. (i) Employer X maintains Plan Y, a calendar year
profit-sharing plan that includes a qualified cash or deferred
arrangement. Under the plan, failure to satisfy the actual deferral
percentage test may only be corrected by distributing the excess
contributions or making qualified nonelective contributions (QNECs).
(ii) On December 31, 1990, X determines that Y does not satisfy the
actual deferral percentage test for the 1990 plan year, and that excess
contributions for the year equal $5,000. On March 1, 1991, Y
distributes $2,000 of these excess contributions. On May 30, 1991, X
distributes another $2,000 of excess contributions. On December 17,
1991, X contributes QNECs for certain nonhighly compensated employees,
thereby eliminating the remainder of the excess contributions for 1990.
(iii) X has incurred a tax liability under section 4979 for 1990
equal to 10 percent of the excess contributions that were in the plan as
of December 31, 1990. However, this tax is not imposed on the $2,000
distributed on March 1, 1991, or the amount corrected by QNECs. X must
pay an excise tax of $200, 10 percent of the $2,000 of excess
contributions distributed after March 15, 1991. This tax must be paid
by March 31, 1992.
(d) Effective date -- (1) General rule. Except as provided in
paragraphs (d)(2) through (5), this section is effective for plan years
beginning after December 31, 1986.
(2) Section 403(b) annuity contracts. In the case of an annuity
contract under section 403(b), this section applies to plan years
beginning after December 31, 1988.
(3) Collectively bargained plans and plans of state or local
governments. In the case of a plan maintained pursuant to one or more
collective bargaining agreements between an employee representative and
one or more employers ratified before March 1, 1986, this section does
not apply to years beginning before the earlier of January 1, 1989, or
the date on which the last collective bargaining agreement terminates
(determined without regard to any extension thereof after February 28,
1986). In the case of a plan maintained by a state or local government,
the provisions of this section apply for plan years beginning after
December 31, 1988.
(4) Collectively bargained plans of state or local governments.
Notwithstanding paragraphs (d)(2) and (d)(3) of this section, in the
case of a plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and state or local
governments (ratified before March 1, 1986) or an annuity contract
(described in paragraph (d)(2) of this section) under section 403(b)
(maintained pursuant to a collective bargaining agreement described in
paragraph (d)(3) of this section) the amendments made by this section do
not apply to years beginning before the earlier of:
(i) The later of January 1, 1989, or the date on which the last
collective bargaining agreement terminates (determined without regard to
any extension thereof after February 28, 1986); or
(ii) January 1, 1991.
(5) Plan years beginning before January 1, 1992. For plan years
beginning before January 1, 1992, a reasonable interpretation of the
rules set forth in section 4979, as in effect during those years, may be
relied upon in determining whether the excise tax is due for those
years.
(T.D. 8357, 56 FR 40550, Aug. 15, 1991)
26 CFR 54.4981A-1T Tax on excess distributions and excess accumulations
(temporary).
The following questions and answers relate to the tax on excess
distributions and excess accumulations under section 4981A of the
Internal Revenue Code of 1986, as added by section 1133 of the Tax
Reform Act of 1986 (Pub. L. 99-514) (TRA '86).
a. General Provisions and Excess Distributions
b. Special Grandfather Rules
c. Special Rules
d. Excess Accumulations
26 CFR 54.4981A-1T a. General Provisions and Excess Distributions
a-1: Q. What changes were made by section 1133 of TRA '86 regarding
excise taxes applicable to distributions from qualified employer plans
and individual retirement plans?
A. Section 1133 of TRA '86 added section 4981A to the Code. Section
4981A imposes an excise tax of 15 percent on (a) excess distributions,
as defined in section 4981A(c)(1) and Q&A a-2 of this section, and (b)
excess accumulations, as defined in section 4981A(d)(3) and Q&A d-2 of
this section. The excise tax on excess distributions generally applies
to excess distributions made after December 31, 1986 (see Q&A c-6 of
this section). The excise tax on excess accumulations applies to
estates of decedents dying after December 31, 1986 (see Q&A d-11 of this
section). Excess distributions are certain distributions from qualified
employer plans and individual retirement plans. Excess accumulations
are certain amounts held on the date of death of an employee or
individual by qualified plans and individual retirement plans.
a-2: Q. How are excess distributions defined?
A. Excess distributions are generally defined as the excess of the
aggregate amount of distributions received by or with respect to an
individual during a calendar year over the greater of (a) $150,000
(unindexed) or (b) $112,500 (indexed as provided in Q&A a-9 of this
section beginning in 1988 for cost-of-living increases). Certain
individuals may elect to have the portion of their excess distributions
that is subject to tax determined under a ''special grandfather'' rule
that is described below (see Q&A b-1 through b-14 of this section).
a-3: Q. Distributions from what plans and arrangements are taken
into account in applying section 4981A?
A. (a) General rule. Section 4981A applies to distributions under
any qualified employer plan or individual retirement plan described in
section 4981A(e). For this purpose, a qualified employer plan means any
--
(1) Qualified pension, profit-sharing or stock bonus plan described
in section 401(a) that includes a trust exempt from tax under section
501(a);
(2) Annuity plan described in section 403(a);
(3) Annuity contract, custodial account, or retirement income account
described in section 403(b)(1), 403(b)(7) or 403(b)(9); and
(4) Qualified bond purchase plan described in section 405(a) prior to
that section's repeal by section 491(a) of the Tax Reform Act of 1984
(TRA '84).
(b) Individual retirement plan. An individual retirement plan is
defined in section 7701(a)(37) and means any individual retirement
account described in section 408(a) or individual retirement annuity
described in section 408(b). Also, an individual retirement plan
includes a retirement bond described in section 409(a) prior to that
section's repeal by section 491(b) of the Tax Reform Act of 1984 (TRA
'84).
(c) Other distributions. (1) Distributions under any plan, contract
or account that has at any time been treated as a qualified employer
plan or individual retirement plan described in paragraph (a) or (b) of
this Q&A a-3 will be treated for purposes of section 4981A as
distributions from a qualified employer plan or individual retirement
plan whether or not such plan, contract, or account satisfies the
applicable qualification requirements at the time of the distribution.
(2)(i) For purposes of this paragraph (c), an employer plan will be
considered to have been treated as a qualified employer plan if any
employer maintaining the plan has at any time filed an income tax return
and claimed deductions that would be allowable under section 404 (and
that were not disallowed) only if the plan was a qualified employer plan
under section 401(a) or 403(a). Similarly, if an income tax return has
been filed at any time with respect to the trust (or plan or insurance
company), and the income of the trust (insurance company, etc.) is
reported (and is not disallowed) based on the trust (or plan) being
treated as a qualified employer plan described in section 401(a), or 403
(a) or (b), then the employer plan is considered to have been treated as
a qualified employer plan.
(ii) For purposes of this paragraph (c), an individual retirement
plan (IRA) will be considered to have been treated as a qualified IRA if
any contributions to the IRA were either deducted (or designated as a
nondeductible contribution described in section 408(o)) on a filed
individual income tax return or excluded from an individual's gross
income on a filed income tax return because such contributions were
reported as regular contributions or rollover contributions (such as
those described in section 402(a)(5), 403(a)(4), 403(b)(8) or 408(d)(3))
to an IRA described in section 408 (a) or (b) (or section 409 of
pre-1984 law). Similar treatment applies to an employer contribution to
a simplified employee pension described in section 408(k), if such
contribution is deducted on an employer's filed income tax return,
including a self-employed individual's return.
a-4: Q. Which distributions with respect to an individual under a
qualified employer plan or an individual retirement plan are excluded
from consideration for purposes of determining an individual's excess
distributions?
A. (a) Exclusions. In determining the extent to which an individual
has excess distributions for a calendar year, the following
distributions are disregarded --
(1) Any distribution received by any person with respect to an
individual as a result of the death of that individual.
(2) Any distribution with respect to an individual that is received
by an alternate payee under a qualified domestic relations order within
the meaning of section 414(p) that is includible in the income of the
alternate payee.
(3) Any distribution with respect to an individual that is
attributable to the individual's investment in the contract as
determined under the rules of section 72(f). This would include, for
example, distributions that are excluded from gross income under section
72 because they are treated as a recovery of after-tax employee
contributions from a qualified employer plan or nondeductible
contributions from an individual retirement plan.
(4) Any portion of a distribution to the extent that it is not
included in gross income by reason of a rollover contribution described
in section 402(a)(5), 403(a)(4), 403(b)(8), or 408(d)(3).
(5) Any health coverage or any distribution of medical benefits
provided under an arrangement described in section 401(h) to the extent
that the coverage or distribution is excludible under section 104, 105,
or 106.
(b) Alternate payee. Any distributions to an alternate payee
described in paragraph (a)(2) of this Q&A a-4 must be taken into account
by such alternate payee for purposes of calculating the excess
distributions received by (or excess accumulations held by) the
alternate payee.
a-5: Q. If an annuity contract that represents an irrevocable
commitment to provide an employee's benefits under the plan is
distributed to an individual, how are the distribution of such annuity
contract and distributions of amounts under such a contract taken into
account for purposes of calculating excess distributions?
A. Except to the extent that the value of an annuity contract is
includible in income in the year the contract is distributed or any
subsequent year, the distribution of an annuity contract (including a
group annuity contract) in satisfaction of plan liabilities is
disregarded for purposes of calculating excess distributions. Any
amounts that are actually distributed under the contract to the
individual (to the extent not excluded under Q&A a-4 of this section) or
are otherwise includible in income with respect to the contract (e.g.,
by reason of the inclusion in income of the value of the annuity
contract in the year of the contract's distribution or any subsequent
year) are taken into account for purposes of calculating excess
distributions for the calendar year during which such amounts are
received or otherwise includible in income. For purposes of this Q&A
a-5, the term ''plan'' means any qualified employer plan or individual
retirement plan specified in section 4981A(e) and Q&A a-3 of this
section.
a-6: Q. Are minimum distributions required under section 401(a)(9),
408(a)(6), 408(b)(3) or 403(b)(10) taken into account to determine
excess distributions?
A. Yes. Distributions received during a calendar year are taken into
account in determining an individual's excess distributions for such
calendar year even though such distributions are required under section
401(a)(9), 408(a)(6), 408(b)(3) or 403(b)(10). For example, minimum
distributions under section 401(a)(9) received during the 1987 calendar
year for calendar years 1985 and 1986 will be subject to section 4981A
as distributions for 1987.
a-7: Q. Are distributions of excess deferrals permitted under
section 402(g)(2), or distributions of excess contributions or excess
aggregate contributions permitted under section 401(k) or (m), or
distributions of IRA contributions permitted under section 408(d) (4) or
(5) taken into account for purposes of calculating excess distributions?
A. No. Distributions of excess deferrals, excess contributions,
excess aggregate contributions, distributions of IRA contributions, and
income allocable to such contributions or deferrals, that are made in
accordance with the provisions of sections 402(g)(2), 401(k)(8),
401(m)(6), or 408(d) (4) or (5) are not taken into account for purposes
of calculating excess distributions.
a-8: Q. What distributions from qualified employer plans or
individual retirement plans are taken into account in determining an
individual's excess distributions?
A. With the exception of distributions noted above in Q&As a-4, a-5,
and a-7 of this section, all distributions from qualified employer plans
or individual retirement plans must be taken into account in determining
an individual's excess distributions for the calendar year in which such
distributions are received. In general, all such distributions are
taken into account whether or not they are currently includible in
income. Thus, for example, net unrealized appreciation in employer
securities described in section 402(a) is taken into account in the year
distributed. However, health coverage or distributions of medical
benefits provided under an arrangement described in section 401(h) that
are excludible from income under section 104, 105, or 106 are not
subject to section 4981A. In addition, distributions that are
excludible from income because they are rolled over to a plan or an
individual retirement account are not taken into account. (See Q&A
a-4(a) (4) and (5) of this section). Amounts that are includible in
income for a calendar year are treated as distributions and, thus, are
taken into account even if the amounts are not actually distributed
during such year. Thus, deemed distributions to provide insurance
coverage includible in income under section 72 (PS-58 amounts), loan
amounts treated as deemed distributions under section 72(p), and amounts
includible under section 402(b) or section 403(c) by reason of the
employer plan or individual retirement plan not being qualified during
the year are taken into account.
a-9: Q. Will the dollar threshold amount used to determine an
individual's excess distributions be adjusted for inflation in calendar
years after 1987?
A. Beginning in 1988, the $112,500 threshold amount is adjusted to
reflect post-1986 cost-of-living increases (COLAs) at the same time and
in the same manner as the adjustment described in section 415(d). The
threshold amount is adjusted even though the distribution is from a
defined contribution plan that is subject to a freeze on COLAs because
the defined benefit plan limit is below $120,000 (see section
415(c)(1)(A)). However, the $150,000 threshold amount is not adjusted
to reflect such increases.
26 CFR 54.4981A-1T b. Special Grandfather Rule
b-1: Q. How are benefits accrued before TRA '86 treated under the
excise tax provisions described in section 4981A?
A. (a) Grandfather amount. Certain eligible individuals may elect to
use a special grandfather rule that exempts from the excise tax the
portion of distributions treated as a recovery of such individual's
total benefits accrued on or before August 1, 1986 (grandfather amount).
However, distributions that are treated as a recovery of the
grandfather amount are taken into account in determining the extent to
which other distributions are excess distributions (see Q&A b-4 of this
section). Under this special grandfather rule, the grandfather amount
equals the value of an individual's total benefits (as described in Q&As
b-8 and b-9 of this section) in all qualified employer plans and
individual retirement plans on August 1, 1986. An individual's benefits
in such plans include amounts determinable on August 1, 1986, that are
payable to the individual under a qualified domestic relations order
within the meaning of section 414(p) (QDRO). However, QDRO benefits
that, when destributed, are includible in the income of the alternate
payee are not included in the employee's grandfathered amount. Further,
plan benefits that are attributable to a deceased individual and that
are payable to an eligible individual as a beneficiary are generally not
included in determining the eligible individual's grandfather amount.
Procedures for determining the grandfather amount are described in Q&As
b-11 through b-14 of this section.
(b) Recovery of grandfather amount. The portion of any distribution
made after August 1, 1986, that is treated as a recovery of a
grandfather amount depends on which of two grandfather recovery methods
the individual elects. The two alternative methods are described in the
Q&As b-11 through b-14 of this section. The amount of the distribution
for a year that is treated as a recovery of a grandfather amount in a
year is applied to reduce the individual's unrecovered grandfather
amount for future years (i.e., the individual's accrued benefits as
described in Q&As b-8 and b-9 on August 1, 1986, reduced by previous
distributions treated as a recovery of a grandfather amount) on a dollar
for dollar basis until the individual's unrecovered grandfather amount
has been reduced to zero. When the individual's grandfather amount has
been reduced to zero, the special grandfather rule ceases to apply and
the entire amount of any subsequent excess distributions received is
subject to the 15 percent excise tax.
b-2: Q. Who may elect to use the special grandfather rules?
A. Any individual whose accrued benefits as described in Q&As b-8 and
b-9 of this section in all qualified plans and individual retirement
plans on August 1, 1986 (initial grandfather amount) have a value of at
least $562,500 may elect to use the special grandfather rule.
b-3: Q. How does an eligible individual make a valid election to use
the special grandfather rule?
A. (a) Form of election. An individual who is eligible to use the
special grandfather rule must affirmatively elect to use that rule. The
election is made on a Form 5329 filed with the individual's income tax
return (Form 1040, etc.) for a taxble year beginning after December 31,
1986, and before January 1, 1989 (i.e., the 1987 or 1988 taxable year).
(b) Information required. The individual must report the following
information on the Form 5329:
(1) The individual's initial grandfather amount.
(2) The grandfather recovery method to be used.
(3) Such other information as is required by the Form 5329.
(c) Deadline for election. The deadline for filing such election is
the due date, calculated with extensions, for filing the individual's
1988 income tax return. If an individual dies before the expiration of
such deadline, an election, or the revocation of a prior election, may
be made as part of the final income tax return filed on behalf of such
deceased individual by the deceased individual's personal
representative. An election or revocation of a prior election may also
be filed before the expiration of such deadline with Schedule S (Form
706). See Q&A c-7 of this section.
(d) Revocation of election. Elections filed before the deadline may
be revoked by filing an amended income tax return for any applicable
year. A change in the grandfather recovery method is considered a
revocation of a prior election and an amended Form 5329 must be filed
for any prior year in which a different grandfather recovery method was
used. Thus, a change in the election may require a change in the 1987
tax return. An individual must refile for 1987 based on the new
election if additional tax is owed. However, an election (or
nonelection) is irrevocable after the filing deadline for the taxable
year beginning in 1988 has passed. Thus, an individual who has not made
an election by the last day plus extensions for filing the 1988 return
may not do so through an amended return.
(e) Subsequent years. (1) Any eligible individual who has elected
the special grandfather rule must attach to the individual's income tax
return for all subsequent taxable years in which the individual receives
excess distributions (determined without regard to the grandfather rule)
a copy of the Form 5329 on which the individual elected the grandfather
rule. A copy of the Form 5329 on which the individual (or the
individual's personal representative) elected the grandfather rule must
also be filed with Schedule S (Form 706) unless the initial election is
filed with such schedule.
(2) The individual must also make such other reports in the form and
at the time as the Commissioner may prescribe. See Q&A c-7 of this
section for the applicable reporting requirements if the individual or
the individual's estate is liable for any tax on excess distributions or
on an excess accumulation under section 4981A (a) or (d).
b-4: Q. How individuals who have elected to use the special
grandfather rule determine the extent to which their distributions for
any calendar year are excess distributions?
A. (a) Excess distributions under grandfather rule, threshold amount.
Individuals who elect to use the special grandfather rule are not
eligible to use the $150,000 threshold amount in computing their excess
distributions for any calendar year. Instead, such electing individuals
must compute their excess distributions for a calendar year using a
$112,500 (indexed for cost-of-living increases) threshold amount. The
rule of this paragraph (a) applies for all calendar years, including the
calendar year in which an individual's unrecovered grandfather amount
has been reduced to zero and all subsequent calendar years. Once the
indexed amount has increased to $150,000 or more, the threshold amount
will be the same for all individuals.
(b) Base for excise tax under grandfather rule. Although the portion
of any distribution that is treated as a recovery of an individual's
grandfather amount is not subject to the excise tax, such portion must
be taken into account in determining the extent to which the individual
has excess distributions for a calendar year. The effect of this rule
is that the amount against which the 15 percent excise tax is applied
for any calendar year during which a grandfather amount is recovered
equals the individual's distributions for such year reduced by the
greater of (1) the applicable threshold amount for such year or (2) the
grandfather amount recovered for such year. (See the examples in Q&A
b-14 of this section.)
b-5: Q. How is the value of an individual's total accrued benefits
on August 1, 1986, calculated for purposes of determining (a) whether an
individual is eligible to elect the special grandfather rule and (b) the
amount of any electing individual's initial grandfather amount under
such rule?
A. (a) Introduction. The value of an individual's total accrued
benefits on August 1, 1986, is the sum of the values of the individual's
accrued benefits on such date under all qualified employer plans or
individual retirement plans, as determined under the Q&A b-5. If such
value exceeds $562,500, the individual may elect the special grandfather
rule. In such case, the value so determined may be applied against
distributions as determined under this section, whether or not such
distributions are from the same plan or IRA for which such grandfather
amount is determined. For purposes of determining the value of accrued
benefits on August 1, 1986, an annuity contract or an individual's
interest in a group annuity contract described in Q&A a-5 of this
section is treated as an accrued benefit under the qualified retirement
plan or IRA from which it was distributed and an IRA is treated as a
defined contribution plan.
(b) Defined benefit plan -- (1) General rule. The amount of an
individual's accrued benefit on August 1, 1986, under a defined benefit
plan is determined as of that date under the provisions of the plan
based on the individual's service and compensation on that date. The
present value of such benefit is determined by an actuarial valuation of
such accrued benefit performed as of August 1, 1986. Alternatively,
accrued benefits may be determined as of July 31, 1986. In such case,
the applicable rules are applied by substituting the July 31 date for
the August 1 date in the applicable provisions. (See Q&A b-9 of this
section for rules for determining the amount of benefits and values and
the actuarial assumptions to be used in such determination.)
(2) Alternative method. Alternatively, the present value of an
individual's accrued benefit on August 1, 1986, may be determined using
the following method:
(i) Determine the amount of the individual's actual accrued benefit
(prior benefit) on the valuation date that immediately precedes August
1, 1986 (prior date). The valuation date for purposes of using this
alternative method is the valuation date used for purposes of section
412. In making this determination, plan amendments that are adopted
after that prior date are disregarded.
(ii) Determine the amount of the individual's adjusted accrued
benefit (adjusted prior benefit) on the prior date by reducing the prior
benefit in paragraph (b)(2)(i) of this Q&A b-5 by the amount of
distributions that reduce the accrued benefit or transfers from the plan
and by increasing the prior benefit in paragraph (b)(2)(i) of this Q&A
b-5 by any increase in benefit resulting from either transfers to the
plan or plan amendments that were made (or, in the case of a plan
amendment, both adopted and effective) after the prior valuation date,
but on or before August 1, 1986.
(iii) Determine the amount of the individual's actual accrued benefit
(future benefit) on the valuation date immediately following August 1,
1986 (next date). In making this determination, plan amendments, etc.
that are either adopted or effective after August 1 are disregarded.
(iv) Determine the amount of the individual's adjusted accrued
benefit (adjusted future benefit) on the next date by increasing the
future benefit in paragraph (b)(2)(iii) of this Q&A b-5 by the amount of
any distributions that reduce the accrued benefit or transfers from the
plan and by reducing the future benefit in paragraph (b)(2)(iii) of this
Q&A b-5 by the amount of any transfer to the plan that was made after
August 1, 1986, but on or before the next valuation date to the amount
in paragraph (b)(2)(iii) of this Q&A b-5.
(v) Calculate the weighted average of paragraphs (b)(2)(ii) and
(b)(2)(iv) of this Q&A b-5, where the weights applied are the number of
complete calendar months separating the applicable prior date and the
applicable next date, respectively, and August 1, 1986.
(vi) Determine the actuarial present value of the benefit in
paragraph (b)(2)(v) of this Q&A b-5 as of August 1, 1986, using the
methods and assumptions described in Q&A b-9 of this section.
The grandfather amount on August 1, 1986, attributable to the accrued
benefits under the defined benefit plan is equal to the amount
determined in paragraph (b)(2)(vi) of this Q&A b-5.
(3) Certain insurance plans treated as defined contribution plans.
(i) Accrued benefits not in pay status under a plan satisfying the
requirements of section 411(b)(1)(F) are determined under the rules in
paragraph (c) of this Q&A b-5 for defined contribution plans. For
purposes of applying paragraph (c) of this Q&A b-5 to such benefits, the
cash surrender value of the contract is substituted for the account
balance. If accrued benefits are in pay status under such a plan, the
rules of this paragraph (b) apply to such benefits.
(ii) Accrued benefits not in pay status that are attributable to
voluntary employee contributions (including rollover amounts) to a
defined benefit plan are determined under the rules in paragraph (c) of
this Q&A b-5 as if the account balance attributable thereto is under a
defined contribution plan. If such benefits are in pay status and are
used to fund the benefit under the defined plan, the rules of this
paragraph (b) apply to such benefits.
(c) Defined contribution plan -- (1) General rule. The value of an
individual's accrued benefit on August 1, 1986, under a defined
contribution plan (including IRAs) is the value of the individual's
account balance on such date (or on the immediately preceding day).
Paragraph (b)(3) of this Q&A b-5 requires that benefits derived from
certain insured plans and from voluntary contributions to a defined
benefit plan be determined under the rules of this paragraph (c).
(2) Alternative method. Alternatively, if a valuation was not
performed as of August 1, 1986 (or as of the immediately preceding day),
the value of an individual's accrued benefit may be determined as
follows:
(i) Determine the value of the individual's account balance on the
valuation date immediately preceding August 1, 1986 (prior valuation
date).
(ii) Determine the value of the individual's adjusted account balance
on the prior valuation date by subtracting (or adding, respectively) the
amount of any distribution, including a transfer to another plan or a
forfeiture from the account balance (or the amount of any allocation to
the account balance, including a transfer from another plan, rollover
received or forfeiture from another account) that was made after the
prior valuation date but on or before August 1, 1986, from (or to) the
amount in paragraph (c)(2)(i) of this Q&A b-5.
(iii) Determine the value of the individual's account balance on the
valuation date immediately following August 1, 1986 (next valuation
date).
(iv) Determine the value of the individual's adjusted account balance
on the next valuation date by adding (or subtracting, respectively) the
amount of any distribution, of a type described in paragraph (c)(2)(ii)
of this Q&A b-5 (or the amount of any allocation to the account balance,
of a type described in paragraph (c)(2)(ii) of this Q&A b-5), that was
made after August 1, 1986, but on or before the next valuation date to
(or from) the amount in paragraph (c)(2)(iii) of this Q&A b-5.
(v) Calculate the weighted average of paragraphs (c)(2)(ii) and
(c)(2)(iv) of this Q&A b-5, where the weights applied are the number of
complete calendar months separating the applicable valuation date and
the applicable next date, respectively, and August 1, 1986.
The grandfather amount on August 1, 1986, attributable to the account
balance in the defined contribution plan or the individual retirement
plan is the amount in paragraph (c)(2)(v) of this Q&A b-5.
b-6: Q. For purposes of determining the value of accrued benefits in
a defined contribution plan or a defined benefit plan on August 1, 1986,
are nonvested benefits taken into account?
A. Yes. All accrued benefits, whether or not vested, are taken into
account.
b-7: Q. To what extent are benefits payable with respect to an
individual under a qualified employer plan or an individual retirement
plan not taken into account for purposes of calculating the individual's
grandfather amount?
A. (a) Exclusions. The following benefits payable with respect to an
individual are not taken into account for purposes of this calculation:
(1) Benefits attributable to investment in the contract as defined in
section 72(f). However, amounts attributable to deductible employee
contributions (as defined in section 72(o)(5)(A)) are considered part of
the accrued benefit.
(2) Amounts that are determinable on August 1, 1986, as payable to an
alternate payee who is required to include such amounts in gross income
(a spouse or former spouse) under a qualified domestic relations order
(QDRO) within the meaning of section 414(p).
(3) Amounts that are attributable to IRA contributions that are
distributed pursuant to section 408(d) (4) or (5).
(b) Alternate payee. Under a QDRO described in paragraph (a)(2) of
this Q&A b-7, amounts are considered part of the accrued benefit of the
alternate payee for purposes of calculating the value of the alternate
payee's accrued benefit on August 1, 1986. Similarly, such amounts are
used by the alternate payee to compute excess distributions.
b-8: Q. What adjustments to the grandfather amount are necessary to
take into account rollovers from one qualified employer plan or
individual retirement plan to another such plan?
A. (a) Rollovers outstanding on valuation date. Generally, rollovers
between plans result in adjustment to the grandfather amounts under the
rules in Q&A b-5 of this section. However, if a rollover amount is
distributed from one plan on or before an applicable valuation date of
such plan and is rolled over into the receiving plan after the receiving
plan's applicable valuation date and if these events result in an
inappropriate duplication or omission of the rollover amount, then an
adjustment to the grandfather amount must be made to remove the
duplication or omission. The Commissioner may provide necessary rules
concerning this adjustment.
(b) Valuation. If the rollover amount described in paragraph (a) of
this Q&A b-8 is in a form of property other than cash, the property of
which the outstanding rollover consists is valued as of the date the
rollover contribution is received by the transferee qualified employer
plan or individual retirement plan and that value is the amount of the
rollover. If the outstanding rollover is in the form of cash, the
amount of the cash is the amount of the rollover.
b-9: Q. What is the form of the grandfather benefit under a defined
benefit plan and how is it valued?
A. (a) Benefit form. The grandfather amount under a defined benefit
plan is determined on the basis of the form of benefit (including any
subsidized form of benefit such as a subsidized early retirement benefit
or a subsidized joint and survivor annunity) provided under the plan as
of August 1, 1986 that has the greatest present value as determined in
paragraph (b) of this b-9. If the plan provides a subsidized joint and
survivor annunity, for purposes of determining the grandfather amount,
it will be assumed that an unmarried individual is married and that the
individual spouse is the same age as the individual. Assumptions as to
future withdrawals, future salary increases or future cost-of-living
increases are not permitted.
(b) Value of grandfather amount. The grandfather amount under a
defined benefit plan is the present value of the individual's benefit
form determined under paragraph (a) of this Q&A b-9. Thus, the benefit
form is reduced to reflect its value on the applicable valuation date.
The present value of the benefit form on August 1, 1986, or the
applicable date, is computed using the factors specified under the terms
of the plan as in effect on August 1, 1986, to calculate a single sum
distribution if the plan provides for such a distribution. If the plan
does not provide for such a distribution form, such present value is
computed using the interest rate and mortality assumptions specified in
20.2031-7 of the Estate Tax Regulations.
b-10: Q. Is the plan administrator (or trustee) of a qualified plan
(or individual retirement account) required to report to an individual
the value of the individual's benefit under the plan as of August 1,
1986?
A. (a) Request required. No report is required unless the individual
requests a report and the request is received before April 15, 1989. If
requested, the plan administrator (or trustee or issuer) must report to
such individual the value of the individual's benefit under the plan as
of August 1, 1986, determined in accordance with Q&A b-5 through b-9 of
this section. Such report must be made within a reasonable time after
the individual's request but not later than July 15, 1989.
(b) Other rules. Alternate payees must make their own request for
valuation reports. Any report furnished to an employee who has an
alternate payee with respect to the plan must include the separate
values attributable to each such individual. Any report furnished to an
alternate payee must include only the value attributable to the
alternate payee. Reports may be furnished to individuals even if no
request is made. Individuals must keep records of the reports received
from plans or IRAs in order to substantiate all grandfather amounts.
(c) Authority. The rules in this Q&A are provided under the
authority in section 6047(d).
b-11: Q. How is the portion of a distribution that is treated as a
recovery of an individual's grandfather amount as described in b-1 of
this section to be calculated?
A. (a) General rule. All distributions received between August 1 and
December 31, 1986, inclusive, are treated as a recovery of a grandfather
amount. The portion of distributions received after December 31, 1986,
that is treated as a recovery of the grandfather amount is determined
under either the discretionary method or the attained age method. An
amount that is treated as a recovery of grandfather benefits is applied
to reduce the initial grandfather amount that was calculated as of
August 1, 1986, on a dollar for dollar basis until the unrecovered
amount has been reduced to zero. No other recalculation of the
grandfather amount is to be made for a date after August 1, 1986.
(b) Methods, etc. The grandfather amount may be recovered by an
individual under either the discretionary method or the attained age
method. After the individual's total grandfather amount is treated as
recovered under either method, the tax on excess distributions and
excess accumulations is determined without regard to any grandfather
amount.
b-12: Q. Under the discretionary method, what portion of each
distribution is treated as a return of the individual's grandfather
amount?
A. (a) Initial percentage. Under the discretionary method, unless
the individual elects in accordance with paragraph (b) below, 10 percent
of the total distributions that the individual receives during any
calendar year is treated as a recovery of the grandfather amount.
(b) Acceleration. The individual may elect to accelerate the rate of
recovery to 100 percent of the total aggregate distributions received
during a calendar year commencing with any calendar year, including 1987
(acceleration election). In such case, the rate of recovery is
accelerated to 100 percent for the calendar year with respect to which
the election is made and for all subsequent calendar years.
(c) Election. To recover the grandfather amount using the
discretionary method, an individual must elect to use such method when
making the election to use the special grandfather rule on the Form
5329. (See Q&A b-3 of this section.) The acceleration election must be
made for the individual's taxable year beginning with or within the
first calendar year for which such election is made and must be filed
with the individual's income tax return for that year. Such
acceleration election may also be made or revoked retroactively on an
amended return for such year. However, the acceleration election may
not be made after the individual's death other than with the
individual's final income tax return or with a return for a prior year
for which a return was not filed before the individual's death. Thus,
the acceleration election may not be made on an amended return filed
after the individual's death for a year for which a return was filed
before the individual's death. The preceding two sentences shall not
apply to deaths occurring in 1987 or 1988. The estate is entitled to
use the remaining grandfather amount to determine if there is an excess
accumulation. See Q&A d-3 of this section. The acceleration election
shall be made on such form and in such manner as the Commissioner
prescribes in a manner consistent with the rules of this section.
b-13: Q. Under the attained age method, what portion of each
distribution is treated as a return of the individual's grandfather
amount?
A. Under the attained age method, the portion of total distributions
received during any year that is treated as a recovery of an
individual's grandfather amount is calculated by multiplying the
individual's aggregate distributions for a calendar year by a fraction.
The numerator of the fraction is the difference between the individual's
attained age in completed months on August 1, 1986, and the individual's
attained age in months at age 35 (420 months). The denominator of the
fraction is the difference between the individual's attained age in
completed months on December 31 of the calendar year and the
individual's attained age in months at age 35 (420 months). An
individual whose 35th birthday is after August 1, 1986, may not use the
attained age method.
b-14: Q. How is the 15 percent tax with respect to excess
distributions for a calendar year calculated by an individual who has
elected to use the special grandfather rule?
A. The calculation of the excise tax may be illustrated by the
following examples:
Example 1. (a) An individual (A) who participates in two retirement
plans, a qualified defined contribution plan and a qualified defined
benefit plan, has a total value of accrued benefits on August 1, 1986
under both plans of $1,000,000. Because this amount exceeds $562,500, A
is eligible to elect to use the special grandfather rule to calculate
the portion of subsequent distributions that are exempt from tax. A
elects to use the discretionary grandfather recovery method and attaches
a valid election to the 1987 income tax return. A does not elect to
accelerate the rate of recovery for 1987. On October 1, 1986, A
receives a distribution of $200,000. On February 1, 1987, A receives a
distribution of $45,000 and, on November 1, 1987, receives a
distribution of $200,000. The 15 percent excise tax applicable to
aggregate distributions in 1987 is calculated as follows:
(1) Value of grandfather amount on 8/1/86 $1,000,000
(2) Grandfather amounts recovered in 1986 but after 8/1/86 $200,000
(3) Value of grandfather amount on 12/31/86 ((1)^(2)) $800,000
(4) Grandfather recovery percentage 10%
(5) Distributions between 1/1/87 and 12/31/87 ($45,000 $200,000)
$245,000
(6) Portion of (5) exempt from tax ((4) (5)) $24,500
(7) Amount potentially subject to tax ((5)^(6)) $220,500
(8) Portion of aggregate distributions in excess of $112,500 ($45,000
$200,000^$112,500) $132,500
(9) Amount subject to tax (lesser of (7) and (8)) $132,500
(10) Amount of tax (15% of (9)) $19,875
(11) Remaining undistributed value of grandfather amount as of
12/31/87 ((3)^(6)) $775,500
(b) In 1988, A receives no distributions from either plan. On
February 1, 1989, A receives a distribution of $300,000 and on December
31, 1989, receives a distribution of $75,000. A makes a valid
acceleration election for the 1989 taxable year, whereby A accelerates
the rate of grandfather recovery that will apply for calendar years
after 1988 to 100 percent. Assume the annual threshold amount for the
1989 calendar year is $125,000 (i.e., 112,500 indexed). The 15 percent
excess tax applicable to distributions in 1989 is calculated as follows:
(1) Value of grandfather amount on 8/1/86 $775,500
(2) Grandfather recovery percentage designated for 1989 calendar year
100%
(3) Distributions between 1/1/89 and 12/31/89 ($300,000 $75,000)
$375,000
(4) Portion of (3) exempt from tax (2)x(3) $375,000
(5) Amount potentially subject to tax ((3)^(4)) $0
(6) Portion of aggregate distributions in excess of $125,000
($300,000 $75,000^$125,000) $250,000
(7) Amount subject to tax (lesser of (5) and (6)) $0
(8) Amount of tax (15% of (7)) $0
(9) Remaining undistributed value of grandfather amount as of
12/31/89 ((1)^(4)) $400,500
The entire amount of any distribution for subsequent calendar years
will be treated as a recovery of the grandfather amount and applied
against the grandfather amount until the unrecovered grandfather amount
is reduced to zero.
Example 2. The facts are the same as in Example 1 except that A
elects to use the attained age recovery method and A makes a valid
election for the 1987 taxable year. Further assume that A's attained
age in months on August 1, 1986 is 471 months and on December 31, 1987,
is 488 months. The 15 percent excise tax applicable to aggregate
distributions in 1987 is calculated as follows:
(1) Value of grandfather amount on 8/1/86 $1,000,000
(2) Grandfather amounts recovered in 1986 but after 8/1/86 $200,000
(3) Value of grandfather amount on 12/31/86 ((1)^(2)) $800,000
(4) Completed months of age in excess of 420 on 8/1/86 51
(5) Completed months of age in excess of 420 on 12/31/87 68
(6) Grandfather fraction as of 12/31/86 ((4) divided by (5)) 3/4
(7) Distributions between 1/1/87 and 12/31/87 ($45,000+$200,000)
$245,000
(8) Portion of (7) exempt from tax ((6) (7)) $183,750
(9) Amount potentially subject to tax ((7)^(8)) $61,250
(10) Portion of aggregate distributions in excess of $112,500
($45,000 + $200,000 ^ $112,500).. $132,500
(11) Amount subject to tax (lesser of (9) and (10)) $61,250
(12) Amount of tax (15% of (11) $9,187
(13) Unrecovered grandfather amount as of 12/31/87 ((3)^(8)) $616,250
26 CFR 54.4981A-1T c. Special Rules
c-1: Q. How is the excise tax computed if a person elects special
tax treatment under section 402 or 403 for a lump sum distribution?
A. (a) General rule -- (1) Conditions. Section 4981A(c)(4) provides
for a special tax computation that applies to an individual in a
calendar year if the individual receives distributions that include a
lump sum distribution and the individual makes certain elections under
section 402 or 403 with respect to that lump sum distribution (lump sum
election).
(2) Lump sum election. A lump sum election includes an election of
(i) 5-year income averaging under section 402(e)(4)(B); (ii) phaseout
capital gains treatment under sections 402(a)(2) or 403(a)(2) prior to
their repeal by section 1122(b) of TRA '86 and as permitted under
section 1122(h)(4) of TRA '86; (iii) grandfathered long-term capital
gains under sections 402(a)(2) and 403(a) prior to such repeal and as
permitted by section 1122(h)(3) of TRA '86; and (iv) grandfathered
10-year income averaging under section 402(e) (including such treatment
under a section 402(e)(4)(L) election) prior to amendment by section
1122(a) of TRA '86 and as permitted by section 1122(h)(3)(A)(ii) and (5)
of the TRA '86.
(3) Special tax computation. (i) If the conditions in paragraph
(a)(1) of this Q&A c-1 are satisfied for a calendar year, the rules of
this subparagraph (a)(3) apply for purposes of determining whether there
are excess distributions and tax under section 4981A.
(ii) All distributions are divided into two categories. These two
categories are the lump sum distribution and other distributions.
Whether or not a particular distribution is a distribution subject to
section 4981A and is in either category is determined under the rules in
section 4981A and this section. Thus, the exclusions under section
4981A(c)(2) and Q&A a-4(a) of this section apply here. For example, a
distribution that is a tax-free recovery of employee contributions is
not in either category.
(iii) The excise tax under section 4981A(c)(1) is computed in the
normal manner except that (A) it is the sum of the otherwise applicable
taxes determined separately for the two categories of excess
distributions and (B) a different amount (threshold amount) is
subtracted from the distributions in each category in determining the
amount of the excess distributions. The threshold amount that is
subtracted from the portion of the distributions that is not part of the
lump sum distribution is the applicable threshold amount, determined
without regard to section 4981A(c)(4) and the lump sum election. Thus,
the threshold amount subtracted from the amount in this category is
either the $150,000 amount or the $112,500 amount (indexed). The
threshold amount that is subtracted from the amount of the lump sum
distribution is 5 times the applicable threshold amount as described
above. Thus, the threshold amount subtracted from the lump sum
distribution is $750,000 or 5 times $112,500 indexed (initially
$562,500).
(b) Grandfather rule -- (1) In general. This paragraph (b) provides
special rules where an individual makes both the grandfather election
described in section 4981A(c)(5) and the lump sum election described in
paragraph (a) of this Q&A c-1. See Q&A b-11 through 14 for other rules
that apply to such grandfather election.
(2) Discretionary method. If the individual uses the discretionary
method, described in Q&As b-11 and 12 of this section, the applicable
threshold amount is $112,500 (indexed). Under this method, the
grandfather amount is recovered at a 10 percent or 100 percent rate in
any calendar year and is offset separately against distributions in each
category of distributions at the appropriate rate. If, for any calendar
year, distributions are received in both categories and the total of the
appropriate percentage (10 percent or 100 percent) of the distributions
in each category exceed the unrecovered grandfathered account, then such
grandfather amount must be recovered ratably from the distributions in
each category. This rule applies even if the distributions in one
category are less than the threshold amount for that category and the
distributions in the other category exceed the threshold amount for that
category.
(3) Attained age method. If the individual uses the attained age
method, described in Q&As b-11 and 13 of this section, the threshold
amount is $112,500 (indexed). Under this method, to determine the
portion of the distributions in each category that is treated as a
recovery of the grandfather amount, the fraction described in Q&A b-13
of this section is applied separately to the distributions in each
category of distributions. If, for any calendar year, distributions are
received in both categories and the total of the amounts of the
distributions in each category that are treated as a recovery of the
grandfather amount exceeds that undercovered grandfather amount, then
such grandfather amount must be recovered ratably from the distributions
in each category. This rule applies even if the distributions in one
category are less than the threshold amount for that category and the
distributions in the other category exceed the threshold amount for that
category.
(c) Amount in lump sum category. All amounts received from the
employer that are required to be distributed to the individual in order
to make a lump sum election described in paragraph (a) of this Q&A c-1
are included in the lump sum category. Amounts are in the lump sum
category even though they are not subject to income tax under the
election. Thus, for example, the following amounts would be in the lump
sum category: (1) Appreciation on employer securities received as part
of a distribution for which a lump sum treatment is elected; and (2)
amounts that are phased out when section 1122 of TRA '86 is elected.
However, accumulated deductible employee contributions under the plan
(within the meaning of section 72(o)(5)) are in the nonlump sum
category.
(d) Examples. The rules in this Q&A c-1 are illustrated by the
following examples:
Example (1). (a) On January 1, 199X, individual A who is age 65 and
is a calendar year taxpayer receives a lump sum distribution described
in section 402(e)(4)(A) from a qualified employer plan (Plan X). A
receives no other distribution in 199X. A elects 5-year income
averaging under section 402(e)(4)(B) and also elects section
402(e)(4)(L) treatment (treating pre-74 participation as post-1973
participation) on A's income tax return for 199X. Thus, A also makes
the lump sum election described in paragraph (a)(2), above. For 199X,
the $112,500 threshold amount indexed is $125,000. A does not make a
grandfather election so that A's threshold amount is $150,000.
(b) A's distribution from Plan X consists of cash in the amount of
$800,000. A has a section 72(f) investment in the contract. A has over
the years made after tax contributions to Plan X of $50,000. A's
distributions subject to section 4981A equal $750,000 because of the
exclusion of A's $50,000 after-tax contributions.
(c) A's distributions consist solely of amounts in the lump sum
category. A's threshold amount equals $750,000 under the rules of this
paragraph (a)(iii), above, (5 times $150,000). Because A's threshold
amount ($750,000) equals the amount of A's distribution from Plan X
($750,000) no part of A's distribution from Plan X is treated as an
excess distribution subject to the 15-percent excise tax.
Example (2). (a) Assume the same facts as in Example (1), except
that A receives an additional distribution from an individual retirement
plan described in section 408(a) (IRA Y) in 199X of $150,000. A has
made no nondeductible contributions to IRA Y and all of the $150,000 is
a distribution subject to section 4981A.
(b) A's distributions consist of two categories, the lump sum
category (Plan X $750,000) and the other than lump sum category (IRA Y
$150,000). A separate threshold amount is subtracted from A's IRA Y
distribution. This threshold amount equals $150,000 under the rules of
this paragraph (a)(3), above, the same initial threshold amount that is
applied against the lump sum prior to the multiplication by 5). Because
A's threshold amount ($150,000) equals the amount of A's distribution
from IRA Y ($150,000), no part of A's distribution from IRA Y would be
treated as an excess distribution subject to the 15-percent excise tax.
Example (3). (a) Assume the same facts as in Example (2), except
that A's distribution is $825,000 from Plan X, before reduction of
$50,000 for employee contributions, instead of $800,000, so that A's
distribution subject to section 4981A from Plan X is $775,000. A made a
valid grandfather election. Therefore, the applicable threshold amount
is $125,000 ($112,500 indexed for 199X). A's unrecovered grandfather
amount as of the end of the year preceding 199X is $1,000,000 (A had a
benefit under another retirement plan (Plan Z) on August 1, 1986, and
A's account balance under Plan Z, which is a stock bonus plan, is
$6,000,000 on January 1, 199X.) A also made a valid election of the
discretionary method to recover A's grandfather amount.
(b) If A recovers A's grandfather amount in 199X at the 10 percent
rate, 10 percent of A's distributions that are in the lump sum category
(Plan X $775,000) is treated as a recovery of A's grandfather amount.
Similarly, 10 percent of A's distributions that are in the other than
lump sum category (IRA Y $150,000) is treated as a recovery of A's
grandfather amount. Thus, A's grandfather amount is reduced by $92,500
($77,500 Plan X and $15,000 IRA Y) for the 199X calendar year and is
$907,500 on January 1 of the year following 199X. Because the amounts
of the distributions in each category that are treated as a recovery of
grandfather amount are less than the applicable threshold amount for
each category ($625,000 Plan X, $125,000 IRA Y), the recovery of the
grandfather amount does not affect the calculations of the 199X excise
tax.
(c) Because A's distribution from IRA Y of $150,000 exceeds A's
threshold amount of $125,000 ($112,500 indexed) applicable to nonlump
sum distributions by $25,000 and A's distribution subject to section
4981A from Plan X of $775,000 exceeds A's threshold amount of $625,000
(5X$125,000) applicable to lump sums by $150,000, A is subject to the
15-percent excise tax. A's tax under section 4981A is $26,250 (15
percent of $25,000 plus 15 percent of $150,000).
Example (4). (a) Assume the same facts as in Example (3) except that
A makes a valid acceleration election under the discretionary method
with respect to A's grandfather amount of $1,000,000 for calendar year
199X.
(b) Because A's grandfather amount on January 1, 199X ($1,000,000)
equals or exceeds A's distribution subject to section 4981A ($925,000)
for 199X, no part of A's distribution from Plan X or IRA Y would be
treated as excess distribution subject to the 15-percent excise tax.
(c) A's distributions subject to 4981A from Plan X of $775,000 and
from IRA Y of $150,000 are offset 100 percent by A's grandfather amount
of $1,000,000. Therefore, A's grandfather amount on January 1 of the
year following 199X is $75,000 ($1,000,000 minus $925,000). This
$75,000 would be required to be offset 100 percent against any
distributions received in that year.
Example (5). (a) Assume the same facts as in Example (4), except
that A's distribution subject to section 4981A from Plan X, after
reduction of the $50,000 for employee contributions, is $1,000,000 and
from IRA Y is $125,000 (equal to the threshold amount), totaling
$1,125,000.
(b) Because the sum of the amount received in the lump sum category
and the other than lump sum category of distributions is greater than
the grandfather amount ($1,000,000), the grandfather amount must be
allocated to each separate category on the basis of the ratio of the
amount received in each category to the sum of these amounts. Thus,
$888,889 ($1,000,000 X ($1,000,000 divided by $1,125,000)) is allocated
to the lump-sum category and $111,111 ($1,000,000 X ($125,000 divided by
$1,125,000)) is allocated to the other than lump sum category. A's
distributions of $1,000,000 in the lump sum category are reduced by
$888,889, the greater of $625,000 (the threshold amount) or $888,889
(grandfather amount), and equal $111,111. A's excise tax is $16,666 (15
percent of $111,111). A owes no excess distribution tax on the $125,000
received from IRA Y because it is fully offset by the threshold amount
of $125,000.
(c) Because A's distribution subject to section 4981A for the year of
$1,125,000 ($1,000,000 plus $125,000) exceeds A's grandfather amount on
January 1, 199X of $1,000,000, A's grandfather amount is zero for all
subsequent calendar years.
c-2: Q. Must retirement plans be amended to limit future benefits
accruals so that the amounts that are distributed would not be subject
to an excise tax under section 4981A?
A. No. A qualified employer plan need not be amended to reduce future
benefits so that the amount of annual aggregate distributions are not
subject to tax under section 4981A. Section 415 does, however, require
plan provisions that limit the accrual of benefits and contributions to
specified amounts. The operation of the excise tax of section 4981A is
independent of plan qualification requirements limiting benefits and
contributions under qualified plans.
c-3: Q. Is a plan amendment reducing accrued benefits a permitted
method of avoiding the excise tax?
A. No. Accrued benefits may not be reduced to avoid the imposition of
the excise tax. Such reduction would violate employer plan
qualification requirements, including section 411(d)(6).
c-4: Q. To what extent is the 15 percent section 4981A tax reduced
by the 10 percent section 72(t) tax?
A. (a) General rule. The 15 percent tax on excess distributions may
be offset by the 10 percent tax on early distributions to the extent
that the 10 percent tax is applied to excess distributions. For
example, assume that individual (A), age 56, receives a distribution of
$200,000 from a qualified employer plan (Plan X) during calendar year
1987. Further, assume that the entire distribution is subject to the
10-percent tax of section 72(t). A tax of $20,000 (10% of $200,000) is
imposed on the distribution under section 72(t). Assuming that the
distribution is not a lump sum distribution eligible for special tax
treatment under section 402, part of the distribution is subject to tax
under section 4981A. If A does not elect the special grandfather rule,
A's dollar limitation is $150,000 and the amount of $200,000
distribution that is an excess distribution is $50,000
($200,000-$150,000). The 15 percent tax is $7,500 (15% of $50,000).
The portion of the $20,000 section 72(t) tax on early distributions that
is attributable to the excess distribution is $5,000 (10% of $50,000).
This amount is credited against the section 4981A tax. Therefore, the
total tax imposed on the distribution under both provisions is $22,500
($20,000 + ($7,500-$5,000)).
(b) Example. (1) If some, but not all, distributions made for a
calendar year are subject to the section 72(t) tax, the offset is
applied only to the extent that the section 72(t) tax applies to amounts
that exceed the applicable threshold amount for that calendar year. For
example, assume that during 1987 individual B receives a distribution of
$40,000 that is not subject to the 10 percent section 72(t) tax and a
separate distribution of $160,000 that is subject to the 10 percent
section 72(t) tax. A tax of $16,000 (10% of $160,000) is imposed by
section 72(t). Excess distributions for the year, assuming B does not
elect the special grandfather rule, are $50,000 ($40,000 +
$160,000-$150,000). The tax under section 4981A is $7,500 (15% of
$50,000). For purposes of determining the extent to which the 10
percent tax is applied to excess distributions, the only amounts subject
to the 10 percent tax that are taken into account are distributions in
excess of $150,000 (or if greater, the $112,500 (indexed) threshold for
the year). The amount of distributions for 1987 to which the 10 percent
tax is applicable ($160,000) exceeds $150,000 by $10,000. Thus, the
portion of the section 72(t) tax of $16,000 that is attributable to
excess distributions equals $1,000 (10 percent of $10,000). This amount
is credited against the section 4981A tax. The total tax payable under
the provisions of sections 72(t) and 4981A is $22,500 ($16,000 +
($7,500-$1,000)).
(c) Net unrealized appreciation. A distribution consisting of net
unrealized appreciation of employer securities that is excluded from
gross income is not subject to section 72(t) and, therefore, there is no
section 72(t) tax on such distribution that may be used to offset the
tax on excess distributions.
c-5: Q. If a distribution that is subject to both the 10 percent tax
on early distributions from qualified plans imposed under section 72(t)
and the 15 percent tax on excess distributions imposed under section
4981A is received by an individual who elects to calculate the 15
percent tax using the special grandfather rule, how is the offset of the
10 percent tax imposed under section 72(t) calculated?
A. The section 4981A tax is reduced only by the amount of the 10
percent tax that is attributable to the portion of the distribution to
which the section 4981A tax applies. For example, assume that (a) an
individual (A), age 57, receives during 199X a distribution from a
qualified plan of $325,000 that is subject to the 10 percent section
72(t) tax; (b) the distribution is not a lump sum distribution and is
subject to the 15 percent excise tax imposed by section 4981A; (c) A
has elected to use the special grandfather rule; and (d) A accelerates
the rate of recovery of the remaining grandfather amount of $250,000 so
that only $75,000 of this distribution is subject to the section 4981A
tax. Thus, the section 4981A tax is $11,250 (15% of $75,000). The
portion of the section 72(t) 10 percent tax that is offset against the
section 4981A tax of $11,250 is limited to $7,500 (10% of $75,000), the
section 72(t) tax on the amount of distributions after taking into
account the reduction under the grandfather rule.
c-6: Q. When do distributions become subject to the excise tax under
section 4981A?
A. (a) General rule. Excess distributions made after December 31,
1986, are subject to the excise tax under section 4981A.
(b) Transitional rule -- (1) Termination. Distributions prior to
January 1, 1988, made on account of certain terminations of a qualified
employer plan are not subject to tax under section 4981A. For a plan
termination to be eligible for this transitional rule, the plan
termination must occur before January 1, 1987. For purposes of applying
the rules of section 4981A (except the reporting requirements), any such
distribution is treated as if made on December 31, 1986. The
distribution of an annuity contract is not an excepted distribution.
See Q&A a-5 of this section.
(2) Lump sum distributions. A lump sum distribution that an
individual who separates from service in 1986 receives in calendar year
1987 before March 16 is treated as a distribution received in 1986 if
such individual elects to treat it as received in 1986 under the
provisions of section 1124 of TRA '86. Thus, such a qualifying section
1124 distribution is not subject to tax under section 4981A for 1987.
For purposes of applying the rules of section 4981A, the amount
attributable to such distribution is included in the individual's August
1, 1986 accrued benefit and such distribution is treated as if made on
December 31, 1986.
(3) Grandfather amount recovery. If an individual described in this
paragraph elects the special grandfather rule, the entire amount of
distributions described in subparagraph (1) or (2) of this paragraph (b)
is treated as a recovery of the individual's grandfather amount because
it is treated as received on December 31, 1986. Thus, the individual's
outstanding grandfather amount as of the date of the distribution is
reduced by the amount of such distribution.
c-7: Q. How is the tax on excess distributions or on excess
accumulations under section 4981A reported?
A. (a) Tax on excess distributions. An individual liable for tax on
account on excess distributions under section 4981A must complete Form
5329 and attach it to his income tax return for the taxable year
beginning with or within the calendar year during which the excess
distributions are received. The amount of the tax is reported on such
form and in such manner as prescribed by the Commissioner.
(b) Tax on excess accumulations -- (1) General rule. If, with
respect to the estate of any individual, there is a tax under section
4981A(d) on account of the individual's excess accumulations, the amount
of such tax is reported on Schedule S (Form 706 or 706NR). Schedule S
must be filed on or before the due date under section 6075 including
extensions, for filing the estate tax return. The tax under section
4981A(d) must be paid by the otherwise applicable due date for paying
the estate tax imposed by chapter 11 even if, pursuant to section
6018(a), no return is otherwise required with respect to the estate tax
imposed by chapter 11.
(2) Earliest due date. Notwithstanding paragraph (b)(1) of this c-7,
the due date for filing Schedule S (Form 706) and paying the tax on
excess accumulations under section 4981A(d) is not earlier than February
1, 1988. Thus, with respect to the estates of individuals dying in
January through April of 1987, the due date for filing Schedule S (Form
706) and paying any tax owed under section 4981A(d) is not earlier than
February 1, 1988, even if the due date for filing the Schedule 706 and
paying the estate tax imposed by chapter 11 is an earlier date.
Further, no interest or penalties will be charged for failure to pay any
tax on excess accumulations under section 4981A before January 31, 1988.
c-8: Q. Does the fact that the benefits under a qualified retirement
plan or individual retirement account are community property affect the
determination of the excise tax under section 4981A?
A. Generally, no. The operation of community property law is
disregarded in determining the amount of aggregate annual distributions.
Thus, the excise tax under section 4981A is computed without regard to
the spouse's community property interest in the individual's or
decedent's distributions or accumulation. Also, any reporting to the
individual by a trustee, must be done on an aggregate basis without
regard to the community property law.
26 CFR 54.4981A-1T d. Excess Accumulations
d-1: Q. To what extent does section 4981A increase the estate tax
imposed by chapter 11 with respect to the estates of any decedents?
A. Section 4981A(d) provides that the estate tax imposed by chapter
11 with respect to the estate of any decedent is increased by an amount
equal to 15 percent of the decedent's excess accumulation. See Q&A d-2
through d-7 of this section for rules for determining the decedent's
excess accumulation. See Q&A d-8 of this section concerning credits
under section 2010 through 2016. See Q&A d-9 of this section for
examples illustrating the determination of the increase in estate tax
under section 4981A(d).
d-2: Q. How is the amount of an decedent's excess accumulation
determined?
A. (a) General rule. A decedent's excess accumulation is the excess
of (1) the aggregate value of the decedent's interests in all qualified
employer plans and individual retirement plans (decedent's aggregate
interest) as of the date of the decedent's death over (2) an amount
equal to the present value of a hypothetical life annuity determined
under Q&A d-7 of this section. If the personal representative for the
individual's estate elects to value the property in the gross estate
under section 2032, the applicable valuation date prescribed by section
2032 shall be substituted for the decedent's date of death.
(b) Other rules. See Q&A d-3 and d-4 of this section if the decedent
or, where appropriate, the decedent's personal representative validly
elects the special grandfather rule and has any unused grandfather
benefit as of the date of his death. See Q&A d-5 and d-6 of this
section to determine the decedent's aggregate interest.
d-3: Q. Does the special grandfather rule apply for purposes of
determining the amount of the decedent's excess accumulation?
A. Yes. If a decedent prior to death (or the decedent's personal
representative after death) makes an election that satisfied the
procedures in Q&A b-3 of this section, the special grandfather rule
applies.
d-4: Q. How is the decedent's excess accumulation determined if the
special grandfather rule applies?
A. If the special grandfather rule applies, the decedent's excess
accumulation is the excess of (a) the decedent's aggregate interest
(determined under Q&A d-5 of this section) over (b) the greater of (1)
the decedent's remaining unrecovered grandfather amount as of the date
of the decedent's death, or (2) an amount equal to the present value of
a hypothetical life annuity under Q&A d-7 of this section.
d-5. Q. How is the value of the decedent's aggregate interest as of
the applicable valuation date under Q&A d-2 determined?
A. (a) Method of valuation. The value of the decedent's aggregate
interest on the decedent's date of death is determined in a manner
consistent with the valuation of such interests for purposes of
determining the individual's gross estate for purposes of chapter 11.
If the personal representative for an individual's estate subject to
estate tax elects to value the property in the gross estate under
section 2032, the decedent's aggregate interest is valued in a manner
consistent with the rules prescribed by section 2032 (and other relevant
estate tax sections). No adjustments provided in chapter 11 in valuing
the gross estate are made. Thus, there is no adjustment under section
2057 (relating to the sale of certain employer securities).
(b) Amounts included. Generally, all amounts payable to
beneficiaries of the decedent under any qualified employer plan
(including amounts payable to a surviving spouse under a qualified joint
and survivor annuity or qualified preretirement survivor annuity) or
individual retirement plan, whether or not otherwise included in valuing
the decedent's gross estate, are considered to be part of the decedent's
interest in such plan.
(c) Rollover after death. If any amount is distributed from a
qualified employer plan or individual retirement plan within the 60-day
period ending on the decedent's date of death and is rolled over to an
IRA after such date but within 60 days of the date distributed, the
decedent's aggregate interest is increased by the amount rolled over,
valued as of the date received by the IRA.
d-6. Q. Are there any reductions in the decedent's aggregate
interest?
A. The decedent's aggregate interest is reduced by the following:
(a) Amount payable to alternate payee. The amount of any portion of
the deceased individual's interest in a qualified employer plan that is
payable to an alternate payee in whose income the amount is includible
under a qualified domestic relations order within the meaning of section
414(p) (QDRO). However, such portion must be taken into account in
determining the excess distribution or the excess accumulation upon the
death of such alternate payee for purposes of determining if there is a
tax under section 4981A(a) or an increase in the estate tax under
section 4981A(d) with respect to such alternate payee.
(b) Investment in the contract. The amount of the deceased
individual's unrecovered investment, within the meaning of section
72(f), in any qualified employer plan or individual retirement plan.
(c) Life insurance proceeds. The excess of any amount payable by
reason of the death of the individual under a life insurance contract
held under a qualified employer plan over the cash surrender value of
such contract immediately before the death of such individual (the
amount excludible from income by reason of section 101(a)). Amounts
excludible from gross income because of section 101(b) do not reduce the
decedent's aggregate interest.
(d) Interest as a beneficiary. The amount of the deceased
individual's interest in a qualified retirement plan or individual
retirement plan by reason of the death of another individual.
d-7. Q. How is the present value of the hypothetical life annuity
determined?
A. (a) General rule. The hypothetical life annuity is a single life
annuity contract that provides for equal annual annuity payments
commencing on the decedent's date of death for the life of an individual
whose age is the same as the decedent's determined as of the date of the
decedent's death. The amount of each annual payment is equal to the
greater of $150,000 (unindexed) and $112,500 (as indexed until the date
of death). If the decedent elected (or the decedent's personal
representative elects) the special grandfather rule, the amount of each
annual payment is $112,500 (as indexed until the date of death) even if
there is no remaining grandfather amount.
(b) Determination of age. The decedent's age as of the decedent's
date of death for purposes of valuing the hypothetical life annuity is
the decedent's attained age (in whole years) as of the decedent's date
of death. For example, if the decedent was born on February 2, 1930,
and died on August 3, 1990, the decedent's age for purposes of valuing
the hypothetical life annuity is 60.
(c) Interest rate assumptions. The present value of the single life
annuity described above must then be calculated using the interest rate
and mortality assumptions in 20.2031-7 of the Estate Tax Regulations in
effect on the date of death.
d-8: Q. Are any credits, deductions, exclusions, etc. that apply
for estate tax purposes allowable as an offset against the excise tax
under section 4981A(d) for excess accumulations?
A. No. No credits, deductions, exclusions, etc. that apply for
estate tax purposes are allowed to offset the tax imposed under section
4981A(d). Thus, no credits under section 2010 through 2016 or other
reductions permitted by Chapter 11 are allowable against the tax under
section 4981A(d) for excess accumulations. For example, no credits are
allowable for the unified credit against the estate tax, for state death
taxes, or for gift taxes.
d-8A. Q. Is the estate liable for the excise tax of 15 percent on the
amount of the decedent's excess accumulations?
A. Yes. In all events, the estate is liable for the excise tax of 15
percent on the amount of the decedent's excess accumulations.
Transferee liability rules under chapter 11 do apply, however.
Similarly, the reimbursement provisions of section 2205 also apply.
Additionally, the rules generally applicable for purposes of determining
the apportionment of the estate tax apply to the apportionment of the
excise tax under section 4981A(d). Thus, the decedent's will or the
applicable state apportionment law may provide that the executor is
entitled to recover the tax imposed under section 4981A(d) attributable
to any property from the beneficiary entitled to receive such property.
However, absent such a provision in the decedent's will or in the
applicable state apportionment law, the executor is not entitled to
recover the tax imposed under section 4981A(d) attributable to any
property from the beneficiary entitled to receive such property.
d-9: Q. How is the additional tax computed with respect to a
decedent's estate under section 4981A(d)?
A. The determination of the additional tax under section 4981A(d) is
illustrated by the following examples:
Example 1. (a) An individual (A) dies on February 1, 199X at age 70
and 9 months. As of A's date of death, A has an interest in a defined
benefit plan described in section 401(a) (Plan X). Plan X has never
provided for employee contributions. A has no section 72 (f) investment
in Plan X. A does not have any interest in any other qualified employer
plan or individual retirement plan. The alternate valuation date in
section 2032 does not apply. A did not elect to have the special
grandfather rule apply. A's interest in Plan X is in the form of a
qualified joint and survivor annuity. The value of the remaining
payments under the joint and survivor annuity as of A's date of death
(determined under D-5) is $2,000,000.
(b) Because A is age 70 and 9 months of A's date of death, A's life
expectancy as of A's date of death is calculated using age 70 (A's
attained age in whole years on A's date of death). The factor from
Table A of 20.2031-7(f) used to determine the present value of a single
life annuity for an individual age 70 is 6.0522. The greater of $150,000
or $112,500 indexed for 199X is 150,000. The present value of the
hypothetical single life annuity is $907,830 ($150,000 X 6.0522)
(c) The amount of A's excess accumulation is $1,092,170, determined
as follows: $2,000,000 (value of A's interest in Plan X) minus $907,830
(value of hypothetical signle life annuity contract) equals $1,092,170.
(d) The increase in the estate tax under section 4981A(d) is $163,825
(15 percent of $1,092,170).
Example 2. (a) The facts are the same as in Example 1, except that
A's interest in Plan X consists of the following:
(1) $2,000,000, value of employer-provided portion of a qualified
joint and survivor annuity determined as of A's date of death using the
interest and mortality assumptions in 20.2031-7.
(2) $200,000, proceeds of a term life insurance contract (no cash
surrender value before death).
(3) $100,000. amount (employer-provided portion) payable to A's
former spouse pursuant to a QDRO.
(4) $100,000, amount of A's investment in Plan X.
(b) The value of A's interest in Plan X for purposes of calculating
A's excess accumulation is still $2,000,000. The proceeds of the term
life insurance contract, the amount payable under the QDRO, and the
amount of A's investment in Plan X are excluded from such value.
Example 3. (a) The facts are the same as in Example 1, except that A
elected the special grandfather rule. A's initial grandfather amount
was $1,100,000. As of A's date of death, A had received $500,000 in
distributions that were treated as a return of A's grandfather amount.
Thus, A's unused grandfather amount is $600,000 ($1,100,000-$500,000).
In 199X, assume that $112,500 indexed is still $112,500.
(b) A's excess retirement accumulation is determined as follows:
$2,000,000 minus the greater of (1) $600,000 or (2) the present value of
a period certain annuity of $112,500 a year for 16 years. The present
value of a single life annuity of $112,500 a year for an individual age
70 is determined as follows: $112,500 6.0522=$680,827.25. $680,827.25
is greater than $600,000. Thus the amount of the excess retirement
accumulation is $1,319,173 ($2,000,000 minus $680,827).
(c) The additional estate tax under section 4981A(d) is $197,875 (15
percent of $1,319,173).
Example 4. (a) The facts are the same as in Example 3 except that,
as of A's date of death, A received $90,000 in distributions that were
treated as a return of A's grandfather amount. Thus, A's unused
grandfather amount is $1,010,000 ($1,100,000-$90,000).
(b) A's excess retirement accumulation is determined as follows:
$2,000,000 minus the greater of (1) ($1,010,000 (A's unused grandfather
amount) or (2) 680,827.25 (the present value of a single life annuity of
$112,500 a year for an individual age 70). A's unused grandfather amount
is greater than the present value of the hypothetical life annuity.
Thus, the amount of the excess retirement accumulation is $990,000
($2,000,000-$1,010,000).
(c) The additional estate tax under section 4981A(d) is $148,500 (15
percent of $990,000).
d-10: Q. if a surviving spouse rolls over a distribution from a
qualified retirement plan or an individual retirement plan of the
decedent to an individual retirement plan (IRA) established in the
spouse's own name, is any distribution in a calendar year from the IRA
receiving such rollover included in determining the spouse's excess
distribution or excess accumulation in such calendar year?
A. (a) General rule. If a surviving spouse rolls over a distribution
from a qualified retirement plan or an individual retirement plan of the
decedent to an individual retirement plan (IRA) established in the
spouse's own name with the rollover contribution and no other
contributions or transfers are made to the IRA receiving the rollover
contribution, distributions from such IRA will be excluded in
determining the spouse's excess distributions and the value of the IRA
will be excluded in determining the spouse's excess accumulation. If
the surviving spouse rolls over a distribution from a qualified
retirement plan or IRA of the decedent to an IRA for which the spouse
has prior contributions or makes additional contributions to the IRA
receiving the distribution, distributions from the IRA will be included
in determining the amount of the excess distributions received by the
spouse for the calendar year of the distribution and the value of the
IRA at the applicable valuation date will be included in determining the
spouse's excess accumulation.
(b) Special rules. The rule in paragraph (a) of this Q&A d-10 also
applies if a surviving spouse elects to treat an inherited IRA
(described in section 408(d)(3)(C)(ii)) as the spouse's own IRA as long
as the surviving spouse makes no further contributions to such IRA.
(c) Other beneficiaries. Rules similar to the rules in paragraphs
(a) and (b) shall apply to an individual who elected to treat an IRA as
subject to the distribution requirements of section 408(a)(6), prior to
amendment by section 521(b) of TRA '84, under 1.408-2(b)(7)(ii) of the
Income Tax Regulations.
d-11. Q. To what estates does the excise tax under section 4981A(d)
apply?
A. The excise tax under section 4981A(d) applies to estates of
decedents dying after December 31, 1986.
d-12: Q. Is the aggregate interest reduced by distributions
described in paragraph (b)(1) of Q&A c-6 of this section (distributions
prior to January 1, 1988, made on account of certain terminations of a
qualified employer plan) which are made after the individual's death.
A. Yes, the value of the individual's aggregate interest determined
under Q&A d-5 of this section is reduced by distributions described in
paragraph (b)(1) of Q&A c-6 of this section which are made after the
individual's death.
(T.D. 8165, 52 FR 46750, Dec. 10, 1987; 53 FR 18975, May 26, 1988)
26 CFR 54.6011-1 General requirement of return, statement, or list.
(a) Minimum funding standards or excess contributions for
self-employed individuals and section 403(b)(7)(A) custodial accounts.
Any employer or individual liable for tax under section 4971, 4972 or
4973(a)(2) (for a custodial account under section 403(b)(7)(A)) shall
file an annual return on Form 5330 and shall include therein the
information required by such form and the instructions issued with
respect thereto.
(b) Tax on prohibited transactions. Every disqualified person (as
defined in section 4975(e)(2)) liable for the tax imposed under section
4975(a) with respect to a prohibited transaction shall file an annual
return on Form 5330 and shall include therein the information required
by such form and the instructions issued with respect thereto. The
annual return on Form 5330 shall be filed with respect to each
prohibited transaction and for each taxable year (or part thereof) of
the disqualified person in the taxable period (as defined in section
4975(f)(2)) beginning on the date on which such prohibited transaction
occurs.
(T.D. 7838, 47 FR 44249, Oct. 7, 1982)
26 CFR 54.6011-1T General requirement of return, statement, or list
(temporary).
Every employer liable for the tax imposed under section 4980(a) with
respect to an employer reversion (as defined in section 4980(c)(2))
shall file a quarterly return on Form 5330 and shall include therein the
information required by such form and the instructions issued with
respect thereto. The quarterly return on Form 5330 shall be filed with
respect to employer reversions from each qualified plan (as defined in
section 4980(c)(1)).
(T.D. 8133, 52 FR 10563, Apr. 2, 1987)
26 CFR 54.6071-1T Time for filing returns (temporary).
(a) In general. Each quarterly return required by 54.6011-1T shall
be filed not later than the last day of the second month following the
calendar quarter in which the reversion occurs.
(b) Extension of time for filing with respect to certain reversions.
All returns required by 54.6011-1T for reversions occurring on or
before March 31, 1987 shall be filed not later than May 31, 1987.
(T.D. 8133, 52 FR 10563, Apr. 2, 1987)
26 CFR 54.6071-1T PART 55 -- EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED INVESTMENT COMPANIES
26 CFR 54.6071-1T Subpart A -- Excise Tax On Real Estate Investment
Trusts
Sec.
55.4981-1 Imposition of excise tax on certain real estate investment
trust taxable income not distributed during the taxable year; taxable
years ending on or before January 1, 1987.
55.4981-2 Imposition of excise tax with respect to certain
undistributed income of real estate investment trusts; calendar years
beginning after December 31, 1986.
26 CFR 54.6071-1T Subpart B -- Excise Tax on Regulated Investment
Companies
55.4982-1 Imposition of excise tax on undistributed income of
regulated investment companies.
26 CFR 54.6071-1T Subpart C -- Procedure and Administration
55.6001-1 Notice or regulations requiring records, statements, and
special returns.
55.6011-1 General requirement of return, statement, or list.
55.6061-1 Signing of returns and other documents.
55.6065-1 Verification of returns.
55.6071-1 Time for filing returns.
55.6081-1 Extension of time for filing the return.
55.6091-1 Place for filing Chapter 44 tax returns.
55.6091-2 Exceptional cases.
55.6151-1 Time and place for paying of tax shown on returns.
55.6161-1 Extension of time for paying tax or deficiency.
55.6165-1 Bonds where time to pay tax or deficiency has been
extended.''
Authority: Secs. 6001, 6011, 6071, 6091, and 7805 of the Internal
Revenue Code of 1954 (68A Stat. 731, 732, 749, 752, 917; 26 U.S.C.
6001, 6011, 6071, 6091, and 7805). Section 55.4981-1 also issued under
sec. 860(e), 92 Stat. 2849 (26 U.S.C. 860(e); sec. 860(g), 92 Stat.
2850 (26 U.S.C. 860(g)); and sec 7805. 68A Stat. 917 (26 U.S.C. 7805)
of the Internal Revenue Code of 1954), 26 U.S.C. 7805. Section 55.6011-1
also issued under 26 U.S.C. 6011(a); Section 55.6071-1 also issued
under 26 U.S.C. 6071(a); Section 55.6091-1 also issued under 26 U.S.C.
6091(a); Section 55.6151-1 also issued under 26 U.S.C. 6151.
Source: T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar.
5, 1981, unless otherwise noted.
26 CFR 54.6071-1T Subpart A -- Excise Tax On Real Estate Investment Trusts
26 CFR 55.4981-1 Imposition of excise tax on certain real estate
investment trust taxable income not distributed during the taxable year;
taxable years ending on or before January 1, 1987.
Section 4981 as in effect before amendment by the Tax Reform Act of
1986 imposes an excise tax on a real estate investment trust if the
deduction for dividends paid for the taxable year does not equal at
least 75 percent of its real estate investment trust taxable income
(computed as provided in section 4981 as in effect before amendment by
the Tax Reform Act of 1986) for the taxable year. For purposes of
section 4981 as in effect before amendment by the Tax Reform Act of
1986, the deduction for dividends paid is computed without regard to
capital gains dividends (as defined in section 857(b)(3)(C)) and without
regard to any dividends actually paid after the close of the taxable
year. Thus, dividends considered as paid during the taxable year under
section 858 are disregarded. Deficiency dividends (as defined in
section 860(f) paid with respect to the taxable year are also
disregarded. The return referred to in the last sentence of section 4981
as in effect before amendment by the Tax Reform Act of 1986 in the
income tax return. Section 4981 as in effect before amendment by the Tax
Reform Act of 1986, applies only to taxable years beginning after
December 31, 1979 and ending before January 1, 1987, for which the
taxpayer is taxable under Part II of Subchapter M of Chapter 1 of
subtitle A as a real estate investment trust.
(T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981;
T.D. 7936, 49 FR 2109, Jan. 18, 1984; T.D. 8180, 53 FR 6147, Mar. 1,
1988)
26 CFR 55.4981-2 Imposition of excise tax with respect to certain
undistributed income of real estate investment trusts; calendar years
beginning after December 31, 1986.
Section 4981, as amended by the Tax Reform Act of 1986, imposes an
excise tax on a real estate investment trust in the amount of four
percent of the excess, if any, of the required distribution for a
calendar year over the distributed amount for such calendar year.
Section 4981, as so amended, applies only to calendar years that begin
after December 31, 1986. For provisions relating to the imposition of
an excise tax with respect to certain undistributed income of real
estate investment trusts for taxable years ending before January 1,
1987, see 55.4981-1.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.4981-2 Subpart B -- Excise Tax on Regulated Investment Companies
26 CFR 55.4982-1 Imposition of excise tax on undistributed income of
regulated investment companies.
Section 4982 imposes an excise tax on a regulated investment company
in the amount of four percent of the excess, if any, of the required
distribution for a calendar year over the distributed amount for such
calendar year. Section 4982 applies only to calendar years beginning
after December 31, 1986.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.4982-1 Subpart C -- Procedure and Administration
Source: T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar.
5, 1981. Redesignated by T.D. 8180, 53 FR 6148, Mar. 1, 1988.
26 CFR 55.6001-1 Notice or regulations requiring records, statements,
and special returns.
(a) In general. Any person subject to tax under Chapter 44 of the
Code shall keep such complete and detailed records as are sufficient to
enable the district director to determine accurately the amount of
liability under Chapter 44.
(b) Notice by district director requiring returns, statements, or the
keeping of records. The district director may require any person, by
notice served upon him, to make such returns, render such statements, or
keep such specific records as will enable the district director to
determine whether or not such person is liable for tax under Chapter 44.
(c) Retention of records. The records required by this section shall
be kept at all times available for inspection by authorized internal
revenue officers or employees, and shall be retained so long as the
contents thereof may become material in the administration of any
internal revenue law.
26 CFR 55.6011-1 General requirement of return, statement, or list.
Every person liable for tax under Chapter 44 shall file an annual
return with respect to the tax on the form prescribed by the Internal
Revenue Service for such purpose and shall include therein the
information required by the form and the instructions issued with
respect thereto. For calendar years beginning after December 31, 1986,
the return, which must be made on a calendar year basis, shall be filed
by a real estate investment trust on Form 8612 and by a regulated
investment company on Form 8613.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.6061-1 Signing of returns and other documents.
Any return required to be made by a real estate investment trust or a
regulated investment company with respect to the tax imposed by Chapter
44 shall be signed by a person authorized by section 6062 of the Code to
sign the income tax return of the real estate investment trust or the
regulated investment company. Any statement or other document required
to be made with respect to the tax imposed by Chapter 44 shall be signed
by the person required or duly authorized to sign in accordance with the
regulations, forms, or instructions prescribed with respect to such
statement or document. An individual's signature on a return,
statement, or other document made by or for the real estate investment
trust or the regulated investment company shall be prima facie evidence
that the individual is authorized to sign the return, statement, or
other document.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.6065-1 Verification of returns.
If a return, statement, or other document made under the provisions
of Chapter 44 or Subtitle F or the Code or the regulations thereunder
with respect to any tax imposed by Chapter 44 of the Code, or the form
and instructions issued with respect to such return, statement, or other
document, requires that it shall contain or be verified by a written
declaration that it is made under the penalties of perjury, it must be
so verified by the person or persons required to sign such return,
statement, or other document. In addition, any other statement or
document submitted under any provision of Chapter 44 or Subtitle F of
the Code or regulations thereunder with respect to any tax imposed by
Chapter 44 of the Code may be required to contain or be verified by a
written declaration that it is made under the penalties of perjury.
26 CFR 55.6071-1 Time for filing returns.
(a) Returns for calendar years beginning after December 31, 1986. A
return required by 55.6011-1 for any calendar year beginning after
December 31, 1986, shall be filed on or before March 15 of the following
calendar year. See 55.6081-1 for rules relating to extensions of time
for filing a return required by 55.6011-1.
(b) Returns for excise tax under section 4981 as in effect before
amendment by the Tax Reform Act of 1986. A return required by
55.6011-1 for any excise tax under section 4981, as in effect before
amendment by the Tax Reform Act of 1986, shall be filed at the time
(including any extension of time granted or allowed under section 6081)
that the real estate investment trust is required to file its income tax
return under section 6012 for the taxable year for which the tax under
section 4981, as in effect before amendment by the Tax Reform Act of
1986, is imposed.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.6081-1 Extension of time for filing the return.
District directors and directors of service centers are authorized to
grant a reasonable extension of time for filing any return, statement,
or other document which relates to any tax imposed by Chapter 44 and
which is required under the provisions of Chapter 44 or the regulations
thereunder. Extensions of time shall not be granted for more than 6
months. An extension of time for filing a return shall not operate to
extend the time for the payment of the tax or any part thereof unless
specified to the contrary in the extension. The rules relating to an
application for extension in 53.6081-1(b) of this Chapter (relating to
foundation excise taxes) shall apply to an application for an extension
of time for filing the return of tax imposed by Chapter 44. If an
extension of time for filing the return is granted, a return shall be
filed before the expiration of the period of extension.
26 CFR 55.6091-1 Place for filing Chapter 44 tax returns.
Except as provided in 55.6091-2 (relating to exceptional cases):
(a) In general. Chapter 44 tax returns shall be filed with the
district director for the internal revenue district in which is located
the principal place of business or principal office or agency of the
real estate investment trust or regulated investment company.
(b) Returns filed with service centers or by hand carrying.
Notwithstanding paragraph (a) of this section, unless a return is filed
by hand carrying, whenever instructions applicable to Chapter 44 tax
returns provide that the returns be filed with a service center, the
returns must be so filed in accordance with the instructions. Returns
which are filed by hand carrying shall be filed with the district
director (or with any person assigned the administrative supervision of
an area, zone, or local office constituting a permanent post of duty
within an internal revenue district of such director) in accordance with
paragraph (a) of this section.
(T.D. 7767, 46 FR 11282, Feb. 6, 1981; 46 FR 15263, Mar. 5, 1981.
Redesignated and amended by T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.6091-2 Exceptional cases.
Notwithstanding the provisions of 55.6091-1, the Commissioner may
permit the filing of any Chapter 44 tax return in any internal revenue
district.
26 CFR 55.6151-1 Time and place for paying of tax shown on returns.
The tax shown on any return which is imposed by Chapter 44 shall,
without notice or assessment and demand, be paid to the internal revenue
officer with whom the return is filed at the time and place for filing
such return (determined without regard to any extension of time for
filing the return). For provisions relating to the time and place for
filing such return, see 55.6071-1 and 55.6091-1. For provisions
relating to the extension of time for paying the tax see 55.6161-1.
(T.D. 8180, 53 FR 6148, Mar. 1, 1988)
26 CFR 55.6161-1 Extension of time for paying tax or deficiency.
(a) In general -- (1) Tax shown or required to be shown on return. A
reasonable extension of the time for payment of the amount of any tax
imposed by Chapter 44 and shown or required to be shown on any return,
may be granted by the district directors at the request of the taxpayer.
The period of such extension shall not be in excess of 6 months from
the date fixed for payment of such tax.
(2) Deficiency. The time for payment of any amount determined as a
deficiency in respect of tax imposed by Chapter 44 may, at the request
of the taxpayer, be extended by the internal revenue officer to whom the
tax is required to be paid. The extension may be for a period not to
exceed 18 months from the date fixed for payment of the deficiency, as
shown on the notice and demand. In exceptional cases, a further
extension for a period not in excess of 12 months may be granted. No
extension of time for payment of a deficiency shall be granted if the
deficiency is due to negligence, to intentional disregard of rules and
regulations, or to fraud with intent to evade tax.
(3) Extension of time for filing distinguished. The granting of an
extension of time for filing a return does not operate to extend the
time for the payment of the tax or any part thereof unless so specified
in the extension.
(b) Certain rules relating to extension of time for paying income tax
to apply. The provisions of 1.6161-1 (b), and (c), and (d) of this
hapter (relating to a requirement for undue hardship, the application
for extension, and payment pursuant to an extension) shall apply to
extensions of time for payment of the tax imposed by Chapter 44.
26 CFR 55.6165-1 Bonds where time to pay tax or deficiency has been
extended.
If an extension of time for payment of tax or deficiency is granted
under section 6161, the district director or the director of the service
center may, if he deems it necessary, require a bond for the payment of
the amount in respect of which the extension is granted in accordance
with the terms of the extension. However, the bond shall not exceed
double the amount with respect to which the extension is granted. For
provisions relating to form of bonds, see the regulations under section
7101 contained in Part 301 of this chapter (Regulations on Procedure and
Administration).
26 CFR 55.6165-1 PART 56 -- PUBLIC CHARITY EXCISE TAXES
Sec.
56.4911-0 Outline of regulations under section 4911.
56.4911-1 Tax on excess lobbying expenditures.
56.4911-2 Lobbying expenditures, direct lobbying communications, and
grass roots lobbying communications.
56.4911-3 Expenditures for direct and/or grass roots lobbying
communications.
56.4911-4 Exempt purpose expenditures.
56.4911-5 Communications with members.
56.4911-6 Records of lobbying and grass roots expenditures.
56.4911-7 Affiliated group of organizations.
56.4911-8 Excess lobbying expenditures of affiliated group.
56.4911-9 Application of section 501(h) to affiliated groups of
organizations.
56.4911-10 Members of a limited affiliated group of organizations.
56.6001-1 Notice of regulations requiring records, statements, and
special returns.
56.6011-1 General requirement of return, statement, or list.
Authority: 26 U.S.C. 7805. Sec. 56.4911-7 also issued under 26
U.S.C. 4911(f)(3).
Source: T.D. 8308, 55 FR 35598, Aug. 31, 1990, unless otherwise
noted.
26 CFR 56.4911-0 Outline of regulations under section 4911.
Immediately following is an outline of the regulations under section
4911 of the Internal Revenue Code relating to an excise tax on electing
public charities' excess lobbying expenditures.
(a) In general.
(b) Excess lobbying expenditures.
(c) Nontaxable amounts.
(1) Lobbying nontaxable amount.
(2) Grass roots nontaxable amount.
(d) Examples.
(a) Lobbying expenditures.
(1) In general.
(2) Overview of 56.4911 and the definitions of ''direct lobbying
communication'' and ''grass roots lobbying communication''.
(b) Influencing legislation: direct and grass roots lobbying
communications defined.
(1) Direct lobbying communication.
(2) Grass roots lobbying communication.
(3) Exceptions to the definition of influencing legislation.
(4) Examples.
(5) Special rule for certain mass media advertisements.
(c) Exceptions to the definitions of direct lobbying communication
and grass roots lobbying communication.
(1) Nonpartisan analysis, study, or research exception.
(2) Examinations and discussions of broad social, economic, and
similar problems.
(3) Requests for technical advice.
(4) Communications pertaining to ''self-defense'' by the
organization.
(d) Definitions.
(1) Legislation.
(2) Action.
(3) Legislative body.
(4) Administrative bodies.
(a) Definition of term ''expenditures for''.
(1) In general.
(2) Allocation of mixed purpose expenditures.
(3) Allocation of mixed lobbying.
(b) Examples.
(c) Certain transfers treated as lobbying expenditures.
(1) Transfer earmarked for grass roots purposes.
(2) Transfer earmarked for direct and grass roots lobbying.
(3) Certain transfers to noncharities that lobby.
(a) Application.
(b) Included expenditures.
(c) Excluded expenditures.
(d) Certain transfers treated as exempt purpose expenditures.
(e) Transfers not exempt purpose expenditures.
(f) Definitions.
(g) Example.
(a) In general.
(b) Communications (directed only to members) that are not lobbying
communications.
(c) Communications (directed only to members) that are direct
lobbying communications.
(d) Communications (directed only to members) that are grass roots
lobbying communications.
(e) Written communications directed to members and nonmembers.
(1) In general.
(2) Direct lobbying directly encouraged.
(3) Grass roots expenditure if grass roots lobbying directly
encouraged.
(4) No direct encouragement of direct lobbying or of grass roots
lobbying.
(f) Definitions and special rules.
(1) Member; general rule.
(2) Member; special rule.
(3) Member; affiliated group of organizations.
(4) Member; limited affiliated group of organizations.
(5) Subscriber.
(6) Directly encourages.
(7) Percentages of total distribution.
(8) Reasonable allocation rule.
(a) Records of lobbying expenditures.
(b) Records of grass roots expenditures.
(a) Affiliation between two organizations.
(1) In general.
(2) Organizations not described in section 501(c)(3).
(3) Action on legislative issues.
(b) Interlocking governing boards.
(1) In general.
(2) Majority or quorum.
(3) Votes required under governing instrument or local law.
(4) Representatives constituting less than 15% of governing board.
(5) Representatives.
(c) Governing instrument.
(d) Three or more organizations affiliated.
(1) Two controlled organizations affiliated.
(2) Chain rule.
(e) Affiliated group of organizations.
(1) Defined.
(2) Multiple membership.
(3) Taxable year of affiliated group.
(4) Electing member organization.
(5) Election of member's year as group's taxable year.
(f) Examples.
(a) Application.
(b) Affiliated group treated as one organization.
(c) Tax imposed on excess lobbying expenditures of affiliated group.
(d) Liability for tax.
(1) Electing organizations.
(2) Tax based on excess lobbying expenditures.
(3) Tax based on excess grass roots expenditures.
(4) Tax based on exempt purpose expenditures.
(5) Taxable year for which liable.
(6) Organization a member of more than one affiliated group.
(e) Former member organizations.
(a) Scope.
(b) Determination required.
(c) Member organizations that are not electing organizations.
(d) Filing of information relating to affiliated group of
organizations.
(1) Scope.
(2) In general.
(3) Additional information required.
(4) Information required of electing member organization.
(e) Example.
(f) Cross reference.
(a) Scope.
(b) Members of limited affiliated group.
(c) Controlling and controlled organizations.
(d) Expenditures of controlling organization.
(1) Scope.
(2) Expenditures for direct lobbying.
(3) Grass roots expenditures.
(4) Exempt purpose expenditures.
(e) Expenditures of controlled member.
(f) Reports of members of limited affiliated groups.
(1) Controlling member organization's additional information on
annual return.
(2) Reports of controlling members to other members.
(3) Reports of controlled member organizations.
(g) National legislative issues.
(h) Examples.
(a) In general.
(b) Cross references.
26 CFR 56.4911-1 Tax on excess lobbying expenditures.
(a) In general. Section 4911(a) imposes an excise tax of 25 percent
on the excess lobbying expenditures (as defined in paragraph (b) of this
section) for a taxable year of an organization for which the expenditure
test election under section 501(h) is in effect (an ''electing public
charity''). An electing public charity's annual limit on expenditures
for influencing legislation (i.e., the amount of lobbying expenditures
on which no tax is due) is the lobbying nontaxable amount or, on
expenditures for influencing legislation through grass roots lobbying,
the grass roots nontaxable amount (see paragraph (c) of this section).
For rules concerning the application of the excise tax imposed by
section 4911(a) to the members of an affiliated group of organizations
(as defined in 56.4911-7(e)), see 56.4911-8.
(b) Excess lobbying expenditures. For any taxable year for which the
expenditure test election under section 501(h) is in effect, the amount
of an electing public charity's excess lobbying expenditures is the
greater of --
(1) The amount by which the organization's lobbying expenditures
(within the meaning of 56.4911-2(a)) exceed the organization's lobbying
nontaxable amount, or
(2) The amount by which the organization's grass roots expenditures
(within the meaning of 56.4911-2(a)) exceed the organization's grass
roots nontaxable amount.
(c) Nontaxable amounts -- (1) Lobbying nontaxable amount. Under
section 4911(c)(2), the lobbying nontaxable amount for any taxable year
for which the expenditure test election is in effect is the lesser of --
(i) $1,000,000, or
(ii) To the extent of the electing public charity's exempt purpose
expenditures (within the meaning of 56.4911-4) for that year, the sum
of 20 percent of the first $500,000 of such expenditures, plus 15
percent of the second $500,000 of such expenditures, plus 10 percent of
the third $500,000 of such expenditures, plus 5 percent of the remainder
of such expenditures.
(2) Grass roots nontaxable amount. Under section 4911(c)(4), an
electing public charity's grass roots nontaxable amount for any taxable
year is 25 percent of its lobbying nontaxable amount for that year.
(d) Examples. The provisions of this section are illustrated by the
examples in 1.501(h)-3.
26 CFR 56.4911-2 Lobbying expenditures, direct lobbying communications,
and grass roots lobbying communications.
(a) Lobbying expenditures -- (1) In general. An electing public
charity's lobbying expenditures for a year are the sum of its
expenditures during that year for direct lobbying communications
(''direct lobbying expenditures'') plus its expenditures during that
year for grass roots lobbying communications (''grass roots
expenditures'').
(2) Overview of 56.4911-2 and the definitions of ''direct lobbying
communication'' and ''grass roots lobbying communication''. Paragraph
(b)(1) of this section defines the term ''direct lobbying
communication.'' Paragraph (b)(2) of this section provides the general
definition of the term ''grass roots lobbying communication.'' (But also
see paragraph (b)(5) of this section (special rebuttable presumption
regarding certain paid mass media communications) and 56.4911-5
(special, more lenient, definitions for certain communications from an
electing public charity to its bona fide members)). Paragraph (b)(3) of
this section lists and cross-references various exceptions to the
definitions set forth in paragraphs (b) (1) and (2) (the text of the
exceptions, along with relevant definitions and examples, is generally
set forth in paragraph (c)). Paragraph (b)(4) of this section contains
numerous examples illustrating the application of paragraphs (b) (1),
(2) and (3). As mentioned above, paragraph (b)(5) of this section sets
forth the special rebuttable presumption regarding a limited number of
paid mass media communications about highly publicized legislation.
Paragraph (d) of this section contains definitions of (and examples
illustrating) various terms used in this section.
(b) Influencing legislation: direct and grass roots lobbying
communications defined -- (1) Direct lobbying communication -- (i)
Definition. A direct lobbying communication is any attempt to influence
any legislation through communication with:
(A) Any member or employee of a legislative body; or
(B) Any government official or employee (other than a member or
employee of a legislative body) who may participate in the formulation
of the legislation, but only if the principal purpose of the
communication is to influence legislation.
(ii) Required elements. A communication with a legislator or
government official will be treated as a direct lobbying communication
under this 56.4911-2(b)(1) if, but only if, the communication:
(A) Refers to specific legislation (see paragraph (d)(1) of this
section for a definition of the term ''specific legislation''); and
(B) Reflects a view on such legislation.
(iii) Special rule for referenda, ballot initiatives or similar
procedures. Solely for purposes of this section 4911, where a
communication refers to and reflects a view on a measure that is the
subject of a referendum, ballot initiative or similar procedure, the
general public in the State or locality where the vote will take place
constitutes the legislative body, and individual members of the general
public area, for purposes of this paragraph (b)(1), legislators.
Accordingly, if such a communication is made to one or more members of
the general public in that state or locality, the communication is a
direct lobbying communication (unless it is nonpartisan analysis, study
or research (see paragraph (c)(1) of this section).
(2) Grass roots lobbying communication -- (i) Definition. A grass
roots lobbying communication is any attempt to influence any legislation
through an attempt to affect the opinions of the general public or any
segment thereof.
(ii) Required elements. A communication will be treated as a grass
roots lobbying communication under this 56.4911-2(b)(2)(ii) if, but
only if, the communication:
(A) Refers to specific legislation (see paragraph (d)(1) of this
section for a definition of the term ''specific legislation'');
(B) Reflects a view on such legislation; and
(C) Encourages the recipient of the communication to take action with
respect to such legislation (see paragraph (b)(2)(iii) of this section
for the definition of encouraging the recipient to take action.
For special, more lenient rules regarding an organization's
communications directed only or primarily to bona fide members of the
organization, see 56.4911-5. For special rules regarding certain paid
mass media advertisements about highly publicized legislation, see
paragraph (b)(5) of this section. For special rules regarding lobbying
on referenda, ballot initiatives and similar procedures, see paragraph
(b)(1)(iii) of this section).
(iii) Definition of encouraging recipient to take action. For
purposes of this section, encouraging a recipient to take action with
respect to legislation means that the communication:
(A) States that the recipient should contact a legislator or an
employee of a legislative body, or should contact any other government
official or employee who may participate in the formulation of
legislation (but only if the principal purpose of urging contact with
the government official or employee is to influence legislation);
(B) States the address, telephone number, or similar information of a
legislator or an employee of a legislative body;
(C) Provides a petition, tear-off postcard or similar material for
the recipient to communicate with a legislator or an employee of a
legislative body, or with any other government official or employee who
may participate in the formulation of legislation (but only if the
principal purpose of so facilitating contact with the government
official or employee is to influence legislation); or
(D) Specifically identifies one or more legislators who will vote on
the legislation as: opposing the communication's view with respect to
the legislation; being undecided with respect to the legislation;
being the recipient's representative in the legislature; or being a
member of the legislative committee or subcommittee that will consider
the legislation. Encouraging the recipient to take action under this
paragraph (b)(2)(iii)(D) does not include naming the main sponsor(s) of
the legislation for purposes of identifying the legislation.
(iv) Definition of directly encouraging recipient to take action.
Communications described in one or more of paragraphs (b)(2)(iii) (A)
through (C) of this section not only ''encourage,'' but also ''directly
encourage'' the recipient to take action with respect to legislation.
Communications described in paragraph (b)(2)(iii)(D) of this section,
however, do not directly encourage the recipient to take action with
respect to legislation. Thus, a communication would encourage the
recipient to take action with respect to legislation, but not directly
encourage such action, if the communication does no more than identify
one or more legislators who will vote on the legislation as: opposing
the communication's view with respect to the legislation; being
undecided with respect to the legislation; being the recipient's
representative in the legislature; or being a member of the legislative
committee or subcommittee that will consider the legislation.
Communications that encourage the recipient to take action with respect
to legislation but that do not directly encourage the recipient to take
action with respect to legislation may be within the exception for
nonpartisan analysis, study or research (se paragraph (c)(1) of this
section) and thus not be grass roots lobbying communications.
(v) Subsequent lobbying use of nonlobbying communications or research
materials -- (A) Limited effect of application. Even though certain
communications or research materials are initially not grass roots
lobbying communications under the general definition set forth in
paragraph (b)(2)(ii) of this section, subsequent use of the
communications or research materials for grass roots lobbying may cause
them to be treated as grass roots lobbying communications. This
paragraph (b)(2)(v) does not cause any communications or research
materials to be considered direct lobbying communications.
(B) Limited scope of application. Under this paragraph (b)(2)(v),
only ''advocacy communications or research materials'' are potentially
treated as grass roots lobbying communications. Communications or
research materials that are not ''advocacy communications or research
materials'' are not treated as grass roots lobbying communications under
this paragraph (b)(2)(v). ''Advocacy communications or research
materials'' are any communications or materials that both refer to and
reflect a view on specific legislation but that do not, in their initial
format, contain a direct encouragement for recipients to take action
with respect to legislation.
(C) Subsequent use in lobbying. Where advocacy communications or
research materials are subsequently accompanied by a direct
encouragement for recipients to take action with respect to legislation,
the advocacy communications or research materials themselves are treated
as grass roots lobbying communications unless the organization's primary
purpose in undertaking or preparing the advocacy communications or
research materials was not for use in lobbying. In such a case, all
expenses of preparing and distributing the advocacy communications or
research materials will be treated as grass roots expenditures.
(D) Time limit on application of subsequent use rule. The
characterization of expenditures as grass roots lobbying expenditures
under paragraph (b)(2)(v)(C) shall apply only to expenditures paid less
than six months before the first use of the advocacy communications or
research materials with a direct encouragement to action.
(E) Safe harbor in determining ''primary purpose''. The primary
purpose of the organization in undertaking or preparing advocacy
communications or research materials will not be considered to be for
use in lobbying if, prior to or contemporaneously with the use of the
advocacy communications or research materials with the direct
encouragement to action, the organization makes a substantial
nonlobbying distribution of the advocacy communications or research
materials (without the direct encouragement to action). Whether a
distribution is substantial will be determined by reference to all of
the facts and circumstances, including the normal distribution pattern
of similar nonpartisan analyses, studies or research by that and similar
organizations.
(F) Special rule for partisan analysis, study or research. In the
case of advocacy communications or research materials that are not
nonpartisan analysis, study or research, the nonlobbying distribution
thereof will not be considered ''substantial'' unless that distribution
is at least as extensive as the lobbying distribution thereof.
(G) Factors considered in determining primary purpose. Where the
nonlobbying distribution of advocacy communications or research
materials is not substantial, all of the facts and circumstances must be
weighed to determine whether the organization's primary purpose in
preparing the advocacy communications or research materials was for use
in lobbying. While not the only factor, the extent of the
organization's nonlobbying distribution of the advocacy communications
or research materials is particularly relevant, especially when compared
to the extent of their distribution with the direct encouragement to
action. Another particularly relevant factor is whether the lobbying
use of the advocacy communications or research materials is by the
organization that prepared the document, a related organization, or an
unrelated organization. Where the subsequent lobbying distribution is
made by an unrelated organization, clear and convincing evidence (which
must include evidence demonstrating cooperation or collusion between the
two organizations) will be required to establish that the primary
purpose for preparing the communication for use in lobbying.
(H) Examples. The provisions of this paragraph (b)(2)(v) are
illustrated by the following examples:
Example (1). Assume a nonlobbying ''report'' (that is not
nonpartisan analysis, study or research) is prepared by an organization,
but distributed to only 50 people. The report, in that format, refers
to and reflects a view on specific legislation but does not contain a
direct encouragement for the recipients to take action with respect to
legislation. Two months later, the organization sends the report to
10,000 people along with a letter urging recipients to write their
Senators about the legislation discussed in the report. Because the
report's nonlobbying distribution is not as extensive as its lobbying
distribution, the report's nonlobbying distribution is not substantial
for purposes of this paragraph (b)(2)(v). Accordingly, the
organization's primary purpose in preparing the report must be
determined by weighing all of the facts and circumstances. In light of
the relatively minimal nonlobbying distribution and the fact that the
lobbying distribution is by the preparing organization rather than by an
unrelated organization, and in the absence of evidence to the contrary,
both the report and the letter are grass roots lobbying communications.
Assume that all costs of preparing the report were paid within the six
months preceding the mailing of the letter. Accordingly, all of the
organization's expenditures for preparing and mailing the two documents
are grass roots lobbying expenditures.
Example (2). Assume the same facts as in Example (1), except that
the costs of the report are paid over the two month period of January
and February. Between January 1 and 31, the organization pays $1,000
for the report. In February, the organization pays $500 for the report.
Further assume that the report is first used with a direct
encouragement to action on August 1. Six months prior to August 1 is
February 1. Accordingly, no costs paid for the report before February 1
are treated as grass roots lobbying expenditures under the subsequent
use rule. Under these facts, the subsequent use rule treats only the
$500 paid for the report in February as grass roots lobbying
expenditures.
(3) Exceptions to the definition of influencing legislation. In many
cases, a communication is not a direct or grass roots lobbying
communication under paragraph (b)(1) or (b)(2) of this section if it
falls within one of the exceptions listed in paragraph (c) of this
section. See paragraph (c)(1), Nonpartisan analysis, study or research;
paragraph (c)(2), Examinations and discussions of broad social,
economic and similar problems; paragraph (c)(3), Requests for technical
advice; and paragraph (c)(4), Communications pertaining to self-defense
by the organization. In addition, see 56.4911-5, which provides
special rules regarding the treatment of certain lobbying communications
directed in whole or in part to members of an electing public charity.
(4) Examples. This paragraph (b)(4) provides examples to illustrate
the rules set forth in the section regarding direct and grass roots
lobbying. The expenditure test election under section 501(h) is assumed
to be in effect for all organizations discussed in the examples in this
paragraph (b)(4). In addition, it is assumed that the special rules of
56.4911-5, regarding certain of a public charity's communications with
its members, do not apply to any of the examples in this paragraph
(b)(4).
(i) Direct lobbying. The provisions of this section regarding direct
lobbying communications are illustrated by the following examples:
Example (1). Organization P's employee, X, is assigned to approach
members of Congress to gain their support for a pending bill. X drafts
and P prints a position letter on the bill. P distributes the letter to
members of Congress. Additionally, X personally contacts several
members of Congress or their staffs to seek support for P's position on
the bill. The letter and the personal contacts are direct lobbying
communications.
Example (2). Organization M's president writes a letter to the
Congresswoman representing the district in which M is headquartered,
requesting that the Congresswoman write an administrative agency
regarding proposed regulations recently published by that agency. M's
president also requests that the Congresswoman's letter to the agency
state the Congresswoman's support of M's application for a particular
type of permit granted by the agency. The letter written by M's
president is not a direct lobbying communication.
Example (3). Organization Z prepares a paper on a particular state's
environmental problems. The paper does not reflect a view on any
specific pending legislation or on any specific legislative proposal
that Z either supports or opposes. Z's representatives give the paper
to a state legislator. Z's paper is not a direct lobbying
communication.
Example (4). State X enacts a statute that requires the licensing of
all day care providers. Agency B in State X is charged with preparing
rules to implement the bill enacted by State X. One week after
enactment of the bill, organization C sends a letter to Agency B
providing detailed proposed rules that organization C suggests to Agency
B as the appropriate standards to follow in implementing the statute on
licensing of day care providers. Organization C's letter to Agency B is
not a lobbying communication.
Example (5). Organization B researches, prepares and prints a code
of standards of minimum safety requirements in an area of common
electrical wiring. Organization B sells the code of standards booklet
to the public and its is widely used by professional in the installation
of electrical wiring. A number of states have codified all, or part, of
the code of standards as mandatory safety standards. On occasion, B
lobbies state legislators for passage of the code of standards for
safety reasons. Because the primary purpose of preparing the code of
standards was the promotion of public safety and the standards were
specifically used in a profession for that purpose, separate from any
legislative requirement, the research, preparation, printing and public
distribution of the code of standards is not an expenditure for a direct
(or grass roots) lobbying communication. Costs, such as transportation,
photocopying, and other similar expenses, incurred in lobbying state
legislators for passage of the code of standards into law are
expenditures for direct lobbying communications.
Example (6). On the organization's own initiative, representatives
of Organization F present written testimony to a Congressional
committee. The news media report on the testimony of Organization F,
detailing F's opposition to a pending bill. The testimony is a direct
lobbying communication but is not a grass roots lobbying communication.
Example (7). Organization R's monthly newsletter contains an
editorial column that refers to and reflects a view on specific pending
bills. R sends the newsletter to 10,000 nonmember subscribers. Senator
Doe is among the subscribers. The editorial column in the newsletter
copy sent to Senator Doe is not a direct lobbying communication because
the newsletter is sent to Senator Doe in her capacity as a subscriber
rather than her capacity as a legislator. (Note, though, that the
editorial column may be a grass roots lobbying communication if it
encourages recipients to take action with respect to the pending bills
it refers to and on which it reflects a view).
Example (8). Assume the same facts as in Example (7), except that
one of Senator Doe's staff members sees Senator Doe's copy of the
editorial and writes to R requesting additional information. R responds
with a letter that refers to and reflects a view on specific
legislation. R's letter is a direct lobbying communication unless it is
within one of the exceptions set forth in paragraph (c) of this section
(such as the exception for nonpartisan analysis, study or research).
(R's letter is not within the scope of the exception for responses to
written requests from a legislative body or committee for technical
advice (see paragraph (c)(3) of this section) because the letter is not
in response to a written request from a legislative body or committee).
(ii) Grass roots lobbying. The provisions of this section regarding
grass roots lobbying communications are illustrated in paragraph
(b)(4)(ii)(A) of this section by examples of communications that are not
grass roots lobbying communications and in paragraph (b)(4)(ii)(B) by
examples of communications that are grass roots lobbying communications.
The provisions of this section are further illustrated in paragraph
(b)(4)(ii)(C), with particular regard to the exception for nonpartisan
analysis, study, or research:
(A) Communications that are not grass roots lobbying communications.
Example (1). Organization L places in its newsletter an article that
asserts that lack of new capital is hurting State W's economy. The
article recommends that State W residents either invest more in local
businesses or increase their savings so that funds will be available to
others interested in making investments. The article is an attempt to
influence opinions with respect to a general problem that might receive
legislative attention and is distributed in a manner so as to reach and
influence many individuals. However, the article does not refer to
specific legislation that is pending in a legislative body, nor does the
article refer to a specific legislative proposal the organization either
supports or opposes. The article is not a grass roots lobbying
communication.
Example (2). Assume the same facts as Example (1), except that the
article refers to a bill pending in State W's legislature that is
intended to provide tax incentives for private savings. The article
praises the pending bill and recommends that it be enacted. However,
the article does not encourage readers to take action with respect to
the legislation. The article is not a grass roots lobbying
communication.
Example (3). Organization B sends a letter to all persons on its
mailing list. The letter includes an update on numerous environmental
issues with a discussion of general concerns regarding pollution,
proposed federal regulations affecting the area, and several pending
legislative proposals. The letter endorses two pending bills and
opposes another pending bill, but does not name any legislator involved
(other than the sponsor of one bill, for purposes of identifying the
bill), nor does it otherwise encourage the reader to take action with
respect to the legislation. The letter is not a grass roots lobbying
communication.
Example (4). A pamphlet distributed by organization Z discusses the
dangers of drugs and encourages the public to send their legislators a
coupon, printed with the statement ''I support a drug-free America.''
The term ''drug-free America'' is not widely identified with any of the
many specific pending legislative proposals regarding drug issues. The
pamphlet does not refer to any of the numerous pending legislative
proposals, nor does the organization support or oppose a specific
legislative proposal. The pamphlet is not a grass roots lobbying
communication.
Example (5). A pamphlet distributed by organization B encourages
readers to join an organization and ''get involved in the fight against
drugs.'' The text states, in the course of a discussion of several
current drug issues, that organization B supports a specific bill before
Congress that would establish an expanded drug control program. The
pamphlet does not encourage readers to communicate with legislators
about the bill (such as by including the names of undecided or opposed
legislators). The pamphlet is not a grass roots lobbying communication.
Example (6). Organization E, an environmental organization,
routinely summarizes in each edition of its newsletter the new
environment-related bills that have been introduced in Congress since
the last edition of the newsletter. The newsletter identifies each bill
by a bill number and the name of the legislation's sponsor. The
newsletter also reports on the status of previously introduced
environment-related bills. The summaries and status reports do not
encourage recipients of the newsletter to take action with respect to
legislation, as described in paragraphs (b)(2)(iii) (A) through (D) of
this section. Although the summaries and status reports refer to
specific legislation and often reflect a view on such legislation, they
do not encourage the newsletter recipients to take action with respect
to such legislation. The summaries and status reports are not grass
roots lobbying communications.
Example (7). Organization B prints in its newsletter a report on
pending legislation that B supports, the Family Equity bill. The report
refers to and reflects a view on the Family Equity bill, but does not
directly encourage recipients to take action. Nor does the report
specifically identify any legislator as opposing the communication's
view on the legislation, as being undecided, or as being a member of the
legislative committee or subcommittee that will consider the
legislation. However, the report does state the following:
Rep. Doe (D-Ky.) and Rep. Roe (R-Ma.), both ardent supporters of the
Family Equity bill, spoke at B's annual convention last week. Both
encouraged B's efforts to get the Family Equity bill enacted and stated
that they thought the bill could be enacted even over a presidential
veto. B's legislative affairs liaison questioned others, who seemed to
agree with that assessment. For example, Sen. Roe (I-Ca.) said that he
thinks the bill will pass with such a large majority, ''the President
won't even consider vetoing it.''
Assume the newsletter, and thus the report, is sent to individuals
throughout the U.S., including some recipients in Kentucky,
Massachusetts and California. Because the report is distributed
nationally, the mere fact that the report identifies several legislators
by party and state as part of its discussion does not mean the report
specifically identifies the named legislators as the Kentucky,
Massachusetts and California recipients' representatives in the
legislature for purposes of paragraph (b)(2)(iii) of this section. The
report is not a grass roots lobbying communication.
(B) Communications that are grass roots lobbying communications.
Example (1). A pamphlet distributed by organization Y states that
the ''President's plan for a drug-free America,'' which will establish a
drug control program, should be passed. The pamphlet encourages readers
to ''write or call your senators and representatives and tell them to
vote for the President's plan.'' No legislative proposal formally bears
the name ''President's plan for a drug-free America,'' but that and
similar terms have been widely used in connection with specific
legislation pending in Congress that was initially proposed by the
President. Thus, the pamphlet refers to specific legislation, reflects
a view on the legislation, and encourages readers to take action with
respect to the legislation. The pamphlet is a grass roots lobbying
communication.
Example (2). Assume the same facts as in Example (1), except that
the pamphlet does not encourage the public to write or call
representatives, but does list the members of the committee that will
consider the bill. The pamphlet is a grass roots lobbying
communication.
Example (3). Assume the same facts as in Example (1), except that
the pamphlet encourages readers to ''write the President to urge him to
make the bill a top legislative priority'' rather than encouraging
readers to communicate with members of Congress. The pamphlet is a
grass roots lobbying communication.
Example (4). Organization B, a nonmembership organization, includes
in one of three sections of its newsletter an endorsement of two pending
bills and opposition to another pending bill and also identifies several
legislators as undecided on the three bills. The section of the
newsletter devoted to the three pending bills is a grass roots lobbying
communication.
Example (5). Organization D, a nonmembership organization, sends a
letter to all persons on its mailing list. The letter includes an
extensive discussion concluding that a significant increase in spending
for the Air Force is essential in order to provide an adequate defense
of the nation. Prior to a concluding fundraising request, the letter
encourages readers to write their Congressional representatives urging
increased appropriations to build the B-1 bomber. The letter is a grass
roots lobbying communication.
Example (6). The President nominates X for a position in the
President's cabinet. Organization Y disagrees with the views of X and
does not believe X has the necessary administrative capabilities to
effectively run a cabinet-level department. Accordingly, Y sends a
general mailing requesting recipients to write to four Senators on the
Senate Committee that will consider the nomination. The mailing is a
grass roots lobbying communication.
Example (7). Organization F mails letters requesting that each
recipient contribute money to or join F. In addition, the letters
express F's opposition to a pending bill that is to be voted upon by the
U.S. House of Representatives. Although the letters are form letters
sent as a mass mailing, each letter is individualized to report to the
recipient the name of the recipient's congressional representative. The
letters are grass roots lobbying communications.
Example (8). Organization C sends a mailing that opposes a specific
legislative proposal and includes a postcard addressed to the President
for the recipient to sign stating opposition to the proposal. The
letter requests that the recipient send to C a contribution as well as
the postcard opposing the proposal. C states in the letter that it will
deliver all the postcards to the White House. The letter is a grass
roots lobbying communication.
(C) Additional examples.
Example (1). The newsletter of an organization concerned with drug
issues is circulated primarily to individuals who are not members of the
organization. A story in the newsletter reports on the prospects for
passage of a specifically identified bill, stating that the organization
supports the bill. The newsletter story identifies certain legislators
as undecided, but does not state that readers should contact the
undecided legislators. The story does not provide a full and fair
exposition sufficient to qualify as nonpartisan analysis, study or
research. The newsletter story is a grass roots lobbying communication.
Example (2). Assume the same facts as in Example (1), except that
the newsletter story provides a full and fair exposition sufficient to
qualify as nonpartisan analysis, study or research. The newsletter
story is not a grass roots lobbying communication because it is within
the exception for nonpartisan analysis, study or research (since it does
not directly encourage recipients to take action).
Example (3). Assume the same facts as in Example (2), except that
the newsletter story explicitly asks readers to contact the undecided
legislators. Because the newsletter story directly encourages readers
to take action with respect to the legislation, the newsletter story is
not within the exception for nonpartisan analysis, study or research.
Accordingly, the newsletter story is a grass roots lobbying
communication.
Example (4). Assume the same facts as in Example (1), except that
the story does not identify any undecided legislators. The story is not
a grass roots lobbying communication.
Example (5). X organization places an advertisement that
specifically identifies and opposes a bill that X asserts would harm the
farm economy. The advertisement is not a mass media communication
described in paragraph (b)(5)(ii) of this section and does not directly
encourage readers to take action with respect to the bill. However, the
advertisement does state that Senator Y favors the legislation. Because
the advertisement refers to and reflects a view on specific legislation,
and also encourages the readers to take action with respect to the
legislation by specifically identifying a legislator who opposes X's
views on the legislation, the advertisement is a grass roots lobbying
communication.
Example (6). Assume the same facts as in Example (5), except that
instead of identifying Senator Y as favoring the legislation, the
advertisement identifies the ''junior Senator from State Z'' as favoring
the legislation. The advertisement is a grass roots lobbying
communication.
Example (7). Assume the same facts as in Example (5), except that
instead of identifying Senator Y as favoring the legislation, the
advertisement states: ''Even though this bill will have a devastating
effect upon the farm economy, most of the Senators from the Farm Belt
states are inexplicably in favor of the bill.'' The advertisement does
not specifically identify one or more legislators as opposing the
advertisement's view on the bill in question. Accordingly, the
advertisement is not a grass roots lobbying communication because it
does not encourage readers to take action with respect to the
legislation.
Example (8). Organization V trains volunteers to go door-to-door to
seek signatures for petitions to be sent to legislators in favor of a
specific bill. The volunteers are wholly unreimbursed for their time
and expenses. The volunteers' costs (to the extent any are incurred)
are not lobbying or exempt purpose expenditures made by V (but the
volunteers may not deduct their out-of-pocket expenditures (see section
170(f)(6)). When V asks the volunteers to contact others and urge them
to sign the petitions, V encourages those volunteers to take action in
favor of the specific bill. Accordingly, V's costs of soliciting the
volunteers' help and its costs of training the volunteers are grass
roots expenditures. In addition, the costs of preparing, copying,
distributing, etc. the petitions (and any other materials on the same
specific subject used in the door-to-door signature gathering effort),
are grass roots expenditures.
(5) Special rule for certain mass media advertisements -- (i) In
general. A mass media advertisement that is not a grass roots lobbying
communication under the three-part grass roots lobbying definition
contained in paragraph (b)(2) of this section may be a grass roots
lobbying communication by virtue of paragraph (b)(5)(ii) of this
section. The special rule in paragraph (b)(5)(ii) generally applies
only to a limited type of paid advertisements that appear in the mass
media.
(ii) Presumption regarding certain paid mass media advertisements
about highly publicized legislation. If within two weeks before a vote
by a legislative body, or a committee (but not a subcommittee) thereof,
on a highly publicized piece of legislation, an organization's paid
advertisement appears in the mass media, the paid advertisement will be
presumed to be a grass roots lobbying communication, but only if the
paid advertisement both reflects a view on the general subject of such
legislation and either: refers to the highly publicized legislation;
or encourages the public to communicate with legislators on the general
subject of such legislation. An organization can rebut this presumption
by demonstrating that the paid advertisement is a type of communication
regularly made by the organization in the mass media without regard to
the timing of legislation (that is, a customary course of business
exception) or that the timing of the paid advertisement was unrelated to
the upcoming legislative action. Notwithstanding the fact that an
organization successfully rebuts the presumption, a mass media
communication described in this paragraph (b)(5)(ii) is a grass roots
lobbying communication if the communication would be a grass roots
lobbying communication under the rules contained in paragraph (b)(2) of
this section.
(iii) Definitions -- (A) Mass media. For purposes of this paragraph
(b)(5), the term ''mass media'' means television, radio, billboards and
general circulation newspapers and magazines. General circulation
newspapers and magazines do not include newspapers or magazines
published by an organization for which the expenditure test election
under section 501(h) is in effect, except where both: The total
circulation of the newspaper or magazine is greater than 100,000; and
fewer than one-half of the recipients are members of the organization
(as defined in 56.4911-5(f)).
(B) Paid advertisement. For purposes of this paragraph (b)(5), where
an electing public charity is itself a mass media publisher or
broadcaster, all portions of that organization's mass media publications
or broadcasts are treated as paid advertisements in the mass media,
except those specific portions that are advertisements paid for by
another person. The term ''mass media'' is defined in paragraph
(b)(5)(iii)(A).
(C) Highly publicized. For purposes of this paragraph (b)(5),
''highly publicized'' means frequent coverage on television and radio,
and in general circulation newspapers, during the two weeks preceding
the vote by the legislative body or committee. In the case of state or
local legislation, ''highly publicized'' means frequent coverage in the
mass media that serve the State or local jurisdiction in question. Even
where legislation receives frequent coverage, it is ''highly
publicized'' only if the pendency of the legislation or the
legislation's general terms, purpose, or effect are known to a
significant segment of the general public (as opposed to the particular
interest groups directly affected) in the area in which the paid mass
media advertisement appears.
(iv) Examples. The special rule of this paragraph (b)(5) is
illustrated by the following examples. The expenditure test election
under section 501(h) is assumed to be in effect for all organizations
discussed in the examples in this paragraph (b)(5)(iv):
Example (1). Organization X places a television advertisement
advocating one of the President's major foreign policy initiatives, as
outlined by the President in a series of speeches and as drafted into
proposed legislation. The initiative is popularly known as ''the
President's World Peace Plan,'' and is voted upon by the Senate four
days after X's advertisement. The advertisement concludes: ''SUPPORT
THE PRESIDENT'S WORLD PEACE PLAN!'' The President's plan and position
are highly publicized during the two weeks before the Senate vote, as
evidenced by: coverage of the plan on several nightly television
network news program; more than one article about the plan on the front
page of a majority of the country's ten largest daily general
circulation newspapers; and an editorial about the plan in four of the
country's ten largest daily general circulation newspapers. Although
the advertisement does not encourage readers to contact legislators or
other government officials, the advertisement does refer to specific
legislation and reflect a view on the general subject of the
legislation. The communication is presumed to be a grass roots lobbying
communication.
Example (2). Assume the same facts as in Example (1), except that
the advertisement appears three weeks before the Senate's vote on the
plan. Because the advertisement appears more than two weeks before the
legislative vote, the advertisement is not within the scope of the
special rule for mass media communications on highly publicized
legislation. Accordingly, the advertisement is a grass roots lobbying
communication only if it is described in the general definition
contained in paragraph (b)(2) of this section. Because the
advertisement does not encourage recipients to take action with respect
to the legislation in question, the advertisement is not a grass roots
lobbying communication.
Example (3). Organization Y places a newspaper advertisement
advocating increased government funding for certain public works
projects the President has proposed and that are being considered by a
legislative committee. The advertisement explains the President's
proposals and concludes: ''SUPPORT FUNDING FOR THESE VITAL PROJECTS!''
The advertisement does not encourage readers to contact legislators or
other government officials nor does it name any undecided legislators,
but it does name the legislation being considered by the committee. The
President's proposed funding of public works, however, is not highly
publicized during the two weeks before the vote: there has been little
coverage of the issue on nightly television network news programs, only
one front-page article on the issue in the country's ten largest daily
general circulation newspapers, and only one editorial about the issue
in the country's ten largest daily general circulation newspapers. Two
days after the advertisement appears, the committee votes to approve
funding of the projects. Although the advertisement appears less than
two weeks before the legislative vote, the advertisement is not within
the scope of the special rule for mass media communications on highly
publicized legislation because the issue of funding for public works
projects is not highly publicized. Thus, the advertisement is a grass
roots lobbying communication only if it is described in the general
definition contained in paragraph (b)(2) of this section. Because the
advertisement does not encourage recipients to take action with respect
to the legislation in question, the advertisement is not a grass roots
lobbying communication.
Example (4). Organization P places numerous advertisements in the
mass media about a bill being considered by the State Assembly. The
bill is highly publicized, as evidenced by numerous front-page articles,
editorials and letters to the editor published in the state's general
circulation daily newspapers, as well as frequent coverage of the bill
by the television and radio stations serving the state. The
advertisements run over a three week period and, in addition to showing
pictures of a family being robbed at gunpoint, say: ''The State
Assembly is considering a bill to make gun ownership illegal. This
outrageous legislation would violate your constitutional rights and the
rights of other law-abiding citizens. If this legislation is passed,
you and your family will be criminals if you want to exercise your right
to protect yourselves.'' The advertisements refer to and reflect a view
on a specific bill but do not encourage recipients to take action.
Sixteen days after the last advertisement runs, a State Assembly
committee votes to defeat the legislation. None of the advertisements
is a grass roots lobbying communication.
Example (5). Assume the same facts as in Example (4), except that it
is publicly announced prior to the advertising campaign that the
committee vote is scheduled for five days after the last advertisement
runs. Because of public pressure resulting from the advertising
campaign, the bill is withdrawn and no vote is ever taken. None of the
advertisements is a grass roots lobbying communication.
(c) Exceptions to the definitions of direct lobbying communication
and grass roots lobbying communication -- (1) Nonpartisan analysis,
study, or research exception -- (i) In general. Engaging in nonpartisan
analysis, study, or research and making available to the general public
or a segment or members thereof or to governmental bodies, officials, or
employees the results of such work constitute neither a direct lobbying
communication under 56.4911-2(b)(1) nor a grass roots lobbying
communication under 56.4911-2(b)(2).
(ii) Nonpartisan analysis, study, or research. For purposes of this
section, ''nonpartisan analysis, study, or research'' means an
independent and objective exposition of a particular subject matter,
including any activity that is ''educational'' within the meaning of
1.501(c)(3)-1(d)(3). Thus, ''nonpartisan analysis, study, or research''
may advocate a particular position or viewpoint so long as there is a
sufficiently full and fair exposition of the pertinent facts to enable
the public or an individual to form an independent opinion or
conclusion. The mere presentation of unsupported opinion, however, does
not qualify as ''nonpartisan analysis, study, or research''.
(iii) Presentation as part of a series. Normally, whether a
publication or broadcast qualifies as ''nonpartisan analysis, study, or
research'' will be determined on a presentation-by-presentation basis.
However, if a publication or broadcast is one of a series prepared or
supported by an electing organization and the series as a whole meets
the standards of paragraph (c)(1)(ii) of this section, then any
individual publication or broadcast within the series is not a direct or
grass roots lobbying communication even though such individual broadcast
or publication does not, by itself, meet the standards of paragraph
(c)(1)(ii) of this section. Whether a broadcast or publication is
considered part of a series will ordinarily depend upon all the facts
and circumstances of each particular situation. However, with respect
to broadcast activities, all broadcasts within any period of six
consecutive months will oridinarily be eligible to be considered as part
of a series. If an electing organization times or channels a part of a
series which is described in this paragraph (c)(1)(iii) in a manner
designed to influence the general public or the action of a legislative
body with respect to a specific legislative proposal, the expenses of
preparing and distributing such part of the analysis, study, or research
will be expenditures for a direct or grass roots lobbying
communications, as the case may be.
(iv) Making available results of nonpartisan analysis, study, or
research. An organization may choose any suitable means, including oral
or written presentations, to distribute the results of its nonpartisan
analysis, study, or research, with or without charge. Such means
include distribution of reprints of speeches, articles and reports;
presentation of information through conferences, meetings and
discussions; and dissemination to the news media, including radio,
television and newspapers, and to other public forums. For purposes of
this paragraph (c)(1)(iv), such communications may not be limited to, or
be directed toward, persons who are interested solely in one side of a
particular issue.
(v) Subsequent lobbying use of certain analysis, study or research.
Even though certain analysis, study or research is initially within the
exception for nonpartisan analysis, study or research, subsequent use of
that analysis, study or research for grass roots lobbying may cause that
analysis, study or research to be treated as a grass roots lobbying
communication that is not within the exception for nonpartisan analysis,
study or research. This paragraph (c)(1)(v) does not cause any
analysis, study or research to be considered a direct lobbying
communication. For rules regarding when analysis, study or research is
treated as a grass roots lobbying communication that is not within the
scope of the exception for nonpartisan analysis, study or research, see
paragraph (b)(2)(v) of this section.
(vi) Directly encouraging action by recipients of a communication. A
communication that reflects a view on specific legislation is not within
the nonpartisan analysis, study, or research exception of this paragraph
(c)(1) if the communication directly encourages the recipient to take
action with respect to such legislation. For purposes of this section,
a communication directly encourages the recipient to take action with
respect to legislation if the communication is described in one or more
of paragraphs (b)(2)(iii) (A) through (C) of this section. As described
in paragraph (b)(2)(iv) of this section, a communication would encourage
the recipient to take action with respect to legislation, but not
directly encourage such action, if the communication does no more than
specifically identify one or more legislators who will vote on the
legislation as: opposing the communication's view with respect to the
legislation; being undecided with respect to the legislation; being
the recipient's representative in the legislature; or being a member of
the legislative committee or subcommittee that will consider the
legislation.
(vii) Examples. The provisions of this paragraph (c)(1) may be
illustrated by the following examples:
Example (1). Organization M establishes a research project to
collect information for the purpose of showing the dangers of the use of
pesticides in raising crops. The information collected includes data
with respect to proposed legislation, pending before several State
legislatures, which would ban the use of pesticides. The project takes
favorable positions on such legislation without producing a sufficiently
full and fair exposition of the pertinent facts to enable the public or
an individual to form an independent opinion or conclusion on the pros
and cons of the use of pesticides. This project is not within the
exception for nonpartisan analysis, study, or research because it is
designed to present information merely on one side of the legislative
controversy.
Example (2). Organization N establishes a research project to
collect information concerning the dangers of the use of pesticides in
raising crops for the ostensible purpose of examining and reporting
information as to the pros and cons of the use of pesticides in raising
crops. The information is collected and distributed in the form of a
published report which analyzes the effects and costs of the use and
nonuse of various pesticides under various conditions on humans, animals
and crops. The report also presents the advantages, disadvantages, and
economic cost of allowing the continued use of pesticides unabated, of
controlling the use of pesticides, and of developing alternatives to
pesticides. Even if the report sets forth conclusions that the
disadvantages as a result of using pesticides are greater than the
advantages of using pesticides and that prompt legislative regulation of
the use of pesticides is needed, the project is within the exception for
nonpartisan analysis, study, or research since it is designed to present
information on both sides of the legislative controversy and presents a
sufficiently full and fair exposition of the pertinent facts to enable
the public or an individual to form an independent opinion or
conclusion.
Example (3). Organization O establishes a research project to
collect information on the presence or absence of disease in humans from
eating food grown with pesticides and the presence or absence of disease
in humans from eating food not grown with pesticides. As part of the
research project, O hires a consultant who prepares a ''fact sheet''
which calls for the curtailment of the use of pesticides and which
addresses itself to the merits of several specific legislative proposals
to curtail the use of pesticides in raising crops which are currently
pending before State Legislatures. The ''fact sheet'' presents reports
of experimental evidence tending to support its conclusions but omits
any reference to reports of experimental evidence tending to dispute its
conclusions. O distributes ten thousand copies to citizens' groups.
Expenditures by O in connection with this work of the consultant are not
within the exception for nonpartisan analysis, study, or research.
Example (4). P publishes a bi-monthly newsletter to collect and
report all published materials, ongoing research, and new developments
with regard to the use of pesticides in raising crops. The newsletter
also includes notices of proposed pesticide legislation with impartial
summaries of the provisions and debates on such legislation. The
newsletter does not encourage recipients to take action with respect to
such legislation, but is designed to present information on both sides
of the legislative controversy and does present such information fully
and fairly. It is within the exception for nonpartisan analysis, study,
or research.
Example (5). X is satisfied that A, a member of the faculty of Y
University, is exceptionally well qualified to undertake a project
involving a comprehensive study of the effects of pesticides on crop
yields. Consequently, X makes a grant to A to underwrite the cost of
the study and of the preparation of a book on the effect of pesticides
on crop yields. X does not take any position on the issues or control
the content of A's output. A produces a book which concludes that the
use of pesticides often has a favorable effect on crop yields, and on
that basis argues against pending bills which would ban the use of
pesticides. A's book contains a sufficiently full and fair exposition
of the pertinent facts, including known or potential disadvantages of
the use of pesticides, to enable the public or an individual to form an
independent opinion or conclusion as to whether pesticides should be
banned as provided in the pending bills. The book does not directly
encourage readers to take action with respect to the pending bills.
Consequently, the book is within the exception for nonpartisan analysis,
study, or research.
Example (6). Assume the same facts as Example (2), except that,
instead of issuing a report, X presents within a period of 6 consecutive
months a two-program television series relating to the pesticide issue.
The first program contains information, arguments, and conclusions
favoring legislation to restrict the use of pesticides. The second
program contains information, arguments, and conclusions opposing
legislation to restrict the use of pesticides. The programs are
broadcast within 6 months of each other during commensurate periods of
prime time. X's programs are within the exception for nonpartisan
analysis, study, or research. Although neither program individually
could be regarded as nonpartisan, the series of two programs constitutes
a balanced presentation.
Example (7). Assume the same facts as in Example (6), except that X
arranged for televising the program favoring legislation to restrict the
use of pesticides at 8:00 on a Thursday evening and for televising the
program opposing such legislation at 7:00 on a Sunday morning. X's
presentation is not within the exception for nonpartisan analysis,
study, or research, since X disseminated its information in a manner
prejudicial to one side of the legislative controversy.
Example (8). Organization Z researches, writes, prints and
distributes a study on the use and effects of pesticide X. A bill is
pending in the U.S. Senate to ban the use of pesticide X. Z's study
leads to the conclusion that pesticide X is extremely harmful and that
the bill pending in the U.S. Senate is an appropriate and much needed
remedy to solve the problems caused by pesticide X. The study contains
a sufficiently full and fair exposition of the pertinent facts,
including known or potential advantages of the use of pesticide X, to
enable the public or an individual to form an independent opinion or
conclusion as to whether pesticides should be banned as provided in the
pending bills. In its analysis of the pending bill, the study names
certain undecided Senators on the Senate committee considering the bill.
Although the study meets the three part test for determining whether a
communication is a grass roots lobbying communication, the study is
within the exception for nonpartisan analysis, study or research,
because it does not directly encourage recipients of the communication
to urge a legislator to oppose the bill.
Example (9). Assume the same facts as in Example (8), except that,
after stating support for the pending bill, the study concludes: ''You
should write to the undecided committee members to support this crucial
bill.'' The study is not within the exception for nonpartisan analysis,
study or research because it directly encourages the recipients to urge
a legislator to support a specific piece of legislation.
Example (10). Organization X plans to conduct a lobbying campaign
with respect to illegal drug use in the United States. It incurs $5,000
in expenses to conduct research and prepare an extensive report
primarily for use in the lobbying campaign. Although the detailed
report discusses specific pending legislation and reaches the conclusion
that the legislation would reduce illegal drug use, the report contains
a sufficiently full and fair exposition of the pertinent facts to enable
the public or an individual to form an independent conclusion regarding
the effect of the legislation. The report does not encourage readers to
contact legislators regarding the legislation. Accordingly, the report
does not, in and of itself, constitute a lobbying communication.
Copies of the report are available to the public at X's office, but X
does not actively distribute the report or otherwise seek to make the
contents of the report available to the general public. Whether or not
X's distribution is sufficient to meet the requirement in
56.4911-2(c)(1)(iv) that a nonpartisan communication be made available,
X's distribution is not substantial (for purposes of
56.4911-2(b)(2)(v)(E)) in light of all of the facts and circumstances,
including the normal distribution pattern of similar nonpartisan
reports. X then mails copies of the report, along with a letter, to
10,000 individuals on X's mailing list. In the letter, X requests that
individuals contact legislators urging passage of the legislation
discussed in the report. Because X's research and report were primarily
undertaken by X for lobbying purposes and X did not make a substantial
distribution of the report (without an accompanying lobbying message)
prior to or contemporaneously with the use of the report in lobbying,
the report is a grass roots lobbying communication that is not within
the exception for nonpartisan analysis, study or research.
Example (11). Assume the same facts as in Example (10), except that
before using the report in the lobbying campaign, X sends the research
and report (without an accompanying lobbying message) to universities
and newspapers. At the same time, X also advertises the availability of
the report in its newsletter. This distribution is similar in scope to
the normal distribution pattern of similar nonpartisan reports. In
light of all of the facts and circumstances, X's distribution of the
report is substantial. Because of X's substantial distribution of the
report, X's primary purpose will be considered to be other than for use
in lobbying and the report will not be considered a grass roots lobbying
communication. Accordingly, only the expenditures for copying and
mailing the report to the 10,000 individuals on X's mailing list, as
well as for preparing and mailing the letter, are expenditures for grass
roots lobbying communications.
Example (12). Organization M pays for a bumper sticker that reads:
''STOP ABORTION: Vote NO on Prop. X!'' M also pays for a 30-second
television advertisement and a billboard that similarly advocate
opposition to Prop. X. In light of the limited scope of the
communications, none of the communications is within the exception for
nonpartisan analysis, study or research. First, none of the
communications rises to the level of analysis, study or research.
Second, none of the communications is nonpartisan because none contains
a sufficiently full and fair exposition of the pertinent facts to enable
the public or an individual to form an independent opinion or
conclusion. Thus, each communication is a direct lobbying
communication.
(2) Examinations and discussions of broad social, economic, and
similar problems. Examinations and discussions of broad social,
economic, and similar problems are neither direct lobbying
communications under 56.4911-2(b)(1) nor grass roots lobbying
communications under 56.4911-2(b)(2) even if the problems are of the
type with which government would be expected to deal ultimately. Thus,
under 56.4911-2(b) (1) and (2), lobbying communications do not include
public discussion, or communications with members of legislative bodies
or governmental employees, the general subject of which is also the
subject of legislation before a legislative body, so long as such
discussion does not address itself to the merits of a specific
legislative proposal and so long as such discussion does not directly
encourage recipients to take action with respect to legislation. For
example, this paragraph (c)(2) excludes from grass roots lobbying under
56.4911-2(b)(2) an organization's discussions of problems such as
environmental pollution or population growth that are being considered
by Congress and various State legislatures, but only where the
discussions are not directly addressed to specific legislation being
considered, and only where the discussions do not directly encourage
recipients of the communication to contact a legislator, an employee of
a legislative body, or a government official or employee who may
participate in the formulation of legislation.
(3) Requests for technical advice. A communication is not a direct
lobbying communication under 56.4911-2(b)(1) if the communication is
the providing of technical advice or assistance to a governmental body,
a governmental committee, or a subdivision of either in response to a
written request by the body, committee, or subdivision, as set forth in
53.4945-2(d)(2).
(4) Communications pertaining to ''self-defense'' by the
organization. A communication is not a direct lobbying communication
under 56.4911-2(b)(1) if either:
(i) The communication is an appearance before, or communication with,
any legislative body with respect to a possible action by the body that
might affect the existence of the electing public charity, its powers
and duties, its tax-exempt status, or the deductibility of contributions
to the organization, as set forth in 53.4945-2(d)(3);
(ii) The communication is by a member of an affiliated group of
organizations (within the meaning of 56.4911-7(e)), and is an
appearance before, or communication with, a legislative body with
respect to a possible action by the body that might affect the existence
of any other member of the group, its powers and duties, its tax-exempt
status, or the deductibility of contributions to it;
(iii) The communication is by an electing public charity more than 75
percent of the members of which are other organizations that are
described in section 501(c)(3), and is an appearance before, or
communication with, any legislative body with respect to a possible
action by the body which might affect the existence of one or more of
the section 501(c)(3) member organizations, their powers, duties, or
tax-exempt status, or the deductibility (under section 170) of
contributions to one or more of the section 501(c)(3) member
organizations, but only if the principal purpose of the appearance or
communication is to defend the section 501(c)(3) member organizations
(rather than the non-section 501(c)(3) member organizations); or
(iv) The communication is by an electing public charity that is a
member of a limited affiliated group or organizations under 56.4911-10,
and is an appearance before, or communication with, the Congress of the
United States with respect to a possible action by the Congress that
might affect the existence of any member of the limited affiliated
group, its powers and duties, tax-exempt status, or the deductibility of
contributions to it.
(v) Under the self-defense exception of paragraphs (c)(4) (i) through
(iv) of this section, a charity may communicate with an entire
legislative body, with committees or subcommittees of a legislative
body, with individual legislators, with legislative staff members, or
with representatives of the executive branch who are involved with the
legislative process, so long as such communication is limited to the
prescribed subjects. Similarly, under the self-defense exception, a
charity may make expenditures in order to initiate legislation if such
legislation concerns only matters which might affect the existence of
the charity, its powers and duties, its tax-exempt status, or the
deductibility of contributions to such charity. For examples
illustrating the application and scope of the self-defense exception of
this paragraph (c)(4), see 53.4945-2(d)(3)(ii).
(d) Definitions. For purposes of section 4911 and the regulations
thereunder --
(1) Legislation -- (i) In general. ''Legislation'' includes action
by the Congress, any state legislature, any local council, or similar
legislative body, or by the public in a referendum, ballot initiative,
constitutional amendment, or similar procedure. ''Legislation''
includes a proposed treaty required to be submitted by the President to
the Senate for its advice and consent from the time the President's
representative begins to negotiate its position with the prospective
parties to the proposed treaty.
(ii) Definition of specific legislation. For purposes of paragraphs
(b)(1) and (b)(2) of this section, ''specific legislation'' includes
both legislation that has already been introduced in a legislative body
and a specific legislative proposal that the organization either
supports or opposes. In the case of a referendum, ballot initiative,
constitutional amendment, or other measure that is placed on the ballot
by petitions signed by a required number or percentage of voters, an
item becomes ''specific legislation'' when the petition is first
circulated among voters for signature.
(iii) Examples. The terms ''legislation'' and ''specific
legislation'' are illustrated using the following examples:
Example (1). A nonmembership organization includes in its newsletter
an article about problems with the use of pesticide X that states in
part: ''Legislation that is pending in Congress would prohibit the use
of this very dangerous pesticide. Fortunately, the legislation will
probably be passed. Write your congressional representatives about this
important issue.'' This is a grass roots lobbying communication that
refers to and reflects a view on specific legislation and that
encourages recipients to take action with respect to that legislation.
Example (2). An organization based in State A notes in its
newsletter that State Z has passed a bill to accomplish a stated purpose
and then says that State A should pass such a bill. The organization
urges readers to write their legislators in favor of such a bill. No
such bill has been introduced into the State A legislature. The
organization has referred to and reflected a view on a specific
legislative proposal and has also encouraged readers to take action
thereon.
(2) Action. The term ''action'' in paragraph (d)(1)(i) of this
section is limited to the introduction, amendment, enactment, defeat or
repeal of Acts, bills, resolutions, or similar items.
(3) Legislative body. ''Legislative body'' does not include
executive, judicial, or administrative bodies.
(4) Administrative bodies. ''Administrative bodies'' includes school
boards, housing authorities, sewer and water districts, zoning boards,
and other similar Federal, State, or local special purpose bodies,
whether elective or appointive. Thus, for example, for purposes of
section 4911, the term ''any attempt to influence any legislation'' does
not include attempts to persuade an executive body or department to
form, support the formation of, or to acquire property to be used for
the formation or expansion of, a public park or equivalent preserves
(such as public recreation areas, game, or forest preserves, and soil
demonstration areas) established or to be established by act of
Congress, by executive action in accordance with an act of Congress, or
by a State, municipality or other governmental unit described in section
170(c)(1), as compared with attempts to persuade a legislative body, a
member thereof, or other governmental official or employee, to promote
the appropriation of funds for such an acquisition or other legislative
authorization of such an acquisition. Therefore, for example, an
organization would not be influencing legislation for purposes of
section 4911, if it proposed to a Park Authority that it purchase a
particular tract of land for a new park, even though such an attempt
would necessarily require the Park Authority eventually to seek
appropriations to support a new park. However, in such a case, the
organization would be influencing legislation, for purposes of section
4911, if it provided the Park Authority with a proposed budget to be
submitted to a legislative body, unless such submission is described by
one of the exceptions set forth in paragraph (c) of this section.
26 CFR 56.4911-3 Expenditures for direct and/or grass roots lobbying
communications.
(a) Definition of term ''expenditures for'' -- (1) In general. This
56.4911-3 contains allocation rules regarding what portion of a lobbying
communication's costs is a direct lobbying expenditure, what portion is
a grass roots expenditure and what portion is, in certain cases, a
nonlobbying expenditure. Except as otherwise indicated in this
paragraph (a), all costs of preparing a direct or grass roots lobbying
communication are included as expenditures for direct or grass roots
lobbying. Expenditures for a direct or grass roots lobbying
communication (''lobbying expenditures'') include amounts paid or
incurred as current or deferred compensation for an employee's services
attributable to the direct or grass roots lobbying communication, and
the allocable portion of administrative, overhead, and other general
expenditures attributable to the direct or grass roots lobbying
communication. For example, except as otherwise provided in this
paragraph (a), all expenditures for researching, drafting, reviewing,
copying, publishing and mailing a direct or grass roots lobbying
communication, as well as an allocable share of overhead expenses, are
included as expenditures for direct or grass roots lobbying.
(2) Allocation of mixed purpose expenditures -- (i) Nonmembership
communications. Except as provided in paragraph (a)(2)(ii) of this
section, lobbying expenditures for a communication that also has a bona
fide nonlobbying purpose must include all costs attributable to those
parts of the communication that are on the same specific subject as the
lobbying message. All costs attributable to those parts of the
communication that are not on the same specific subject as the lobbying
message are not included as lobbying expenditures for allocation
purposes. Whether or not a portion of a communication is on the same
specific subject as the lobbying message will depend on the surrounding
facts and circumstances. In general, a portion of a communication will
be on the same specific subject as the lobbying message if that portion
discusses an activity or specific issue that would be directly affected
by the specific legislation that is the subject of the lobbying message.
Moreover, discussion of the background or consequences of the specific
legislation, or discussion of the background or consequences of an
activity or specific issue affected by the specific legislation, is also
considered to be on the same specific subject as the lobbying
communication.
(ii) Membership communications. In the case of lobbying expenditures
for a communication that also has a bona fide nonlobbying purpose and
that is sent only or primarily to members, an electing public charity
must make a reasonable allocation between the amount expended for the
lobbying purpose and the amount expended for the nonlobbying purpose.
An electing public charity that includes as a lobbying expenditure only
the amount expended for the specific sentence or sentences that
encourage the recipient to take action with respect to legislation has
not made a reasonable allocation. For purposes of this paragraph, a
communication is sent only or primarily to members if more than half of
the recipients of the communication are members of the electing public
charity making the communication within the meaning of 56.4911-5. See
56.4911-5 for separate rules on communications sent only or primarily to
members. Nothing in this paragraph (a) shall change any allocation
required by 56.4911-5.
(3) Allocation of mixed lobbying. If a communication (to which
56.4911-5 does not apply) is both a direct lobbying communication and a
grass roots lobbying communication, the communication will be treated as
a grass roots lobbying communication except to the extent that the
electing public charity demonstrates that the communication was made
primarily for direct lobbying purposes, in which case a reasonable
allocation shall be made between the direct and the grass roots lobbying
purposes served by the communication.
(b) Examples. The provisions of paragraph (a) of this section are
illustrated by the following examples. Except where otherwise
explicitly stated, the expenditure test election under section 501(h) is
assumed to be in effect for all organizations discussed in the examples
in this paragraph (b). See 56.4911-5 for special rules applying to the
member communications described in some of the following examples.
Example (1). Organization R makes the services of E, one of its paid
executives, available to S, an organization described in section
501(c)(4) of the Code. E works for several weeks to assist S in
developing materials that urge voters to contact their congressional
representatives to indicate their support for specific legislation. In
performing this work, E uses office space and clerical assistance
provided by R. R pays full salary and benefits to E during this period
and receives no reimbursement from S for these payments or for the other
facilities and assistance provided. All expenditures of R, including
allocable office and overhead expenses, that are attributable to this
assignment are grass roots expenditures because E was engaged in an
attempt to influence legislation.
Example (2). An organization distributes primarily to nonmembers a
pamphlet with two articles on unrelated subjects. The total cost of
preparing, printing and mailing the pamphlet is $11,000, $1,000 for
preparation and $10,000 for printing and mailing. The cost of preparing
one article, a nonlobbying communication, is $600. The article is
printed on three of the four pages in the pamphlet. The cost of
preparing the second article, a grassroots lobbying communication that
addresses only one specific subject, is $400. This article is printed
on one page of the four page pamphlet. In this situation, $400 of
preparation costs and $2,500 (25% of $10,000) of printing and mailing
costs are expenditures for a grass roots lobbying communication.
Example (3). Assume the same facts as in Example (2), except that
the pamphlet is distributed only to members. In addition, assume the
second article states that the recipient members should contact their
congressional representatives. The organization allocates $400 of
preparation costs and $2,500 of printing and mailing costs as
expenditures for direct lobbying (see 56.4911-5(c)). The allocation is
reasonable for purposes of 56.4911-3(a)(2)(ii).
Example (4). Organization J places a full-page advertisement in a
newspaper. The advertisement urges passage of pending legislation to
build three additional nuclear powered submarines, and states that
readers should write their Congressional representatives in favor of the
legislation. The advertisement also provides a general description of
J's purposes and activities, invites readers to become members of J and
asks readers to contribute money to J. Except for the cost of the
portion of the advertisement describing J's purposes and activities and
the portion specifically seeking members and contributions, the entire
cost of the advertisement is an expenditure for a grass roots lobbying
communication, because the entire advertisement, except for the lines
specifically describing J and specifically seeking members and
contributions, is on the same specific subject as the grass roots
lobbying message.
Example (5). Assume the same facts as in Example (4), except that J
places in the newspaper two separate half-page advertisements instead of
one full-page advertisement. One of the two advertisements discusses
the need for three additional nuclear powered submarines and urges
readers to write their Congressional representatives in favor of the
pending legislation to build the three submarines. The other
advertisement contains only the membership and fundraising appeals,
along with a general description of J's purposes and activities. The
half-page advertisement urging readers to write to Congress is a grass
roots lobbying communication and all of J's expenditures for producing
and placing that advertisement are expenditures for a grass roots
lobbying communication. J's expenditures for the other half-page
advertisement are not expenditures for a grass roots or direct lobbying
communication.
Example (6). Assume the same facts as in Example (4), except that
the communication by J is in a letter mailed only to members of J,
rather than in newspaper advertisement, and the invitation to become a
member of J is an invitation to join a new membership category. In
addition, assume that the communication states that the member
recipients should ask nonmembers to write their Congressional
representatives. J allocates one-half of the cost of the mailing as an
expenditure for a grass roots lobbying communication (see
56.4911-5(d)). Because the communication had both bona fide nonlobbying
(e.g., membership solicitation and fundraising) purposes as well as
lobbying purposes, J's allocation of one-half of the cost of the
communication to grass roots lobbying and one-half to nonlobbying is
reasonable for purposes of 56.4911-3(a)(2)(ii).
Example (7). A particular monthly issue of organization X's
newsletter, which is distributed mainly to nonmembers of X, has three
articles of equal length. The first article is a grass roots lobbying
communication, the sole specific subject of which is pending legislation
to help protect seals from being slaughtered in certain foreign
countries. The second article discusses the rapid decline in the
world's whale population, particularly because of the illegal hunting of
whales by foreign countries. The third article deals with air pollution
and the acid rain problem in North America. Because the first article
is a grass roots lobbying communication, all of the costs allocable to
that article (e.g., one-third of the newsletter's printing and mailing
costs) are lobbying expenditures. The second article is not a lobbying
communication and the pending legislation relating to seals addressed in
the first article does not affect the illegal whale hunting activities.
Because the second and third articles are not lobbying communications
and are also not on the same specific subject as the first article, no
portion of the costs attributable to those articles is a grass roots
lobbying expenditure.
Example (8). Organization T, a nonmembership organization, prepares
a three page document that is mailed to 3,000 persons on T's mailing
list. The first two pages of the three page document, titled ''The Need
for Child Care,'' support the need for additional child care programs,
and include statistics on the number of children living in homes where
both parents work or in homes with a single parent. The two pages also
make note of the inadequacy of the number of day care providers to meet
the needs of these parents. The third page of the document, titled
''H.R. 1,'' indicates T's support of H.R. 1, a bill pending in the U.S.
House of Representatives. The document states that H.R. 1 will provide
for $10,000,000 in additional subsidies to child care providers,
primarily for those providers caring for lower income children. The
third page of the document also notes that H.R. 1 includes new federal
standards regulating the quality of child care providers. The document
ends with T's request that recipients contact their congressional
representative in support of H.R. 1. The entire three page document is
on the same specific subject, and, therefore, all expenditures of
preparing and distributing the three page document are grass roots
lobbying expenditures.
Example (9). Assume the same facts as in Example (8), except that
the document has a fourth page. The fourth page does not refer to the
general need for child care or the specific need for additional child
care providers. Instead, the fourth page advocates that a particular
federal agency commence, under its existing statutory authority,
licensing of day care providers in order to promote safe and effective
child care. The cost of the fourth page is not a lobbying expenditure.
Example (10). Assume the same facts as in Example (8), except that T
is a membership organization, 75 percent of the recipients of the three
page document are members of T, and 25 percent of the recipients are
nonmembers and are not subscribers within the meaning of
56.4911-5(f)(5). Assume also that the document states that readers
should write to Congress, but does not state that the readers should
urge nonmembers to write to Congress. T treats the document as having a
bona fide nonlobbying purpose, the purpose of educating its members
about the need for child care. Accordingly, T allocates one-half of the
cost of preparing and distributing the document as a lobbying
expenditure (see 56.4911-5(e)(2)(i)), of which 75 percent is a direct
lobbying expenditure (see 56.4911-5(e)(2)(iii)) and 25 percent is a
grass roots lobbying expenditure (see 56.4911-5(e)(2)(ii)). The
remaining one-half is allocated as a nonlobbying expenditure. T's
allocation is reasonable for purposes of 56.4911-3(a)(2)(ii) and is
correct for purposes of 56.4911-5(e).
Example (11). Assume the same facts as in Example (10), except that
T allocates one percent of the cost of preparing and distributing the
document as a lobbying expenditure (for purposes of 56.4911-5(e)(2))
and 99 percent as a nonlobbying expenditure. T's allocation is based
upon the fact that out of 200 lines in the document, only two lines
state that the recipient should contact legislators about the pending
legislation. T's allocation is unreasonable for purposes of
56.4911-3(a)(2)(ii).
Example (12). Organization F, a nonmembership organization, sends a
one page letter to all persons on its mailing list. The only subject of
the letter is the organization's opposition to a pending bill allowing
private uses of certain national parks. The letter requests recipients
to send letters opposing the bill to their congressional
representatives. A second one page letter is sent in the same envelope.
The second letter discusses the broad educational activities and
publications of the organization in all areas of environmental
protection and ends by requesting the recipient to make a financial
contribution to organization F. Since the separate second letter is on
a different subject from the lobbying letter, and the letters are of
equal length, 50 percent of the mailing costs must be allocated as an
expenditure for a grass roots lobbying communication.
Example (13). Assume the same facts as in Example (12), except that
F is a membership organization and the letters in question are sent
primarily (90 percent) to members. The other 10 percent of the
recipients are nonmembers and are not subscribers within the meaning of
56.4911-5(f)(5). Assume also that the first letter does not state that
readers should urge nonmembers to write to legislators. F allocates
one-half of the mailing costs as a lobbying expenditure, of which 90
percent is a direct lobbying expenditure and 10 percent is a grass roots
lobbying expenditure (see 56.4911-5(e)(2)). F's allocation is
reasonable for purposes of 56.4911-3(a)(2)(ii) and is correct for
purposes of 56.4911-5.
(c) Certain transfers treated as lobbying expenditures -- (1)
Transfer earmarked for grass roots purposes. A transfer is a grass
roots expenditure to the extent that it is earmarked (as defined in
56.4911-4(f)(4)) for grass roots lobbying purposes and is not described
in 56.4911-4(e).
(2) Transfer earmarked for direct and grass roots lobbying. A
transfer that is earmarked for direct lobbying purposes or for direct
lobbying and grass roots lobbying purposes is treated as a grass roots
expenditure in full except to the extent the transferor demonstrates
that all or part of the amounts transferred were expended for direct
lobbying purposes, in which case that part of the amounts transferred is
a direct lobbying expenditure by the transferor. This paragraph (c)(2)
shall not apply to any expenditure described in 56.4911-4(e).
(3) Certain transfers to noncharities that lobby -- (i) Limited
application of paragraph (c)(3) -- (A) In general. This paragraph
(c)(3) applies only to transfers for less than fair market value from an
electing public charity to any noncharity that makes lobbying
expenditures. A noncharity is any entity that is not described in
section 501(c)(3). In order for this paragraph to apply, the electing
public charity must transfer to a noncharity more in value than it
receives in return. For example, this paragraph does not apply to an
electing public charity's fair market value payment of rent to a
landlord. However, this paragraph does apply where an electing public
charity and a noncharity share office space and the electing public
charity pays more than fair market value rent to the noncharity.
Similarly, this paragraph applies where an electing public charity sells
goods or services to a noncharity for less than fair market value. See
paragraphs (c)(3)(i) (B), (C) and (D) of this section for exceptions
where non-fair market value transfers are not covered by this paragraph
(c)(3). See paragraph (c)(3)(i)(E) of this section to determine the
amount of any non-fair market value transfer covered by this paragraph
(c)(3). See paragraph (c)(3)(ii) of this section for the rules that
apply to transfers governed by this paragraph (c)(3).
(B) Exception for controlled grants. Notwithstanding paragraph
(c)(3)(i)(A) of this section, this paragraph (c)(3) does not apply where
an electing public charity makes a grant to a noncharity that is a
controlled grant (as defined in 56.4911-4(f)(3)).
(C) Exception for transfers that artificially inflate exempt purpose
expenditures. Notwithstanding paragraph (c)(3)(i)(A) of this section,
this paragraph (c)(3) does not apply where an electing public charity
makes a grant to a noncharity that is an expenditure described in
56.4911-4(e) (relating to grants that artificially inflate exempt
purpose expenditures).
(D) Exception for substantially related activity. Notwithstanding
paragraph (c)(3)(i)(A) of this section, this paragraph (c)(3) does not
apply where an electing public charity, in the course of an activity
that is substantially related to the accomplishment of the electing
public charity's exempt purposes, makes goods or services widely
available for less than fair market value to individual members of the
general public and those goods or services are actually purchased (or
consumed for no charge) by a substantial number of wholly unrelated
individual members of the general public for less than fair market
value. For purposes of the preceding sentence, the term ''individual
member of the general public'' does not include any person or entity
directly or indirectly affiliated with the electing public charity in
question. The following example illustrates this paragraph
(c)(3)(i)(D):
Example. Organization P is an educational organization dedicated to
preserving the environment. One of P's activities is educating the
public about the benefits of installing cost-effective passive solar
energy systems, thereby helping to preserve the environment. P charges
for its extensive literature and advice, but the charges are less than
the fair market value of the literature and advice. P makes its
literature and advice widely available to individual members of the
general public by advertising in various media and by pamphlets
distributed in various areas. P annually provides its literature and
advice for less than fair market value to 500 wholly unrelated families,
businesses, and tax-exempt organizations. Several of the businesses and
tax-exempt organizations make lobbying expenditures within the meaning
of section 4911. P's provision of its goods and services to these
entities is not covered by this paragraph (c)(3) (and thus does not give
rise to a lobbying expenditure by P under paragraph (c)(3)(ii)).
(E) Determination of amount of transfer governed by paragraph (c)(3).
Where an electing public charity receives nothing of value in return
for its transfer, the amount of the transfer governed by this paragraph
(c)(3) is the greater of the fair market value or the cost of the goods
or services transferred to the noncharity. Where the noncharity
transfers something of value to the electing public charity in return
for the charity's transfer, but that payment is less than the fair
market value of the charity's transfer to the noncharity, the amount of
the transfer governed by this paragraph (c)(3) is the excess of: first,
the greater of the fair market value or cost of the goods or services
transferred to the noncharity over, second, the value of the amount
transferred to the charity. For example, if an electing public charity
transfers $10,000 of goods and services to a noncharity that makes
lobbying expenditures in return for payment by the noncharity of $2,000,
the amount of the transfer governed by this paragraph (c)(3) is $8,000.
(ii) Rules governing transfers to which paragraph (c)(3) applies. A
transfer to which this paragraph (c)(3) applies is treated in whole or
in part as a grass roots and/or direct lobbying expenditure by the
transferor in accordance with paragraphs (c)(3)(ii) (A), (B) and (C) of
this section. In applying those paragraphs, the expenditures of the
transferee will be determined as if the regulations under section 4911
applied to the transferee. This paragraph (c)(3) discusses only when
certain transfers are lobbying expenditures by the transferor. This
paragraph does not address other issues that may arise when an electing
public charity makes a noncontrolled grant to a noncharity. Nothing in
this paragraph (c)(3) shall be used to interpret issues relating to
noncontrolled grants by charities to noncharities, such as whether the
noncontrolled grant is consistent with the continued tax-exempt status
of the electing public charity.
(A) Transfers treated as grass roots expenditures. The transfer is
treated as a grass roots expenditure to the extent of the lesser of two
amounts: The amount of the transfer and the amount of the transferee's
grass roots expenditures.
(B) Transfers treated as direct lobbying expenditures. If the
transfer is greater than the transferee's grass roots expenditures, the
excess is treated as a direct lobbying expenditure, but only to the
extent of the transferee's direct lobbying expenditures. (If, however,
the transfer is less than the transferee's grass roots expenditures,
none of the transfer is a direct lobbying expenditure.)
(C) Transfers treated as nonlobbying. If the transfer is greater
than the sum of the transferee's grass roots and direct lobbying
expenditures, the excess of the transfer over those lobbying expenses is
not a lobbying expenditure.
(iii) Example. The following example illustrates the application of
this paragraph (c)(3):
Example. Organization C, an electing public charity, shares employee
E with N, a noncharity that makes lobbying expenditures. N's grass
roots expenditures are $5,000 and its direct lobbying expenditures are
$25,000. Each organization pays one-half of the $100,000 in direct and
overhead costs associated with E. E devotes one-quarter of his time to
C and three-quarters of his time to N. In substance, this arrangement
is a transfer (for less than fair market value) from C to N in the
amount of $25,000 (one-quarter of the $100,000 of direct and overhead
costs associated with E's work). Accordingly, C is treated as having
made a $5,000 grass roots expenditure (the lesser of N's grass roots
expenditures ($5,000) or the amount of the transfer ($25,000)). C is
also treated as having made a $20,000 direct lobbying expenditure (the
lesser of N's direct lobbying expenditures ($25,000) or the remaining
amount of the transfer ($20,000)).
26 CFR 56.4911-4 Exempt purpose expenditures.
(a) Application. This section provides rules under section 4911(e)
for determining an electing public charity's ''exempt purpose
expenditures'' for a taxable year for purposes of section 4911(c)(2) and
56.4911-1(c)(2). Those two sections generally define an electing public
charity's lobbying limit (lobbying nontaxable amount) as a sliding scale
percentage of the organization's exempt purpose expenditures. In
determining an electing public charity's exempt purpose expenditures, no
expenditure shall be counted twice by an organization.
(b) Included expenditures. Amounts paid or incurred by an
organization that are exempt purpose expenditures include --
(1) Amounts paid or incurred to accomplish a purpose enumerated in
section 170(c)(2)(B), including (but not limited to) the amount of any
transfer made by the organization (other than a transfer described in
paragraph (e) of this section) to another organization to accomplish the
transferor's exempt purposes, and including amounts expended by an
organization out of transfers (other than a transfer described in
paragraph (e) of this section) for which the organization is the
transferee,
(2) Amounts paid or incurred as current or deferred compensation for
an employee's services for a purpose enumerated in section 170(c)(2)(B),
(3) The allocable portion of administrative overhead, and other
general expenditures attributable to the accomplishment of a purpose
enumerated in section 170(c)(2)(B),
(4) Lobbying expenditures (as defined in 56.4911-2(a)) whether or
not for a purpose enumerated in section 170(c)(2)(B),
(5) Amounts paid or incurred for activities described in
56.4911-2(c),
(6) Amounts paid or incurred for activities described in 56.4811-5
that are not lobbying expenditures,
(7) A reasonable allowance for exhaustion, wear and tear,
obsolescence or amortization, of assets to the extent used for one or
more of the purposes described in paragraphs (b)(1) through (6) of this
section, computed on a straight-line basis (for this purpose, an
allowance for depreciation will be treated as reasonable if based on a
useful life that would satisfy section 321(k)(3)(A) as in effect on
January 1, 1985), and
(8) Fundraising expenditures (but see section 4911(e)(1)(C) and
paragraphs (c)(3) and (4) of this section.)
(c) Excluded expenditures. Notwithstanding paragraph (b) of this
section, exempt purpose expenditures do not include --
(1) Amounts paid or incurred that are neither expenditures to
accomplish a purpose enumerated in section 170(c)(2)(B), lobbying
expenditures (as defined in 56.4911-2(a)), nor expenditures described
in paragraph (b)(5), (6) or (8) of this section,
(2) The amounts of any transfer described in paragraph (e) of this
section,
(3) Amounts paid to or incurred for a separate fundraising unit (as
defined in paragraph (f)(2) of this section) of an organization or of an
affiliated organization (see 56.4911-7(a)),
(4) Amounts paid to or incurred for any person not an employee, or
any organization not an affiliated organization, if paid or incurred
primarily for fundraising, but only if such person or organization
engages in fundraising, fundraising counselling or the provision of
similar advice or services,
(5) Amounts paid or incurred that are properly chargeable to a
capital account, determined in accordance with the principles that apply
under section 263 or, as applicable, section 263A, with respect to an
unrelated trade or business,
(6) Amounts paid or incurred for a tax that is not imposed in
connection with the organization's efforts to accomplish a purpose
described in section 170(c)(2)(B), such as taxes imposed under sections
511(a)(1) and 4911(a), and
(7) Amounts paid or incurred for the production of income. For
purposes of this section, amounts are paid or incurred for the
production of income if they are paid or incurred for a purpose or
activity that is not substantially related (aside from the need of the
organization for income or funds or the use it makes of the profits
derived) to the exercise or performance by the organization of its
charitable, educational or other purpose or function constituting the
basis for its exemption under section 501. For example, the costs of
managing an endowment are amounts that are paid or incurred for the
production of income and are thus not exempt purpose expenditures.
Fundraising expenditures are not, for purposes of this section, amounts
that are paid or incurred for the production of income. Instead, the
determination of whether fundraising costs are exempt purpose
expenditures must be made with reference to section 4911(e)(1)(C) and
paragraphs (b)(8), (c)(3) and (c)(4) of this section.
(d) Certain transfers treated as exempt purpose expenditures -- (1)
An organization's transfer will be treated as an exempt purpose
expenditure under paragraph (b)(1) of this section if it is --
(i) Described in either paragraph (d)(2) or (d)(3) of this section,
and
(ii) Not described in paragraph (e) of this section.
(2) A transfer is described in this paragraph (d)(2) if it is made to
an organization described in section 501(c)(3) in furtherance of the
transferor's exempt purposes and is not earmarked for any purpose other
than a purpose described in section 170(c)(2)(B). Thus, a payment of
dues by a local or state organization to, respectively, a state or
national organization that is described in section 501(c)(3) is
considered an exempt purpose expenditure of the transferor to the extent
it is not otherwise earmarked.
(3) A transfer is described in this paragraph (d)(3) if it is a
controlled grant (as defined in paragraph (f)(3) of this section), but
only to the extent of the amounts that are paid or incurred by the
transferee that would be exempt purpose expenditures if paid or incurred
by the transferor.
(e) Transfers not exempt purpose expenditures -- (1) An
organization's transfer is described in this paragraph (e) if it is
described in one of paragraphs (e)(2) through (e)(4).
(2) A transfer is described in this paragraph (e)(2) if it is made to
a member of any affiliated group (as defined in 56.4911-7(e)) of which
the transferor is a member.
(3) A transfer is described in this paragraph (e)(3) if the
Commissioner determines that the transfer artificially inflates the
amount of the transferor's or transferee's exempt purpose expenditures.
In general, the Commissioner will make that determination if a
substantial purpose of a transfer is to inflate those exempt purpose
expenditures. A transfer described in this paragraph will not be
considered an exempt purpose expenditure of the transferor, but will be
an exempt purpose expenditure of the transferee to the extent that the
transferee expends the transfer in the active conduct of its charitable
activities or attempts to influence legislation. Standards similar to
those found in 53.4942(b)-1(b) may be applied in determining whether
the transferee has expended amounts in the ''active conduct'' of its
charitable activities or attempts to influence legislation.
(4) A transfer is described in this paragraph (e)(4) if it is not a
controlled grant and is made to an organization not described in section
501(c)(3) that does not attempt to influence legislation.
(f) Definitions -- (1) For purposes of paragraph (c) of this section,
''fundraising'' includes --
(i) Soliciting dues or contributions from members of the
organization, from persons whose dues are in arrears, or from the
general public,
(ii) Soliciting grants from businesses or other organizations,
including organizations described in section 501(c)(3), or
(iii) Soliciting grants from a governmental unit referred to in
section 170(c)(1), or any agency or instrumentality thereof.
(2) For purposes of paragraph (c) of this section, a separate
fundraising unit of any organization must consist of either two or more
individuals a majority of whose time is spent on fundraising for the
organization, or any separate accounting unit of the organization that
is devoted to fundraising. For purposes of paragraph (c) of this
section, amounts paid to or incurred for a separate fundraising unit
include all amounts incurred for the creation, production, copying, and
distribution of the fundraising portion of a separate fundraising unit's
communication. (For example, an electing public charity that has a
separate fundraising unit may not count the cost of postage for a
separate fundraising unit's communication as an exempt purpose
expenditure even though, under the electing public charity's accounting
system, that cost is attributable to the mailroom rather than to the
separate fundraising unit.)
(3) For purposes of this section, a ''controlled grant'' is a grant
made by an eligible organization described in 1.501(h)-2(b) to an
organization not described in section 501(c)(3) that meets the following
requirements:
(i) The donor limits the grant to a specific project of the recipient
that is in furtherance of the donor's (nonlobbying) exempt purposes;
and
(ii) The donor maintains records to establish that the grant is used
in furtherance of the donor's (nonlobbying) exempt purposes.
(4) A transfer, including a grant or payment of dues, is
''earmarked'' for a specific purpose --
(i) To the extent that the transferor directs the transferee to add
the amount transferred to a fund established to accomplish the purpose,
or
(ii) To the extent of the amount transferred or, if less, the amount
agreed upon to the expended to accomplish the purpose, if there exists
an agreement, oral or written, whereby the transferor may cause the
transferee to expend amounts to accomplish the purpose or whereby the
transferee agrees to expend an amount to accomplish the purpose.
(g) Example. The provisions of this section are illustrated by the
following example:
Example. Organization X is an exempt organization described in
section 501(c)(3) that is organized for the purpose of rehabilitating
alcoholics. X elected to be subject to the provisions of section 501(h)
in 1981. For 1981, X had the following expenditures that are included
in its exempt purpose expenditures to the extent indicated.
Note: For 1981, X's exempt purpose expenditures total $320,000. The
$35,000 paid by X to Z for fundraising is not included in the exempt
purpose expenditures total. All lobbying expenses are included in full.
Only depreciation computed on a straight-line basis is included in
exempt purpose expenditures.
26 CFR 56.4911-5 Communications with members.
(a) In general. For purposes of section 4911, expenditures for
certain communications between an organization and its members
(''membership communications'') are treated more leniently than are
communications to nonmembers. This 56.4911-5 contains rules about the
more lenient treatment. In certain cases, this section provides that
expenditures for a membership communication are not lobbying
expenditures even though those expenditures would be lobbying
expenditures if the communication were to nonmembers. In other cases,
this section provides that expenditures for a membership communication
are direct lobbying expenditures even though those expenditures would be
grass roots expenditures if the communication were to nonmembers.
Paragraphs (b), (c) and (d) of this section set forth the more lenient
rules that apply for communications that are directed only to members.
Paragraph (e) of this section sets forth the more lenient rules that
apply for communications that are directed primarily, but not solely, to
members. Paragraph (f) of this section sets forth certain definitions
and special rules.
(b) Communications (directed only to members) that are not lobbying
communications. Expenditures for a communication that refers to, and
reflects a view on, specific legislation are not lobbying expenditures
if the communication satisfies the following requirements:
(1) The communication is directed only to members of the
organization;
(2) The specific legislation the communication refers to, and
reflects a view on, is of direct interest to the organization and its
members;
(3) The communication does not directly encourage the member to
engage in direct lobbying (whether individually or through the
organization); and
(4) The communication does not directly encourage the member to
engage in grass roots lobbying (whether individually or through the
organization).
(c) Communications (directed only to members) that are direct
lobbying communications. Expenditures for a communication that refers
to, and reflects a view on, specific legislation and that satisfies the
requirements of paragraphs (b)(1), (b)(2), and (b)(4) of this section,
but does not satisfy the requirements of paragraph (b)(3) of this
section, are treated as expenditures for direct lobbying.
(d) Communications (directed only to members) that are grass roots
lobbying communications. Expenditures for a communication that refers
to, and reflects a view on, specific legislation and that satisfies the
requirements of paragraphs (b)(1) and (b)(2) of this section, but does
not satisfy the requirements of paragraph (b)(4) of this section, are
treated as grass roots expenditures (whether or not the communication
satisfies the requirements of paragraph (b)(3) of this section).
(e) Written communications directed to members and nonmembers -- (1)
In general. Expenditures for any written communication that is designed
primarily for members of an organization (but not directed only to
members) and that refers to, and reflects a view on, specific
legislation of direct interest to the organization and its members, are
treated as expenditures for direct or grass roots lobbying in accordance
with paragraph (e)(2), (e)(3) or (e)(4) of this section. For purposes
of this section, a communication is designed primarily for members of an
organization if more than half of the recipients of the communication
are members of the organization.
(2) Direct lobbying directly encouraged -- (i) Lobbying expenditure
amount. If a written communication described in paragraph (e)(1) of
this section directly encourages readers to engage individually or
through the organization in direct lobbying but does not directly
encourage them to engage in grass roots lobbying, the cost of the
communication is allocated between expenditures for direct lobbying and
grass roots expenditures in accordance with paragraphs (e)(2) (ii) and
(iii) of this section. The portion of the cost to be allocated includes
all costs of preparing all the material with respect to which readers
are urged to engage in direct lobbying plus the mechanical and
distribution costs attributable to the lineage devoted to this material
(see 1.512(a)-1(f)(6)).
(ii) Grass roots amount. The amount allocable as a grass roots
expenditure for a communication described in paragraph (e)(1) of this
section is the amount calculated in paragraph (e)(2)(i) of this section
multiplied by the sum of the nonmember subscribers percentage and all
the other distribution percentage, both as defined in paragraph (f)(7)
of this section. Solely for purposes of the allocation described in
this paragraph (e)(2)(ii), the nonmember subscribers percentage is
treated as zero unless it is greater than 15% of total distribution.
(iii) Direct lobbying amount. The amount allocable as an expenditure
for direct lobbying for a communication described in paragraph (e)(1) of
this section is the excess of the amount described in paragraph
(e)(2)(i) of this section over the amount described in paragraph
(e)(2)(ii) of this section.
(3) Grass roots expenditure if grass roots lobbying directly
encouraged. If a written communication described in paragraph (e)(1) of
this section directly encourages readers to engage individually or
collectively (whether through the organization or otherwise) in grass
roots lobbying (whether or not it also encourages readers to engage in
direct lobbying), the grass roots expenditure includes all the costs of
preparing all the material with respect to which readers are urged to
engage in grass roots lobbying plus the mechanical and distribution
costs attributable to the lineage devoted to this material (see
1.512(a)-1(f)(6)).
(4) No direct encouragement of direct lobbying or of grass roots
lobbying. If a written communication described in paragraph (e)(1) of
this section does not directly encourage readers to engage in either
direct lobbying or grass roots lobbying, expenditures for the
communication are not lobbying expenditures.
(f) Definitions and special rules. For purposes of the regulations
under section 4911 --
(1) Member; general rule. A person is a member of an electing
public charity if the person --
(i) Pays dues or makes a contribution of more than a nominal amount,
(ii) Makes a contribution of more than a nominal amount of time, or
(iii) Is one of a limited number of ''honorary'' or ''life'' members
who have more than a nominal connection with the electing public charity
and who have been chosen for a valid reason (such as length of service
to the organization or involvement in activities forming the basis of
the electing public charity's exemption) unrelated to the electing
public charity's dissemination of information to its members.
(2) Member; special rule. A person not a member of an electing
public charity within the meaning of paragraph (f)(1) of this section
may be treated as a member if the electing public charity demonstrates
to the satisfaction of the Internal Revenue Service that there is a good
reason for its membership requirements not meeting the requirements of
such paragraph (f)(1), and that its membership requirements do not
operate to permit an abuse of the rules described in this section.
(3) Member; affiliated group of organizations. For purposes of this
section, a person who is a member of an organization that is a member of
an affiliated group of organizations (within the meaning of
56.4911-7(e)) is treated as a member of each organization in the
affiliated group.
(4) Member; limited afffiliated group of organizations. For
purposes of this section, a person who is a member of an organization
that is a member of a limited affiliated group of organizations (within
the meaning of 56.4911-10(b)) is treated as a member of each
organization in the limited affiliated group, but only to the extent
that the communication relates to a national legislative issue (within
the meaning of 56.4911-10(g)).
(5) Subscriber. A person is a subscriber to a written communication
if --
(i) The person is a member of the publishing organization and the
membership dues expressly include the right to receive the written
communication, or
(ii) The person has affirmatively expressed a desire to receive the
written communication and has paid more than a nominal amount of the
communication.
(6) Directly encourages -- (i) Direct lobbying -- (A) In general.
For purposes of this section, a communication directly encourages a
recipient to engage in direct lobbying, whether individually or through
the organization, if the communication:
(1) States that the recipient should contact a legislator or an
employee of a legislative body, or should contact any other government
official or employee who may participate in the formulation of
legislation (but only if the principal purpose of urging contact with
the government official or employee is to influence legislation);
(2) States the address, telephone number, or similar information of a
legislator or an employee of a legislative body; or
(3) Provides a petition, tear-off postcard or similar material for
the recipient to communicate his or her views to a legislator or an
employee of a legislative body, or to any other government official or
employee who may participate in the formulation of legislation (but only
if the principal purpose of so facilitating contact with the government
official or employee is to influence legislation).
(B) ''Self-defense'' exception for communications with members.
Notwithstanding the provisions of paragraph (f)(6)(i)(A) of this
section, for purposes of paragraphs (b)(3), (e)(2)(i), (e)(3) and (e)(4)
of this section, a communication that directly encourages a member to
engage in direct lobbying activities that are described in section
4911(d)(2)(C) and that would not be attempts to influence legislation if
engaged in directly by the organization is treated as a communication
that does not directly encourage a member to engage in direct lobbying.
(ii) Grass roots lobbying. For purposes of paragraphs (b)(4), (e)(3)
and (e)(4) of this section, a communication directly encourages
recipients to engage individually or collectively (whether through the
organization or otherwise) in grass roots lobbying if the communication:
(A) States that the recipient should encourage any nonmember to
contact a legislator or an employee of a legislative body, or to contact
any other government official or employee who may participate in the
formulation of legislation (but only if the principal purpose of urging
contact with the government official or employee is to influence
legislation);
(B) States that the recipient should provide to any nonmember the
address, telephone number, or similar information of a legislator or an
employee of a legislative body; or
(C) Provides (or requests that the recipient provide to nonmembers) a
petition, tear-off postcard or similar material for the recipient (or
nonmember) to use to ask any nonmember to communicate views to a
legislator or an employee of a legislative body, or to any other
government official or employee who may participate in the formulation
of legislation, but only if the principal purpose of so facilitating
contact with the government official or employee is to influence
legislation. For purposes of this paragraph (f)(6)(ii)(C), a petition
is provided for the recipient to use to ask any nonmember to communicate
views if, for example, the petition has an entire page of preprinted
signature blocks. Similarly, for purposes of this paragraph
(f)(6)(ii)(C), where a communication is distributed to a single member
and provides several tear-off postcards addressed to a legislator, the
postcards are presumed to be provided for the member to use to ask a
nonmember to communicate with the legislator.
(7) Percentages of total distribution. With respect to a
communication described in paragraph (e)(1) of this section --
(i) ''Member percentage'' means the percentage of total distribution
that represents distribution of a single copy to any member;
(ii) ''Nonmember subscribers percentage'' means the percentage of
total distribution that represents distribution to nonmember subscribers
(including libraries); and
(iii) ''All other distribution percentage'' means 100% reduced by the
sum of the member percentage and the nonmember subscribers percentage.
(8) Reasonable allocation rule. In the case of lobbying expenditures
for a communication that also has a bona fide nonlobbying purpose and
that is sent only or primarily to members, an electing public charity
must make a reasonable allocation between the amount expended for the
lobbying purpose and the amount expended for the nonlobbying purpose.
See 56.4911-3(a)(2)(ii).
26 CFR 56.4911-6 Records of lobbying and grass roots expenditures.
(a) Records of lobbying expenditures. An electing public charity
must keep a record of its lobbying expenditures for the taxable year.
Lobbying expenditures of which an organization must keep a record
include the following:
(1) Expenditures for grass roots lobbying, as described in paragraph
(b) of this section;
(2) Amounts directly paid or incurred for direct lobbying, including
payments to another organization earmarked for direct lobbying, fees and
expenses paid to individuals or organizations for direct lobbying, and
printing, mailing, and other direct costs of reproducing and
distributing materials used in direct lobbying;
(3) The portion of amounts paid or incurred as current or deferred
compensation for an employee's services for direct lobbying;
(4) Amounts paid for out-of-pocket expenditures incurred on behalf of
the organization and for direct lobbying, whether or not incurred by an
employee;
(5) The allocable portion of administrative, overhead, and other
general expenditures attributable to direct lobbying;
(6) Expenditures for publications or for communications with members
to the extent the expenditures are treated as expenditures for direct
lobbying under 56.4911-5; and
(7) Expenditures for direct lobbying of a controlled organization
(within the meaning of 56.4911-10(c)) to the extent included by a
controlling organization (within the meaning of 56.4911-10(c)) in its
lobbying expenditures.
(b) Records of grass roots expenditures. An electing public charity
must keep a record of its grass roots expenditures for the taxable year.
Grass roots expenditures of which an organization must keep a record
include the following:
(1) Amounts directly paid or incurred for grass roots lobbying,
including payments to other organizations earmarked for grass roots
lobbying, fees and expenses paid to individuals or organizations for
grass roots lobbying, and the printing, mailing, and other direct costs
of reproducing and distributing materials used in grass roots lobbying;
(2) The portion of amounts paid or incurred as current or deferred
compensation for an employee's services for grass roots lobbying;
(3) Amounts paid for out-of-pocket expenditures incurred on behalf of
the organization and for grass roots lobbying, whether or not incurred
by an employee;
(4) The allocable portion of administrative, overhead and other
general expenditures attributable to grass roots lobbying;
(5) Expenditures for publication or communications that are treated
as expenditures for grass roots lobbying under 56.4911-5; and
(6) Expenditures for grass roots lobbying of a controlled
organization (within the meaning of 56.4911-10(c)) to the extent
included by a controlling organization (within the meaning of
56.4911-10(c)) in its grass roots expenditures.
26 CFR 56.4911-7 Affiliated group of organizations.
(a) Affiliation between two organizations. Sections 4911(f) (1)
through (3) contain a limited anti-abuse rule for groups of affiliated
organizations. In general, the rule operates to prevent numerous
organizations from being created for the purpose of avoiding the
sliding-scale percentage limitation on an electing public charity's
lobbying expenditures (as well as avoiding the $1,000,000 cap on a
single electing public charity's lobbying expenditures). This is
generally accomplished by treating the members of an affiliated group as
a single organization for purposes of measuring both lobbying
expenditures and permitted lobbying expenditures. The anti-abuse rule
is implemented by this 56.4911-7 and 56.4911-8 and 56.4911-9. This
56.4911-7 defines the term ''affiliated group of organizations'' and
defines the taxable year of an affiliated group of organizations.
Section 56.4911-8 provides rules concerning the exempt purpose
expenditures, lobbying expenditures and grass roots expenditures of an
affiliated group of organizations, as well as rules concerning the
application of the excise tax imposed by section 4911(a) on excess
lobbying expenditures by the group. Section 56.4911-9 provides rules
concerning the application of the section 501(h) lobbying expenditure
limits to members of an affiliated group of organizations. (For
additional rules for members of a limited affiliated group of
organizations (generally, organizations that are affiliated solely by
reason of governing instrument provisions that extend control solely
with respect to national legislation), see section 4911(f)(4) and
56.4911-10).
(1) In general. For purposes of the regulations under section 4911,
two organizations are affiliated, subject to the limitation described in
paragraph (a)(2) of this section, if one organization is able to control
action on legislative issues by the other by reason of interlocking
governing boards (see paragraph (b) of this section) or by reason of
provisions of the governing instruments of the controlled organization
(see paragraph (c) of this section). The ability of the controlling
organization to control action on legislative issues by the controlled
organization is sufficient to establish that the organizations are
affiliated; it is not necessary that the control be exercised.
(2) Organizations not described in section 501(c)(3). Two
organizations, neither of which is described in section 501(c)(3), are
affiliated only if there exists at least one organization described in
section 501(c)(3) that is affiliated with both organizations.
(3) Action on legislative issues. For purposes of this section, the
term ''action on legislative issues'' includes taking a position in the
organization's name on legislation, authorizing any person to take a
position in the organization's name on legislation, or authorizing any
lobbying expenditures. The phrase does not include actions taken merely
to correct unauthorized actions taken in the organization's name.
(b) Interlocking governing boards -- (1) In general. Two
organizations have interlocking governing boards if one organization
(the controlling organization) has a sufficient number of
representatives (within the meaning of paragraph (b)(5) of this section)
on the governing board of the second organization (the controlled
organization) so that by aggregating their votes, the representatives of
the controlling organization can cause or prevent action on legislative
issues by the controlled organization. If two organizations have
interlocking governing boards, the organizations are affiliated without
regard to how or whether the representatives of the controlling
organization vote on any particular matter.
(2) Majority or quorum. Except as provided in paragraph (b) (3) or
(4) of this section, the number of representatives of an organization
(the controlling organization) who are members of the governing board of
a second organization (the controlled organization) will be presumed
sufficient to cause or prevent action on legislative issues by the
controlled organization if that number either --
(i) Constitutes a majority of incumbents on the governing board, or
(ii) Constitutes a quorum, or is sufficient to prevent a quorum, for
acting on legislative issues.
(3) Votes required under governing instrument or local law. Except
as provided in paragraph (b)(4) of this section, if under the governing
documents of an organization (the controlled organization), it can be
determined that a lesser number of votes than the number described in
paragraph (b)(2) of this section is necessary or sufficient to cause or
to prevent action on legislative issues, the number of representatives
of the controlling organization who are members of the governing board
of the controlled organization will be considered sufficient to cause or
prevent action on legislative issues if it equals or exceeds that
number.
(4) Representatives constituting less than 15% of governing board.
Notwithstanding paragraph (b) (2) or (3) of this section, if the number
of representatives of one organization is less than 15 percent of the
incumbents on the governing board of a second organization, the two
organizations are not affiliated by reason of interlocking governing
boards.
(5) Representatives. (i) This paragraph (b)(5) describes members of
the governing board of one organization (the controlled organization)
who are considered representatives of a second organization (the
controlling organization). Under this paragraph (b)(5), a member of the
governing board of a controlled organization may be a representative of
more than one controlling organization. A person with no authority to
vote on any issue being considered by the governing board is not a
representative of any organization.
(ii) A board member of one organization (the controlled organization)
is a representative of a second organization (the controlling
organization) if the controlling organization has specifically
designated that person to be a board member of the controlled
organization. For purposes of this paragraph (b)(5)(ii) and paragraph
(b)(5)(iii) of this section, a board member of the controlled
organization is specifically designated by the controlling organization
if the board member is selected by virtue of the right of the
controlling organization, under the governing instruments of the
controlled organization, either to designate a person to be a member of
the controlled organization's governing board, or to select a person for
a position that entitles the holder of that position to be a member of
the controlled organization's governing board.
(iii) A board member of one organization who is specifically
designated by a second organization, a majority of the governing board
of which is made up of representatives of a third organization, is a
representative of the third organization as well as being a
representative of the second organization pursuant to paragraph
(b)(5)(ii) of this section.
(iv) A board member of one organization who is also a member of the
governing board of a second organization is a representative of the
second organization.
(v) A board member of one organization who is an officer or paid
executive staff member of a second organization is a representative of
the second organization. Although titles are significant in determining
whether a person is a member of the executive staff of an organization,
any employee of an organization who possesses authority commonly
exercised by an executive is considered an executive staff member for
purposes of this paragraph (b)(5)(v).
(c) Governing instrument. One organization (the ''controlling''
organization) is affiliated with a second organization (the
''controlled'' organization) by reason of the governing instruments of
the contolled organization if the governing instruments of the
controlled organization limit the independent action of the controlled
organization on legislative issues by requiring it to be bound by
decisions of the other organization on legislative issues.
(d) Three or more organizations affiliated -- (1) Two controlled
organizations affiliated. If a controlling organization described in
this section is affiliated with each of two or more controlled
organizations described in this section, then the controlled
organizations are affiliated with each other.
(2) Chain rule. If one organization is a controlling organization
described in this section with respect to a second organization and that
second organization is a controlling organization with respect to a
third organization, then the first organization is affiliated with the
third.
(e) Affiliated group of organizations -- (1) Defined. For purposes
of the regulations under section 4911, an affiliated group of
organizations is a group of organizations --
(i) Each of which is affiliated with every other member for at least
thirty days of the taxable year of the affiliated group (determined
without regard to the election provided for in paragraph (e)(5) of this
section),
(ii) Each of which is an eligible organization (within the meaning of
1.501(h)-2(b)(1)), and
(iii) At least one of which is an electing member organization
(within the meaning of paragraph (e)(4) of this section).
Each organization in a group of organizations that satisfies the
requirements of the preceding sentence is a member of the affiliated
group of organizations for the taxable year of the affiliated group.
(2) Multiple membership. For any taxable year of an organization, it
may be a member of two or more affiliated groups of organizations.
(3) Taxable year of affiliated group. If all members of an
affiliated group have the same taxable year, that taxable year is the
taxable year of the affiliated group. If the members of an affiliated
group do not all have the same taxable year, the taxable year of the
affiliated group is the calendar year, unless the election under
paragraph (e)(5) of this section is made.
(4) Electing member organization. For purposes of the regulations
under section 4911, an ''electing member organization'' is an
organization to which the expenditure test election under section 501(h)
applies on at least one day of the taxable year of the affiliated group
of which it is a member. For purposes of the preceding sentence (and
notwithstanding 1.501(h)-2(a)), the expenditure test is not considered
to apply to the organization on any day before the date on which it
files the Form 5768 making the expenditure test election.
(5) Election of member's year as group's taxable year. The taxable
year of an affiliated group may be determined according to the
provisions of this paragraph (e)(5) if all of the members of the
affiliated group so elect. Under this paragraph (e)(5), each member
organization shall apply the provisions of section 501(h) and 4911, and
the regulations thereunder (unless the regulations provide otherwise),
by treating its own taxable year as the taxable year of the affiliated
group. The election may be made by an electing member organization by
attaching to its annual return a statement from itself and every other
member of the affiliated group that contains: the organization's name,
address, and employer identification number; and its signed consent to
the election provided for in this paragraph (e)(5). The election must
be made no later than the due date of the first annual return of any
electing member for its taxable year for which the member is liable for
tax under section 4911(a), determined under 56.4911-8(d). The election
may not be made or revoked after the due date of the return referred to
in the preceding sentence except upon such terms and conditions as the
Commissioner may prescribe.
(f) Examples. The provisions of this section are illustrated by the
following examples.
Example (1). M, N, and O are eligible organizations within the
meaning of 1.501(h)-2(b)(1). Each has a governing board made up of nine
members. Five members on the board of N are also members of the board
of M. N designates five individuals from among its board, officers, and
executive staff members to serve on the board of O. M is affiliated
with N, N is affiliated with O, and M is affiliated with O.
Example (2). X, an eligible organization, has a board consisting of
10 members. Five unaffiliated tax-exempt organizations each designate
two individuals to serve on the governing board of X. A simple majority
of the board of X is a quorum and may establish X's position on
legislative issues. X is not affiliated with any of the five autonomous
organizations by reason of interlocking governing boards.
Example (3). P and Q are eligible organizations. The governing
instruments of Q state that it will not take a position on legislation
if P disapproves of the position. In addition, there is regular
correspondence between P and Q with regard to positions on legislation.
P is affiliated with Q regardless of whether P has ever vetoed a
position taken by Q.
Example (4). The governing board of organization R resolves to adopt
the position taken on legislative issues by organization S. R and S are
eligible organizations and do not have interlocking governing boards.
The governing instruments of R do not mention organization S and do not
indicate that R is to be bound by the decisions of legislation of any
organization. R and S are not affiliated.
Example (5). Organization Z is bound, under the terms of its
governing instruments, by the legislative positions of Organization Y.
Organization Y, however, is bound, under the terms of its governing
instruments, by the legislative positions of Organization X.
Organization X is affiliated with Y and Z; Y is affiliated with X and
Z; and Z is affiliated with X and Y.
Example (6). Organizations T and U have interlocking boards of
directors. T is the controlling organization. Organization V is bound,
under the terms of its governing instruments, by the legislative
positions of U. T and V are affiliated because T may cause or prevent
action on legislative issues by U, and V is bound by U's action. If U
were the controlling organization, T and V would be affiliated as two
organizations controlled by the same organization.
Example (7). Organization A is described in section 501(c)(4). It
is affiliated, as the controlling organization, with organizations K and
L, both of which are described in section 501(c)(3) and are eligible to
elect under section 501(h). If K elects under section 501(h), K and L
are an affiliated group of organizations. Even though A is affiliated
with K and L, A is not a member of that affiliated group of
organizations because A is not an eligible organization within the
meaning of 1.501(h)-2(b)(1) (see 56.4911-7(e)(1) for the definition of
which affiliated organizations may be members of an affiliated group of
organizations).
Example (8). G, H, I, and J are eligible organizations. G, H, and I
have elected the expenditure test under section 501(h). The governing
board of J has nine members. Under the governing instruments of J,
organizations G, H, and I each designate three members of the governing
board of J. Also under the governing instruments of J, action on
legislative issues requires the approval of any seven board members.
Because the three representatives of G may prevent action on legislative
issues, J is affiliated with G. Similarly, J is affiliated with each of
H and I. However, under none of the rules of affiliation is G
affiliated with H, or H with I, or I with G. Therefore J is a member of
one affiliated group comprising G and J, of another group comprising H
and J, and of a third group comprising I and J.
Example (9). Organizations C, D, and E have been affiliated for many
years and have all elected the expenditure test. Each has a taxable
year ending July 31. For every day of the year ending July 31, 1992,
they were eligible organizations, electing member organizations, and
affiliated with each other. On no day of that year were they affiliated
with any other eligible organization having a different taxable year.
Therefore, the year ending July 31, 1992, is the taxable year of the
affiliated group comprising C, D, and E.
26 CFR 56.4911-8 Excess lobbying expenditures of affiliated group.
(a) Application. This section provides rules concerning the exempt
purpose expenditures, lobbying expenditures, and grass roots
expenditures of an affiliated group of organizations, and the
application of the excise tax imposed by section 4911(a) on the excess
lobbying expenditures of the group.
(b) Affiliated group treated as one organization. Under section
4911(f), an affiliated group of organizations is treated as a single
organization for purposes of the tax imposed by section 4911(a). For
any taxable year of the affiliated group, the group's lobbying
expenditures, grass roots expenditures, and exempt purpose expenditures
are equal to the sum of the lobbying expenditures, grass roots
expenditures, and exempt purpose expenditures, respectively, paid or
incurred by each member during the taxable year of the affiliated group.
The lobbying and grass roots nontaxable amounts for the affiliated
group for a taxable year are determined under section 4911(c) (2) and
(4) and 56.4911-1(c) and are based on the sum of the exempt purpose
expenditures described in the preceding sentence. The lobbying and
grass roots ceiling amounts for the affiliated group for a taxable year
are calculated under 1.501(h)-3(c) (3) and (6) based upon the
nontaxable amounts determined pursuant to the preceding sentence.
(c) Tax imposed on excess lobbying expenditures of affiliated group.
The excise tax under section 4911(a) is imposed for a taxable year of an
affiliated group if the group has excess lobbying expenditures. For any
taxable year of an affiliated group, the group's excess lobbying
expenditures are the greater of --
(1) The amount by which the group's lobbying expenditures exceed the
group's lobbying nontaxable amount, or
(2) The amount by which the group's grass roots expenditures exceed
the group's grass roots nontaxable amount.
(d) Liability for tax -- (1) Electing organizations. As provided in
this paragraph (d), an electing member organization is liable for all or
a portion of the excise tax imposed by section 4911(a) on the excess
lobbying expenditures of an affiliated group of organizations. An
organization that is liable under this paragraph (d) is not liable for
any excise tax under section 4911 based on its own excess lobbying
expenditures. A member of the affiliated group that is not an electing
member organization is not liable for any portion of the excise tax that
is imposed with respect to the affiliated group.
(2) Tax based on excess lobbying expenditures. If the excise tax
imposed by section 4911(a) on the excess lobbying expenditures of an
affiliated group of organizations is based upon the amount described in
paragraph (c)(1) of this section, and at least one electing member has
made lobbying expenditures, each electing member organization is liable
for a portion of the tax equal to the amount of the tax multiplied by a
fraction, the numerator of which is the electing member organization's
lobbying expenditures paid or incurred during the taxable year of the
affiliated group, and the denominator of which is the sum of the
lobbying expenditures of all electing member organizations in the group
paid or incurred during the taxable year of the affiliated group.
(3) Tax based on excess grass roots expenditures. If the excise tax
imposed by section 4911(a) on the excess lobbying expenditures of an
affiliated group of organizations is based upon the amount described in
paragraph (c)(2) of this section, and at least one electing member has
made grass roots expenditures, each electing member organization is
liable for a portion of the tax equal to the amount of the tax
multiplied by the fraction described in paragraph (d)(2) of this
section, except that ''grass roots expenditures'' is substituted for
''lobbying expenditures.''
(4) Tax based on exempt purpose expenditures. If the excise tax
imposed by section 4911(a) on the excess lobbying expenditures of an
affiliated group of organizations is based upon the amount described in
paragraph (c)(2) of this section, and if paragraphs (d)(2) and (d)(3) of
this section do not apply because no electing organization has made
lobbying or grass roots expenditures, respectively, each electing member
organization is liable for a portion of the tax equal to the amount of
tax multiplied by a fraction the numerator of which is the electing
member organization's exempt purpose expenditures and the denominator of
which is the exempt purpose expenditures of all the electing member
organizations in the affiliated group.
(5) Taxable year for which liable. An electing member organization
that is liable for all or a portion of the excise tax imposed by section
4911(a) on the excess lobbying expenditures of an affiliated group of
organizations is liable for the tax as if the tax were imposed for its
taxable year with which or within which ends the taxable year of the
affiliated group.
(6) Organization a member of more than one affiliated group. If,
under this paragraph (d), an organization is liable for its taxable year
for two or more excise taxes imposed by section 4911(a) on the excess
lobbying expenditures of two or more affiliated groups, then the
organization is liable only for the greater of the two or more taxes.
(e) Former member organization. An electing member organization that
ceases to be a member of an affiliated group of organizations, the
taxable year of which is different from its own, must thereafter
determine its liability under 56.4911-1 for the excise tax imposed by
section 4911(a) as if its taxable year were the taxable year of the
affiliated group of which it was formerly a member. An organization to
which this paragraph (e) applies that is liable for the excise tax
imposed by section 4911(a) is liable for the tax as if the tax were
imposed for its taxable year within which ends the taxable year of the
affiliated group of which it was formerly a member. The Commissioner
may, at the Commissioner's discretion, permit an organization to
disregard the rules of this paragraph (e) and to determine any liability
under section 4911(a) based upon its own taxable year.
26 CFR 56.4911-9 Application of section 501(h) to affiliated groups of
organizations.
(a) Scope. This section provides rules concerning the application of
the limitations of section 501(h) to members of an affiliated group of
organizations (as defined in 56.4911-7(e)(1)).
(b) Determination required. For each taxable year of an affiliated
group of organizations, the calculations described in 1.501(h)-3(b)(1)
(i) and (ii) must be made, based on the expenditures of the group. If,
for a taxable year of an affiliated group, it is determined that the sum
of the affiliated group's lobbying or grass roots expenditures for the
group's base years exceeds 150 percent of the sum of the group's
corresponding nontaxable amounts for the base years, then under section
501(h), each member organization that is an electing member organization
(as defined in 56.4911-7(e)(4)) at any time in the taxable year of the
affiliated group shall be denied tax exemption beginning with its first
taxable year beginning after the end of such taxable year of the
affiliated group. Thereafter, exemption shall be denied unless
(pursuant to 1.501(h)-3(d)) the organization reapplies and is
recognized as exempt as an organization described in section 501(c)(3).
For purposes of this section, the term ''base years'' generally means
the taxable year of the affiliated group for which a determination is
made and the group's three preceding taxable years. Base years,
however, do not include any year preceding the first year in which at
least one member of the group was treated as described in section
501(c)(3).
(c) Member organizations that are not electing organizations. An
organization that is a member of an affiliated group of organizations
but that is not an electing member organization remains subject to the
''substantial part test'' described in section 501(c)(3) with respect to
its activities involving attempts to influence legislation.
(d) Filing of information relating to affiliated group of
organizations -- (1) Scope. The filing requirements described in this
paragraph (d) apply to each member of an affiliated group or
organizations for the taxable year of the member with which, or within
which, ends the taxable year of the affiliated group.
(2) In general. Each member of an affiliated group of organizations
shall provide to every other member of the group, before the first day
of the second month following the close of the affiliated group's
taxable year, its name, identification number, and the information
required under 1.6033-2(a)(2)(ii)(k) for its expenditures during the
group's taxable year and for prior taxable years of the group that are
base years under paragraph (b). For groups electing under
56.4911-7(e)(5) to have each member file information with respect to the
group based on its taxable year, each member shall provide the
information required by the preceding sentence by treating each taxable
year of any member of the group as a taxable year for the group.
(3) Additional information required. In addition to the information
required by 1.6033-2(a)(2)(ii)(k), each member of an affiliated group
of organizations must provide on its annual return the group's taxable
year and, if the election under 56.4911-7(e)(5) is made, the name,
identification number, and taxable year identifying the return with
which its consent to the election was filed.
(4) Information required of electing member organization. In
addition to the information required by 1.6033-2(a)(2)(ii)(k) and
paragraph (d)(3) of this section, each electing member organization (as
defined in 56.4911-7(e)(4)) must provide on its annual return --
(i) The name and identification number of each member of the group,
and
(ii) The appropriate calculation described in 56.4911-8(d), if the
organization is an electing member organization liable for all or any
portion of the excise tax imposed by section 4911(a).
(e) Example. The provisions of this section may be illustrated by
the following example:
Example. (1) M, N, and O are affiliated organizations under
56.4911-7(a). M's taxable year ends November 30, N's, January 31, and
O's, June 30. On June 20, 1979, O files Form 5768 to elect to be
governed by the expenditure test. M files Form 5768 in December of
1979. Neither M nor O revokes the election, and no organization makes
the election provided for in 56.4911-7(e)(5). M, N, and O constitute an
affiliated group of organizations, the first taxable year of which is
the calendar year 1979.
(2) Because the organizations did not elect under 56.4911-7(e)(5) to
use their own taxable years as the group's taxable years, the
expenditures of the affiliated group for its first taxable year are the
expenditures made by M, N, and O during calendar year 1979, and are
reported by M, N, and O on their returns for their taxable years within
which falls December 31, 1979. M reports the expenditures of the
affiliated group for 1979 on its return for its taxable year ending
November 30, 1980; and O, on its return for its taxable year ending
June 30, 1980. N is not an electing member (as defined in
56.4911-7(e)(4)). Accordingly, under paragraph (d)(3)(i) of this
section, it reports the name and identification number of each member of
the group.
(3) The following tables summarize the expenditures by the affiliated
group for the calendar years indicated. None of the group's lobbying
expenditures for its taxable years 1979 through 1982 were grass roots
expenditures.
(4) For the affiliated group's taxable years 1979, 1980, 1981, and
1982, the group has excess lobbying expenditures. Under section
4911(f)(1)(B) and 56.4911-8(d), M and O, as electing member
organizations, are liable for a portion of the 25 percent excise tax
imposed on the group's excess lobbying expenditures, based on their
respective shares of the lobbying expenditures of all electing member
organizations. For 1979, the excess lobbying expenditures are $20,000
($100,000^$80,000). The tax is 25% of $20,000 or $5,000; M must pay
$3,750 (($60,000/$80,000) $5,000 = $3,750), and O must pay $1,250
(($20,000/$80,000) $5,000 = $1,250). For 1980, the tax is $10,000 and
each must pay $5,000. For 1981, the tax is $1,250, of which M must pay
$750 and O must pay $500. For 1982, the tax is $30,000. M must pay
$24,000 and O must pay $6,000. M and O are not liable for any separate
4911 excise tax that otherwise would have been imposed on their separate
excess lobbying expenditures.
(5) Under 56.4911-9(b), the group must make the calculation
described in 1.501(h)-3(b)(1) for each of the group's taxable years
1979 through 1982. The following illustrates only the required
calculation for the group's taxable year 1982. For its taxable year
1982, the group must determine whether it normally has made lobbying
expenditures in excess of its lobbying ceiling amount. The
determination takes into account the group's expenditures in base years
1979 through 1982. The sum of the group's lobbying expenditures for the
base years ($540,000) exceeds 150% of the sum of the group's lobbying
nontaxable amounts for the base years (150% $355,000 = $532,500).
Therefore, for its taxable year 1982, the group normally has made
lobbying expenditures in excess of its lobbying ceiling amount. Under
section 501(h) and 56.4911-9(b), M is not exempt from tax under section
501(a) as an organization described in section 501(c)(3) for its taxable
year beginning December 1, 1983, and O is not exempt for its year
beginning July 1, 1983. Whether N's lobbying expenditures disqualify it
for tax exemption at any time after January 1, 1979, is determined under
the substantial part test of section 501(c)(3).
(f) Cross reference. For other provisions relating to members of an
affiliated group or organizations, see 56.4911-2(c)(4)(ii),
56.4911-4(c)(2), 56.4911-4(e), and 56.4911-5(f)(3).
26 CFR 56.4911-10 Members of a limited affiliated group of
organizations.
(a) Scope. This section provides additional rules for members of a
limited affiliated group of organizations, as defined in paragraph (b)
of this section (relating generally to organizations that are affiliated
solely by reason of provisions of their governing instruments that
extend control solely with respect to national legislation). Except as
otherwise provided in this section, 56.4911-8 and 56.4911-9 do not
apply to members of a limited affiliated group. Thus, as modified by
this section, the regulations under sections 501(h) and 4911 apply to
electing members of a limited affiliated group individually. For
example, 56.4911-2 through 56.4911-4, which, by their terms, include
amounts described in paragraph (d) of this section, are used in applying
sections 501(h) and 4911 to controlling member organizations (within the
meaning of paragraph (c) of this section). Except as otherwise provided
in this section, members of a limited affiliated group that are not
electing organizations are subject to the substantial part test.
(b) Members of limited affiliated group. For purposes of section
4911, a limited affiliated group consists of two or more organizations
that meet the following requirements:
(1) Each organization is a member of an affiliated group of
organizations as defined in 56.4911-7(e);
(2) No two members of the affiliated group described in paragraph
(b)(1) of this section are affiliated by reason of interlocking
governing boards under 56.4911-7(b); and
(3) No member of the affiliated group described in paragraph (b)(1)
of this section is, under its governing instrument, bound by decisions
of one or more of the other such members on legislative issues other
than national legislative issues.
Each organization in a group of organizations that satisfies the
requirements of the preceding sentence is a member of the limited
affiliated group.
(c) Controlling and controlled organizations. For purposes of this
section, a member of a limited affiliated group is a controlling member
organization if it controls one or more of the other members of the
limited affiliated group, and a member of a limited affiliated group is
a controlled member organization if it is controlled by one or more of
the other members of the limited affiliated group. For purposes of the
preceding sentence, whether an organization controls a second
organization shall be determined by whether the second organization is
bound, under its governing instruments, by actions taken by the first
organization on national legislative issues.
(d) Expenditures of controlling organization -- (1) Scope. This
paragraph (d) applies to a controlling member organization that has the
expenditure test election in effect for its taxable year. This
paragraph (d) applies whether or not the organization is also a
controlled member organization. In determining a controlling member
organization's expenditures, no expenditure shall be counted twice.
(2) Expenditures for direct lobbying. A controlling member
organization for which the expenditure test election is in effect shall
include in its direct lobbying expenditures for its taxable year the
direct lobbying expenditures (as defined in 56.4911-2 and 56.4911-3)
paid or incurred with respect to national legislative issues during such
year by each organization that is a member of the limited affiliated
group and is controlled (within the meaning of paragraph (c) of this
section) by such controlling member organization.
(3) Grass roots expenditures. A controlling member organization for
which the expenditure test election is in effect shall include in its
grass roots expenditures for its taxable year the grass roots
expenditures (as defined in 56.4911-2 and 56.4911-3) paid or incurred
with respect to national legislative issues during such year by each
organization that is a member of the limited affiliated group and is
controlled (within the meaning of paragraph (c) of this section) by such
controlling member organization.
(4) Exempt purpose expenditures. The exempt purpose expenditures of
a controlling member organization do not include the exempt purpose
expenditures (other than lobbying expenditures described in paragraphs
(d)(2) and (d)(3) of this section) of any organization that is a
controlled member organization with respect to it.
(e) Expenditures of controlled member. A controlled member
organization that is an electing organization but that does not control
(within the meaning of paragraph (c) of this section) any organization
in the limited affiliated group shall apply sections 501(h) and 4911 and
the regulations thereunder without regard to the expenditures of any
other member of the limited affiliated group.
(f) Reports of members of limited affiliated groups -- (1)
Controlling member organization's additional information on annual
return. In addition to the information required by
1.6033-2(a)(2)(ii)(k), each controlling member organization for which
the expenditure test election is in effect must provide on its annual
return the name and identification number of each member of the limited
affiliated group.
(2) Reports of controlling members to other members. Each
controlling member organization for which an expenditure test election
is in effect must notify each member that it controls of its taxable
year in order for the controlled organization to prepare the report
required by paragraph (f)(3) of this section. Such notification must be
made before the beginning of the second month after the close of each
taxable year of the controlling member for which the election is in
effect.
(3) Reports of controlled member organization. Every controlled
member organization (whether or not the expenditure test election is in
effect with respect to it) shall provide to each member of the limited
affiliated group that controls it, before the first day of the second
month following the close of the taxable year of each such controlling
organization, its name, identification number, and the lobbying
expenditures and grass roots expenditures on national legislative issues
incurred by the controlled member organization.
(g) National legislative issues. The term ''national legislative
issue'' means legislation, limited to action by the Congress of the
United States or by the public in any national procedure. If an issue
is both national and local, it is characterized as a national
legislative issue if the contemplated legislation is Congressional
legislation.
(h) Examples. The provisions of this section are illustrated by the
following examples:
Example (1). State X has an income tax law that uses definitions
contained in the Internal Revenue Code as it may be amended from time to
time. Legislation to change a definition in the Internal Revenue Code
is pending in Congress. This is a national legislative issue even
though Congressional action may affect state law.
Example (2). Organization M takes a position favoring approval by
Congress of a proposed amendment to the United States Constitution.
This is a national legislative issue. After approval by Congress and
submission to the states for ratification, the proposed amendment ceases
to be a national legislative issue.
Example (3). N, O, and P are organizations described in section
501(c)(3) that do not have interlocking governing boards, within the
meaning of 56.4911-7(b). N has elected the expenditure test under
section 501(h). By virtue of the governing instruments of O and P, any
decision made by N on national legislative issues (such as issues
concerning action on acts, bills, resolutions, or similar items by
Congress) binds both O and P. Under their governing instruments, O and
P are not bound on any other issues. Therefore, N, O, and P constitute
a limited affiliated group. If P sends a series of letters and
pamphlets to members of Congress in support of bill V, their cost will
be included in N's and P's expenditures for direct lobbying and in N's
and P's exempt purposes expenditures, but will not be included in O's
lobbying expenditures. If N hires a lobbyist to solicit support for
bill V, the cost of hiring the lobbyist will be includable only in N's
lobbying expenditures. Any lobbying expenditures incurred by either O
or P on any issue that is not a national legislative issue will not be
included in N's lobbying expenditures.
Example (4). Y is an electing organization and a member of a limited
affiliated group of organizations. Y controls organizations A, B, and C
with respect to national legislative issues but is not controlled by any
other organization. -- Y's taxable year is the calendar year. During
1982, A dissolves on March 15th and D, also controlled by Y with respect
to national legislative issues, is established on May 1st. For 1982 the
limited affiliated group comprises Y, A, B, C, and D.
Example (5). P, Q, R, and S are electing organizations. The
governing instruments of Q require it to adopt the positions on national
legislative issues adopted by P. R is similarly bound by Q's positions.
R and S have interlocking governing boards, within the meaning of
56.4911-7(b), but S's governing instruments do not require it to adopt
the position of any other organization on any legislative issues. Under
56.4911-7(e)(1), P, Q, R, and S are members of an affiliated group.
Applying paragraph (b) of this section, it is determined that (1) P, Q,
R and S are members of an affiliated group; and (2) R and S are
affiliated by reason of interlocking governing boards. Accordingly, P,
Q, R and S are not a limited affiliated group. Similarly, P, Q, and R
do not constitute a limited affiliated group because they are members of
an affiliated group comprising P, Q, R, and S, two of whose members, R
and S, are affiliated by reason of interlocking governing boards.
Example (6). T, U, V, and W are electing organizations. The
governing instruments of U and V require them to adopt the positions on
national legislative issues adopted by T, but do not require them to
adopt the positions of any organization on any other legislative issues.
The governing documents of W require it to adopt the positions of V on
all legislative issues. Applying paragraph (b) of this section, it is
determined that (1) T, U, V, and W are all members of an affiliated
group; (2) no two of T, U, V, and W are affiliated by reason of
interlocking governing boards; but (3) W is bound, under its governing
instrument, by decisions of V on legislative issues that are not
national legislative issues. Accordingly, T, U, V, and W do not
constitute a limited affiliated group. Similarly, T, U, and V do not
constitute a limited affiliated group. T, U, V, and W are an affiliated
group under 56.4911-7.
26 CFR 56.6001-1 Notice or regulations requiring records, statements,
and special returns.
(a) In general. The provisions of 53.6001-1 shall apply to any
person subject to tax under chapter 41, subtitle D, of the Code, by
treating each reference to chapter 42 in 53.6001-1 as a reference to
chapter 41.
(b) Cross references. See 56.4911-6 for general information on
records of lobbying expenditures. See 56.4911-9(d) and 56.4911-10(f)
for information that members of an affiliated group and a limited
affiliated group, respectively, are to provide to other members of the
group and to the Internal Revenue Service.
26 CFR 56.6011-1 General requirement of return, statement, or list.
Every organization liable for the tax imposed by section 4911(a)
shall file an annual return with respect to the tax on the form
prescribed by the Internal Revenue Service for that purpose and shall
include the information required by the form and its instructions.
26 CFR 56.6011-1 PART 141 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
26 CFR 141.4975-13 Definition of ''amount involved'' and
''correction''.
Until superseded by permanent regulations under sections 4975(f) (4)
and (5), 53.4941(e)-1 of this chapter (Foundation Excise Tax
Regulations) will be controlling to the extent such regulations describe
terms appearing both in section 4941(e) and section 4975(f). Because of
the need for immediate guidance with respect to the provisions contained
in this Treasury decision, it is found impracticable to issue it with
notice and public procedure thereon under subsection (b) of section 553
of Title 5 of the United States Code or subject to the effective date
limitation of subsection (d) of that section.
(Sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26
U.S.C. 7805))
(T.D. 7425, 41 FR 32890, Aug. 6, 1976, as amended by T.D. 8084, 51 FR
16305, May 2, 1986)
26 CFR 141.4975-13 PART 143 -- TEMPORARY EXCISE TAX REGULATIONS UNDER
THE TAX REFORM ACT OF 1969
Sec.
143.1 (Reserved)
143.2 Taxes on self-dealing; scholarship and fellowship grants by
private foundations.
143.3-6143.4 (Reserved)
143.5 Taxes on self-dealing; indirect transactions by a private
foundation.
143.6 Election to shorten the period during which certain excess
business holdings of private foundations are treated as permitted
holdings.
Authority: Sec. 7805, 68A Stat. 917; 26 U.S.C. 7805.
143.1 (Reserved)
26 CFR 143.2 Taxes on self-dealing; scholarship and fellowship grants
by private foundations.
(a) In general. Section 4941(d)(1)(D) of the Internal Revenue Code
of 1954 as added by section 101(b) of the Tax Reform Act of 1969 (83
Stat. 500) provides that the term ''self-dealing'' includes any direct
or indirect payment of compensation (or payment or reimbursement of
expenses) by a private foundation to a disqualified person. Section
4941(d)(1)(E) provides that the term ''self-dealing'' includes any
direct or indirect transfer to, or use by, or for the benefit of, a
disqualified person of the income or assets of a private foundation.
(b) Scholarship and fellowship grants. A scholarship or fellowship
grant to a person other than a Government official paid or incurred by a
private foundation in accordance with a program which is consistent with
the allowance of a deduction under section 170 for contributions made to
such private foundation shall not constitute an act of self-dealing.
For example, a scholarship or fellowship grant made by a private
foundation in accordance with a program to award scholarship or
fellowship grants to the children of employees of the donor shall not
constitute an act of self-dealing if the private foundation has, after
disclosure of the method of carrying out such program, received a ruling
or determination letter stating that it is exempt from taxation under
section 501(c)(3) and that contributions to the private foundation are
deductible by the donor under section 170.
(T.D. 7030, 35 FR 4293, Mar. 10, 1970)
143.3 -- 143.4 (Reserved)
26 CFR 143.5 Taxes on self-dealing; indirect transactions by a private
foundation.
(a) In general. Section 4941(d)(1)(D) of the Internal Revenue Code
of 1954 as added by section 101(b) of the Tax Reform Act of 1969 (83
Stat. 500) provides that the term ''self-dealing'' includes any direct
or indirect payment of compensation (or payment or reimbursement of
expenses) by a private foundation to a disqualified person. Section
4941(d)(1)(E) provides that the term ''self-dealing'' includes any
direct or indirect transfer to, or use by, or for the benefit of, a
disqualified person of the income or assets of a private foundation.
Section 4941(d)(1)(F) provides that the term ''self-dealing'' includes
any direct or indirect agreement by a private foundation to make any
payment of money or other property to a government official other than
an agreement to employ such individual for any period after the
termination of his government service if such individual is terminating
his government service within a 90-day period.
(b) Indirect transactions by a private foundation. A transaction
engaged in directly with a Government official by an organization
described in section 509(a) (1), (2), or (3) which is the recipient of a
grant from a private foundation shall not constitute an indirect act of
self-dealing between such private foundation and Government official if
the private foundation does not earmark the use of the grant for any
named Government official and does not control or retain any veto power
over the selection of the Government official by the grantee
organization. For purposes of the preceding sentence, a grant by a
private foundation shall not constitute an indirect act of self-dealing
even though such foundation had reason to believe that certain
Government officials would derive benefits from such grant so long as
the grantee, in fact, exercises control over the selecting process and
actually makes the selection completely independent of the private
foundation.
(c) Example. The provisions of subsection (b) of this section may be
illustrated by the following example.
Example. A private foundation made a grant to an organization
described in section 509(a) (1), (2), or (3) to conduct a judicial
seminar. The grantee conducting the seminar made payments to certain
Government officials. By the nature of the seminar the grantor
foundation had reason to believe that Government officials would be
compensated for participation in such seminar. The grantee, however,
had complete independent control over the selection of such
participants. Since the grantee has not acted as a conduit for the
private foundation and has, in fact, exercised independent control over
the use of the grant, such grant by the private foundation shall not
constitute an act of self-dealing with respect to the Government
officials.
(T.D. 7036, 35 FR 6322, Apr. 18, 1970)
26 CFR 143.6 Election to shorten the period during which certain excess
business holdings of private foundations are treated as permitted
holdings.
(a) In general. Under section 4943(c)(4)(B)(ii), where the combined
holdings on May 26, 1969, of a private foundation and all disqualified
persons in any one business enterprise exceed 75 percent of the voting
stock or more than a 75 percent interest in the value of all outstanding
shares of all classes of stock in such enterprise, and the foundation's
holdings on such date do not exceed 95 percent of the voting stock in
such enterprise, then such combined holdings must be reduced to 50
percent of the voting stock of such enterprise by the end of a 15-year
period beginning on May 26, 1969. However, under section 4943(c)(4)(E),
the 15-year period during which such combined holdings in the enterprise
must be reduced to 50 percent is to be shortened to a 10-year period,
referred to in section 4943(c)(4)(B)(iii), if, at any time before
January 1, 1971, one or more individuals:
(1) Who are substantial contributors (as described in section
507(d)(2)) or members of the family within the meaning of section
4946(d) of one or more substantial contributors to such private
foundation, and
(2) Who on May 26, 1969, held in aggregate more than 15 percent of
the voting stock of the enterprise, make an election in the manner
described in paragraph (b). If an individual who owns 15 percent or
less of the voting stock of the enterprise wishes to make an election
under this paragraph, he and one or more other individuals who together
own more than 15 percent of the voting stock of the enterprise may join
in making an election by together filing the statement referred to in
paragraph (b) of this section.
(b) Manner of making election. The election referred to in paragraph
(a) of this section is made by filing two copies of a written statement
with the Office of the Assistant Commissioner (Technical), Internal
Revenue Service, Washington, D.C. 20224.
(c) Additional copies. The individual filing the written statement
referred to in paragraph (b) of this section shall submit a copy of the
statement to the private foundation with respect to which the election
is being made and to the management of such business enterprise.
(d) Content of statement. The statement shall indicate that an
election is being made under section 4943(c) (4)(E) of the Code, and
shall be signed by each of the individuals making the election, and, in
addition shall contain the following information:
(1) The name, address, and taxpayer identification number of each of
the individuals making the election;
(2) The name and address of the foundation with respect to which such
election is being made;
(3) The name and address of the business enterprise with respect to
which the election is being made;
(4) The aggregate number of shares of voting stock in the business
enterprise that were held on May 26, 1969, by each individual making the
election, and, in addition, the percentage that such voting stock is of
the total number of shares of voting stock issued and outstanding on
such date;
(5) The aggregate number of shares of voting stock in the business
enterprise held by the private foundation on May 26, 1969, and, in
addition, the percentage that such voting stock is of the total number
of shares of voting stock issued and outstanding on such date; and
(6) The total number of shares of voting stock in the business
enterprise or the best available estimate thereof, that were issued and
outstanding on May 26, 1969.
(e) Time for making election. The statement referred to in paragraph
(b) of this section shall be filed before January 1, 1971.
(T.D. 7038, 35 FR 6962, May 1, 1970)
26 CFR 143.6 PART 145 -- TEMPORARY EXCISE TAX REGULATIONS UNDER THE
HIGHWAY REVENUE ACT OF 1982 (PUB. L. 97-424)
Sec.
145.4051-1 Imposition of tax on heavy trucks and trailers sold at
retail.
145.4052-1 Special rules and definitions.
145.4061-1 Application to manufacturers tax.
Authority: 26 U.S.C. 7805.
Source: T.D. 7882, 48 FR 14362, Apr. 4, 1983, unless otherwise
noted.
Sections 145.4051-1 and 145.4052-1 also issued under 26 U.S.C. 4051
and 4052.
26 CFR 145.4051-1 Imposition of tax on heavy trucks and trailers sold
at retail.
(a) Imposition of tax -- (1) In general. Section 4051(a)(1) imposes
a tax on the first retail sale (as defined in 145.4052-1(a)) of the
following articles (including in each case parts or accessories therefor
sold on or in connection therewith or with the sale thereof):
(i) Automobile truck chassis and bodies;
(ii) Truck trailer and semitrailer chassis and bodies; and
(iii) Tractors of the kind chiefly used for highway transportation in
combination with a trailer or semitrailer.
A sale of an automobile truck, truck trailer or semitrailer, shall be
considered to be a sale of a chassis and of a body enumerated in this
paragraph (a)(1).
(2) Special rule applicable to chassis and bodies. A chassis or body
enumerated in paragraph (a)(1) of this section is taxable under section
4051(a)(1) only if such chassis or body is sold for use as a component
part of a highway vehicle (as defined in paragraph (d) of 48.4061(a)-1
(Regulations on Manufacturers and Retailers Excise Taxes)), which is an
automobile truck, truck trailer or semitrailer, or a tractor of the kind
chiefly used for highway transportation in combination with a trailer or
semitrailer. Furthermore, a chassis or body which is not enumerated in
paragraph (a)(1) of this section is not taxable under section 4051(a)(1)
even though such chassis or body is used as a component part of a
highway vehicle (e.g., a chassis or body of a passenger automobile).
See paragraphs (e)(1) and (e)(2) of this section for the definitions of
a tractor and truck. See paragraphs (e) (1) through (5) of 145.4052-1
for other provisions applicable to this section. See paragraph (f) of
this section, relating to tax-free sales of non-highway vehicles.
(3) Parts or accessories sold on or in connection with chassis,
bodies, etc. The tax applies in respect of parts or accessories sold on
or in connection with or with the sale of the vehicles specified in
section 4051(a)(1). Thus, for example, if at the time the article is
sold by the retailer, the part or accessory has been ordered from the
retailer, the part or accessory will be considered as sold in connection
with and with the sale of the vehicle. The tax applies in such a case
whether or not the parts or accessories are billed separately by the
retailer. If a taxable chassis, body, or tractor is sold by the
retailer, without parts or accessories which are considered equipment
essential for the operation or appearance of the taxable article, the
sale of such parts or accessories by the retailer to the purchaser of
the taxable article will be considered, in the absence of evidence to
the contrary, to have been made in connection with the sale of the
taxable article even though they are shipped separately, at the same
time or on a different date. For example, if a retailer sells to any
person a chassis and the bumpers for such chassis, or sells a taxable
tractor and the fifth wheel and and attachments, the tax applies to such
parts or accessories regardless of the method of billing or the time at
which the shipments were made. Parts and accessories that are spares or
replacements are not subject to tax.
(4) Exclusions. No tax is imposed by section 4051(a)(1) on the sale
of automobile truck chassis and bodies, suitable for use with a vehicle
with has a gross vehicle weight of 33,000 pounds or less, or truck
trailer and semitrailer chassis and bodies, suitable for use with a
trailer or semitrailer which has a gross vehicle weight of 26,000 pounds
or less. For purposes of this paragraph (a)(4) the term ''suitable for
use'' means practical and commercial fitness for such use. A chassis or
body possesses practical fitness for use with a vehicle if it performs
its intended function up to a generally acceptable standard of
efficiency with the vehicle, and a chassis or body possesses commercial
fitness for use with a vehicle if it is generally available for use with
the vehicle at a price that is reasonably competitive with other
articles that may be used for the same purpose. Thus, a truck chassis
which is suitable for use with a vehicle having a gross vehicle weight
of 33,000 pounds or less, is not subject to the tax imposed by section
4051(a)(1) regardless of the body actually mounted thereon. A truck
trailer or semitrailer chassis suitable for use with a vehicle having a
gross vehicle weight of 26,000 pounds or less, is not subject to tax
regardless of the body actually mounted thereon. Where an exempt body
is mounted on a taxable chassis, or a taxable body is mounted on an
exempt chassis, the taxable chassis or body, as the case may be,
nevertheless remains subject to such tax, if the resulting vehicle is a
highway vehicle as defined in 48.4061(a)-1.
(b) Rate of tax. With respect to the articles enumerated in
paragraph (a)(1) of this section, the rate of tax imposed by section
4051(a)(1) is 12 percent of the price for which the article is sold on
or after April 1, 1983. See paragraph (d) of this section relating to
vehicles on which a 10 percent tax was imposed under section 4061(a)(1).
(c) Separate purchase of truck or trailer and parts and accessories
therefor -- (1) In general. If the owner, lessee, or operator of any
vehicle, which contains an article taxable under paragraph (a)(1) of
this section, installs (or causes to be installed) any part or accessory
on such vehicle, and such installation is not later than 6 months after
the date such vehicle (as it contains such article) was first placed in
service, section 4051(b)(1) imposes a tax on such installation equal to
12 percent of the price of such part or accessory and its installation.
For purposes of the tax imposed by section 4051(b)(1) and this paragraph
(c)(1) the term ''parts and accessories'' does not include those parts
and accessories which were previously exempt from tax under sections
4061(b) (1) and (2) as in effect prior to January 7, 1983. Thus, for
example, articles of general use are exempt from tax. See 48.4061(b)-2
(b). See paragraphs (d) (1) through (4) of 145.4052-1 for determination
of price.
(2) Placed in service. For purposes of paragraph (c)(1) of this
section, a vehicle shall be considered placed in service on the date on
which the owner of the vehicle took actual possession of the vehicle.
This date can be established by the delivery ticket signed by the owner
or other comparable document indicating delivery to and acceptance by
the owner.
(3) Exceptions. The tax imposed by section 4051(b)(1) and paragraph
(c)(1) of this section shall not apply if:
(i) The part or accessory intalled is a replacement part or
accessory, or
(ii) The aggregate price of the parts and accessories (and their
installation) described in paragraph (c)(1) of this section with respect
to any vehicle does not exceed $200.
For purposes of paragraph (c)(3)(i) of this section, a part is a
replacement part, regardless of when it is ordered, if its use with a
vehicle is as a replacement for a part on such vehicle. For purposes of
paragraph (c)(3)(ii) of this section, the term ''aggregate price of
parts and accessories (and their installation)'' refers to all purchases
and installation charges, not including replacement parts and
accessories, made with respect to a vehicle within the 6 month period
provided for in paragraph (c)(1) of this section. If the aggregate
price of parts and accessories (and their installation) during the 6
month period exceeds $200, the tax imposed under section 4051(b)(1) and
paragraph (c)(1) of this section shall apply to the cost of all parts
and accessories (and their installation) during such period. For
example, a vehicle is purchased and placed in service on July 1, 1983.
On August 1, 1983, the owner purchases and has installed parts and
accessories at a cost of $150. On September 1, 1983, the owner
purchases and has installed parts and accessories at a cost of $300. On
September 1, 1983 a tax of $54 will be imposed (12 percent $450). Any
costs of additional parts and accessories installed with respect to the
vehicle before January 1, 1984 (and the cost of installation) will also
be subject to the 12 percent tax.
(d) Transitional rule. In the case of an article taxable under
paragraph (a)(1) of this section, on which a tax was imposed under
section 4061(a)(1), the rate of tax set forth in paragraph (b) shall be
applied by substituting ''2 percent'' for ''12 percent.'' For example,
if a manufacturer sells a tractor to a dealer on February 1, 1983, for
$20,000 (which includes the Federal excise tax), for which a 10 percent
tax was paid, and the dealer sells the tractor on April 10, 1983 for
$25,000, a tax of 2 percent will be imposed on the $25,000 sales price.
See paragraphs (d) (1) through (4) of 145.4052-1 relating to
determination of price.
(e) Definitions. For purposes of this section:
(1) Tractor. (i) The term ''tractor'' means a highway vehicle
primarily designed to tow a vehicle, such as a trailer or semitrailer,
but does not carry cargo on the same chassis as the engine. A vehicle
equipped with air brakes and/or towing package will be presumed to be
primarily designed as a tractor.
(ii) An incomplete chassis cab shall be treated as a tractor if it is
equipped with one or more of the following:
(A) A device for supplying pressure from the chassis cab to the brake
system (air or hydraulic) of the towed vehicle;
(B) A mechanism for protecting the chassis cab brake system from the
effects of a loss of pressure in the brake system of the towed vehicle;
(C) A control linking the brake system of the chassis to the brake
system of the towed vehicle;
(D) A control in the cab for operating the towed vehicle's brakes
independently of the chassis cab's brakes; or
(E) Any other equipment designed to make it suitable for use as a
tractor.
An incomplete chassis cab which is not equipped with any of the
devices set forth in paragraphs (e)(1)(ii) (A) through (E) of this
section shall be treated as a truck if the purchaser certifies in
writing that the vehicle will not be equipped for use as a tractor.
(2) Truck. The term ''truck'' refers to a highway vehicle that is
primarily designed to transport its load on the same chassis as the
engine even if it is also equipped to tow a vehicle, such as a trailer
or semitrailer.
(3) Gross vehicle weight. (i) For purposes of this section the term
''gross vehicle weight'' means the maximum total weight of a loaded
vehicle. Except as otherwise provided in paragraphs (e)(3) (ii) through
(v) of this section, such maximum total weight shall be the gross
vehicle weight rating of the article as specified by the manufacturer or
established by the seller of the completed article, unless the
Commissioner finds that such rating is unreasonable in light of the
facts and circumstances in a particular case.
(ii) A seller must specify or establish a weight rating for each
chassis, body, or vehicle sold on or after April 1, 1983 if such article
requires no additional manufacture other than (A) the addition of
readily attachable articles, such as tire or rim assemblies or minor
accessories, (B) the performance of minor finishing operations, such as
painting, or (C) in the case of a chassis, the addition of a body. If
an article is specially equipped to the purchaser's specifications, such
specifications may be used to establish the gross vehicle weight of the
article.
(iii) A seller shall maintain a record of the gross vehicle weight
rating of each truck, trailer and semitrailer sold and excluded from the
tax imposed by section 4051(a)(1) by reason of sections 4051(a) (2), (3)
and paragraphs (e)(3) (i) through (v) of this section. For this
purpose, a record of the serial number of each such article shall be
treated as a record of the gross vehicle weight rating of the article if
such rating is indicated by the serial number.
(iv) If (A) the seller's rating indicated in a label or identifying
device affixed to an article, (B) the rating set forth in the sales
invoice or warranty agreement, and (C) the advertised rating for that
article (or two or more identical articles) are inconsistent, the
highest of such ratings will be considered to be the seller's gross
vehicle weight rating specified or established for purposes of the tax
imposed by section 4051(a)(1).
(v) The seller's gross vehicle weight rating must take into account,
among other things, the strength of the chassis frame and the axle
capacity and placement. The Commissioner may exclude from the gross
vehicle weight rating any readily attachable parts to the extent the
Commissioner finds that the use of such parts in computing the gross
vehicle weight rating is unreasonable.
(f) Tax-free sales. Tax-free sales under section 4051 and this
section may be made only if the persons who are eligible to sell or
purchase articles free of tax imposed by section 4051, have satisfied
the provisions of section 4222 and the regulations thereunder, relating
to registration. With respect to tax-free sales of a chassis or body
for use as a component of a vehicle other than a highway vehicle,
similar provisions to paragraphs (e)(2) (ii), (iii), and (iv) of
48.4061(a)-1 shall apply.
(g) Effective date. The provisions of this section shall be
effective for articles sold on or after April 1, 1983.
26 CFR 145.4052-1 Special rules and definitions.
(a) First retail sale -- (1) General rule. For purposes of section
4051(a)(1) and 145.4051-1, the term ''first retail sale'' means a
taxable sale described in paragraph (a)(2) of this section.
(2) Taxable sale. The sale of an article is a taxable sale unless --
(i) The sale is a tax-free sale under section 4221,
(ii) Both the purchaser and the seller are registered under section
4222 and 48.4222(a)-1 and the seller has in good faith accepted from
the purchaser a proper certification, as provided in paragraph (a)(6) of
this section, executed in good faith, that the purchaser intends to
lease such article on a long-term basis or resell such articles, or
(iii) There has been a prior taxable sale of the article.
Notwithstanding the preceding clause, the sale of a chassis or body of a
trailer or semitrailer (''trailer or semitrailer'') less than six months
after a taxable sale of the article shall be treated as a taxable sale.
(3) Computation of tax -- (i) In general. If the sale of an article
is a taxable sale under paragraph (a)(2) of this section, the tax shall
be computed on the price as determined under paragraph (d) of this
section.
(ii) Exception. If the taxable sale of an article is a taxable use
of such article under paragraph (c) of this section, the tax shall be
computed on the price as determined under paragraph (c) of this section.
(4) Special rule for tax-paid trailer and semitrailer. In the case
of a taxable sale of a trailer or semitrailer less than six months after
a taxable sale of the article, the seller in the subsequent sale (''the
subsequent seller'') may claim a credit equal to the amount of tax
previously paid by another person (''the previous taxpayer'') under
section 4051(a)(1) with respect to the prior taxable sale of the
article. The credit for such tax will be allowed to the subsequent
seller only if the form on which the credit is claimed is accompanied by
a statement, signed by the subsequent seller, indicating the amount of
the credit being claimed under this paragraph (a)(4) and stating that --
(i) The subsequent seller has not been repaid any portion of such tax
by the previous taxpayer,
(ii) The subsequent seller has not provided the previous taxpayer
with written consent to allow the previous taxpayer to claim a credit or
refund of such tax under section 6416 (a), and
(iii) The subsequent seller has records (e.g. invoices)
substantiating the amount of tax paid by the previous taxpayer with
respect to the prior taxable sale of such article.
In no case shall the amount of the credit allowable under this
paragraph (a)(4) with respect to an article exceed the tax liability of
the subsequent seller with respect to the sale of such article.
(5) No installment payments of tax. If a lease or an installment
sale (or another form of sale under which the sales price is paid in
installments) is, or is deemed to be, a taxable sale under this section,
then the liability for the entire tax arises at the time of the lease or
installment sale. No portion of the tax is deferred by reason of the
fact that the sales price is paid in installments.
(6) Certificate. A certificate signed by the purchaser, or an
officer or employee authorized by the purchaser to sign the certificate,
may be accepted by a seller in support of a nontaxable sale to the
purchaser. If it is impracticable to furnish a separate certificate for
each sale because of the frequency of sales to such purchaser, a
certificate covering all orders between given dates (such period not to
exceed 12 calendar quarters) will be acceptable. The purchaser may
revoke the certificate by sending a written revocation to the seller.
The certificate and proper records of invoices, orders, etc., relating
to sales made pursuant to such certificate, must be retained by the
seller as provided in section 6001 and the regulations thereunder. The
certificate shall be substantially in the following form:
I hereby certify that I am XXXXXX (Title) of XXXXXX, (Name of
purchaser) that I am authorized to execute this certificate, and that:
(Check appropriate line)
XXXthe article or articles specified in the accompanying order, or on
the reverse side hereof, (or)
XXXall orders placed by the purchaser for the period commencing
XXXXXXX (Date) (period not to exceed 12 calendar quarters), are
purchased either for resale or for lease on a long-term basis.
I have filed Form 637 and have received registration number XXXX.
I understand that the fraudulent use of this certificate to secure
exemption will subject me and all parties making such fraudulent use to
a fine of not more than $10,000, or to imprisonment for not more than 5
years, or both, together with costs of prosecution.
(Signature)
(Address)
(7) Registration. Section 4222 and the regulations thereunder shall
apply to persons making sales which are not treated as taxable sales
pursuant to paragraph (a)(2)(ii) of this section.
(b) Tax treatment of leases -- (1) Long-term lease. For purposes of
this section and 145.4051-1, the leasing of an article on a long-term
basis (as defined in paragraph (d)(6) of this section) will be deemed to
be a sale of the article and will be deemed to be a taxable sale unless
one of the exceptions contained in paragraph (a)(2) of this section
applies. Thus, if a dealer purchases an article tax-free under an
exception contained in paragraph (a)(2) of this section and then leases
the article on a long-term basis, the leasing of the article will be
treated as a taxable sale.
(2) Short-term lease. For purposes of this section and 145.4051-1,
the leasing of an article on a short-term basis (as defined in paragraph
(d)(6) of this section) will be deemed to be a taxable use of such
article under paragraph (c) of this section and will be deemed to be a
taxable sale unless one of the exceptions contained in paragraph (a)(2)
of this section applies.
(3) Computation of tax -- (i) Long-term lease by manufacturer,
producer, or importer. When a manufacturer, producer, or importer is
the lessor of an article on a long-term basis (as defined in paragraph
(d)(6) of this section) and such lease is deemed to be a taxable sale
under paragraph (b)(1) of this section, the tax shall be computed on a
presumptive retail sales price as determined under paragraph (d)(4)(i)
of this section. The manufacturer, producer, or importer shall be
liable for the tax as if the article were sold at retail by such
manufacturer, importer, or retailer.
(ii) Long-term lease by persons other than manufacturer, producer, or
importer. When a person other than a manufacturer, producer, or
importer is the lessor of an article on a long-term basis (as defined in
paragraph (d)(6) of this section) and such lease is deemed to be a
taxable sale under paragraph (b)(1) of this section, the tax shall be
computed on a presumptive retail sales price as determined under
paragraph (d)(5) (i) of this section. Such person shall be liable for
the tax as if the article were sold at retail by such person.
(c) Use treated as sale -- (1) In general. For purposes of this
section and 145.4051-1, the use of an article will be deemed to be a
sale of the article. Furthermore, if a person purchases a vehicle for
which no tax was imposed under section 4051(a)(1) and thereafter
converts such vehicle into an article which would have been taxable
under section 4051(a)(1) and uses it, such person shall be liable for
the tax as if such article were sold at retail by such person. For
example, a truck having a gross vehicle weight rating of 24,000 pounds
is sold at retail. The purchaser adds a lift axle, thereby increasing
the gross vehicle weight rating to 34,000 pounds. If the purchaser
thereafter uses the vehicle the purchaser shall be liable for the tax as
if such article were sold at retail.
(2) Exemption for use in further manufacture. The tax on the use of
an article to which paragraph (c)(1) of this section applies shall not
apply to use of the article by such person as material in the
manufacture or production of, or as a component part of, another article
to be manufactured or produced by the same user.
(3) Time of application of tax. In the case of taxable use of an
article by the seller, the tax attaches at the time such use begins. It
tax applies by reason of the sale of an article on or in connection
with, or with the sale of another article, the tax attaches at the time
of the sale of such other article.
(4) Events subsequent to taxable use of article. Liability for tax
incurred on the use of an article is not extinguished or reduced because
of any subsequent sale or lease of the article even if such sale or
lease would have been exempt if the article had been sold or leased
prior to use. If a seller of an article incurs liability for tax on his
or her use of an article, and thereafter sells or leases the article in
a transaction which otherwise would be subject to tax, liability for tax
is not incurred on such sale or lease.
(5) Computation of tax. (i) Except as provided in paragraphs
(c)(5)(ii) and (c)(5)(iii) of this section.
(ii) If the seller of an article regularly sells such articles at
retail in arm's length transactions, tax liability on its use of any
such article shall be computed on its lowest established retail price
for such articles in effect at the time of the taxable use. In
establishing such price, there shall be included and excluded, as
applicable, the charges and readjustments specified in sections 4216(a),
4216(f), and 6416(b)(1) as in effect at the time the tax liability on
the use of the article is incurred. If the seller of an article does
not regularly sell such articles at retail in arm's length transactions,
a constructive price on which the tax shall be computed will be
determined by the Commissioner. This price will be established after
considering the selling practices and price structures of sellers of
similar articles.
(iii) In the case of any short-term lease (as defined in paragraph
(d)(6) of this section) by any person other than a manufacturer,
producer, or importer (or related person as defined in paragraph
(d)(2)(ii) of this section) of an article that is deemed to be a taxable
use of such article under paragraph (b)(2) of this section, the tax
imposed by section 4051(a)(1) shall be computed on a price equal to the
sum of --
(A) The price (as determined under paragraph (d) of this section) at
which such article was sold to the lessor plus the cost of any parts and
accessories installed by the lessor (or an agent of the lessor) on such
article before the first use or lease by the lessor, plus
(B) The product of the sum described in paragraph (c)(5)(iii)(A) of
this section and the presumed markup percentage (as defined in paragraph
(d)(7) of this section).
(d) Determination of price -- (1) In general. The price for which an
article is sold includes the total consideration paid for the article
whether that consideration is paid in money, services, or other forms.
In addition, there shall be included any charge incident to placing the
article in condition ready for use. Similar rules to section 4216(a)
and the regulations thereunder, relating to charges to be included in
the price and excluded from the price, shall apply. For example,
charges for transportation, delivery, insurance, and installatioin
(other than installation charges to which section 4051(b) applies), and
other expenses actually incurred in connection with the delivery of an
article to a purchaser pursuant to a bona fide sale shall be excluded
from the price in computing the tax.
(2) Presumptive retail sales price where tax paid by manufacturer,
producer, or importer -- (i) In general. In the case of a taxable sale
(other than a taxable sale described in paragraph (b)(1) of this
section) where a manufacturer, producer, importer, or related person is
liable for the tax imposed by section 4051, such tax shall be computed
on a price equal to the sum of --
(A) The price that would (but for this paragraph (d)(2)) be
determined under this paragraph (d), and
(B) The product of the price determined under paragraph (d)(2)(i)(A)
of this section and the presumed markup percentage (as defined in
paragraph (d)(7) of this section).
(ii) Related person defined -- (A) In general. Except as provided in
paragraph (d)(2)(ii)(B) of this section, the term ''related person''
means any person that is a member of the same controlled group (within
the meaning of section 5061(e)(3)) as the manufacturer, producer, or
importer.
(B) Exception for permanent retail establishment. A person shall not
be treated as a related person with respect to the sale of any article
if --
(1) Such person sells the article through a permanent retail
establishment in the normal course of business of being a retailer, and
(2) Such person has records (e.g., invoices) that substantiate that
the article was sold for a price that included a markup equal to or
greater than the presumed markup percentage (as defined in paragraph
(d)(7) of this section).
(3) Retail sales price where tax paid by person other than a
manufacturer, producer, importer, or related person -- (i) In general.
In the case of a taxable sale (other than a taxable sale defined in
paragraph (b)(1) of this section) where a person other than a
manufacturer, producer, importer, or related person is liable for the
tax imposed by section 4051, such tax shall be computed on a price
determined under paragraph (d)(1) of this section.
(ii) Exception. When a person other than a manufacturer, producer,
importer, or related person is liable for the tax imposed by section
4051, such tax shall be computed on a price determined under paragraph
(d)(2)(i) of this section if --
(A) Such person does not perform any significant activities relating
to the processing of the sale of an article,
(B) The principal purpose for processing the sale through such person
is to avoid or evade the presumed markup under paragraph (d)(2)(i)(B) of
this section, and
(C) Such person does not have records (e.g., invoices) substantiating
that the article was sold for a price that included a markup equal to or
greater than the presumed markup percentage as defined in paragraph
(d)(7) of this section.
(4) Presumptive retail sales price in the case of a lease by a
manufacturer, producer, or importer. In the case of any long-term lease
(as defined in paragraph (d)(6) of this section) by a manufacturer,
producer, importer, or a related person (as defined in paragraph
(d)(2)(ii) of this section) of an article that is deemed to be a taxable
sale of such article under paragraph (b)(1) of this section, the tax
imposed by section 4051(a)(1) shall be computed on a price equal to the
sum of --
(i) A constructive sales price established by the Commissioner based
on the price at which such article would be sold by a manufacturer,
producer, or importer in a sale other than a taxable sale (e.g., a sale
to which the exceptions contained in paragraph (a)(2)(ii) of this
section applies) on the date the lease is made, and
(ii) The product of the constructive sales price referred to in
paragraph (d)(4)(i) of this section and the presumed markup percentage
as defined in paragraph (d)(7) of this section.
(5) Presumptive retail sales price in the case of a long-term lease
by any other person. In the case of any long-term lease (as defined in
paragraph (d)(6) of this section) of an article in which any person
other than a manufacturer, producer, or importer (or related person as
defined in paragraph (d)(2)(ii) of this section) is the lessor and the
long-term lease is deemed to be a taxable sale of such article under
paragraph (b)(1) of this section, the tax imposed by section 4051(a)(1)
shall be computed on a price equal to the sum of --
(i) The price (as determined under this paragraph (d)) at which such
article was sold to the lessor plus the cost of any parts and
accessories installed by the lessor (or an agent of the lessor) on such
article before the first use by the lessee or leased in connection with
such long-term lease, and
(ii) The product of the sum described in paragraph (d)(5)(i) of this
section and the presumed markup percentage as defined in paragraph
(d)(7) of this section.
(6) Long-term and short-term lease defined. For purposes of this
section, the term ''long-term lease'' means any lease with a term of one
year or more. The term ''short-term lease'' means any lease with a term
of less than one year. In determining a lease term, options to renew
shall be taken into account. In addition, two or more successive leases
that are part of the same transaction (or a series of related
transactions) with respect to the same or substantially similar article,
shall be treated as one lease.
(7) Presumed markup percentage -- (i) In general. Except as provided
in paragraph (d)(7)(ii) of this section, for purposes of this section
the term ''presumed markup percentage'' shall be four percent.
(ii) Exceptions. For purposes of this section the ''presumed markup
percentage'' for trailers, semitrailers, and remanufactured automobile
truck chassis and bodies and tractors shall be zero percent. For
purposes of this section an article is a remanufactured article if --
(A) The refurbishing, renovation, or repair of the article causes it
to be subject to the tax imposed by section 4051, and
(B) Before remanufacture, such article was previously subject to the
tax imposed by section 4051 (or section 4061 prior to its repeal).
(8) Items excluded from price. There shall be excluded from the
price:
(i) The amount ot tax imposed under sections 4051(a)(1) and (b)(1);
(ii) If stated as a separate charge, the amount of any retail sales
tax imposed by any state or political subdivision thereof or the
District of Columbia, whether the liability for such tax is imposed on
the vendor or vendee; and
(iii) The fair market value (including any tax imposed by section
4071) at retail of any tires (not including any metal rim or rim base).
For purposes of this paragraph (d)(8)(iii), fair market value at retail
shall be determined by the lowest established price for which the
vehicle retailer would sell such tires at retail in the ordinary course
of trade. The lowest established price is the lowest price for which
the vehicle retailer sells, or offers to sell, a single tire to an
independent purchaser who would not ordinarily be expected to buy more
than one. If the vehicle retailer has no lowest established price the
Commissioner will accept any price provided, under the facts and
circumstances, such price is not unreasonable. For vehicles sold on or
after April 1, 1983, and before October 13, 1985, a price will not be
considered unreasonable if it is no more than an amount equal to 50
percent of the manufacturer's suggested retail price.
(9) Trade-ins. If, in connection with the sale of an article subject
to the tax imposed under section 4051(a)(1) or (b)(1) on the price for
which sold, a vendor receives from its vendee another article in
exchange, the tax on the vendor's sale shall be computed on the basis of
the full price of the article sold, unreduced by any amount allowed for
the article received from the vendee. For example, where a vehicle
costing $20,000 is purchased for $16,000 cash plus a used vehicle valued
at $4,000, tax is $2,400 (12 percent x $20,000).
(10) Sales not at arm's length. For purposes of 145.4051-1 and this
section, a sale is considered to be made under circumstances otherwise
than at ''arm's length'' if:
(i) One of the parties is controlled (in law or in fact) by the
other, or there is common control, whether or not such control is
actually exercised to influence the sale price, or
(ii) The sale is made pursuant to special arrangements between a
seller and a purchaser.
In the case of an article sold otherwise than at arm's length, and
sold at less than the fair market price, the tax imposed under section
4051(a)(1) or (b)(1) shall be computed on the price for which similar
articles are sold at retail in the ordinary course of trade, as
determined by the Commissioner. Once such a price has been determined,
no further adjustment of such price shall be made.
(e) Examples. The provisions of this section may be illustrated by
the following examples:
Example (1). M manufactures trucks that are taxable under section
4051. On July 11, 1988, D, a corporation that is a dealer, purchases
one truck from M for $50,000. M does not own any stock in D. Prior to
this transaction, D gave M a certificate that meets the specifications
detailed in paragraph (a)(6) of this section. The certificate states
that the truck will be resold or leased on a long-term basis. M's sale
to D is not a taxable sale of the truck (within the meaning of paragraph
(a)(2) of this section). On July 20, 1988, D resells the truck to a
purchaser, P, for $52,000. The additional $2,000 includes the dealer's
mark-up, costs of transporting the truck from M to D, and overhead. No
parts or accessories were added to the truck. P did not give D a
certificate and did not have an agreement with D under which all
vehicles purchased were to be resold. The sale of the truck by D to P
is a taxable sale within the meaning of paragraph (a)(3) of this
section. Therefore, D has a tax liability of $6,240 (12% $52,000).
Example (2). Assume the same facts as in example (1) except that M
owns 80 percent of D's stock. D and M are members of the same
controlled group (within the meaning of section 5061(e)(3)). Therefore,
D is a related person under paragraph (d)(2)(ii)(A) of this section. On
July 20, 1988, D sells the truck to P for $51,000. D does not have
records substantiating that the truck was sold for a price that included
a markup equal to or greater than the presumed markup percentage. The
tax on the sale of the truck to P is determined under paragraph
(d)(2)(i) of this section. Therefore, D has a tax liability of $6,240
(12% ($50,000+($50,000 4%))).
Example (3). Assume the same facts as in example (1) except that D
does not perform any significant activities relating to the sale.
Assume further that the principal purpose for processing the sale
through D is to avoid the presumed markup and that D did not sell the
truck for a price that included a markup equal to or greater than the
presumed markup percentage. D, however, is designated the seller of the
truck on the invoice. Pursuant to paragraph (d)(3)(ii) of this section,
the price of the truck shall be computed on a price determined under
paragraph (d)(2)(i). Therefore, D, the taxpayer, has a tax liability of
$6,240 (12% ($50,000+($50,000 4%))).
Example (4). Assume the same facts as in example (1) except that on
July 20, 1988, D leases the truck for a two-year period (i.e., on a
long-term basis) to L, a lessee. D's leasing of the truck to L is
treated as a taxable sale under paragraph (b)(1) of this section and the
tax is computed on the price as determined under paragraph (d)(5)(i) of
this section. D has a tax liability of $6,240 (12% ($50,000+($50,000
4%))).
Example (5). Assume the same facts as in example (1) except that on
July 20, 1988. D leases the truck to L for a six-month period (i.e., a
short-term lease). The lease is treated as a use under paragraph (b)(2)
of this section. The tax is computed on the price as determined under
paragraph (c)(5) of this section. D has a tax liability of $6,240 (12%
($50,000+($50,000 4%))).
Example (6). Assume the same facts as in example (1) except that D
does not give M a certificate. The sale by M to D is a taxable sale of
the truck under paragraph (a)(2) of this section. M's tax liability is
$6,240 (12% ($50,000+($50,000 4%))). On July 20, 1988, D leases the
truck to L, a lessee. The lease has a two-year term. Since the lease
to L occurred after a taxable sale of the truck, paragraph (b)(1) of
this section does not apply, and the lease is not treated as a taxable
sale under this section.
Example (7). M manufactures trucks that are taxable under section
4051. On July 11, 1988, M leases a truck to a lessee, L. The lease has
a two-year term. The lease is treated as a taxable sale under paragraph
(b)(1) of this section and the tax is computed on the price as
determined under paragraph (d)(4)(i) of this section. The constructive
sales price established by the Commissioner, pursuant to paragraph
(d)(4)(i) of this section, is $50,000. M has a tax liability of $6,240
(12% ($50,000+($50,000 4%))).
Example (8). Assume the same facts as in example (7) except that the
lease has a six-month term. The lease is treated as a taxable use under
paragraph (b)(2) of this section and the tax is computed under paragraph
(c)(5) of this section. The constructive sales price established by the
Commissioner, pursuant to paragraph (c)(5)(i) of this section, is
$52,000. M has a tax liability of $6,240(12% $52,000).
Example (9). M manufactures truck trailers and semitrailers that are
taxable under section 4051. On July 5, 1988, D, a dealer, purchases a
trailer from M for $10,000. Prior to this transaction, D did not give M
a certificate and D did not have an agreement with M to resell all
articles purchased. The sale by M to D is a taxable sale of the trailer
under paragraph (a)(2) of this section. M has a tax liability of
$1,200(12% $10,000+($10,000 0%)).
Example (10). Assume the same facts as in example (9) except that on
July 12, 1988, D resells the trailer to P, a purchaser, for $10,500 (the
additional $500 includes the dealer's markup, costs of transporting the
trailer from M to D, and overhead). P did not give D a certificate and
P did not have an agreement with D that stipulates that all articles
purchased were to be leased on a long-term basis or resold. The sale of
the trailer by D to P is a taxable sale within the meaning of paragraph
(a)(3) of this section. Therefore, D has a tax liability of $1,260(12%
$10,500). D, however, may file for a credit of $1,200 under section
6402 provided that the requirements of paragraph (a)(4) of this section
are met.
(f) Other rules made applicable. For purposes of 145.4051-1 and
this section, rules similar to the following provisions shall apply:
(1) Section 48.0-2, relating to general definitions and attachment of
tax;
(2) Paragraphs (a) (2) and (3) of 48.4061 (a)-1;
(3) The exemptions provided by sections 4063 (a) and (d) and the
regulations thereunder;
(4) Section 4216(f) and the regulations thereunder, relating to the
incorporation of used components; and
(5) Section 4221 and the regulations thereunder, relating to certain
tax-free sales.
(g) Effective date -- (1) In general. Except as provided below, the
provisions of this section shall be effective for articles sold or
leased on or after April 1, 1983.
(2) Certain sales made prior to November 12, 1985. If a sale to a
lessor before November 12, 1985, was not taxable under 145.4052-1 of
the temporary regulations contained in 26 CFR Part 145 revised as of
April 1, 1983, (the ''prior regulations'') and it was so treated by the
parties, a subsequent sale or lease that was or would have been treated
as the first retail sale of the article under the prior regulations will
be treated as a taxable sale for purposes of this section. The tax on
such subsequent sale will be based on a price determined under paragraph
(d) of this section. For example, if an article was sold to a purchaser
who intended to lease such article long-term, the sale would not have
been taxable under the prior regulations even though the seller did not
receive a certificate of the purchaser's intent to lease the vehicle.
If such a sale was treated as nontaxable by the parties, and the
purchaser leases it long-term on or after October 1, 1987, the lease
will be treated as a taxable sale of the article. The tax is to be
computed under paragraph (b)(3)(ii) of this section and the price will
be computed under paragraph (d)(5).
(3) Certain sales made after November 11, 1985, and before October 1,
1987 -- (i) Sales not treated as taxable by purchaser and seller. If a
sale to a purchaser after November 11, 1985, and before October 1, 1987,
was not treated as taxable by the parties, a subsequent sale or lease
that was or would have been treated as the first retail sale of the
article under the temporary regulations published in the September 13,
1985, issue of the Federal Register (50 FR 37350) (''the interim
regulations'') will be treated as a taxable sale for purposes of this
section. The tax on a sale or lease after September 30, 1987, will be
based on a price determined under paragraph (d) of this section. For
example, if a vehicle was sold on January 3, 1987, to a purchaser who
intended to resell the article and who was not in the business of
leasing to any extent, the sale would not have been taxable under the
interim regulations even though the seller did not receive a certificate
indicating the purchaser's intent to resell the article. If such a sale
was not treated as a taxable sale by the parties, and the purchaser
resells the article, the resale will be treated as a taxable sale of the
article under paragraph (a)(2) of this section.
(ii) Sales treated as first retail sale by purchaser and seller. If
the sale of an article after November 11, 1985, and before October 1,
1987, was treated as a taxable sale by the parties and tax was paid with
respect to the article under the interim regulations, the subsequent
sale of the article by the purchaser will not be treated as a taxable
sale under paragraph (a)(2) of this section.
(T.D. 7882, 48 FR 14362, Apr. 4, 1983, as amended by T.D. 8050, 50 FR
37351, Sept. 13, 1985; T.D. 8200, 53 FR 16869, May 12, 1988)
26 CFR 145.4061-1 Application to manufacturers tax.
The provisions of 145.4051-1(e) (1) and (2), relating to the
definition of tractors and trucks, shall apply to seciton 4061(a)(1) for
sales made on or after January 7, 1983. However, an incomplete chassis
cab will be treated as a truck chassis for sales made on or after
January 7, 1983, and before April 1, 1983. For purposes of section
4061, gross vehicle weight shall be determined under 48.4061(a)-1(f)(3)
(i) through (iv) for sales made on or after January 7, 1983, and before
April 1, 1983.
26 CFR 145.4061-1 PART 148 -- CERTAIN EXCISE TAX MATTERS UNDER THE
EXCISE TAX TECHNICAL CHANGES ACT OF 1958
Sec.
148.1-3 (Removed).
148.1-4 (Removed).
148.1-5 Constructive sale price.
Authority: 26 U.S.C. 7805.
26 CFR 148.1-3(Removed)
26 CFR 148.1-4(Removed)
26 CFR 148.1-5 Constructive sale price.
(a) Purpose of this section. The purpose of this section is to set
forth temporary rules to be used in determining a constructive sale
price under section 4216(b) of the Internal Revenue Code, as amended by
section 115 of the Excise Tax Technical Changes Act of 1958, with
respect to certain sales made on and after January 1, 1959, by a
manufacturer, producer, or importer. The temporary rules set forth in
this section have application in the case of articles in respect of
which the manufacturer's excise tax imposed under Chapter 32 of the Code
is based on the price for which the article is sold.
(b) General rule -- (1) Sales at retail. Where a manufacturer,
producer, or importer sells an article at retail, and the special rule
provided in paragraph (c) of this section does not apply, the basis for
tax shall be the lower of: (i) the actual price for which the article
is sold; or (ii) the highest price for which such articles are sold to
wholesale distributors, in the ordinary course of trade, by
manufacturers or producers thereof. Thus, where a manufacturer,
producer, or importer sells an article at retail, the tax on his retail
sale ordinarily will be computed upon the highest price for which
similar articles are sold by him to wholesale distributors. However, in
such cases it must be shown that he has an established bona fide
practice of selling such articles in substantial quantities to wholesale
distributors. If he has no such sales to wholesale distributors, a fair
market price will be determined by the Commissioner. In any case the
price so determined shall not be in excess of the actual price for which
the article is sold by him at retail.
(2) Sales on consignment and sales otherwise than through an arm's
length transaction. For rules relating to the determination of a
constructive sale price in the case of sales on consignment, or sales
otherwise than through an arm's length transaction and at less than the
fair market price, see paragraphs (a) and (d) of 316.15 of Regulations
46 (26 CFR (1939) Part 316), as prescribed under and made applicable to
the Internal Revenue Code of 1954 by Treasury Decision 6091, 19 FR 5167,
August 17, 1954.
(c) Special rule -- (1) Basis for tax. Where a manufacturer,
producer, or importer sells an article at retail, to a retailer, or to a
special dealer, and the conditions specified in subparagraph (2) of this
paragraph are met, a special constructure sale price rule is provided
for computation of the tax. This rule provides that the tax is to be
based on the lower of the following prices: (i) The actual price for
which the article is sold; or (ii) the highest price for which such
articles are sold by such manufacturer, producer, or importer to
wholesale distributors (other than special dealers).
(2) Conditions governing applicability of special rule. In order to
qualify for application of the special constructive sale price rule to
the sale by the manufacturer, producer, or importer of an article at
retail, to a retailer, or to a special dealer, the following four
conditions must be satisfied.
(i) The manufacturer, producer, or importer of the article must
regularly sell such articles at retail, to retailers, or to special
dealers, as the case may be.
(ii) The manufacturer, producer, or importer of the article must
regularly sell such articles to one or more wholesale distributors
(other than special dealers) in arm's length transactions, and must
establish that his prices in such cases are determined without regard to
any tax benefit under this paragraph resulting from a reduction in the
tax base for his sales at retail, to retailers, or to special dealers.
(iii) The normal method of sales within the industry embracing the
article is not to sell at retail, or to retailers, or both.
(iv) The sale at retail, to a retailer, or to a special dealer must
be an arm's length transaction.
(3) Requests for determination. In any case in which a manufacturer,
producer, or importer desires a determination as to the application of
this paragraph, he may request such a determination from the
Commissioner. The request shall contain complete and detailed
information with respect to each of the conditions specified in
subparagraph (2) of this paragraph to assist the Commissioner in
determining whether the constructive sale price provisions of this
paragraph apply, such as data which will show the normal method of sales
for the article within the industry by manufacturers, producers, and
importers (including the dollar volume of sales at various distribution
levels), and the source of such data; evidence as to the regularity
with which sales of such articles are made by the manufacturer,
producer, or importer at retail, to retailers, or to special dealers;
information that the prices of the manufacturer, producer, or importer
to wholesale distributors have been determined without regard to any tax
benefit under the special rule of this paragraph; etc.
(d) Definitions. For purposes of this section:
(1) Wholesale distributors. The term ''wholesale distributors''
means persons who customarily resell to others who in turn resell.
(2) Special dealer. The term ''special dealer'' means a distributor
of articles taxable under section 4121 (relating to electric, gas, and
oil appliances) who does not maintain a sales force to resell the
article whose constructive sale price is established under paragraph (c)
of this section but relies on salesmen of the manufacturer, producer, or
importer of the article for resale of the article to retailers.
(3) Industry. (i) The term ''industry'' as applied to any article
generally means the specific category of articles listed in Chapter 32
of the Internal Revenue Code (other than combinations) that embraces the
article for which a constructive sale price is to be determined under
paragraph (c) of this section. For the rule applicable to combinations
of two or more articles, see subdivision (iv) of this subparagraph.
(ii) The following are examples of categories of taxable articles
which comprise separate industries:
(a) Taxable electric flatirons;
(b) Taxable electric, gas, and oil appliances of the type used for
cooking, warming, or keeping warm food or beverages for consumption on
the premises;
(c) Taxable electric direct-motor and belt-driven fans and air
circulators;
(d) Taxable electric, gas, and oil incinerator units and garbage
disposal units;
(e) Taxable electric light bulbs and tubes;
(f) Taxable radio receiving sets;
(g) Taxable automobile radio receiving sets;
(h) Taxable radio and television components;
(i) Taxable musical instruments;
(j) Taxable fishing rods, creels, reels and artificial lures, baits,
and flies;
(k) Taxable golf bags, balls and clubs;
(l) Taxable cameras;
(m) Taxable unexposed photographic film in rolls (including motion
picture film);
(n) Taxable check writing, signing, cancelling, perforating, cutting,
and dating machines, and other check protector machine devices;
(o) Taxable cash registers; and
(p) Taxable mechanical pencils, fountain pens and ball point pens.
(iii) With respect to the tax imposed by section 4061, the following
categories of articles are to be considered separate industries:
(a) Taxable automobile trucks (consisting of automobile truck bodies
and chassis);
(b) Taxable automobile buses (consisting of automobile bus bodies and
chassis);
(c) Taxable truck and bus trailers and semitrailers (consisting of
chassis and bodies of such trailers and semitrailers);
(d) Taxable tractors of the kind chiefly used for highway
transportation in combination with a trailer or semitrailer;
(e) All other taxable automobile chassis and bodies;
(f) Taxable trailer and semitrailer chassis and bodies suitable for
use in connection with passenger automobiles; and
(g) Taxable automobile parts and accessories.
(iv) With respect to an article which is:
(a) Taxable as ''Combinations of household type refrigerators and
quickfreeze units'' under section 4111,
(b) Taxable as ''Combinations of any of the foregoing'' under
sections 4141 and 4191, or
(c) A combination, other than a combination referred to in (a) or (b)
of this subdivision, of articles taxable under the same section or
different sections of Chapter 32 of the Code.
The industry test required by paragraph (c)(2)(iii) of this section
for such article shall be met if such test is met for the article or
articles which comprise more than 50 percent in value of the
combination. In case of a combination consisting of a taxable article
and a nontaxable article, the category for the taxable article in the
combination shall constitute the industry for purposes of paragraph
(c)(2)(iii) of this section.
(T.D. 6355, 24 FR 311, Jan. 14, 1959)
26 CFR 148.1-5 PART 150 -- (REMOVED)
26 CFR 148.1-5 PARTS 151-155 -- (RESERVED)
26 CFR 148.1-5 PART 156 -- EXCISE TAX ON GREENMAIL
26 CFR 148.1-5 Subpart A -- Tax on Greenmail
Sec.
156.5881-1 Imposition on excise tax on greenmail.
26 CFR 148.1-5 Subpart B -- Procedure and Administration
156.6001-1 Notice or regulations requiring records, statements, and
special returns.
156.6011-1 General requirement of return, statement, or list.
156.6061-1 Signing of returns and other documents.
156.6065-1 Verification of returns.
156.6071-1 Time for filing returns relating to greenmail.
156.6081-1 Extension of time for filing the return.
156.6091-1 Place for filing chapter 54 (Greenmail) tax returns.
156.6091 -- 2 Exceptional cases.
156.6151-1 Time and place for paying of tax shown on returns.
156.6161-1 Extension of time for paying tax or deficiency.
156.6165-1 Bonds where time to pay tax or deficiency has been
extended.
Authority: Sections 6001, 6011, 6061, 6071, 6091, 6161, and 7805 of
the Internal Revenue Code of 1986 (26 U.S.C. 6001, 6011, 6061, 6071,
6091, 6161, and 7805), unless otherwise noted.
Source: T.D. 8379, 56 FR 65685, Dec. 18, 1991, unless otherwise
noted.
26 CFR 148.1-5 Subpart A -- Tax on Greenmail
26 CFR 156.5881-1 Imposition of excise tax on greenmail.
(a) In general. Section 5881 of the Code imposes a tax equal to 50
percent of the gain or other income realized by any person on the
receipt of greenmail, whether or not the gain or other income is
recognized.
(b) Transactions occurring on or after March 31, 1988. For
transactions occurring on or after March 31, 1988, greenmail is defined
as any consideration transferred by a corporation (or any person acting
in concert with the corporation) to directly or indirectly acquire stock
of the corporation from any shareholder if:
(1) The transferring shareholder has held the stock (as determined
under section 1223) for less than two years before entering into the
agreement to transfer the stock,
(2) The shareholder, any person acting in concert with the
shareholder, or any person related to the shareholder or to a person
acting in concert with the shareholder made or threatened to make a
public tender offer for stock of the corporation at some time during the
two-year period ending on the date of the acquisition of the stock by
the corporation, and
(3) The acquisition is pursuant to an offer that was not made on the
same terms to all shareholders.
(c) Transactions occurring before March 31, 1988. For transactions
occurring before March 31, 1988, greenmail has the same meaning as in
paragraph (b) of this section, except that it does not include any
consideration transferred by any person acting in concert with the
corporation described in that paragraph.
(d) Effective date. Generally, section 5881 of the Code applies to
consideration received after December 22, 1987, in taxable years ending
after that date. However, section 5881 does not apply to any
acquisition of stock pursuant to a written binding contract in effect on
December 15, 1987, and at all times thereafter before the acquisition.
I56Subpart B -- Procedure and Administration
26 CFR 156.6001-1 Notice or regulations requiring records, statements,
and special returns.
(a) In general. Any person subject to tax under chapter 54
(Greenmail) of the Code shall keep such complete and detailed records as
are sufficient to enable the district director to determine accurately
the amount of liability under chapter 54.
(b) Notice by district director requiring returns, statements, or the
keeping of records. The district director may require any person, by
notice served upon him, to make such returns, render such statements, or
keep such specific records as will enable the district director to
determine whether or not the person is liable for tax under chapter 54
of the Code.
(c) Retention of records. The records required by this section shall
be kept at all times available for inspection by authorized internal
revenue officers or employees, and shall be retained so long as the
contents thereof may become material in the administration of any
internal revenue law.
(T.D. 8379, 56 FR 65685, Dec. 18, 1991; 57 FR 5931, Feb. 18, 1992)
26 CFR 156.6011-1 General requirement of return, statement, or list.
Every person liable for tax under section 5881 of the Code shall file
a return with respect to the tax on the form prescribed by the Internal
Revenue Service (Form 8725). Each such person shall include therein the
information required by the form and the instructions issued with
respect thereto.
26 CFR 156.6061-1 Signing of returns and other documents.
Any return, statement, or other document required to be made with
respect to a tax imposed by chapter 54 (Greenmail) of the Code or the
regulations thereunder shall be signed by the person required to file
the return, statement, or other document, or by the persons required or
duly authorized to sign in accordance with the regulations, forms, or
instructions prescribed with respect to such return, statement, or
document. An individual's signature on such a return, statement, or
other document shall be prima facie evidence that the individual is
authorized to sign the return, statement, or other document.
26 CFR 156.6065-1 Verification of returns.
If a return, statement, or other document made under the provisions
of chapter 54 (Greenmail) or of subtitle F of the Code, or the
regulations thereunder with respect to any tax imposed by chapter 54, or
the form and instructions issued with respect to such return, statement,
or other document, requires that it shall contain or be verified by a
written declaration that it is made under the penalties of perjury, it
must be so verified by the person or persons required to sign such
return, statement, or other document. In addition, any other statement
or document submitted under any provision of chapter 54 or of subtitle F
of the Code, or the regulations thereunder with respect to any tax
imposed by chapter 54 may be required to contain or be verified by
written declaration that is made under the penalties of perjury.
26 CFR 156.6071-1 Time for filing returns relating to greenmail.
(a) In general. Returns required by 156.6011-1 (relating to
liability for tax on greenmail under section 5881) shall be filed on or
before the ninetieth day following receipt of any portion of the
greenmail. Greenmail is considered to be received when gain or other
income is realized, as determined according to the taxpayer's method of
accounting, without regard to any provision of the Code providing for
deferral of recognition.
(b) Returns relating to greenmail received before the date these
regulations become final. Returns required by 156.6011-1 that relate
to greenmail received on or before December 18, 1991, shall be filed on
or before March 18, 1992.
26 CFR 156.6081-1 Extension of time for filing the return.
(a) Authority to grant extension. District directors and directors
of service centers are authorized to grant a reasonable extension of
time for filing any return, statement, or other document that relates to
any tax imposed by chapter 54 (Greenmail) of the Code and that is
required under the provisions of chapter 54 or the regulations
thereunder. However, except in the case of taxpayers who are abroad,
such an extension of time shall not be granted for more than 6 months.
An extension of time for filing a return shall not extend the time for
the payment of the tax or any part thereof unless specified to the
contrary in the grant of extension.
(b) Application for extension. The application for an extension of
time for filing the return shall be addressed to the district director
or the director of the service center with whom the return is to be
filed and must contain a full recital of the causes for the delay. It
should be made before the expiration of the time within which the return
otherwise must be filed, and failure to do so may indicate negligence
and constitute sufficient cause for denial. It should, where possible,
be made sufficiently early to permit consideration of the matter and
reply before what otherwise would be the due date of the return.
(c) Filing of return. If an extension of time for filing the return
is granted, a return shall be filed before the expiration of the period
of extension.
26 CFR 156.6091-1 Place for filing chapter 54 (Greenmail) tax returns.
Except as provided in 156.6091-2 (relating to exceptional cases):
(a) Individuals, estates, and trusts. In general, tax returns under
chapter 54 of the Code of individuals, estates, and trusts shall be
filed with the district director for the internal revenue district in
which is located the legal residence or the principal place of business
of the person required to make the return.
(b) Corporations. In general, tax returns under chapter 54 of the
Code of corporations shall be filed with the district director for the
internal revenue district in which is located the principal place of
business or the principal office or agency of the corporation.
(c) Partnerships. In general, tax returns under chapter 54 of the
Code of partnerships shall be filed with the district director for the
internal revenue district in which is located the principal place of
business or the principal office or agency of the partnership.
(d) Returns of taxpayers outside the United States. The return of a
person (other than a partnership or a corporation) outside the United
States having no legal residence or principal place of business or
agency in any internal revenue district, or the return of a partnership
or a corporation having no principal place of business or principal
office or agency in any internal revenue district, shall be filed with
the Assistant Commissioner (International), Internal Revenue Service,
950 L'Enfant Plaza South, SW., Washington, DC 20224, unless the
principal place of business or the legal residence of such person, or
the principal place of business or principal office or agency of the
partnership or corporation, is located in the Virgin Islands or Puerto
Rico, in which case the return shall be filed with the Assistant
Commissioner (International), Internal Revenue Service, Hato Rey, Puerto
Rico 00918.
(e) Returns filed with service centers or by hand carrying.
Notwithstanding paragraph (a), (b), (c), or (d) of this section, unless
a return is filed by hand carrying, whenever instructions applicable to
tax returns under chapter 54 of the Code provide that the returns be
filed with a service center, the returns must be so filed in accordance
with the instructions. Returns that are filed by hand carrying shall be
filed with the district director (or with any person assigned the
administrative supervision of an area, zone, or local office
constituting a permanent post of duty within an internal revenue
district of such director) in accordance with paragraphs (a), (b), (c),
or (d) of this section.
(T.D. 8379, 56 FR 65685, Dec. 18, 1991; 57 FR 5931, Feb. 18, 1992)
26 CFR 156.6091-2 Exceptional cases.
Notwithstanding the provisions of 156.6091-1, the Commissioner may
permit the filing of any tax return under chapter 54 (Greenmail) of the
Code with any internal revenue district.
26 CFR 156.6151-1 Time and place for paying of tax shown on returns.
The tax under chapter 54 (Greenmail) of the Code shown on any return
shall, without notice of assessment and demand, be paid to the internal
revenue officer with whom the return is filed at the time and place for
filing such return (determined without regard to any extension of time
for filing the return). For provisions relating to the time and place
for filing such return, see 156.6071-1 and 156.6091-1. For provisions
relating to the extension of time for paying the tax, see 156.6161-1.
26 CFR 156.6161-1 Extension of time for paying tax or deficiency.
(a) In general -- (1) Tax shown or required to be shown on return. A
reasonable extension of the time for payment of the amount of any tax
imposed by chapter 54 (Greenmail) of the Code and shown or required to
be shown on any return may be granted by the appropriate district
director at the request of the taxpayer. The period of such extension
shall not exceed 6 months from the date for payment of such tax.
(2) Deficiency. The time for payment of any amount determined as a
deficiency in respect of tax imposed by chapter 54 of the Code may, at
the request of the taxpayer, be extended by the internal revenue officer
to whom the tax is required to be paid. The extension may be for a
period not to exceed 18 months from the date fixed for payment of the
deficiency, as shown on the notice and demand. In exceptional cases, a
further extension for a period not in excess of 12 months may be
granted. No extension of time for payment of a deficiency shall be
granted if the deficiency is due to negligence, to intentional disregard
of rules and regulations, or to fraud with intent to evade tax.
(3) Extension of time for filing distinguished. The granting of an
extension of time for filing a return does not operate to extend the
time for the payment of the tax or any part thereof unless so specified
in the extension.
(b) Certain rules relating to extensions of time for paying income
tax to apply. The provisions of 1.6161-1 (b), (c), and (d) of this
chapter (relating to a requirement for undue hardship, to the
application for extension, and to payment pursuant to an extension)
shall apply to extensions of time for payment of the tax imposed by
chapter 54 of the Code.
26 CFR 156.6165-1 Bonds where time to pay tax or deficiency has been
extended.
If an extension of time for payment is granted under section 6161 of
the Code, the district director or the director of the service center
may, if he deems it necessary, require a bond for the payment of the
amount in respect to which the extension is granted in accordance with
the terms of the extension. However, the bond shall not exceed double
the amount with respect to which the extension is granted. For
provisions relating to form of bonds, see the regulations under section
7101 of the Code contained in part 301 of title 26 (Regulations on
Procedure and Administration).
26 CFR 156.6165-1 PARTS 157-169 -- (RESERVED)
26 CFR 156.6165-1 SUBCHAPTER E -- (RESERVED)
26 CFR 156.6165-1 PARTS 170 -- 299 -- (RESERVED)
26 CFR 156.6165-1 FINDING AIDS
A list of CFR titles, subtitles, chapters, subchapters and parts and
an alphabetical list of agencies publishing in the CFR are included in
the CFR Index and Finding Aids volume to the Code of Federal Regulations
which is published separately and revised annually.
Table of CFR Titles and Chapters
Alphabetical List of Agencies Appearing in the CFR
Table of OMB Control Numbers
List of CFR Sections Affected
Chap.
26 CFR 156.6165-1 Table of CFR Titles and Chapters
26 CFR 156.6165-1 Title 1 -- General Provisions
I Administrative Committee of the Federal Register (Parts 1 -- 49)
II Office of the Federal Register (Parts 50 -- 299)
III Administrative Conference of the United States (Parts 300 -- 399)
IV Miscellaneous Agencies (Parts 400 -- 500)
26 CFR 156.6165-1 Title 2 -- (Reserved)
26 CFR 156.6165-1 Title 3 -- The President
I Executive Office of the President (Parts 100 -- 199)
26 CFR 156.6165-1 Title 4 -- Accounts
I General Accounting Office (Parts 1 -- 99)
II Federal Claims Collection Standards (General Accounting Office --
Department of Justice) (Parts 100 -- 299)
26 CFR 156.6165-1 Title 5 -- Administrative Personnel
I Office of Personnel Management (Parts 1 -- 1199)
II Merit Systems Protection Board (Parts 1200 -- 1299)
III Office of Management and Budget (Parts 1300 -- 1399)
IV Advisory Committee on Federal Pay (Parts 1400 -- 1499)
V The International Organizations Employees Loyalty Board (Parts 1500
-- 1599)
VI Federal Retirement Thrift Investment Board (Parts 1600 -- 1699)
VII Advisory Commission on Intergovernmental Relations (Parts 1700 --
1799)
VIII Office of Special Counsel (Parts 1800 -- 1899)
IX Appalachian Regional Commission (Parts 1900 -- 1999)
XI United States Soldiers' and Airmen's Home (Parts 2100 -- 2199)
XIV Federal Labor Relations Authority, General Counsel of the Federal
Labor Relations Authority and Federal Service Impasses Panel (Parts 2400
-- 2499)
XV Office of Administration, Executive Office of the President (Parts
2500 -- 2599)
XVI Office of Government Ethics (Parts 2600 -- 2699)
26 CFR 156.6165-1 Title 6 (Reserved)
26 CFR 156.6165-1 Title 7 -- Agriculture
Subtitle A -- Office of the Secretary of Agriculture (Parts 0 -- 26)
Subtitle B -- Regulations of the Department of Agriculture
I Agricultural Marketing Service (Standards, Inspections, Marketing
Practices), Department of Agriculture (Parts 27 -- 209)
II Food and Nutrition Service, Department of Agriculture (Parts 210
-- 299)
III Animal and Plant Health Inspection Service, Department of
Agriculture (Parts 300 -- 399)
IV Federal Crop Insurance Corporation, Department of Agriculture
(Parts 400 -- 499)
V Agricultural Research Service, Department of Agriculture (Parts 500
-- 599)
VI Soil Conservation Service, Department of Agriculture (Parts 600 --
699)
VII Agricultural Stabilization and Conservation Service (Agricultural
Adjustment), Department of Agriculture (Parts 700 -- 799)
VIII Federal Grain Inspection Service, Department of Agriculture
(Parts 800 -- 899)
IX Agricultural Marketing Service (Marketing Agreements and Orders;
Fruits, Vegetables, Nuts), Department of Agriculture (Parts 900 -- 999)
X Agricultural Marketing Service (Marketing Agreements and Orders;
Milk), Department of Agriculture (Parts 1000 -- 1199)
XI Agricultural Marketing Service (Marketing Agreements and Orders;
Miscellaneous Commodities), Department of Agriculture (Parts 1200 --
1299)
XIV Commodity Credit Corporation, Department of Agriculture (Parts
1400 -- 1499)
XV Foreign Agricultural Service, Department of Agriculture (Parts
1500 -- 1599)
XVI Rural Telephone Bank, Department of Agriculture (Parts 1600 --
1699)
XVII Rural Electrification Administration, Department of Agriculture
(Parts 1700 -- 1799)
XVIII Farmers Home Administration, Department of Agriculture (Parts
1800 -- 2099)
XXI Foreign Economic Development Service, Department of Agriculture
(Parts 2100 -- 2199)
XXII Office of International Cooperation and Development, Department
of Agriculture (Parts 2200 -- 2299)
XXV Office of the General Sales Manager, Department of Agriculture
(Parts 2500 -- 2599)
XXVI Office of Inspector General, Department of Agriculture (Parts
2600 -- 2699)
XXVII Office of Information Resources Management, Department of
Agriculture (Parts 2700 -- 2799)
XXVIII Office of Operations, Department of Agriculture (Parts 2800 --
2899)
XXIX Office of Energy, Department of Agriculture (Parts 2900 -- 2999)
XXX Office of Finance and Management, Department of Agriculture
(Parts 3000 -- 3099)
XXXI Office of Environmental Quality, Department of Agriculture
(Parts 3100 -- 3199)
XXXII Office of Grants and Program Systems, Department of Agriculture
(Parts 3200 -- 3299)
XXXIII Office of Transportation, Department of Agriculture (Parts
3300 -- 3399)
XXXIV Cooperative State Research Service, Department of Agriculture
(Parts 3400 -- 3499)
XXXVI National Agricultural Statistics Service, Department of
Agriculture (Parts 3600 -- 3699)
XXXVII Economic Research Service, Department of Agriculture (Parts
3700 -- 3799)
XXXVIII World Agricultural Outlook Board, Department of Agriculture
(Parts 3800 -- 3899)
XXXIX Economic Analysis Staff, Department of Agriculture (Parts 3900
-- 3999)
XL Economics Management Staff, Department of Agriculture (Parts 4000
-- 4099)
XLI National Agricultural Library, Department of Agriculture (Part
4100)
XLII Rural Development Administration, Department of Agriculture
(Part 4284 )
26 CFR 156.6165-1 Title 8 -- Aliens and Nationality
I Immigration and Naturalization Service, Department of Justice
(Parts 1 -- 499)
26 CFR 156.6165-1 Title 9 -- Animals and Animal Products
I Animal and Plant Health Inspection Service, Department of
Agriculture (Parts 1 -- 199)
II Packers and Stockyards Administration, Department of Agriculture
(Parts 200 -- 299)
III Food Safety and Inspection Service, Meat and Poultry Inspection,
Department of Agriculture (Parts 300 -- 399)
26 CFR 156.6165-1 Title 10 -- Energy
I Nuclear Regulatory Commission (Parts 0 -- 199)
II Department of Energy (Parts 200 -- 699)
III Department of Energy (Parts 700 -- 999)
X Department of Energy (General Provisions) (Parts 1000 -- 1099)
XV Office of the Federal Inspector for the Alaska Natural Gas
Transportation System (Parts 1500 -- 1599)
XVII Defense Nuclear Facilities Safety Board (Parts 1700 -- 1799)
26 CFR 156.6165-1 Title 11 -- Federal Elections
I Federal Election Commission (Parts 1 -- 9099)
26 CFR 156.6165-1 Title 12 -- Banks and Banking
I Comptroller of the Currency, Department of the Treasury (Parts 1 --
199)
II Federal Reserve System (Parts 200 -- 299)
III Federal Deposit Insurance Corporation (Parts 300 -- 399)
IV Export-Import Bank of the United States (Parts 400 -- 499)
V Office of Thrift Supervision, Department of The Treasury (Parts 500
-- 599)
VI Farm Credit Administration (Parts 600 -- 699)
VII National Credit Union Administration (Parts 700 -- 799)
VIII Federal Financing Bank (Parts 800 -- 899)
IX Federal Housing Finance Board (Parts 900 -- 999)
XI Federal Financial Institutions Examination Council (Parts 1100 --
1199)
XIV Farm Credit System Insurance Corporation (Parts 1400 -- 1499)
XV Thrift Depositor Protection Oversight Board (Parts 1500 -- 1599)
XVI Resolution Trust Corporation (Parts 1600 -- 1699)
26 CFR 156.6165-1 Title 13 -- Business Credit and Assistance
I Small Business Administration (Parts 1 -- 199)
III Economic Development Administration, Department of Commerce
(Parts 300 -- 399)
26 CFR 156.6165-1 Title 14 -- Aeronautics and Space
I Federal Aviation Administration, Department of Transportation
(Parts 1 -- 199)
II Office of the Secretary, Department of Transportation (Aviation
Proceedings) (Parts 200 -- 399)
III Office of Commercial Space Transportation, Department of
Transportation (Parts 400 -- 499)
V National Aeronautics and Space Administration (Parts 1200 -- 1299)
26 CFR 156.6165-1 Title 15 -- Commerce and Foreign Trade
Subtitle A -- Office of the Secretary of Commerce (Parts 0 -- 29)
Subtitle B -- Regulations Relating to Commerce and Foreign Trade
I Bureau of the Census, Department of Commerce (Parts 30 -- 199)
II National Institute of Standards and Technology, Department of
Commerce (Parts 200 -- 299)
III International Trade Administration, Department of Commerce (Parts
300 -- 399)
IV Foreign-Trade Zones Board (Parts 400 -- 499)
VII Bureau of Export Administration, Department of Commerce (Parts
700 -- 799)
VIII Bureau of Economic Analysis, Department of Commerce (Parts 800
-- 899)
IX National Oceanic and Atmospheric Administration, Department of
Commerce (Parts 900 -- 999)
XI Technology Administration, Department of Commerce (Parts 1100 --
1199)
XII United States Travel and Tourism Administration, Department of
Commerce (Parts 1200 -- 1299)
XIII East-West Foreign Trade Board (Parts 1300 -- 1399)
XIV Minority Business Development Agency (Parts 1400 -- 1499)
Subtitle C -- Regulations Relating to Foreign Trade Agreements
XX Office of the United States Trade Representative (Parts 2000 --
2099)
Subtitle D -- Regulations Relating to Telecommunications and
Information
XXIII National Telecommunications and Information Administration,
Department of Commerce (Parts 2300 -- 2399)
26 CFR 156.6165-1 Title 16 -- Commercial Practices
I Federal Trade Commission (Parts 0 -- 999)
II Consumer Product Safety Commission (Parts 1000 -- 1799)
26 CFR 156.6165-1 Title 17 -- Commodity and Securities Exchanges
I Commodity Futures Trading Commission (Parts 1 -- 199)
II Securities and Exchange Commission (Parts 200 -- 399)
IV Department of the Treasury (Parts 400 -- 499)
26 CFR 156.6165-1 Title 18 -- Conservation of Power and Water Resources
I Federal Energy Regulatory Commission, Department of Energy (Parts 1
-- 399)
III Delaware River Basin Commission (Parts 400 -- 499)
VI Water Resources Council (Parts 700 -- 799)
VIII Susquehanna River Basin Commission (Parts 800 -- 899)
XIII Tennessee Valley Authority (Parts 1300 -- 1399)
26 CFR 156.6165-1 Title 19 -- Customs Duties
I United States Customs Service, Department of the Treasury (Parts 1
-- 199)
II United States International Trade Commission (Parts 200 -- 299)
III International Trade Administration, Department of Commerce (Parts
300 -- 399)
26 CFR 156.6165-1 Title 20 -- Employees' Benefits
I Office of Workers' Compensation Programs, Department of Labor
(Parts 1 -- 199)
II Railroad Retirement Board (Parts 200 -- 399)
III Social Security Administration, Department of Health and Human
Services (Parts 400 -- 499)
IV Employees' Compensation Appeals Board, Department of Labor (Parts
500 -- 599)
V Employment and Training Administration, Department of Labor (Parts
600 -- 699)
VI Employment Standards Administration, Department of Labor (Parts
700 -- 799)
VII Benefits Review Board, Department of Labor (Parts 800 -- 899)
VIII Joint Board for the Enrollment of Actuaries (Parts 900 -- 999)
IX Office of the Assistant Secretary for Veterans' Employment and
Training, Department of Labor (Parts 1000 -- 1099)
26 CFR 156.6165-1 Title 21 -- Food and Drugs
I Food and Drug Administration, Department of Health and Human
Services (Parts 1 -- 1299)
II Drug Enforcement Administration, Department of Justice (Parts 1300
-- 1399)
III Office of National Drug Control Policy (Parts 1400 -- 1499)
26 CFR 156.6165-1 Title 22 -- Foreign Relations
I Department of State (Parts 1 -- 199)
II Agency for International Development, International Development
Cooperation Agency (Parts 200 -- 299)
III Peace Corps (Parts 300 -- 399)
IV International Joint Commission, United States and Canada (Parts
400 -- 499)
V United States Information Agency (Parts 500 -- 599)
VI United States Arms Control and Disarmament Agency (Parts 600 --
699)
VII Overseas Private Investment Corporation, International
Development Cooperation Agency (Parts 700 -- 799)
IX Foreign Service Grievance Board Regulations (Parts 900 -- 999)
X Inter-American Foundation (Parts 1000 -- 1099)
XI International Boundary and Water Commission, United States and
Mexico, United States Section (Parts 1100 -- 1199)
XII United States International Development Cooperation Agency (Parts
1200 -- 1299)
XIII Board for International Broadcasting (Parts 1300 -- 1399)
XIV Foreign Service Labor Relations Board; Federal Labor Relations
Authority; General Counsel of the Federal Labor Relations Authority;
and the Foreign Service Impasse Disputes Panel (Parts 1400 -- 1499)
XV African Development Foundation (Parts 1500 -- 1599)
XVI Japan-United States Friendship Commission (Parts 1600 -- 1699)
26 CFR 156.6165-1 Title 23 -- Highways
I Federal Highway Administration, Department of Transportation (Parts
1 -- 999)
II National Highway Traffic Safety Administration and Federal Highway
Administration, Department of Transportation (Parts 1200 -- 1299)
III National Highway Traffic Safety Administration, Department of
Transportation (Parts 1300 -- 1399)
26 CFR 156.6165-1 Title 24 -- Housing and Urban Development
Subtitle A -- Office of the Secretary, Department of Housing and
Urban Development (Parts 0 -- 99)
Subtitle B -- Regulations Relating to Housing and Urban Development
I Office of Assistant Secretary for Equal Opportunity, Department of
Housing and Urban Development (Parts 100 -- 199)
II Office of Assistant Secretary for Housing-Federal Housing
Commissioner, Department of Housing and Urban Development (Parts 200 --
299)
III Government National Mortgage Association, Department of Housing
and Urban Development (Parts 300 -- 399)
V Office of Assistant Secretary for Community Planning and
Development, Department of Housing and Urban Development (Parts 500 --
599)
VI Office of Assistant Secretary for Community Planning and
Development, Department of Housing and Urban Development (Parts 600 --
699)
VII Office of the Secretary, Department of Housing and Urban
Development (Section 8 Housing Assistance Programs and Public and Indian
Housing Programs) (Parts 700 -- 799)
VIII Office of the Assistant Secretary for Housing -- Federal Housing
Commissioner, Department of Housing and Urban Development (Section 8
Housing Assistance Programs and Section 202 Direct Loan Program) (Parts
800 -- 899)
IX Office of Assistant Secretary for Public and Indian Housing,
Department of Housing and Urban Development (Parts 900 -- 999)
X Office of Assistant Secretary for Housing -- Federal Housing
Commissioner, Department of Housing and Urban Development (Interstate
Land Sales Registration Program) (Parts 1700 -- 1799)
XI Solar Energy and Energy Conservation Bank, Department of Housing
and Urban Development (Parts 1800 -- 1899)
XII Office of Inspector General, Department of Housing and Urban
Development (Parts 2000 -- 2099)
XV Mortgage Insurance and Loan Programs under the Emergency
Homeowners' Relief Act, Department of Housing and Urban Development
(Parts 2700 -- 2799)
XX Office of Assistant Secretary for Housing -- Federal Housing
Commissioner, Department of Housing and Urban Development (Parts 3200 --
3699)
XXV Neighborhood Reinvestment Corporation (Parts 4100 -- 4199)
26 CFR 156.6165-1 Title 25 -- Indians
I Bureau of Indian Affairs, Department of the Interior (Parts 1 --
299)
II Indian Arts and Crafts Board, Department of the Interior (Parts
300 -- 399)
III National Indian Gaming Commission (Parts 500 -- 599)
IV Office of Navajo and Hopi Indian Relocation (Parts 700 -- 799)
26 CFR 156.6165-1 Title 26 -- Internal Revenue
I Internal Revenue Service, Department of the Treasury (Parts 1 --
799)
26 CFR 156.6165-1 Title 27 -- Alcohol, Tobacco Products and Firearms
I Bureau of Alcohol, Tobacco and Firearms, Department of the Treasury
(Parts 1 -- 299)
26 CFR 156.6165-1 Title 28 -- Judicial Administration
I Department of Justice (Parts 0 -- 199)
III Federal Prison Industries, Inc., Department of Justice (Parts 300
-- 399)
V Bureau of Prisons, Department of Justice (Parts 500 -- 599)
VI Offices of Independent Counsel, Department of Justice (Parts 600
-- 699)
VII Office of Independent Counsel (Parts 700 -- 799)
26 CFR 156.6165-1 Title 29 -- Labor
Subtitle A -- Office of the Secretary of Labor (Parts 0 -- 99)
Subtitle B -- Regulations Relating to Labor
I National Labor Relations Board (Parts 100 -- 199)
II Bureau of Labor-Management Relations and Cooperative Programs,
Department of Labor (Parts 200 -- 299)
III National Railroad Adjustment Board (Parts 300 -- 399)
IV Office of Labor-Management Standards, Department of Labor (Parts
400 -- 499)
V Wage and Hour Division, Department of Labor (Parts 500 -- 899)
IX Construction Industry Collective Bargaining Commission (Parts 900
-- 999)
X National Mediation Board (Parts 1200 -- 1299)
XII Federal Mediation and Conciliation Service (Parts 1400 -- 1499)
XIV Equal Employment Opportunity Commission (Parts 1600 -- 1699)
XVII Occupational Safety and Health Administration, Department of
Labor (Parts 1900 -- 1999)
XX Occupational Safety and Health Review Commission (Parts 2200 --
2499)
XXV Pension and Welfare Benefits Administration, Department of Labor
(Parts 2500 -- 2599)
XXVI Pension Benefit Guaranty Corporation (Parts 2600 -- 2699)
XXVII Federal Mine Safety and Health Review Commission (Parts 2700 --
2799)
26 CFR 156.6165-1 Title 30 -- Mineral Resources
I Mine Safety and Health Administration, Department of Labor (Parts 1
-- 199)
II Minerals Management Service, Department of the Interior (Parts 200
-- 299)
III Board of Surface Mining and Reclamation Appeals, Department of
the Interior (Parts 300 -- 399)
IV Geological Survey, Department of the Interior (Parts 400 -- 499)
VI Bureau of Mines, Department of the Interior (Parts 600 -- 699)
VII Office of Surface Mining Reclamation and Enforcement, Department
of the Interior (Parts 700 -- 999)
26 CFR 156.6165-1 Title 31 -- Money and Finance: Treasury
Subtitle A -- Office of the Secretary of the Treasury (Parts 0 -- 50)
Subtitle B -- Regulations Relating to Money and Finance
I Monetary Offices, Department of the Treasury (Parts 51 -- 199)
II Fiscal Service, Department of the Treasury (Parts 200 -- 399)
IV Secret Service, Department of the Treasury (Parts 400 -- 499)
V Office of Foreign Assets Control, Department of the Treasury (Parts
500 -- 599)
VI Bureau of Engraving and Printing, Department of the Treasury
(Parts 600 -- 699)
VII Federal Law Enforcement Training Center, Department of the
Treasury (Parts 700 -- 799)
VIII Office of International Investment, Department of the Treasury
(Parts 800 -- 899)
26 CFR 156.6165-1 Title 32 -- National Defense
Subtitle A -- Department of Defense
I Office of the Secretary of Defense (Parts 1 -- 399)
V Department of the Army (Parts 400 -- 699)
VI Department of the Navy (Parts 700 -- 799)
VII Department of the Air Force (Parts 800 -- 1099)
Subtitle B -- Other Regulations Relating to National Defense
XII Defense Logistics Agency (Parts 1200 -- 1299)
XVI Selective Service System (Parts 1600 -- 1699)
XIX Central Intelligence Agency (Parts 1900 -- 1999)
XX Information Security Oversight Office (Parts 2000 -- 2099)
XXI National Security Council (Parts 2100 -- 2199)
XXIV Office of Science and Technology Policy (Parts 2400 -- 2499)
XXVII Office for Micronesian Status Negotiations (Parts 2700 -- 2799)
XXVIII Office of the Vice President of the United States (Parts 2800
-- 2899)
XXIX Presidential Commission on the Assignment of Women in the Armed
Forces (Part 2900)
26 CFR 156.6165-1 Title 33 -- Navigation and Navigable Waters
I Coast Guard, Department of Transportation (Parts 1 -- 199)
II Corps of Engineers, Department of the Army (Parts 200 -- 399)
IV Saint Lawrence Seaway Development Corporation, Department of
Transportation (Parts 400 -- 499)
26 CFR 156.6165-1 Title 34 -- Education
Subtitle A -- Office of the Secretary, Department of Education (Parts
1 -- 99)
Subtitle B -- Regulations of the Offices of the Department of
Education
I Office for Civil Rights, Department of Education (Parts 100 -- 199)
II Office of Elementary and Secondary Education, Department of
Education (Parts 200 -- 299)
III Office of Special Education and Rehabilitative Services,
Department of Education (Parts 300 -- 399)
IV Office of Vocational and Adult Education, Department of Education
(Parts 400 -- 499)
V Office of Bilingual Education and Minority Languages Affairs,
Department of Education (Parts 500 -- 599)
VI Office of Postsecondary Education, Department of Education (Parts
600 -- 699)
VII Office of Educational Research and Improvement, Department of
Education (Parts 700 -- 799)
26 CFR 156.6165-1 Title 35 -- Panama Canal
I Panama Canal Regulations (Parts 1 -- 299)
26 CFR 156.6165-1 Title 36 -- Parks, Forests, and Public Property
I National Park Service, Department of the Interior (Parts 1 -- 199)
II Forest Service, Department of Agriculture (Parts 200 -- 299)
III Corps of Engineers, Department of the Army (Parts 300 -- 399)
IV American Battle Monuments Commission (Parts 400 -- 499)
V Smithsonian Institution (Parts 500 -- 599)
VII Library of Congress (Parts 700 -- 799)
VIII Advisory Council on Historic Preservation (Parts 800 -- 899)
IX Pennsylvania Avenue Development Corporation (Parts 900 -- 999)
XI Architectural and Transportation Barriers Compliance Board (Parts
1100 -- 1199)
XII National Archives and Records Administration (Parts 1200 -- 1299)
26 CFR 156.6165-1 Title 37 -- Patents, Trademarks, and Copyrights
I Patent and Trademark Office, Department of Commerce (Parts 1 --
199)
II Copyright Office, Library of Congress (Parts 200 -- 299)
III Copyright Royalty Tribunal (Parts 300 -- 399)
IV Assistant Secretary for Technology Policy, Department of Commerce
(Parts 400 -- 499)
V Under Secretary for Technology, Department of Commerce (Parts 500
-- 599)
26 CFR 156.6165-1 Title 38 -- Pensions, Bonuses, and Veterans' Relief
I Department of Veterans Affairs (Parts 0 -- 99)
26 CFR 156.6165-1 Title 39 -- Postal Service
I United States Postal Service (Parts 1 -- 999)
III Postal Rate Commission (Parts 3000 -- 3099)
26 CFR 156.6165-1 Title 40 -- Protection of Environment
I Environmental Protection Agency (Parts 1 -- 799)
V Council on Environmental Quality (Parts 1500 -- 1599)
26 CFR 156.6165-1 Title 41 -- Public Contracts and Property Management
Subtitle B -- Other Provisions Relating to Public Contracts
50 Public Contracts, Department of Labor (Parts 50-1 -- 50-999)
51 Committee for Purchase from the Blind and Other Severely
Handicapped (Parts 51-1 -- 51-99)
60 Office of Federal Contract Compliance Programs, Equal Employment
Opportunity, Department of Labor (Parts 60-1 -- 60-999)
61 Office of the Assistant Secretary for Veterans Employment and
Training, Department of Labor (Parts 61-1 -- 61-999)
Subtitle C -- Federal Property Management Regulations System
101 Federal Property Management Regulations (Parts 101-1 -- 101-99)
105 General Services Administration (Parts 105-1 -- 105-999)
109 Department of Energy Property Management Regulations (Parts 109-1
-- 109-99)
114 Department of the Interior (Parts 114-1 -- 114-99)
115 Environmental Protection Agency (Parts 115-1 -- 115-99)
128 Department of Justice (Parts 128-1 -- 128-99)
132 Department of the Air Force (Parts 132-1 -- 132-99)
Subtitle D -- Other Provisions Relating to Property Management
(Reserved)
Subtitle E -- Federal Information Resources Management Regulations
System
201 Federal Information Resources Management Regulation (Parts 201-1
-- 201-99)
Subtitle F -- Federal Travel Regulation System
301 Travel Allowances (Parts 301-1 -- 301-99)
302 Relocation Allowances (Parts 302-1 -- 302-99)
303 Payment of Expenses Connected with the Death of Certain Employees
(Parts 303-1 -- 303-2)
304 Payment from a non-Federal source for travel expenses (Parts
304-1 -- 304-99)
26 CFR 156.6165-1 Title 42 -- Public Health
I Public Health Service, Department of Health and Human Services
(Parts 1 -- 199)
IV Health Care Financing Administration, Department of Health and
Human Services (Parts 400 -- 499)
V Office of Inspector General-Health Care, Department of Health and
Human Services (Parts 1000 -- 1999)
26 CFR 156.6165-1 Title 43 -- Public Lands: Interior
Subtitle A -- Office of the Secretary of the Interior (Parts 1 --
199)
Subtitle B -- Regulations Relating to Public Lands
I Bureau of Reclamation, Department of the Interior (Parts 200 --
499)
II Bureau of Land Management, Department of the Interior (Parts 1000
-- 9999)
26 CFR 156.6165-1 Title 44 -- Emergency Management and Assistance
I Federal Emergency Management Agency (Parts 0 -- 399)
IV Department of Commerce and Department of Transportation (Parts 400
-- 499)
26 CFR 156.6165-1 Title 45 -- Public Welfare
Subtitle A -- Department of Health and Human Services, General
Administration (Parts 1 -- 199)
Subtitle B -- Regulations Relating to Public Welfare
II Office of Family Assistance (Assistance Programs), Administration
for Children and Families, Department of Health and Human Services
(Parts 200 -- 299)
III Office of Child Support Enforcement (Child Support Enforcement
Program), Administration for Children and Families, Department of Health
and Human Services (Parts 300 -- 399)
IV Office of Refugee Resettlement, Administration for Children and
Families Department of Health and Human Services (Parts 400 -- 499)
V Foreign Claims Settlement Commission of the United States,
Department of Justice (Parts 500 -- 599)
VI National Science Foundation (Parts 600 -- 699)
VII Commission on Civil Rights (Parts 700 -- 799)
VIII Office of Personnel Management (Parts 800 -- 899)
X Office of Community Services, Administration for Children and
Families, Department of Health and Human Services (Parts 1000 -- 1099)
XI National Foundation on the Arts and the Humanities (Parts 1100 --
1199)
XII ACTION (Parts 1200 -- 1299)
XIII Office of Human Development Services, Department of Health and
Human Services (Parts 1300 -- 1399)
XVI Legal Services Corporation (Parts 1600 -- 1699)
XVII National Commission on Libraries and Information Science (Parts
1700 -- 1799)
XVIII Harry S. Truman Scholarship Foundation (Parts 1800 -- 1899)
XXI Commission on Fine Arts (Parts 2100 -- 2199)
XXII Christopher Columbus Quincentenary Jubilee Commission (Parts
2200 -- 2299)
XXIV James Madison Memorial Fellowship Foundation (Parts 2400 --
2499)
XXV Commission on National and Community Service (Parts 2500 -- 2506)
26 CFR 156.6165-1 Title 46 -- Shipping
I Coast Guard, Department of Transportation (Parts 1 -- 199)
II Maritime Administration, Department of Transportation (Parts 200
-- 399)
III Coast Guard (Great Lakes Pilotage), Department of Transportation
(Parts 400 -- 499)
IV Federal Maritime Commission (Parts 500 -- 599)
26 CFR 156.6165-1 Title 47 -- Telecommunication
I Federal Communications Commission (Parts 0 -- 199)
II Office of Science and Technology Policy and National Security
Council (Parts 200 -- 299)
III National Telecommunications and Information Administration,
Department of Commerce (Parts 300 -- 399)
26 CFR 156.6165-1 Title 48 -- Federal Acquisition Regulations System
1 Federal Acquisition Regulation (Parts 1 -- 99)
2 Department of Defense (Parts 200 -- 299)
3 Department of Health and Human Services (Parts 300 -- 399)
4 Department of Agriculture (Parts 400 -- 499)
5 General Services Administration (Parts 500 -- 599)
6 Department of State (Parts 600 -- 699)
7 Agency for International Development (Parts 700 -- 799)
8 Department of Veterans Affairs (Parts 800 -- 899)
9 Department of Energy (Parts 900 -- 999)
10 Department of the Treasury (Parts 1000 -- 1099)
12 Department of Transportation (Parts 1200 -- 1299)
13 Department of Commerce (Parts 1300 -- 1399)
14 Department of the Interior (Parts 1400 -- 1499)
15 Environmental Protection Agency (Parts 1500 -- 1599)
16 Office of Personnel Management Federal Employees Health Benefits
Acquisition Regulation (Parts 1600 -- 1699)
17 Office of Personnel Management (Parts 1700 -- 1799)
18 National Aeronautics and Space Administration (Parts 1800 -- 1899)
19 United States Information Agency (Parts 1900 -- 1999)
20 Nuclear Regulatory Commission (Parts 2000 -- 2099)
22 Small Business Administration (Parts 2200 -- 2299)
24 Department of Housing and Urban Development (Parts 2400 -- 2499)
25 National Science Foundation (Parts 2500 -- 2599)
28 Department of Justice (Parts 2800 -- 2899)
29 Department of Labor (Parts 2900 -- 2999)
34 Department of Education Acquisition Regulation (Parts 3400 --
3499)
35 Panama Canal Commission (Parts 3500 -- 3599)
44 Federal Emergency Management Agency (Parts 4400 -- 4499)
51 Department of the Army Acquisition Regulations (Parts 5100 --
5199)
52 Department of the Navy Acquisition Regulations (Parts 5200 --
5299)
53 Department of the Air Force Federal Acquisition Regulation
Supplement (Parts 5300 -- 5399)
57 African Development Foundation (Parts 5700 -- 5799)
61 General Services Administration Board of Contract Appeals (Parts
6100 -- 6199)
63 Department of Transportation Board of Contract Appeals (Parts 6300
-- 6399)
99 Cost Accounting Standards Board, Office of Federal Procurement
Policy, Office of Management and Budget (Parts 9900 -- 9999)
26 CFR 156.6165-1 Title 49 -- Transportation
Subtitle A -- Office of the Secretary of Transportation (Parts 1 --
99)
Subtitle B -- Other Regulations Relating to Transportation
I Research and Special Programs Administration, Department of
Transportation (Parts 100 -- 199)
II Federal Railroad Administration, Department of Transportation
(Parts 200 -- 299)
III Federal Highway Administration, Department of Transportation
(Parts 300 -- 399)
IV Coast Guard, Department of Transportation (Parts 400 -- 499)
V National Highway Traffic Safety Administration, Department of
Transportation (Parts 500 -- 599)
VI Federal Transit Administration, Department of Transportation
(Parts 600 -- 699)
VII National Railroad Passenger Corporation (AMTRAK) (Parts 700 --
799)
VIII National Transportation Safety Board (Parts 800 -- 899)
X Interstate Commerce Commission (Parts 1000 -- 1399)
26 CFR 156.6165-1 Title 50 -- Wildlife and Fisheries
I United States Fish and Wildlife Service, Department of the Interior
(Parts 1 -- 199)
II National Marine Fisheries Service, National Oceanic and
Atmospheric Administration, Department of Commerce (Parts 200 -- 299)
III International Regulatory Agencies (Fishing and Whaling) (Parts
300 -- 399)
IV Joint Regulations (United States Fish and Wildlife Service,
Department of the Interior and National Marine Fisheries Service,
National Oceanic and Atmospheric Administration, Department of
Commerce); Endangered Species Committee Regulations (Parts 400 -- 499)
V Marine Mammal Commission (Parts 500 -- 599)
VI Fishery Conservation and Management, National Oceanic and
Atmospheric Administration, Department of Commerce (Parts 600 -- 699)
26 CFR 156.6165-1 CFR Index and Finding Aids Subject/Agency Index
List of Agency Prepared Indexes Parallel Tables of Statutory
Authorities and Rules Acts Requiring Publication in the Federal Register
List of CFR Titles, Chapters, Subchapters, and Parts Alphabetical List
of Agencies Appearing in the CFR
26 CFR 156.6165-1 Alphabetical List of Agencies Appearing in the CFR
CFR Title, Subtitle or
Agency
Chapter
ACTION 45, XII
Administrative Committee of the Federal Register 1, I
Administrative Conference of the United States 1, III
Advisory Commission on Intergovernmental Relations 5, VII
Advisory Committee on Federal Pay 5, IV
Advisory Council on Historic Preservation 36, VIII
African Development Foundation 22, XV; 48, 57
Agency for International Development 22, II; 48, 7
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Agricultural Stabilization and Conservation Service 7, VII
Agriculture Department
Agricultural Marketing Service 7, I, IX, X, XI
Agricultural Research Service 7, V
Agricultural Stabilization and Conservation Service 7, VII
Animal and Plant Health Inspection Service 7, III; 9, I
Commodity Credit Corporation 7, XIV
Cooperative State Research Service 7, XXXIV
Economic Analysis Staff 7, XXXIX
Economic Research Service 7, XXXVII
Economics Management Staff 7, XL
Energy, Office of 7, XXIX
Environmental Quality, Office of 7, XXXI
Farmers Home Administration 7, XVIII
Federal Acquisition Regulation 48, 4
Federal Crop Insurance Corporation 7, IV
Federal Grain Inspection Service 7, VIII
Finance and Management, Office of 7, XXX
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Foreign Economic Development Service 7, XXI
Forest Service 36, II
General Sales Manager, Office of 7, XXV
Grants and Program Systems, Office of 7, XXXII
Information Resources Management, Office of 7, XXVII
Inspector General, Office of 7, XXVI
International Cooperation and Development Office 7, XXII
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
Operations Office 7, XXVIII
Packers and Stockyards Administration 9, II
Rural Electrification Administration 7, XVII
Rural Telephone Bank 7, XVI
Secretary of Agriculture, Office of 7, Subtitle A
Soil Conservation Service 7, VI
Transportation, Office of 7, XXXIII
World Agriculture Outlook Board 7, XXXVIII
Air Force Department 32, VII; 41, Subtitle C, Ch. 132
Federal Acquisition Regulation Supplement 48, 53
Alaska Natural Gas Transportation System, Office of the Federal
Inspector 10, XV
Alcohol, Tobacco and Firearms, Bureau of 27, I
AMTRAK 49, VII
American Battle Monuments Commission 36, IV
Animal and Plant Health Inspection Service 7, III; 9, I
Appalachian Regional Commission 5, IX
Architectural and Transportation Barriers Compliance Board 36, XI
Arms Control and Disarmament Agency, U.S. 22, VI
Army Department 32, V
Engineers, Corps of 33, II; 36, III
Federal Acquisition Regulation 48, 51
Assistant Secretary for Technology Policy, Department of Commerce 37,
IV
Benefits Review Board 20, VII
Bilingual Education and Minority Languages Affairs, Office of 34, V
Blind and Other Severely Handicapped, Committee for Purchase from 41,
51
Board for International Broadcasting 22, XIII
Budget, Office of Management and 5, III
Census Bureau 15, I
Central Intelligence Agency 32, XIX
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X
Christopher Columbus Quincentenary Jubilee Commission 45, XXII
Civil Rights Commission 45, VII
Civil Rights, Office for (Education Department) 34, I
Claims Collection Standards, Federal 4, II
Coast Guard 33, I; 46, I, III; 49, IV
Commerce Department 44, IV
Census Bureau 15, I
Assistant Secretary for Technology Policy 37, IV
Economic Affairs, Under Secretary 37, V
Economic Analysis, Bureau of 15, VIII
Economic Development Administration 13, III
Endangered Species Committee 50, IV
Export Administration Bureau 15, VII
Federal Acquisition Regulation 48, 13
Fishery Conservation and Management 50, VI
International Trade Administration 15, III; 19, III
National Institute of Standards and Technology 15, II
National Marine Fisheries Service 50, II, IV
National Oceanic and Atmospheric Administration 15, IX; 50, II, III,
IV, VI
National Telecommunications and Information Administration 15, XXIII;
47, III
Patent and Trademark Office 37, I
Productivity, Technology and Innovation, Assistant Secretary for 37,
IV
Secretary of Commerce, Office of 15, Subtitle A
Technology Administration 15, XI
Under Secretary for Technology 37, V
United States Travel and Tourism Administration 15, XII
Commercial Space Transportation, Office of, Department of
Transportation 14, III
Commission on National and Community Service 45, XXV
Committee for Purchase from People who are Blind or Severely Disabled
41, 51
Commodity Credit Corporation 7, XIV
Commodity Futures Trading Commission 17, I
Community Planning and Development, Office of Assistant Secretary for
24, V, VI
Community Services, Office of 45, X
Comptroller of the Currency 12, I
Construction Industry Collective Bargaining Commission 29, IX
Consumer Product Safety Commission 16, II
Cooperative State Research Service 7, XXXIV
Copyright Office 37, II
Copyright Royalty Tribunal 37, III
Cost Accounting Standards Board, Office of Federal Procurement Policy
48, 99
Council on Environmental Quality 40, V
Customs Service, United States 19, I
Defense Department 32, Subtitle A
Air Force Department 32, VII; 41, Subtitle C, Ch. 132
Army Department 32, V; 33, II; 36, III, 48, 51
Engineers, Corps of 33, II; 36, III
Federal Acquisition Regulation 48, 2
Navy Department 32, VI; 48, 52
Secretary of Defense, Office of 32, I
Defense Logistics Agency 32, XII
Defense Nuclear Facilities Safety Board 10, XVII
Delaware River Basin Commission 18, III
Drug Enforcement Administration 21, II
East-West Foreign Trade Board 15, XIII
Economic Affairs, Under Secretary (Commerce) 37, V
Economic Analysis, Bureau of 15, VIII
Economic Analysis Staff, Department of Agriculture 7, XXXIX
Economic Development Administration 13, III
Economics Management Staff 7, XL
Economic Research Service 7, XXXVII
Education, Department of
Bilingual Education and Minority Languages Affairs, Office of 34, V
Civil Rights, Office for 34, I
Educational Research and Improvement, Office of 34, VII
Elementary and Secondary Education, Office of 34, II
Federal Acquisition Regulation 48, 34
Postsecondary Education, Office of 34, VI
Secretary of Education, Office of 34, Subtitle A
Special Education and Rehabilitative Services, Office of 34, III
Vocational and Adult Education, Office of 34, IV
Educational Research and Improvement, Office of 34, VII
Elementary and Secondary Education, Office of 34, II
Employees' Compensation Appeals Board 20, IV
Employees Loyalty Board, International Organizations 5, V
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
Endangered Species Committee 50, IV
Energy, Department of 10, II, III, X; 41, 109
Federal Acquisition Regulation 48, 9
Federal Energy Regulatory Commission 18, I
Energy, Office of, Department of Agriculture 7, XXIX
Engineers, Corps of 33, II; 36, III
Engraving and Printing, Bureau of 31, VI
Environmental Protection Agency 40, I; 41, 115; 48, 15
Environmental Quality, Office of (Agriculture Department) 7, XXXI
Equal Employment Opportunity Commission 29, XIV
Equal Opportunity, Office of Assistant Secretary for 24, I
Executive Office of the President 3, I
Administration, Office of 5, XV
Export Administration Bureau 15, VII
Export-Import Bank of the United States 12, IV
Family Assistance, Office of 45, II
Farm Credit Administration 12, VI
Farm Credit System Insurance Corporation 12, XIV
Farmers Home Administration 7, XVIII
Federal Acquisition Regulation 48, 1
Federal Aviation Administration 14, I
Federal Claims Collection Standards 4, II
Federal Communications Commission 47, I
Federal Contract Compliance Programs, Office of 41, 60
Federal Crop Insurance Corporation 7, IV
Federal Deposit Insurance Corporation 12, III
Federal Election Commission 11, I
Federal Emergency Management Agency 44, I; 48, 44
Federal Energy Regulatory Commission 18, I
Federal Financial Institutions Examination Council 12, XI
Federal Financing Bank 12, VIII
Federal Grain Inspection Service 7, VIII
Federal Highway Administration 23, I, II; 49, III
Federal Home Loan Mortgage Corporation 1, IV
Federal Housing Finance Board 12, IX
Federal Information Resources Management Regulations 41, Subtitle E,
Ch. 201
Federal Inspector for the Alaska Natural Gas Transportation System,
Office of 10, XV
Federal Labor Relations Authority, and General Counsel of the Federal
Labor Relations Authority 5, XIV; 22, XIV
Federal Law Enforcement Training Center 31, VII
Federal Maritime Commission 46, IV
Federal Mediation and Conciliation Service 29, XII
Federal Mine Safety and Health Review Commission 29, XXVII
Federal Pay, Advisory Committee on 5, IV
Federal Prison Industries, Inc. 28, III
Federal Procurement Policy Office 48, 99
Federal Property Management Regulations 41, 101
Federal Property Management Regulations System 41, Subtitle C
Federal Railroad Administration 49, II
Federal Register, Administrative Committee of 1, I
Federal Register, Office of 1, II
Federal Reserve System 12, II
Federal Retirement Thrift Investment Board 5, VI
Federal Service Impasses Panel 5, XIV
Federal Trade Commission 16, I
Federal Transit Administration 49, VI
Federal Travel Regulation System 41, Subtitle F
Finance and Management, Department of Agriculture 7, XXX
Fine Arts Commission 45, XXI
Fiscal Service 31, II
Fish and Wildlife Service, United States 50, I, IV
Fishery Conservation and Management 50, VI
Fishing and Whaling, International Regulatory Agencies 50, III
Food and Drug Administration 21, I
Food and Nutrition Service 7, II
Food Safety and Inspection Service 9, III
Foreign Agricultural Service 7, XV
Foreign Assets Control, Office of 31, V
Foreign Claims Settlement Commission of United States 45, V
Foreign Economic Development Service 7, XXI
Foreign Service Grievance Board 22, IX
Foreign Service Impasse Disputes Panel 22, XIV
Foreign Service Labor Relations Board 22, XIV
Foreign-Trade Zones Board 15, IV
Forest Service 36, II
General Accounting Office 4, I, II
General Sales Manager, Office of 7, XXV
General Services Administration
Contract Appeals Board 48, 61
Federal Acquisition Regulation 48, 5
Federal Information Resources Management Regulations 41, Subtitle E,
Ch. 201
Federal Property Management Regulations System 41, 101, 105
Federal Travel Regulation System 41, Subtitle F
Payment of Expenses Connected With the Death of Certain Employees 41,
303
Relocation Allowances 41, 302
Travel Allowances 41, 301
Geological Survey 30, IV
Government Ethics, Office of 5, XVI
Government National Mortgage Association 24, III
Grants and Program Systems, Office of 7, XXXII
Great Lakes Pilotage 46, III
Harry S. Truman Scholarship Foundation 45, XVIII
Health and Human Services, Department of 45, Subtitle A
Child Support Enforcement, Office of 45, III
Children and Families, Administration for 45, II, III, IV, X
Community Services, Office of 45, X
Family Assistance, Office of 45, II
Federal Acquisition Regulation 48, 3
Food and Drug Administration 21, I
Health Care Financing Administration 42, IV
Human Development Services Office 45, XIII
Inspector General, Office of 42, V
Public Health Service 42, I
Refugee Resettlement, Office of 45, IV
Social Security Administration 20, III; 45, IV
Health Care Financing Administration 42, IV
Housing and Urban Development, Department of
Community Planning and Development, Office of Assistant Secretary for
24, V, VI
Equal Opportunity, Office of Assistant Secretary for 24, I
Federal Acquisition Regulation 48, 24
Government National Mortgage Association 24, III
Housing -- Federal Housing Commissioner, Office of Assistant
Secretary for 24, II, VIII, X, XX
Inspector General, Office of 24, XII
Mortgage Insurance and Loan Programs Under Emergency Homeowners'
Relief Act 24, XV
Public and Indian Housing, Office of Assistant Secretary for 24, IX
Secretary, Office of 24, Subtitle B, VII
Solar Energy and Energy Conservation Bank 24, XI
Housing -- Federal Housing Commissioner, Office of Assistant
Secretary for 24, II, VIII, X, XX
Human Development Services Office 45, XIII
Immigration and Naturalization Service 8, I
Indian Affairs, Bureau of 25, I
Indian Arts and Crafts Board 25, II
Information Agency, United States 22, V; 48, 19
Information Resources Management, Office of, Agriculture Department
7, XXVII
Information Security Oversight Office 32, XX
Inspector General, Office of, Agriculture Department 7, XXVI
Inspector General, Office of, Health and Human Services Department
42, V
Inspector General, Office of, Housing and Urban Development
Department 24, XII
Inter-American Foundation 22, X
Intergovernmental Relations, Advisory Commission on 5, VII
Interior Department
Endangered Species Committee 50, IV
Federal Acquisition Regulation 48, 14
Federal Property Management Regulations System 41, 114
Fish and Wildlife Service, United States 50, I, IV
Geological Survey 30, IV
Indian Affairs, Bureau of 25, I
Indian Arts and Crafts Board 25, II
Land Management Bureau 43, II
Minerals Management Service 30, II
Mines, Bureau of 30, VI
National Park Service 36, I
Reclamation Bureau 43, I
Secretary of the Interior, Office of 43, Subtitle A
Surface Mining and Reclamation Appeals, Board of 30, III
Surface Mining Reclamation and Enforcement, Office of 30, VII
United States Fish and Wildlife Service 50, I, IV
Internal Revenue Service 26, I
International Boundary and Water Commission, United States and Mexico
22, XI
International Cooperation and Development Office, Department of
Agriculture 7, XXII
International Development, Agency for 22, II
International Development Cooperation Agency 22, XII
International Development, Agency for 22, II
Overseas Private Investment Corporation 22, VII
International Joint Commission, United States and Canada 22, IV
International Organizations Employees Loyalty Board 5, V
International Regulatory Agencies (Fishing and Whaling) 50, III
International Trade Administration 15, III; 19, III
International Trade Commission, United States 19, II
Interstate Commerce Commission 49, X
James Madison Memorial Fellowship Foundation 45, XXIV
Japan-United States Friendship Commission 22, XVI
Joint Board for the Enrollment of Actuaries 20, VIII
Justice Department 28, I; 41, 128
Drug Enforcement Administration 21, II
Federal Acquisition Regulation 48, 28
Federal Claims Collection Standards 4, II
Federal Prison Industries, Inc. 28, III
Foreign Claims Settlement Commission of the United States 45, V
Immigration and Naturalization Service 8, I
Offices of Independent Counsel 28, VI
Prisons, Bureau of 28, V
Labor Department
Benefits Review Board 20, VII
Employees' Compensation Appeals Board 20, IV
Employment and Training Administration 20, V
Employment Standards Administration 20, VI
Federal Acquisition Regulation 48, 29
Federal Contract Compliance Programs, Office of 41, 60
Federal Procurement Regulations System 41, 50
Labor-Management Relations and Cooperative Programs, Bureau of 29, II
Labor-Management Standards, Office of 29, IV
Mine Safety and Health Administration 30, I
Occupational Safety and Health Administration 29, XVII
Pension and Welfare Benefits Administration 29, XXV
Public Contracts 41, 50
Secretary of Labor, Office of 29, Subtitle A
Veterans' Employment and Training, Office of the Assistant Secretary
for 41, 61; 20, IX
Wage and Hour Division 29, V
Workers' Compensation Programs, Office of 20, I
Labor-Management Relations and Cooperative Programs, Bureau of 29, II
Labor-Management Standards, Office of 29, IV
Land Management, Bureau of 43, II
Legal Services Corporation 45, XVI
Library of Congress 36, VII
Copyright Office 37, II
Management and Budget, Office of 5, III; 48, 99
Marine Mammal Commission 50, V
Maritime Administration 46, II
Merit Systems Protection Board 5, II
Micronesian Status Negotiations, Office for 32, XXVII
Mine Safety and Health Administration 30, I
Minerals Management Service 30, II
Mines, Bureau of 30, VI
Minority Business Development Agency 15, XIV
Miscellaneous Agencies 1, IV
Monetary Offices 31, I
Mortgage Insurance and Loan Programs Under the Emergency Homeowners'
Relief Act, Department of Housing and Urban Development 24, XV
National Aeronautics and Space Administration 14, V; 48, 18
National Agricultural Library 7, XLI
National Agricultural Statistics Service 7, XXXVI
National Archives and Records Administration 36, XII
National Bureau of Standards 15, II
National Capital Planning Commission 1, IV
National Commission for Employment Policy 1, IV
National Commission on Libraries and Information Science 45, XVII
National and Community Service, Commission on 45, XXV
National Credit Union Administration 12, VII
National Drug Control Policy, Office of 21, III
National Foundation on the Arts and the Humanities 45, XI
National Highway Traffic Safety Administration 23, II, III; 49, V
National Indian Gaming Commission 25, III
National Institute of Standards and Technology 15, II
National Labor Relations Board 29, I
National Marine Fisheries Service 50, II, IV
National Mediation Board 29, X
National Oceanic and Atmospheric Administration 15, IX; 50, II, III,
IV, VI
National Park Service 36, I
National Railroad Adjustment Board 29, III
National Railroad Passenger Corporation (AMTRAK) 49, VII
National Science Foundation 45, VI; 48, 25
National Security Council 32, XXI
National Security Council and Office of Science and Technology Policy
47, II
National Telecommunications and Information Administration 15, XXIII;
47, III
National Transportation Safety Board 49, VIII
Navy Department 32, VI; 48, 52
Neighborhood Reinvestment Corporation 24, XXV
Nuclear Regulatory Commission 10, I; 48, XX
Occupational Safety and Health Administration 29, XVII
Occupational Safety and Health Review Commission 29, XX
Office of Independent Counsel 28, VII
Office of National Drug Control Policy 21, III
Office of Navajo and Hopi Indian Relocation 25, IV
Offices of Independent Counsel, Department of Justice 28, VI
Operations Office, Department of Agriculture 7, XXVIII
Overseas Private Investment Corporation 22, VII
Packers and Stockyards Administration 9, II
Panama Canal Commission 48, 35
Panama Canal Regulations 35, I
Patent and Trademark Office 37, I
Payment of Expenses Connected With the Death of Certain Employees 41,
303
Peace Corps 22, III
Pennsylvania Avenue Development Corporation 36, IX
Pension and Welfare Benefits Administration, Department of Labor 29,
XXV
Pension Benefit Guaranty Corporation 29, XXVI
Personnel Management, Office of 5, I; 45, VIII; 48, 17
Federal Employees Health Benefits Acquisition Regulation 48, 16
Postal Rate Commission 39, III
Postal Service, United States 39, I
Postsecondary Education, Office of 34, VI
President's Commission on White House Fellowships 1, IV
Presidential Commission on the Assignment of Women in the Armed
Forces 32, XXIX
Presidential Documents 3
Prisons, Bureau of 28, V
Productivity, Technology and Innovation, Assistant Secretary
(Commerce) 37, IV
Property Management Regulations System, Federal 41, Subtitle C
Public Contracts, Department of Labor 41, 50
Public Health Service 42, I
Railroad Retirement Board 20, II
Reclamation Bureau 43, I
Reduction in Meeting and Training Allowance Payments 41, 304
Refugee Resettlement, Office of 45, IV
Regional Action Planning Commissions 13, V
Relocation Allowances 41, 302
Research and Special Programs Administration 49, I
Resolution Trust Corporation 12, XVI
Rural Electrification Administration 7, XVII
Rural Telephone Bank 7, XVI
Saint Lawrence Seaway Development Corporation 33, IV
Science and Technology Policy, Office of 32, XXIV
Science and Technology Policy, Office of, and National Security
Council 47, II
Secret Service 31, IV
Securities and Exchange Commission 17, II
Selective Service System 32, XVI
Small Business Administration 13, I; 48, 22
Smithsonian Institution 36, V
Social Security Administration 20, III; 45, IV
Soil Conservation Service 7, VI
Solar Energy and Energy Conservation Bank, Department of Housing and
Urban Development 24, XI
Soldiers' and Airmen's Home, United States 5, XI
Special Counsel, Office of 5, VIII
Special Education and Rehabilitative Services, Office of 34, III
State Department 22, I
Federal Acquisition Regulation 48, 6
Surface Mining and Reclamation Appeals, Board of 30, III
Susquehanna River Basin Commission 18, VIII
Technology Administration 15, XI
Tennessee Valley Authority 18, XIII
Thrift Depositor Protection Oversight Board 12, XV
Thrift Supervision Office, Department of the Treasury 12, V
Trade Representative, United States, Office of 15, XX
Transportation, Department of 44, IV
Coast Guard 33, I; 46, I, III; 49, IV
Commercial Space Transportation, Office of 14, III
Contract Appeals Board 48, 63
Federal Acquisition Regulation 48, 12
Federal Aviation Administration 14, I
Federal Highway Administration 23, I, II; 49, III
Federal Railroad Administration 49, II
Federal Transit Administration 49, VI
Maritime Administration 46, II
National Highway Traffic Safety Administration 23, II, III; 49, V
Research and Special Programs Administration 49, I
Saint Lawrence Seaway Development Corporation 33, IV
Secretary of Transportation, Office of 14, II; 49, Subtitle A
Transportation, Office of, Department of Agriculture 7, XXXIII
Travel Allowance 41, 301
Travel and Tourism Administration, United States 15, XII
Treasury Department 17, IV
Alcohol, Tobacco and Firearms, Bureau of 27, I
Comptroller of the Currency 12, I
Customs Service, United States 19, I
Engraving and Printing, Bureau of 31, VI
Federal Acquisition Regulation 48, 10
Federal Law Enforcement Training Center 31, VII
Fiscal Service 31, II
Foreign Assets Control, Office of 31, V
Internal Revenue Service 26, I
Monetary Offices 31, I
Secret Service 31, IV
Secretary of the Treasury, Office of 31, Subtitle A
Thrift Supervision Office 12, V
United States Customs Service 19, I
Truman, Harry S. Scholarship Foundation 45, XVIII
Under Secretary for Technology, Department of Commerce 37, V
United States and Canada, International Joint Commission 22, IV
United States Arms Control and Disarmament Agency 22, VI
United States Customs Service 19, I
United States Fish and Wildlife Service 50, I, IV
United States Information Agency 22, V; 48, 19
United States International Development Cooperation Agency 22, XII
United States International Trade Commission 19, II
United States Postal Service 39, I
United States Soldiers' and Airmen's Home 5, XI
United States Trade Representative, Office of 15, XX
United States Travel and Tourism Administration 15, XII
Veterans Affairs Department 38, I; 48, 8
Veterans' Employment and Training, Office of the Assistant Secretary
for 41, 61; 20, IX
Vice President of the United States, Office of 32, XXVIII
Vocational and Adult Education, Office of 34, IV
Wage and Hour Division 29, V
Water Resources Council 18, VI
Workers' Compensation Programs, Office of 20, I
World Agriculture Outlook Board 7, XXXVIII
26 CFR 156.6165-1 26 CFR (4-1-93 Edition)
26 CFR 156.6165-1 OMB Control Numbers
26 CFR 156.6165-1
26 CFR 156.6165-1
26 CFR 156.6165-1 Table of OMB Control Numbers
The OMB control numbers for Chapter I of Title 26 were consolidated
into 601.9000 and 602.101 at 50 FR 10221, Mar 14. 1985. Sections
601.9000 and 602.101 are reprinted below for the convenience of the
user.
26 CFR 156.6165-1 Subpart J -- OMB Control Numbers Under the Paperwork Reduction Act
26 CFR 601.9000 OMB control numbers for the statement of procedural
rules.
(a) Purpose. This section collects and displays the control numbers
assigned to Internal Revenue Service collections of information in the
Statement of Procedural Rules (26 CFR Part 601) by the Office of
Management and Budget (OMB) under the Paperwork Reduction Act of 1980.
The Internal Revenue Service intends that this section (together with 26
CFR Part 602) comply with the requirements of 1320.7(f), 1320.12,
1320.13, and 1320.14 of 5 CFR Part 1320 (OMB regulations implementing
the Paperwork Reduction Act of 1980) for the display of control numbers
assigned by OMB to collections of information of the Internal Revenue
Service in the Statement of Procedural Rules. This section does not
display control numbers assigned by OMB to collections of information of
the Bureau of Alcohol, Tobacco, and Firearms in the Statement of
Procedural Rules.
(b) Cross-reference. For display of control numbers assigned by the
Office of Management and Budget to collections of information of the
Internal Revenue Service in regulations elsewhere than in the Statement
of Procedural Rules, see 26 CFR Part 602.
(c) Display.
(Sec. 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26
U.S.C. 7805))
(T.D. 8011, 50 FR 10222, Mar. 14, 1985, as amended at 51 FR 7442,
Mar. 4, 1986. Redesignated at 53 FR 19187, May 26, 1988)
26 CFR 601.9000 Pt. 602
26 CFR 601.9000 PART 602 -- OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
26 CFR 602.101 OMB Control numbers.
(a) Purpose. This part collects and displays the control numbers
assigned to collections of information in Internal Revenue Service
regulations by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1980. The Internal Revenue Service intends
that this part (together with 26 CFR 601.9000) comply with the
requirements of 1320.7(f), 1320.12, 1320.13, and 1320.14 of 5 CFR part
1320 (OMB regulations implementing the Paperwork Reduction Act), for the
display of control numbers assigned by OMB to collections of information
in Internal Revenue Service regulations. This part does not display
control numbers assigned by the Office of Management and Budget to
collections of information of the Bureau of Alcohol, Tobacco, and
Firearms.
(b) Cross-reference. For display of control numbers assigned by the
Office of Management and Budget to Internal Revenue Service collections
of information in the Statement of Procedural Rules (26 CFR part 601),
see 26 CFR 601.9000.
(c) Display.
(26 U.S.C. 7805)
(T.D. 8011, 50 FR 10222, Mar. 14, 1985)
Editorial Note: For Federal Register citations affecting 602.101,
see the List of CFR Sections Affected in the Findings Aids section of
this volume.
Effective Date Note 1: At 57 FR 40124, Sept. 2, 1992, 602.101(c)
was amended by adding the entry ''1.42-5'' and the OMB control number
''1545-1291'' to the table, effective June 30, 1993.
Effective Date Note 2: At 58 FR 5293, Jan. 23, 1993, 602.101(c)
was further amended by adding the entries ''1.482-1T'', ''1.482-3T'',
and ''1.482-4T'', and the current OMB control numbers ''1545-1298'',
''1545-1298'', and ''1545-1298'' to the table, effective April 21, 1993.
26 CFR 602.101 26 CFR (4-1-93 Edition)
26 CFR 602.101 List of CFR Sections Affected
26 CFR 602.101 List of CFR Sections Affected
All changes in this volume of the Code of Federal Regulations which
were made by documents published in the Federal Register since January
1, 1986, are enumerated in the following list. Entries indicate the
nature of the changes effected. Page numbers refer to Federal Register
pages. The user should consult the entries for chapters and parts as
well as sections for revisions.
For the period before January 1, 1986, see the ''List of CFR Sections
Affected, 1949-1963, 1964-1972, and 1973-1985'' published in seven
separate volumes.
26 CFR 602.101 1986
26 CFR
51 FR
Page
Chapter I
51 Authority citation amended 5995
51.4988-2 (c) (4), (5) and (6) redesignated as (c) (5), (6) and (7);
new (c)(4) added 5995
51.4994-1 (c)(1)(i) and (ii)(A) corrected 3597
51.4996-1 (b)(3) revised 5995
54.4976-1T Added (temporary) 4336
54.4978-1T Added (temporary) 4336
154.1-1 Removed 21
26 CFR 602.101 1987
26 CFR
52 FR
Page
Chapter I
51 Authority citation amended 3002
Authority citation corrected 10224
51.4996-1 (d)(3)(iv) corrected 10224
51.6245-1T Added (temporary) 3002
54 Authority citation amended 46750
54.4981A-1T Added (temporary) 46750
54.6011-1T Added (temporary) 10563
54.6071-1T Added (temporary) 10563
26 CFR 602.101 1988
26 CFR
53 FR
Page
Chapter I
51.4988-2 (b)(3)(iii) amended 6628
51.4991-1 (b) amended 6628
51.4996-1 (m) redesignated as (o); new (m) and (n) added 6627
54.4981A-1T Corrected 18971
55 Heading and authority citation revised 6147
55.4981-1 -- 55.4981-2 (Subpart A) Heading revised 6147
55.4981-1 Heading revised; text amended; authority citation removed
6147
55.4981-2 Added 6147
55.4982-1 (Subpart B) Added 6148
55.6001-1 -- 55.6165-1 (Subpart B) Redesignated as (Subpart C) 6148
55.6001-1 -- 55.6165-1 (Subpart C) Redesignated from (Subpart B) 6148
55.6011-1 Revised 6148
55.6061-1 Revised 6148
55.6071-1 Revised 6148
55.6091-1 (a) amended 6148
55.6151-1 Added 6148
145.4052-1 (a) and (b) revised; (c)(1) and (5)(i) and (d)(2)(iii)
amended; (f) removed; (d) (2), (3), and (4) and (e) redesignated as
(d) (8), (9), and (10) and (f); new (d) (2) through (7), (e), and (g)
added 16869
26 CFR 602.101 1989
26 CFR 602.101 1990
26 CFR
55 FR
Page
Chapter I
52 Heading and authority citation revised 36615
52.4681-0T Added (temporary) 36615
52.4681-1T Added (temporary) 36616
52.4682-1T Added (temporary) 36617
52.4682-2T Added (temporary) 36618
52.4682-3T Added (temporary) 36621
52.4682-4T Added (temporary) 36626
52.6011(a)-1 Removed 36628
52.6011(a)-1T Added (temporary) 36628
52.6011(a)-2 Removed 36628
52.6011(a)-2T Added (temporary) 36628
52.6071(a)-1 Amended 36629
52.6071(a)-2T Added (temporary) 36629
52.6071(a)-3T Added (temporary) 36629
52.6091-1 Removed 36630
52.6091-1T Added (temporary) 36630
52.6101-1T Added (temporary) 36630
Correctly added 48955
52.6109a-1T Added (temporary) 36630
52.6151-1 Removed 36630
52.6151(a)-1T Added (temporary) 36630
52.6302(c)-2T Added (temporary); eff. 7-1-90 36630
53.4945-2 (a)(1), (2), (5)(i), (d)(1)(i), (ii), and (4) revised;
(d)(1)(v) redesignated as (d)(1)(vii); new (d)(1)(vii), (1)(iv) and
(2)(iii) amended; (a)(6), (7), (d)(1)(v) and (vi) added; (a)(5)(iii),
(b) and (c) removed 35594
56 Added 35598
26 CFR 602.101 1991
26 CFR
56 FR
Page
Chapter I
52 Authority citation revised 56305
52.0-1T Added (temporary) 189
52.4681-0 Added 56305
52.4681-0T Amended 20
52.4681-0T Removed 56305
52.4681-1 Added 56305
52.4681-1T (c)(9) added; (d) revised 20
52.4681-1T Removed 56305
52.4682-1 Added 56307
52.4682-1T (b)(2)(ii) and (iii) revised 20
52.4682-1T Removed 56305
52.4682-2 Added 56308
52.4682-2T (b)(1)(i), (2)(i), (d)(2)(i), (ii), (3)(i) and (ii)
amended 21
52.4682-2T Removed 56305
52.4682-3 Added 56311
52.4682-3T (a) introductory text and (b)(2)(i)(B) revised; (a)(3)
added 21
Removed 56305
52.4682-4 Added 56317
52.4682-4T (b)(2)(i)(B), (d)(1)(ii), (2)(iii), (e) and (g) revised;
(d)(1)(iii) amended 21
(b)(2)(i)(B)(2) revised (temporary) 40247
Removed 56305
52.6071(a)-3T (b)(1) revised 22
52.6151(a)-1T (b) revised 22
52.6302(c)-2T (b)(3) revised 22
54.4979-0 Added 40550
54.4979-1 Added 40550
138 Removed 190
142 Removed 190
145.1-1 Removed 190
145.1-2 Removed 190
145.1-3 Removed 190
145.1-4 Removed 190
145.1-5 Removed 190
145.1-6 Removed 190
145.1-7 Removed 190
145.2-1 Removed 190
145.2-2 Removed 190
145.2-3 Removed 190
145.2-4 Removed 190
145.2-5 Removed 190
145.2-6 Removed 190
145.3-1 Removed 190
145.4-1 Removed 190
145.4-2 Removed 190
145.4-3 Removed 190
145.4-4 Removed 190
145.4-5 Removed 190
145.4-6 Removed 190
146 Removed 190
147 Removed 190
148.1-6 Removed 190
154.2-1 Redesignated as 49.4271-1T; heading and (f) revised; (a)
amended 190
154 Removed 190
156 Added 65685
26 CFR 602.101 1992
26 CFR
57 FR
Page
Chapter I
51 Removed 48186
52 Authority citation revised 48186
52.0-1 Added 48186
52.0-1T Removed 48186
52.4681-1 (b)(4) revised 48186
52.6011(a)-1T Removed 48186
52.6011(a)-2T Removed 48186
52.6071(a)-1 Removed 48186
52.6071(a)-2T Removed 48186
52.6071(a)-3T Removed 48186
52.6091(a)-1T Removed 48186
52.6101-1T Removed 48186
52.6109(a)-1T Removed 48186
52.6151(a)-1T Removed 48186
52.6302(c)-1 Removed 48186
52.6302(c)-2T Removed 48186
53 Authority citation revised 33444
53.4940-1 (d)(1) amended 33444
54.4979-0 Corrected 10290
156.6001-1 (c) corrected 5931
156.6091-1 (a) corrected 5931
145 Authority citation revised 48187
145.9000-1 Removed 48187
148 Authority citation revised 48187
148.1-3 Removed 48187
148.1-4 Removed 48187
150 Removed 48187
40 -- 156 (Subchapter D) Appendix removed 48187
26 CFR 602.101 1993 I56(Regulations published from January 1, 1993
through April 1, 1993) I6026 CFR I6158 FR I62Page
Chapter I
52.4682-3 (f)(6) table amended 14518
26
Internal Revenue
PARTS 50 TO 299
Revised as of April 1, 1993
CONTAINING
A CODIFICATION OF DOCUMENTS
OF GENERAL APPLICABILITY
AND FUTURE EFFECT
AS OF APRIL 1, 1993
With Ancillaries
Published by
the Office of the Federal Register
National Archives and Records
Administration
as a Special Edition of
the Federal Register
Washington, DC 20402-9328
26 CFR 602.101 Table of Contents
Page
Explanation v
Title 26:
Chapter I -- Internal Revenue Service, Department of the Treasury
(Continued)
Finding Aids:
Table of CFR Titles and Chapters
Alphabetical List of Agencies Appearing in the CFR
Table of OMB Control Numbers
List of CFR Sections Affected
26 CFR 602.101 Explanation
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16 as of January 1
Title 17 through Title 27 as of April 1
Title 28 through Title 41 as of July 1
Title 42 through Title 50 as of October 1
The appropriate revision date is printed on the cover of each volume.
LEGAL STATUS
The contents of the Federal Register are required to be judicially
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie
evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
The Code of Federal Regulations is kept up to date by the individual
issues of the Federal Register. These two publications must be used
together to determine the latest version of any given rule.
To determine whether a Code volume has been amended since its
revision date (in this case, April 1, 1993), consult the ''List of CFR
Sections Affected (LSA),'' which is issued monthly, and the ''Cumulative
List of Parts Affected,'' which appears in the Reader Aids section of
the daily Federal Register. These two lists will identify the Federal
Register page number of the latest amendment of any given rule.
EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
citations for the regulations are referred to by volume number and page
number of the Federal Register and date of publication. Publication
dates and effective dates are usually not the same and care must be
exercised by the user in determining the actual effective date. In
instances where the effective date is beyond the cut-off date for the
Code a note has been inserted to reflect the future effective date. In
those instances where a regulation published in the Federal Register
states a date certain for expiration, an appropriate note will be
inserted following the text.
OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires Federal
agencies to display an OMB control number with their information
collection request. Many agencies have begun publishing numerous OMB
control numbers as amendments to existing regulations in the CFR. These
OMB numbers are placed as close as possible to the applicable
recordkeeping or reporting requirements.
OBSOLETE PROVISIONS
Provisions that become obsolete before the revision date stated on
the cover of each volume are not carried. Code users may find the text
of provisions in effect on a given date in the past by using the
appropriate numerical list of sections affected. For the period before
January 1, 1986, consult either the List of CFR Sections Affected,
1949-1963, 1964-1972, or 1973-1985, published in seven separate volumes.
For the period beginning January 1, 1986, a ''List of CFR Sections
Affected'' is published at the end of each CFR volume.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Statutory
Authorities and Agency Rules (Table I), and Acts Requiring Publication
in the Federal Register (Table II). A list of CFR titles, chapters, and
parts and an alphabetical list of agencies publishing in the CFR are
also included in this volume.
An index to the text of ''Title 3 -- The President'' is carried
within that volume.
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ''Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of material appearing
in the Code of Federal Regulations.
INQUIRIES AND SALES
For a summary, legal interpretation, or other explanation of any
regulation in this volume, contact the issuing agency. Inquiries
concerning editing procedures and reference assistance with respect to
the Code of Federal Regulations may be addressed to the Director, Office
of the Federal Register, National Archives and Records Administration,
Washington, DC 20408 (telephone 202-512-1557). All mail order sales are
handled exclusively by the Superintendent of Documents, Attn: New
Orders, P.O. Box 371954, Pittsburgh, PA 15250-7954. Charge orders may
be telephoned to the Government Printing Office order desk at
202-783-3238.
Martha L. Girard,
Director,
Office of the Federal Register.
April 1, 1993.
26 CFR 602.101 THIS TITLE
Title 26 -- Internal Revenue is composed of nineteen volumes. The
contents of these volumes represent all current regulations issued by
the Internal Revenue Service, Department of the Treasury, as of April 1,
1993. The first twelve volumes comprise part 1 (Subchapter A -- Income
Tax) and are arranged by sections as follows: 1.0-1-1.60;
1.61-1.169; 1.170-1.300; 1.301-1.400; 1.401-1.440;
1.441-1.500; 1.501-1.640; 1.641-1.850; 1.851-1.907;
1.908-1.1000; 1.1001-1.1400 and 1.1401 to end. The thirteenth
volume containing parts 2-29, includes the remainder of subchapter A and
all of Subchapter B -- Estate and Gift Taxes. The last six volumes
contain parts 30-39 (Subchapter C -- Employment Taxes and Collection of
Income Tax at Source); parts 40-49; parts 50-299 (Subchapter D --
Miscellaneous Excise Taxes); parts 300-499 (Subchapter F -- Procedure
and Administration); parts 500-599 (Subchapter G -- Regulations under
Tax Conventions); and part 600 to end (Subchapter H -- Internal Revenue
Practice).
The OMB control numbers for Title 26 appear in 601.9000 and 602.101
of this chapter. For the convenience of the user, 601.9000 and
602.101 appear in the Finding Aids section of the volumes containing
parts 1 to 599.
For this volume, Duane W. Leland was Chief Editor. The Code of
Federal Regulations publication program is under the direction of
Richard L. Claypoole, assisted by Alomha S. Morris.
26 CFR 0.0 26 CFR Ch. I (4-1-93 Edition)
26 CFR 0.0 Internal Revenue Service, Treasury
26 CFR 0.0 Title 26 -- Internal Revenue
26 CFR 0.0 (This book contains parts 300 to 499)
Part
chapter i -- Internal Revenue Service, Department of the Treasury
(continued) 301
26 CFR 0.0 26 CFR Ch. I (4-1-93 Edition)
26 CFR 0.0 Internal Revenue Service, Treasury
26 CFR 0.0 CHAPTER I -- INTERNAL REVENUE SERVICE,
26 CFR 0.0 DEPARTMENT OF THE TREASURY --
26 CFR 0.0 (Continued)
Editorial Note: IRS published a document at 45 FR 6088, Jan. 25,
1980, deleting statutory sections from their regulations. In Chapter I
cross references to the deleted material have been changed to the
corresponding sections of the IRS Code of 1954 or to the appropriate
regulations sections. When either such change produced a redundancy,
the cross reference has been deleted. For further explanation, see 45
FR 20795, Mar. 31, 1980.
26 CFR 0.0 SUBCHAPTER F -- PROCEDURE AND ADMINISTRATION
Part
Page
300 (Reserved)
301 Procedure and administration
302 Taxes under the International Claims Settlement Act, as amended
August 9, 1955
303 Taxes under the Trading With the Enemy Act
304 (Reserved)
305 Temporary procedural and administrative tax regulations under the
Indian Tribal Governmental Tax Status Act of 1982
306-399 (Reserved)
400 Temporary regulations under the Federal Tax Lien Act of 1966
401 Temporary procedures and administration regulations under the Tax
Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248)
402 (Reserved)
403 Disposition of seized personal property
404 Temporary regulations on procedure and administration under the
Tax Reform Act of 1976
405-419 (Reserved)
420 Temporary regulations on procedure and administration under the
Employee Retirement Income Security Act of 1974
421-499 (Reserved)
26 CFR 0.0 26 CFR Ch. I (4-1-93 Edition)
26 CFR 0.0 Internal Revenue Service, Treasury
26 CFR 0.0 SUBCHAPTER F -- PROCEDURE AND ADMINISTRATION
26 CFR 0.0 PART 300 -- (RESERVED)
26 CFR 0.0 Pt. 301
26 CFR 0.0 PART 301 -- PROCEDURE AND ADMINISTRATION
26 CFR 0.0 Information and Returns
Sec.
301.6001-1 Notice or regulations requiring records, statements, and
special returns.
301.6011-1 General requirement of return, statement, or list.
301.6011-2 Required use of magnetic media.
301.6012-1 Persons required to make returns of income.
301.6013-1 Joint returns of income tax by husband and wife.
301.6014-1 Income tax return -- tax not computed by taxpayer.
301.6015-1 Declaration of estimated income tax by individuals.
301.6016-1 Declarations of estimated income tax by corporations.
301.6017-1 Self-employment tax returns.
301.6018-1 Estate tax returns.
301.6019-1 Gift tax returns.
301.6020-1 Returns prepared or executed by district directors or
other internal revenue officers.
301.6021-1 Listing by district directors of taxable objects owned by
nonresidents of internal revenue districts.
301.6031-1 Return of partnership income.
301.6032-1 Returns of banks with respect to common trust funds.
301.6033-1 Returns by exempt organizations.
301.6034-1 Returns by trusts described in section 4947(a)(2) or
claiming charitable or other deductions under section 642(c).
301.6035-1 Returns of officers, directors, and shareholders of
foreign personal holding companies.
301.6036-1 Notice required of executor or of receiver or other like
fiduciary.
301.6037-1 Return of electing small business corporation.
301.6038-1 Information returns required of U.S. persons with respect
to certain foreign corporations.
301.6039-1 Information returns and statements required in connection
with certain options.
301.6041-1 Returns of information regarding certain payments.
301.6042-1 Returns of information regarding payments of dividends and
corporate earnings and profits.
301.6043-1 Returns regarding liquidation, dissolution, termination,
or contraction.
301.6044-1 Returns of information regarding payments of patronage
dividends.
301.6046-1 Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock.
301.6047-1 Information relating to certain trusts and annuity and
bond purchase plans.
301.6048-1 Returns as to creation of or transfers to certain foreign
trusts.
301.6049-1 Returns regarding payments of interest.
301.6050A-1 Information returns regarding services performed by
certain crewmen on fishing boats.
301.6050M-1 Information returns relating to persons receiving
contracts from certain Federal executive agencies.
301.6051-1 Receipts for employees.
301.6052-1 Information returns and statements regarding payment of
wages in the form of group-term life insurance.
301.6057-1 Employee retirement benefit plans; identification of
participant with deferred vested retirement benefit.
301.6057-2 Employee retirement benefit plans; notification of change
in plan status.
301.6058-1 Information required in connection with certain plans of
deferred compensation.
301.6059-1 Periodic report of actuary.
301.6061-1 Signing of returns and other documents.
301.6062-1 Signing of corporation returns.
301.6063-1 Signing of partnership returns.
301.6064-1 Signature presumed authentic.
301.6065-1 Verification of returns.
301.6071-1 Time for filing returns and other documents.
301.6072-1 Time for filing income tax returns.
301.6073-1 Time for filing declarations of estimated income tax by
individuals.
301.6074-1 Time for filing declarations of estimated income tax by
corporations.
301.6075-1 Time for filing estate and gift tax returns.
301.6081-1 Extension of time for filing returns.
301.6091-1 Place for filing returns and other documents.
301.6096-1 Designation by individuals for taxable years beginning
after December 31, 1972.
301.6096-2 Designation by individuals for taxable years ending on or
after December 31, 1972 and beginning before January 1, 1973.
301.6101-1 Period covered by returns or other documents.
301.6102-1 Computations on returns or other documents.
301.6103(a)-1 Disclosures after December 31, 1976, by officers and
employees of Federal agencies of returns and return information
(including taxpayer return information) disclosed to such officers and
employees by the Internal Revenue Service before January 1, 1977, for a
purpose not involving tax administration.
301.6103(a)-2 Disclosures after December 31, 1976, by attorneys of
the Department of Justice and officers and employees of the Office of
the Chief Counsel for the Internal Revenue Service of returns and return
information (including taxpayer return information) disclosed to such
attorneys, officers, and employees by the Service before January 1,
1977, for a purpose involving tax administration.
301.6103(c)-1 Disclosure of returns and return information (including
taxpayer return information) to designee of taxpayer.
301.6103(h)(2)-1 Disclosure of returns and return information
(including taxpayer return information) to and by officers and employees
of the Department of Justice for use in Federal grand jury proceeding,
or in preparation for proceeding or investigation involving tax
administration.
301.6103(i)-1 Disclosure of returns and return information (including
taxpayer return information) to and by officers and employees of the
Department of Justice or another Federal agency for use in Federal grand
jury proceeding, or preparation for proceeding or investigation,
involving enforcement of Federal criminal statute not involving tax
administration.
301.6103(j)(1)-1 Disclosures of return information to officers and
employees of the Department of Commerce for certain statistical purposes
and related activities.
301.6103(k)(6)-1 Disclosure of return information by Internal Revenue
officers and employees for investigative purposes.
301.6103(l)(2)-1 Disclousre of returns and return information to
Pension Benefit Guaranty Corporation for purposes of research and
studies.
301.6103(l)(2)-2 Disclosure of returns and return information to
Department of Labor for purposes of research and studies.
301.6103(l)(2)-3 Disclosure to Department of Labor and Pension
Benefit Guaranty Corporation of certain returns and return information.
301.6103(n)-1 Disclosure of returns and return information in
connection with procurement of property and services for tax
administration purposes.
301.6103(p)(2)(B)-1 Disclosure of certain returns and return
information by other Federal agencies.
301.6103(p)(7)-1 Procedures for administrative review of a
determination that a State tax agency has failed to safeguard Federal
tax returns or return information.
301.6104(a)-1 Public inspection of material relating to tax-exempt
organizations.
301.6104(a)-2 Public inspection of material relating to pension and
other plans.
301.6104(a)-3 Public inspection of Internal Revenue Service letters
and documents relating to pension and other plans.
301.6104(a)-4 Requirement for 26 or more plan participants.
301.6104(a)-5 Withholding of certain information from public
inspection.
301.6104(a)-6 Procedural rules for inspection.
301.6104(b)-1 Publicity of information on certain information
returns.
301.6104(c)-1 Disclosure of certain information to State officers.
301.6104(d)-1 Public inspection of private foundations' annual
reports.
301.6105-1 Compilation of relief from excess profits tax cases.
301.6106-1 Publicity of unemployment tax returns.
301.6108-1 Publication of statistics of income.
301.6109-1 Identifying numbers.
301.6109-2 Authority of the Secretary of Agriculture to collect
employer identification numbers for purposes of the Food Stamp Act of
1977.
301.6110-1 Public inspection of written determinations and background
file documents.
301.6110-2 Meaning of terms.
301.6110-3 Deletion of certain information in written determinations
open to public inspection.
301.6110-4 Communications from third parties.
301.6110-5 Notice and time requirements; actions to restrain
disclosure; actions to obtain additional disclosure.
301.6110-6 Written determinations issued in response to requests
submitted before November 1, 1976.
301.6110-7 Miscellaneous provisions.
301.6111-1T Questions and answers relating to tax shelter
registration.
301.6112-1T Questions and answers relating to the requirement to
maintain a list of investors in potentially abusive tax shelters
(temporary).
301.6114-1 Treaty-based return positions.
26 CFR 0.0 Time and Place for Paying Tax
301.6151-1 Time and place for paying tax shown on returns.
301.6152-1 Installment payments.
301.6153-1 Installment payments of estimated income tax by
individuals.
301.6154-1 Installment payments of estimated income tax by
corporations.
301.6155-1 Payment on notice and demand.
301.6156-1 Installment payments of tax on use of highway motor
vehicles.
301.6161-1 Extension of time for paying tax.
301.6162-1 Extension of time for payment of tax on gain attributable
to liquidation of personal holding companies.
301.6163-1 Extension of time for payment of estate tax on value of
reversionary or remainder interest in property.
301.6164-1 Extension of time for payment of taxes by corporations
expecting carrybacks.
301.6165-1 Bonds where time to pay the tax or deficiency has been
extended.
301.6166-1 Extension of time for payment of estate tax where estate
consists largely of interest in closely held business.
26 CFR 0.0 Assessment
301.6201-1 Assessment authority.
301.6203-1 Method of assessment.
301.6204-1 Supplemental assessments.
301.6205-1 Special rules applicable to certain employment taxes.
301.6206-1 Special rules applicable to excessive claims under
sections 6420 and 6421.
301.6211-1 Deficiency defined.
301.6212-1 Notice of deficiency.
301.6213-1 Restrictions applicable to deficiencies; petition to Tax
Court.
301.6215-1 Assessment of deficiency found by Tax Court.
301.6221-1T Tax treatment determined at partnership level
(temporary).
301.6222(a)-1T Consistent treatment of partnership items (temporary).
301.6222(a)-2T Application of consistency and notification rules to
indirect partners (temporary).
301.6222(b)-1T Notification to Service when partnership items are
treated inconsistently (temporary).
301.6222(b)-2T Effect of notification of inconsistent treatment
(temporary).
301.6222(b)-3T Partner receiving incorrect schedule (temporary).
301.6223(a)-1T Notice sent to tax matters partner (temporary).
301.6223(a)-2T Withdrawal of notice of the beginning of an
administrative proceeding (temporary).
301.6223(b)-1T Notice group (temporary).
301.6223(c)-1T Additional information regarding partners furnished to
the Service (temporary).
301.6223(e)-1T Effect of Service's failure to provide notice
(temporary).
301.6223(e)-2T Elections if Service fails to provide timely notice
(temporary).
301.6223(f)-1T Duplicate copy of final partnership administrative
adjustment (temporary).
301.6223(g)-1T Responsibilities of the tax matters partner
(temporary).
301.6223(h)-1T Responsibilities of pass-thru partner (temporary).
301.6224(a)-1T Participation in administrative proceedings
(temporary).
301.6224(b)-1T Partner may waive rights (temporary).
301.6224(c)-1T Tax matters partner may bind nonnotice partners
(temporary).
301.6224(c)-2T Pass-thru partner binds indirect partners (temporary).
301.6224(c)-3T Consistent settlements (temporary).
301.6226(a)-1T Principal place of business of partnership
(temporary).
301.6226(b)-1T 5-percent group (temporary).
301.6226(e)-1T Jurisdictional requirement for bringing an action in
District Court or Claims Court (temporary).
301.6226(f)-1T Scope of judicial review (temporary).
301.6227(b)-1T Administrative adjustment request by the tax matters
partner on behalf of the partnership (temporary).
301.6227(c)-1T Administrative adjustment request filed on behalf of a
partner (temporary).
301.6229(b)-1T Extension by agreement (temporary).
301.6229(e)-1T Information with respect to unidentified partner
(temporary).
301.6230(b)-1T Request that correction not be made (temporary).
301.6230(c)-1T Claim arising out of erroneous computation, etc.
(temporary).
301.6230(e)-1T Tax matters partner required to furnish names
(temporary).
301.6231(a)(1)-1T Exception for small partnerships (temporary).
301.6231(a)(2)-1T Persons whose tax liability is determined
indirectly by partnership items (temporary).
301.6231(a)(3)-1 Partnership items.
301.6231(a)(5)-1T Definition of affected item (temporary).
301.6231(a)(6)-1T Computational adjustments (temporary).
301.6231(a)(7)-1 Designation of tax matters partner (temporary).
301.6231(a)(12)-1T Special rules relating to spouses (temporary).
301.6231(c)-1T Special rules for certain applications for tentative
carryback and refund adjustments based on partnership losses,
deductions, or credits (temporary).
301.6231(c)-2T Special rules for certain refund claims based on
losses, deductions, or credits from abusive tax shelter partnerships
(temporary).
301.6231(c)-3T Limitation on applicability of 301.6231(c)-4T
through 301.6231(c)-8T (temporary).
301.6231(c)-4T Termination and jeopardy assessment (temporary).
301.6231(c)-5T Criminal investigations (temporary).
301.6231(c)-6T Indirect method of proof of income (temporary).
301.6231(c)-7T Bankruptcy and receivership (temporary).
301.6231(c)-8T Prompt assessment (temporary).
301.6231(d)-1T Time for determining profits interest of partners for
purposes of sections 6223(b) and 6231(a)(11) (temporary).
301.6231(e)-1T Effect of a determination with respect to a
nonpartnership item on the determination of a partnership item
(temporary).
301.6231(e)-2T Judicial decision not a bar to certain adjustments
(temporary).
301.6231(f)-1T Disallowance of losses and credits in certain cases
(temporary).
301.6233-1T Extension to entities filing partnership returns, etc.
(temporary).
301.6241-1T Tax treatment determined at corporate level.
301.6245-1T Subchapter S items.
26 CFR 0.0 Collection
301.6301-1 Collection authority.
301.6302-1 Mode or time of collection of taxes.
301.6303-1 Notice and demand for tax.
301.6305-1 Assessment and collection of certain liability.
301.6311-1 Payment by check or money order.
301.6312-1 Treasury certificates of indebtedness, Treasury notes, and
Treasury bills acceptable in payment of internal revenue taxes or
stamps.
301.6312-2 Certain Treasury savings notes acceptable in payment of
certain internal revenue taxes.
301.6313-1 Fractional parts of a cent.
301.6314-1 Receipt for taxes.
301.6315-1 Payments of estimated income tax.
301.6316-1 Payment of income tax in foreign currency.
301.6316-2 Definitions.
301.6316-3 Allocation of tax attributable to foreign currency.
301.6316-4 Return requirements.
301.6316-5 Manner of paying tax by foreign currency.
301.6316-6 Declarations of estimated tax.
301.6316-7 Payment of Federal Insurance Contributions Act taxes in
foreign currency.
301.6316-8 Refunds and credits in foreign currency.
301.6316-9 Interest, additions to tax, etc.
301.6321-1 Lien for taxes.
301.6323(a)-1 Purchasers, holders of security interests, mechanic's
lienors, and judgment lien creditors.
301.6323(b)-1 Protection for certain interests even though notice
filed.
301.6323(c)-1 Protection for commercial transactions financing
agreements.
301.6323(c)-2 Protection for real property construction or
improvement financing agreements.
301.6323(c)-3 Protection for obligatory disbursement agreements.
301.6323(d)-1 45-day period for making disbursements.
301.6323(e)-1 Priority of interest and expenses.
301.6323(f)-1 Place for filing notice; form.
301.6323(g)-1 Refiling of notice of tax lien.
301.6323(h)-0 Scope of definitions.
301.6323(h)-1 Definitions.
301.6323(i)-1 Special rules.
301.6324-1 Special liens for estate and gift taxes; personal
liability of transferees and others.
301.6324A-1 Election of and agreement to special lien for estate tax
deferred under section 6166 or 6166A.
301.6325-1 Release of lien or discharge of property.
301.6326-1 Administrative appeal of the erroneous filing of notice of
federal tax lien.
301.6331-1 Levy and distraint.
301.6331-2 Levy and distraint on salary and wages.
301.6332-1 Surrender of property subject to levy.
301.6332-2 Surrender of property subject to levy in the case of life
insurance and endowment contracts.
301.6332-3 The 21-day holding period applicable to property held by
banks.
301.6333-1 Production of books.
301.6334-1 Property exempt from levy.
301.6334-2 Wages, salary, and other income.
301.6334-3 Determination of exempt amount.
301.6334-4 Determination of payroll period.
301.6334-5 Dependent exemption.
301.6334-6 Effective dates.
301.6334-7 Supersession of temporary regulations.
301.6335-1 Sale of seized property.
301.6336-1 Sale of perishable goods.
301.6337-1 Redemption of property.
301.6338-1 Certificate of sale; deed of real property.
301.6339-1 Legal effect of certificate of sale of personal property
and deed of real property.
301.6340-1 Records of sale.
301.6341-1 Expense of levy and sale.
301.6342-1 Application of proceeds of levy.
301.6343-1 Authority to release levy and return property.
301.6361-1 Collection and administration of qualified taxes.
301.6361-2 Judicial and administrative proceedings; Federal
representation of State interests.
301.6361-3 Transfers to States.
301.6361-4 Definitions.
301.6361-5 Effective date of section 6361.
301.6362-1 Types of qualified tax.
301.6362-2 Qualified resident tax based on taxable income.
301.6362-3 Qualified resident tax which is a percentage of Federal
tax.
301.6362-4 Rules for adjustments relating to qualified resident
taxes.
301.6362-5 Qualified nonresident tax.
301.6362-6 Requirements relating to residence.
301.6362-7 Additional requirements.
301.6363-1 State agreements.
301.6363-2 Withdrawal from State agreements.
301.6363-3 Transition years.
301.6363-4 Judicial review.
301.6365-1 Definitions.
301.6365-2 Commencement and cessation of applicability of subchapter
E to individual taxpayers.
26 CFR 0.0 Abatements, Credits, and Refunds
301.6401-1 Amounts treated as overpayments.
301.6402-1 Authority to make credits or refunds.
301.6402-2 Claims for credit or refund.
301.6402-3 Special rules applicable to income tax.
301.6402-4 Payments in excess of amounts shown on return.
301.6402-5 Offset of past-due support against overpayment.
301.6402-6 Offset of past-due legally enforceable debt against
overpayment.
301.6402-7 Claims for refund and applications for tentative carryback
adjustments involving consolidated groups that include insolvent
financial institutions.
301.6403-1 Overpayment of installment.
301.6404-0 Table of contents.
301.6404-1 Abatements.
301.6404-2T Definition of ministerial act (temporary).
301.6404-3 Abatement of penalty or addition to tax attributable to
erroneous written advice of the Internal Revenue Service.
301.6405-1 Reports of refunds and credits.
301.6407-1 Date of allowance of refund or credit.
301.6411-1 Tentative carryback adjustments.
301.6413-1 Special rules applicable to certain employment taxes.
301.6414-1 Income tax withheld.
301.6415-1 Credits or refunds to persons who collected certain taxes.
301.6416-1 Certain taxes on sales and services.
301.6417-1 Coconut and palm oil.
301.6418-1 Sugar.
301.6419-1 Excise tax on wagering.
301.6420-1 Gasoline used on farms.
301.6421-1 Gasoline used for certain nonhighway purposes or by local
transit systems.
301.6423-1 Conditions to allowance in the case of alcohol and tobacco
taxes.
301.6425-1 Adjustment of overpayment of estimated income tax by
corporation.
26 CFR 0.0 Limitations
301.6501(a)-1 Period of limitations upon assessment and collection.
301.6501(b)-1 Time return deemed filed for purposes of determining
limitations.
301.6501(c)-1 Exceptions to general period of limitations on
assessment and collection.
301.6501(d)-1 Request for prompt assessment.
301.6501(e)-1 Omission from return.
301.6501(f)-1 Personal holding company tax.
301.6501(g)-1 Certain income tax returns of corporations.
301.6501(h)-1 Net operating loss or capital loss carrybacks.
301.6501(i)-1 Foreign tax carrybacks; taxable years beginning after
December 31, 1957.
301.6501 (j)-1 Investment credit carryback; taxable years ending
after December 31, 1961.
301.6501(m)-1 Tentative carryback adjustment assessment period.
301.6501(n)-1 Special rules for chapter 42 and similar taxes.
301.6501(n)-2 Certain contributions to section 501(c)(3)
organizations.
301.6501(n)-3 Certain set-asides described in section 4942(g)(2).
301.6501(o)-1 Work incentive program credit carrybacks, taxable years
beginning after December 31, 1971.
301.6501(o)-2 Special rules for partnership items of federally
registered partnerships.
301.6501(o)-3 Partnership items.
301.6502-1 Collection after assessment.
301.6503(a)-1 Suspension of running of period of limitation;
issuance of statutory notice of deficiency.
301.6503(b)-1 Suspension of running of period of limitation; assets
of taxpayer in control or custody of court.
301.6503(c)-1 Suspension of running of period of limitation;
location of property outside the United States or removal of property
from the United States; taxpayer outside of United States.
301.6503(d)-1 Suspension of running of period of limitation;
extension of time for payment of estate tax.
301.6503(e)-1 Suspension of running of period of limitation; certain
powers of appointment.
301.6503(f)-1 Suspension of running of period of limitation;
wrongful seizure of property of third party.
301.6503(g)-1 Suspension pending correction.
301.6511(a)-1 Period of limitation on filing claim.
301.6511(b)-1 Limitations on allowance of credits and refunds.
301.6511(c)-1 Special rules applicable in case of extension of time
by agreement.
301.6511(d)-1 Overpayment of income tax on account of bad debts,
worthless securities, etc.
301.6511(d)-2 Overpayment of income tax on account of net operating
loss or capital loss carrybacks.
301.6511(d)-3 Special rules applicable to credit against income tax
for foreign taxes.
301.6511(d)-4 Overpayment of income tax on account of investment
credit carryback.
301.6511(d)-7 Overpayment of income tax on account of work incentive
program credit carryback.
301.6511(e)-1 Special rules applicable to manufactured sugar.
301.6511(f)-1 Special rules for chapter 42 taxes.
301.6511(g)-1 Special rule for partnership items of federally
registered partnerships.
301.6512-1 Limitations in case of petition to Tax Court.
301.6513-1 Time return deemed filed and tax considered paid.
301.6514(a)-1 Credits or refunds after period of limitation.
301.6514(b)-1 Credit against barred liability.
301.6521-1 Mitigation of effect of limitation in case of related
employee social security tax and self-employment tax.
301.6521-2 Law applicable in determination of error.
301.6532-1 Periods of limitation on suits by taxpayers.
301.6532-2 Periods of limitation on suits by the United States.
301.6532-3 Periods of limitation on suits by persons other than
taxpayers.
26 CFR 0.0 Interest
301.6601-1 Interest on underpayments.
301.6602-1 Interest on erroneous refund recoverable by suit.
301.6611-1 Interest on overpayments.
301.6621-1 Interest rate.
301.6621-2T Questions and answers relating to the increased rate of
interest on substantial underpayments attributable to certain tax
motivated transactions (temporary).
301.6621-3 Higher interest rate payable on large corporate
underpayments.
301.6622-1 Interest compounded daily.
26 CFR 0.0 Additions to the Tax, Additional Amounts, and Assessable
Penalties
301.6651-1 Failure to file tax return or to pay tax.
301.6652-1 Failure to file certain information returns.
301.6652-2 Failure by exempt organizations and certain nonexempt
organizations to file certain returns or to comply with section 6104(d)
for taxable years beginning after December 31, 1969.
301.6652-3 Failure to file information with respect to employee
retirement benefit plan.
301.6653-1 Failure to pay tax.
301.6654-1 Failure by individual to pay estimated income tax.
301.6655-1 Failure by corporation to pay estimated income tax.
301.6656-1 Penalty for underpayment of deposits.
301.6656-2 Penalty for overstated deposit claims.
301.6657-1 Bad checks.
301.6658-1 Addition to tax in case of jeopardy.
301.6659-1 Applicable rules.
301.6671-1 Rules for application of assessable penalties.
301.6672-1 Failure to collect and pay over tax, or attempt to evade
or defeat tax.
301.6673-1 Damages assessable for instituting proceedings before the
Tax Court merely for delay.
301.6674-1 Fraudulent statement or failure to furnish statement to
employee.
301.6675-1 Excessive claims with respect to the use of certain
gasoline.
301.6676-1 Penalty for failure to supply identifying number.
301.6678-1 Failure to furnish statements to payees.
301.6679-1 Failure to file returns, etc. with respect to foreign
corporations or foreign partnerships for taxable years beginning after
September 3, 1982.
301.6682-1 False information with respect to withholding allowances
based on itemized deductions.
301.6684-1 Assessable penalties with respect to liability for tax
under chapter 42.
301.6685-1 Assessable penalties with respect to private foundations'
failure to comply with section 6104 (d).
301.6686-1 Failure of DISC to file returns.
301.6688-1 Assessable penalties with respect to information required
to be furnished under section 7654 on allocation of tax to Guam or the
United States.
301.6689-1T Failure to file notice of redetermination of foreign tax
(temporary).
301.6690-1 Penalty for fraudulent statement or failure to furnish
statement to plan participant.
301.6692-1 Failure to file actuarial report.
301.6693-1 Penalty for failure to provide reports and documents
concerning individual retirement accounts or annuities.
301.6707-1T Questions and answers relating to penalties for failure
to furnish information regarding tax shelters.
301.6708-1T Failure to maintain list of investors in potentially
abusive tax shelters (temporary).
301.6712-1 Failure to disclose treaty-based return positions.
301.6721-0 Table of Contents.
301.6721-1 Failure to file correct information returns.
301.6722-1 Failure to furnish correct payee statements.
301.6723-1 Failure to comply with other information reporting
requirements.
301.6724-1 Reasonable cause.
301.6723-1A Failure to include correct information.
26 CFR 0.0 General Provisions Relating to Stamps
301.6801-1 Authority for establishment, alteration, and distribution.
301.6802-1 Supply and distribution.
301.6803-1 Accounting and safeguarding.
301.6804-1 Attachment and cancellation.
301.6805-1 Redemption of stamps.
301.6806-1 Posting occupational tax stamps.
26 CFR 0.0 Jeopardy, Bankruptcy, and Receiverships
301.6851-1 Termination of taxable year.
301.6861-1 Jeopardy assessments of income, estate, gift, and certain
excise taxes.
301.6862-1 Jeopardy assessment of taxes other than income, estate,
gift, and certain excise taxes.
301.6863-1 Stay of collection of jeopardy assessments; bond to stay
collection.
301.6863-2 Collection of jeopardy assessment; stay of sale of seized
property pending Tax Court decision.
301.6867-1T Illegal activity cash (temporary).
301.6871(a)-1 Immediate assessment of claims for income, estate, and
gift taxes in bankruptcy and receivership proceedings.
301.6871(a)-2 Collection of assessed taxes in bankruptcy and
receivership proceedings.
301.6871(b)-1 Claims for income, estate, and gift taxes in
proceedings under the Bankruptcy Act and receivership proceedings;
claim filed despite pendency of Tax Court proceedings.
301.6872-1 Suspension of running of period of limitations on
assessment.
301.6873-1 Unpaid claims in bankruptcy or receivership proceedings.
26 CFR 0.0 Transferees and Fiduciaries
301.6901-1 Procedure in the case of transferred assets.
301.6902-1 Burden of proof.
301.6903-1 Notice of fiduciary relationship.
301.6905-1 Discharge of executor from personal liability for
decedent's income and gift taxes.
26 CFR 0.0 Licensing and Registration
301.7001-1 License to collect foreign items.
301.7011-1 Registration of persons paying a special tax.
26 CFR 0.0 Bonds
301.7101-1 Form of bond and security required.
301.7102-1 Single bond in lieu of multiple bonds.
26 CFR 0.0 Closing Agreements and Compromises
301.7121-1 Closing agreements.
301.7122-1 Compromises.
26 CFR 0.0 Crimes, Other Offenses, and Forfeitures
301.7207-1 Fraudulent returns, statements, or other documents.
301.7209-1 Unauthorized use or sale of stamps.
301.7214-1 Offenses by officers and employees of the United States.
301.7216-1 Penalty for disclosure or use of tax return information.
301.7216-2 Disclosure or use without formal consent of taxpayer.
301.7216-3 Disclosure or use only with formal consent of taxpayer.
301.7231-1 Failure to obtain license for collection of foreign items.
301.7232-1 Failure to register or give bond, or false statement by
manufacturer or producer of gasoline or lubricating oil.
301.7269-1 Failure to produce records.
301.7272-1 Penalty for failure to register.
301.7304-1 Penalty for fraudulently claiming drawback.
301.7321-1 Seizure of property.
301.7322-1 Delivery of seized property to U.S. marshal.
301.7324-1 Special disposition of perishable goods.
301.7325-1 Personal property valued at $2,500 or less.
301.7326-1 Disposal of forfeited or abandoned property in special
cases.
301.7327-1 Customs laws applicable.
301.7328-1 Confiscation of matches exported.
26 CFR 0.0 Judicial Proceedings
301.7401-1 Authorization.
301.7403-1 Action to enforce lien or to subject property to payment
of tax.
301.7404-1 Authority to bring civil action for estate taxes.
301.7406-1 Disposition of judgments and moneys recovered.
301.7422-1 Special rules for certain excise taxes imposed by chapter
42 or 43.
301.7423-1 Repayments to officers or employees.
301.7424-1 Civil action to clear title to property.
301.7424-2 Intervention.
301.7425-1 Discharge of liens; scope and application; judicial
proceedings.
301.7425-2 Discharge of liens; nonjudicial sales.
301.7425-3 Discharge of liens; special rules.
301.7425-4 Discharge of liens; redemption by United States.
301.7426-1 Civil actions by persons other than taxpayers.
301.7429-1 Review of jeopardy and termination assessment and jeopardy
levy procedures; information to taxpayer.
301.7429-2 Review of jeopardy and termination assessment and jeopardy
levy procedures.
301.7429-3 Review of jeopardy and termination assessment and jeopardy
levy procedures; judicial action.
301.7430-1 Exhaustion of administrative remedies.
301.7432-1 Civil cause of action for failure to release a lien.
301.7433-1 Civil cause of action for certain unauthorized collection
actions.
301.7452-1 Representation of parties.
301.7454-1 Burden of proof in fraud and transferee cases.
301.7454-2 Burden of proof in foundation manager, etc. cases.
301.7456-1 Administration of oaths and procurement of testimony;
production of records of foreign corporations, foreign trusts or estates
and nonresident alien individuals.
301.7457-1 Witness fees.
301.7458-1 Hearings.
301.7461-1 Publicity of proceedings.
301.7476-1 Declaratory judgments.
301.7477-1 Declaratory judgments relating to transfers of property
from the United States.
301.7481-1 Date when Tax Court decision becomes final; decision
modified or reversed.
301.7482-1 Courts of review; venue.
301.7483-1 Petition for review.
301.7484-1 Change of incumbent in office.
301.7502-1 Timely mailing treated as timely filing.
301.7503-1 Time for performance of acts where last day falls on
Saturday, Sunday, or legal holiday.
301.7505-1 Sale of personal property acquired by the United States.
301.7506-1 Administration of real estate acquired by the United
States.
301.7507-1 Banks and trust companies covered.
301.7507-2 Scope of section generally.
301.7507-3 Segregated or transferred assets.
301.7507-4 Unsegregated assets.
301.7507-5 Earnings.
301.7507-6 Abatement and refund.
301.7507-7 Establishment of immunity.
301.7507-8 Procedure during immunity.
301.7507-9 Termination of immunity.
301.7507-10 Collection of tax after termination of immunity.
301.7507-11 Exception of employment taxes.
301.7510-1 Exemption from tax of domestic goods purchased for the
United States.
301.7512-1 Separate accounting for certain collected taxes.
301.7513-1 Reproduction of returns and other documents.
301.7514-1 Seals of office.
301.7515-1 Special statistical studies and compilations on request.
301.7516-1 Training and training aids on request.
301.7517-1 Furnishing on request of statement explaining estate or
gift valuation.
26 CFR 0.0 Discovery of Liability and Enforcement of Title
301.7601-1 Canvass of districts for taxable persons and objects.
301.7602-1 Examination of books and witnesses.
301.7603-1 Service of summons.
301.7604-1 Enforcement of summons.
301.7605-1 Time and place of examination.
301.7605-1T Time and place of examination (temporary).
301.7606-1 Entry of premises for examination of taxable objects.
301.7609-1 Special procedures for third-party summonses.
301.7609-2 Third-party recordkeepers.
301.7609-3 Right to intervene; right to institute a proceeding to
quash.
301.7609-4 Summonses excepted from section 7609 procedures.
301.7609-5 Suspension of statutes of limitations.
301.7610-1 Fees and costs for witnesses.
301.7611-1 Questions and answers relating to church tax inquiries and
examinations.
301.7621-1 Internal revenue districts.
301.7622-1 Authority to administer oaths and certify.
301.7623-1 Rewards for information relating to violations of internal
revenue laws.
301.7624-1 Reimbursement to State and local law enforcement agencies
301.7641-1 Supervision of operations of certain manufacturers.
301.7654-1 Coordinator of U.S. and Guam individual income taxes.
26 CFR 0.0 Definitions
301.7701-1 Classification of organizations for tax purposes.
301.7701-2 Associations.
301.7701-3 Partnerships.
301.7701-4 Trusts.
301.7701-5 Domestic, foreign, resident, and nonresident persons.
301.7701-6 Fiduciary.
301.7701-7 Fiduciary distinguished from agent.
301.7701-8 Military or naval forces and Armed Forces of the United
States.
301.7701-9 Secretary or his delegate.
301.7701-10 District director.
301.7701-11 Social security number.
301.7701-12 Employer identification number.
301.7701-13 Pre-1970 domestic building and loan association.
301.7701-13A Post-1969 domestic building and loan association.
301.7701-14 Cooperative bank.
301.7701-15 Income tax return preparer.
301.7701-16 Other terms.
301.7701-17T Collective-bargaining plans and agreements (temporary).
301.7701(b)-0 Outline of regulation provision for section 7701(b)-1
through (b)-9.
301.7701(b)-1 Resident alien.
301.7701(b)-2 Closer connection exception.
301.7701(b)-3 Days of presence in the United States that are excluded
for purposes of sectionb 7701(b).
301.7701(b)-4 Residency time periods.
301.7701(b)-5 Coordination with section 877.
301.7701(b)-6 Taxable year.
301.7701(b)-7 Coordination with income tax treaties.
301.7701(b)-8 Procedural rules.
301.7701(b)-9 Effective dates of 301.7701(b)-1 through
301.7701(b)-7
301.7704-2 Transition provisions.
26 CFR 0.0 General Rules
301.7803-1 Security bonds covering personnel of the Internal Revenue
Service.
301.7805-1 Rules and regulations.
301.7811-1 Authority to issue taxpayer assistance orders.
301.9000-1 Procedure to be followed by officers and employees of the
Internal Revenue Service upon receipt of a request or demand for
disclosure of internal revenue records or information.
301.9001 Statutory provisions; Outer Continental Shelf Lands Act
Amendments of 1978.
301.9001-1 Collection of fee.
301.9001-2 Definitions.
301.9001-3 Cross reference.
301.9100-1 Extension of time for making certain elections.
301.9100-4T Time and manner of making certain elections under the
Economic Recovery Tax Act of 1981.
301.9100-5T Time and manner of making certain elections under the Tax
Equity and Fiscal Responsibility Act of 1982.
301.9100-6T Time and manner of making certain elections under the
Deficit Reduction Act of 1984.
301.9100-7T Time and manner of making certain elections under the Tax
Reform Act of 1986.
301.9100-8 Time and manner of making certain elections under the
Technical and Miscellaneous Revenue Act of 1988.
301.9100-9T Election by a bank holding company to forego grandfather
provision for all property representing pre-June 30, 1968, activities.
301.9100-10T Election by certain family-owned bank holding companies
to divest all banking or nonbanking property.
301.9100-11T Election by a qualified bank holding corporation to pay
in installments the tax attributable to sales under the Bank Holding
Company Act.
301.9100-12T Various elections under the Tax Reform Act of 1976.
301.9100-13T Elections relating to reduction of basis.
301.9100-14T Individual's election to terminate taxable year when
case commences.
301.9100-15T Election to use retroactive effective date.
301.9100-16T Election to accrue vacation pay.
301.9100-17T Procedure applicable to certain elections.
301.9100-18T Election to include in gross income in year of transfer.
301.9100-19T Election relating to passive investment income of
electing small business corporations.
301.9100-20T Election to treat certain distributions as made on the
last day of the taxable year.
301.9100-21 References to other temporary elections under various tax
acts.
Authority: 26 U.S.C. 7805, Sec. 7805, 68A Stat. 917; 26 U.S.C.,
unless otherwise noted.
Section 301.6011-2 also issued under 26 U.S.C. 6011(e);
Section 301.6036-1 also issued under 26 U.S.C. 6036;
Section 301.6050M-1 is also issued under 26 U.S.C. 6050M;
Section 301.6103(n)-1 also issued under 26 U.S.C. 6103(n);
Section 301.6111-1T also issued under 26 U.S.C. 6111;
Section 301.6114-1 also issued under 26 U.S.C. 6114;
Section 301.6402-6T also issued under 31 U.S.C. 3720A;
Section 301.6222 (a)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6222 (a)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6222 (b)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6222 (b)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6222 (b)-3T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6223 (a)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6223 (a)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6223 (b)-1T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6223 (b)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6223 (c)-1T also issued under 26 U.S.C. 6223 (c) and 6230
(i) and (k);
Section 301.6223 (e)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6223 (e)-2T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6223 (f)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6223 (g)-1T also issued under 26 U.S.C. 6223 (g) and 6230
(i) and (k);
Section 301.6223 (h)-1T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6224 (a)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6224 (b)-1T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6224 (c)-1T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6224 (c)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6224 (c)-3T also issued under 26 U.S.C. 6230 (i) and (k);
Section 301.6226 (a)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6226 (b)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6226 (e)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6226 (f)-1T also issued under 26 U.S.C. C. 6230 (k);
Section 301.6231 (a) (6)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6231 (a) (7)-1T also issued under 26 U.S.C. 6230 (k) and
6231 (a) (7);
Section 301.6231 (a) (12)-1T also issued under 26 U.S.C. 6230 (k) and
6231 (a) (12);
Section 301.6231 (c)-3T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (c)-4T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (c)-5T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (c)-6T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (c)-7T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (c)-8T also issued under 26 U.S.C. 6230 (k) and 6231
(c);
Section 301.6231 (d)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6231 (e)-1T also issued under 26 U.S.C. 6230 (k);
Section 301.6231 (e)-2T also issued under 26 U.S.C. 6230 (k);
Section 301.6231 (f)-1T also issued under 26 U.S.C. 6230 (i) and (k)
and 6231 (f);
Section 301.6233-1T also issued under 26 U.S.C. 6230 (k) and 6233;
Section 301.6241-1T also issued under 26 U.S.C. 6241;
Section 301.6245-1T also issued under 26 U.S.C. 6245;
Section 301.6323(f)-(1)(c) is also issued under 26 U.S.C.
6323(f)(3);
Section 301.6325-1T also issued under 26 U.S.C. 6326;
Section 301.6402-7 also issued under 26 U.S.C. 6402 (i) and 6411 (c);
Section 301.6404-3 is also issued under 26 U.S.C. 6404(f)(3);
Section 301.6621-1 also issued under 26 U.S.C. 6230 (k);
Section 301.6689-1T also issued under 26 U.S.C. 6689(a);
Section 301.6867-1T also issued under 26 U.S.C. 6867(d)(2)(C)(ii);
Section 301.7216-2, paragraphs (o) and (p) also issued under 26
U.S.C. 7216(b)(3);
Section 301.7605-1T also issued under section 6228(b) of the
Technical and Miscellaneous Revenue Act of 1988;
Section 301.7624-1 also issued under 26 U.S.C. 7624;
Sections 301.7701(b)-1 through 301.7701(b)-9 also issued under 26
U.S.C. 7701(b)(11);
Section 301.9100-4T also issued under 26 U.S.C. 168(f)(8)(G);
Section 301.9100-7T also issued under 26 U.S.C. 42(f)(1), 42(g)(1),
42(i)(2), 42(j)(5), 48(b)(2), 56(f)(3)(B), 83(c)(3), 141(b)(0),
142(d)(1), 142(d)(4)(B), 143(k)(9)(D)(iii), 145(d), 147(b)(4)(A),
165(l)(1), 168(b)(5), 168(f)(1), 168(g)(7). 168(h)(6)(F)(ii),
216(b)(3), 263(i), 263A(d)(3), 382(l)(5)(H), 448(d)(4), 453C(b)(2)(B),
453C(e)(4), 468B, 469(j)(9), 474, 585(c)(3)(A)(iii)(I), 585(c)(4),
616(d), 617(h), 1059(c)(4), 2632(b)(3), 2652(a)(3), 3121(w)(2),
4982(e)(4), and 7701(b);
Section 301.9100-7T also issued under the Tax Reform Act of 1986, 100
Stat. 2746, sections 203(a)(1)(B), 204(e), 243(a), 243(b), 311(d)(2),
646, 801(d)(2), 806(e)(2)(C), 905(c), 1704(b), 1801(a), 1802(a), and
1804(e)(4);
Section 301.9100-8 also issued under 26 U.S.C. 1(i)(7), 41(h),
42(b)(2)(A)(ii), 42(d)(3), 42(f)(1), 42(g)(3), 42(i)(2)(B), 42(j)(5)(B),
121(d)(9), 142(i)(2), 165(l), 168(b)(2), 219(g)(4), 245(a)(10),
263A(d)(1), 263A(d)(3)(B), 263A(h), 460(b)(3), 643(g)(2), 831(b)(2)(A),
835(a), 865(f), 865(g)(3), 865(h)(2), 904(g)(10), 2056(b)(7)(c)(ii),
2056A(d), 2523(f)(6)(B), 3127, and 7520(a); the Technical and
Miscellaneous Revenue Act of 1988, 102 Stat. 3324, sections
1002(a)(23)(B), 1005(c)(11), 1006(d)(15), 1006(j)(1)(C), 1006(t)(18)(B),
1012(n)(3), 1014(c)(1), 1014(c)(2), 2004(j)(1), 2004(m)(5), 5012(e)(4),
6181(c)(2), and 6277; and under the Tax Reform Act of 1986, 100 Stat.
2746, section 905(a);
Sections 301.9100-9T, 301.9100-10T and 301.9100-11T also issued under
26 U.S.C. 1103 (g) and (h) and 6158(a);
Sections 301.9100-13T, 301.9100-14T and 301.9100-15T also issued
under 26 U.S.C. 108(d)(8) and 1017(b)(3)(E);
Section 301.9100-16T also issued under 26 U.S.C. 463(d).
Source: 32 FR 15241, Nov. 3, 1967, unless otherwise noted.
Editorial Note: In the text of this part, integral section
references are to sections of the Internal Revenue Code of 1954;
decimal section references are to the Code of Federal Regulations.
References in the text to the ''Code'' are references to sections of
the Internal Revenue Code of 1954.
26 CFR 0.0 Information and Returns
26 CFR 0.0 Returns and Records
26 CFR 0.0 records, statements, and special returns
26 CFR 301.6001-1 Notice or regulations requiring records, statements,
and special returns.
For provisions requiring records, statements, and special returns,
see the regulations relating to the particular tax.
26 CFR 301.6001-1 tax returns or statements
26 CFR 301.6001-1 General Requirement
26 CFR 301.6011-1 General requirement of return, statement, or list.
For provisions requiring returns, statements, or lists, see the
regulations relating to the particular tax.
26 CFR 301.6011-2 Required use of magnetic media.
(a) Meaning of terms. The following definitions apply for purposes
of this section:
(1) Magnetic media. The term ''magnetic media'' means any magnetic
media permitted under applicable regulations, revenue procedures, or, in
the case of returns filed with the Social Security Administration,
Social Security Administration publications. These generally include
magnetic tape, diskette, cassette, and mini-disk, as well as other media
specifically permitted under the applicable regulations or procedures.
Use of diskette and cassette may be subject to certain limitations or
special rules in the case of returns required on Form W-2 or W-2P.
(2) Machine-readable paper form. The term ''machine-readable paper
form'' means --
(i) Optical-scan paper form; or
(ii) Any other machine-readable paper form permitted under applicable
regulations, revenue procedures, or Social Security Administration
publications.
(3) Person. The term ''person'' includes any person that is required
to file a return that is described in paragraph (b) of this section.
Thus, the term ''person'' includes the United States, a State, the
District of Columbia, a foreign government, a political subdivision of a
State or of a foreign government, or an international organization. In
addition, in the case of an affiliated group of corporations filing a
consolidated return, each member of the affiliated group is a separate
person.
(b) Returns required on magnetic media. (1) If the use of Form
1042S, 1098, 1099 series, 5498, 6248, 8027, W-2G, or other form treated
as a form specified in this paragraph (b)(1) is required by the
applicable regulations or revenue procedures for the purpose of making a
return, the information required by such form shall, except as otherwise
provided in paragraph (c) of this section, be submitted on magnetic
media. Returns on magnetic media shall be made in accordance with
applicable revenue procedures. Pursuant to these procedures, the
consent of the Commissioner of Internal Revenue (or other authorized
officer or employee of the Internal Revenue Service) to a magnetic
medium shall be obtained prior to submitting a return on such magnetic
medium. An application for such consent shall be in writing and must be
filed at least 90 days before the filing of the first return for which
consent is requested.
(2) If the use of Form W-2, W-2P, or other form treated as a form
specified in this paragraph (b)(2) is required by the regulations or
revenue procedures for the purpose of making a return (not including the
copy of Form W-2 or W-2P that is required to be attached to an
Individual Income Tax Return), the information required by such form
shall, except as otherwise provided in paragraph (c) of this section, be
submitted on magnetic media. Returns on magnetic media shall be made in
accordance with applicable Social Security Administration procedures.
Thus, the consent of the Secretary of Health and Human Services (or
other authorized officer or employee of the Department of Health and
Human Services) to a magnetic medium shall be obtained prior to
submitting a return on such magnetic medium. An application for such
consent shall be in writing and must be filed --
(i) On or before July 31, 1986, in the case of returns filed in 1987;
(ii) On or before June 30, 1987, in the case of returns filed in
1988; and
(iii) At least 90 days before the filing of the first return for
which consent is requested in all other cases.
(3) The Commissioner may prescribe by revenue procedure that
additional forms are treated, for purposes of this section, as forms
specified in paragraph (b)(1) or (b)(2) of this section.
(c) Exceptions -- (1) Low-volume filers -- (i) In general. A person
required to make returns on a particular type of form specified in
paragraph (b) of this section (other than Form 1099-DIV, 1099-PATR,
1099-INT, or 1099-OID) may make such returns on the prescribed paper
form for a calendar year or other applicable annual period (whether such
returns are filed during the calendar year or annual period or during
the subsequent calendar year or annual period) if --
(A) In the case of a calendar year or annual period beginning before
January 1, 1987 --
(1) On the first day of such calendar year or annual period the
person reasonably expects to file fewer than 500 returns on such form
for the calendar year or annual period; and
(2) The person was not required to file 500 or more returns on such
form for the preceding calendar year or annual period; or
(B) In the case of a calendar year or annual period beginning on or
after January 1, 1987 --
(1) On the first day of such calendar year or annual period the
person reasonably expects to file fewer than 250 returns on such form
for the calendar year or annual period; and
(2) The person was not required to file 250 or more returns on such
form for the preceding calendar year or annual period.
Alternatively, such persons may make returns on magnetic media in
accordance with paragraph (b) of this section.
(ii) Machine-readable forms. Returns made on a paper form under this
paragraph (c)(1) shall be machine-readable if applicable revenue
procedures provide for a machine-readable paper form.
(iii) Form 1099 series. Each form within the Form 1099 series is
considered a separate type of form for purposes of this paragraph
(c)(1). Thus, for example, in the case of a calendar year beginning on
or after January 1, 1987, if on the first day of such calendar year a
person reasonably expects to file 200 returns on Form 1099-A and 150
returns on Form 1099-MISC and for the preceding calendar year the person
was required to file 200 returns on Form 1099-A and 150 returns on Form
1099-MISC, the person may make such returns on the prescribed paper form
for such calendar year.
(2) Special rule for Form 1099-DIV, 1099-PATR, 1099-INT, 1099-OID --
(i) 50 or fewer returns. A person required to make returns on Form
1099-DIV, 1099-PATR, 1099-INT, or 1099-OID may make such returns on a
machine-readable paper form for a calendar year if --
(A) On the first day of such calendar year the person reasonably
expects to file 50 or fewer returns on such forms for the calendar year;
and
(B) The person was not required to file more than 50 returns on such
forms for the preceding calendar year. Alternatively, such persons may
make returns on magnetic media in accordance with paragraph (b) of this
section
(ii) Aggregation of returns. For purposes of determining the number
of returns that a person was required to file or reasonably expects to
file on Form 1099-DIV, 1099-PATR, 1099-INT, or 1099-OID, all such
returns shall be aggregated. Thus, for example, if a person filed 30
returns on Form 1099-INT and 30 returns on Form 1099-DIV for a calendar
year, or reasonably expects to do so for the succeeding calendar year,
all returns made by such person on Form 1099-DIV, 1099-PATR, 1099-INT
and 1099-OID for the succeeding calendar year must be on magnetic media.
(3) Provided by regulations -- (i) In general. This section does not
apply to a return if the regulations relating to such return require
reporting on magnetic media.
(ii) Example. The following example illustrates the application of
the rule in paragraph (c)(3)(i) of this section:
Example. Section 1.6045-1(l), relating to returns of information of
brokers and barter exchanges, requires the use of magnetic media as the
method of reporting. Thus, this section does not apply to returns
required to be filed under section 6045.
(4) Waiver. (i) The Commissioner may waive the requirements of this
section if hardship is shown in an application filed in accordance with
this paragraph (c)(4)(i). Such waiver shall specify the type of form
and period to which it applies and shall be subject to such terms and
conditions regarding the method of reporting as may be prescribed by the
Commissioner. In determining whether hardship has been shown, the
principal factor to be taken into account will be the amount, if any, by
which the cost of filing returns in accordance with this section exceeds
the cost of filing the returns on other media. A request for waiver
shall be in writing and must be filed --
(A) On or before July 31, 1986, in the case of returns on Form W-2 or
W-2P filed in 1987;
(B) On or before June 30, 1987, in the case of returns on Form W-2 or
W-2P filed in 1988; and
(C) At least 90 days before the filing of the first return for which
a waiver is requested in all other cases.
(ii) The Commissioner may by revenue procedure prescribe rules that
supplement the provisions of paragraph (c)(4)(i) of this section.
(d) Paper form returns. Returns submitted on paper forms (whether or
not machine-readable) permitted under paragraph (c) of this section
shall be made in accordance with applicable revenue or Social Security
Administration procedures.
(e) Applicability of current procedures. Until procedures are
prescribed which further implement the mandatory filing on magnetic
media provided by this section, a return to which this section applies
shall be made in the manner and shall be subject to the requirements and
conditions (including the requirement of applying for consent to the
magnetic medium) prescribed in the regulations, revenue procedures and
Social Security Administration publications relating to the filing of
such return on magnetic media. In addition, consent to the use of a
magnetic medium obtained in accordance with such regulations, revenue
procedures and Social Security Administration publications (regardless
of when obtained) will be considered consent to the use of such medium
for purposes of paragraph (b) of this section.
(f) Failure to file. If a person fails to file a return on magnetic
media when required to do so by section 6011(e) and this section, such
person is deemed to have failed to file the return. In addition, if a
person making returns on a paper form under paragraph (c) of this
section for a calendar year (or annual filing period) beginning after
December 31, 1986, fails to file a return on a machine-readable paper
form when required to do so by this section, such person is deemed to
have failed to file the return. See sections 6652, 6693, and 6721 for
penalties for failure to file certain returns.
(g) Effective date. (1) Except as otherwise provided in paragraph
(g)(2) of this section, this section applies to returns filed after
December 31, 1986.
(2) Returns required on Form 1099-DIV, 1099-PATR, 1099-INT, or
1099-OID for payments made after December 31, 1983, must be filed on
magnetic media except as otherwise provided in paragraph (c) of this
section.
(T.D. 8081, 51 FR 10348, Mar. 25, 1986, as amended by T.D. 8097, 51
FR 30352, Aug. 26, 1986; T.D. 8140, 52 FR 19137, May 21, 1987)
26 CFR 301.6011-2 Income Tax Returns
26 CFR 301.6012-1 Persons required to make returns of income.
For provisions with respect to persons required to make returns of
income, see 1.6012-1 to 1.6012-4, inclusive, of this chapter (Income
Tax Regulations).
26 CFR 301.6013-1 Joint returns of income tax by husband and wife.
For provisions with respect to joint returns of income tax by husband
and wife, see 1.6013-1 to 1.6013-7, inclusive, of this chapter (Income
Tax Regulations).
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7670, 45 FR 6932, Jan.
31, 1980)
26 CFR 301.6014-1 Income tax return -- tax not computed by taxpayer.
For provisions relating to the election not to show on an income tax
return the amount of tax due in connection therewith, see 1.6014-1 and
1.6014-2 of this chapter (Income Tax Regulations).
(T.D. 7102, 36 FR 5498, Mar. 24, 1971)
26 CFR 301.6015-1 Declaration of estimated income tax by individuals.
For provisions relating to requirements of declarations of estimated
income tax by individuals, see 1.6015 (a)-1 through 1.6015 (j)-1 of
this chapter (Income Tax Regulations).
(T.D. 7427, 41 FR 34033, Aug. 12, 1976)
26 CFR 301.6016-1 Declarations of estimated income tax by corporations.
For provisions concerning the requirement of declarations of
estimated income tax by corporations, see 1.6016-1 to 1.6016-4,
inclusive, of this chapter (Income Tax Regulations).
26 CFR 301.6017-1 Self-employment tax returns.
For provisions relating to the requirement of self-employment tax
returns, see 1.6017-1 of this chapter (Income Tax Regulations).
26 CFR 301.6017-1 Estate and Gift Tax Returns
26 CFR 301.6018-1 Estate tax returns.
For provisions relating to requirement of estate tax returns, see
20.6018-1 to 20.6018-4, inclusive, of this chapter (Estate Tax
Regulations).
26 CFR 301.6019-1 Gift tax returns.
For provisions relating to requirement of gift tax returns, see
25.6019-1 to 25.6019-4, inclusive, of this chapter (Gift Tax
Regulations).
26 CFR 301.6019-1 Miscellaneous Provisions
26 CFR 301.6020-1 Returns prepared or executed by district directors or
other internal revenue officers.
(a) Preparation of returns -- (1) In general. If any person required
by the Code or by the regulations prescribed thereunder to make a return
fails to make such return, it may be prepared by the district director
or other authorized internal revenue officer or employee provided such
person consents to disclose all information necessary for the
preparation of such return. The return upon being signed by the person
required to make it shall be received by the district director as the
return of such person.
(2) Responsibility of person for whom return is prepared. A person
for whom a return is prepared in accordance with subparagraph (1) of
this paragraph shall for all legal purposes remain responsible for the
correctness of the return to the same extent as if the return had been
prepared by him.
(b) Execution of returns -- (1) In general. If any person required
by any internal revenue law or by the regulations prescribed thereunder
to make a return (other than a declaration of estimated tax required
under section 6015 or 6016) fails to make such return at the time
prescribed therefor, or makes, willfully or otherwise, a false or
fraudulent return, the district director or other authorized internal
revenue officer or employee shall make such return from his own
knowledge and from such information as he can obtain through testimony
or otherwise.
(2) Status of returns. Any return made in accordance with
subparagraph (1) of this paragraph and subscribed by the district
director or other authorized internal revenue officer or employee shall
be prima facie good and sufficient for all legal purposes.
(3) Deficiency procedures. For deficiency procedures in the case of
income, estate, and gift taxes, see sections 6211 to 6216, inclusive,
and 301.6211-1 to 301.6215-1, inclusive.
(c) Cross references. (1) For provisions that a return executed by a
district director or other authorized internal revenue officer or
employee will not start the running of the period of limitations on
assessment and collection, see section 6501(b)(3) and paragraph (c) of
301.6501(b)-1.
(2) For additions to the tax and additional amounts for failure to
file returns, see section 6651 and 301.6651-1, and section 6652 and
301.6652-1, respectively.
(3) For additions to the tax for failure to pay tax, see section 6653
and 301.6653-1.
(4) For criminal penalties for willful failure to make returns, see
sections 7201, 7202, and 7203.
(5) For criminal penalties for willfully making false or fraudulent
returns, see sections 7206 and 7207.
(6) For authority to examine books and witnesses, see section 7602
and 301.7602-1.
26 CFR 301.6021-1 Listing by district directors of taxable objects
owned by nonresidents of internal revenue districts.
Whenever there are in any internal revenue district any articles
subject to tax, which are not owned or possessed by or under the care or
control of any person within such district, and of which no list has
been transmitted to the district director, as required by law or by
regulations prescribed pursuant to law, the district director, or other
authorized internal revenue officer or employee, shall enter the
premises where such articles are situated, shall make such inspection of
the articles as may be necessary, and shall make lists of the same
according to the forms prescribed. Such lists, being subscribed by the
district director or other authorized internal revenue officer or
employee, shall be sufficient lists of such articles for all purposes.
26 CFR 301.6021-1 information returns
26 CFR 301.6021-1 Information Concerning Persons Subject to Special Provisions
26 CFR 301.6031-1 Return of partnership income.
For provisions relating to the requirement of returns of partnership
income, see 1.6031-1 of this chapter (Income Tax Regulations).
26 CFR 301.6032-1 Returns of banks with respect to common trust funds.
For provisions relating to requirement of returns of banks with
respect to common trust funds, see 1.6032-1 of this chapter (Income Tax
Regulations).
26 CFR 301.6033-1 Returns by exempt organizations.
For provisions relating to the requirement of returns by exempt
organizations, see 1.6033-1 of this chapter (Income Tax Regulations).
26 CFR 301.6034-1 Returns by trusts described in section 4947(a)(2) or
claiming charitable or other deductions under section 642(c).
For provisions relating to the requirement of returns by trusts
described in section 4947(a)(2) or claiming charitable or other
deductions under section 642(c), see 1.6034-1 of this chapter (Income
Tax Regulations).
(T.D. 8026, 50 FR 20757, May 20, 1985)
26 CFR 301.6035-1 Returns of officers, directors, and shareholders of
foreign personal holding companies.
For provisions relating to the requirement of returns by officers,
directors, and shareholders of foreign personal holding companies, see
1.6035-1 to 1.6035-3, inclusive, of this chapter (Income Tax
Regulations).
26 CFR 301.6036-1 Notice required of executor or of receiver or other
like fiduciary.
(a) Receivers and other like fiduciaries -- (1) Exemption for
bankruptcy proceedings. (i) A bankruptcy trustee, debtor in possession
or other like fiduciary in a bankruptcy proceeding is not required by
this section to give notice of appointment, qualification or
authorization to act to the Secretary or his delegate. (However, see
the notice requirements under the Bankruptcy Rules.)
(ii) Paragraph (a)(1)(i) of this section is effective for
appointments, qualifications and authorizations to act made on or after
January 29, 1988. For appointments, qualifications and authorizations
to act made before the foregoing date, 26 CFR 301.6036-1 (a)(1) and
(4)(i) (revised as of April 1, 1986) apply.
(2) Proceedings other than bankruptcy. A receiver in a receivership
proceeding or a similar fiduciary in any proceeding (including a
fiduciary in aid of foreclosure), designated by order of any court of
the United States or of any State or Territory or of the District of
Columbia as in control of all or substantially all the assets of a
debtor or other party to such proceeding shall, on, or within 10 days
of, the date of his appointment or authorization to act, give notice
thereof in writing to the district director for the internal revenue
district in which the debtor, or such other party, is or was required to
make returns. Moreover, any fiduciary in aid of foreclosure not
appointed by order of any such court, if he takes possession of all or
substantially all the assets of the debtor, shall, on, or within 10 days
of, the date of his taking possession, give notice thereof in writing to
such district director.
(3) Assignment for benefit of creditors. An assignee for the benefit
of a creditor or creditors shall, on, or within 10 days of, the date of
an assignment, give notice thereof in writing to the district director
for the internal revenue district in which the debtor is or was required
to make returns. For purposes of this subparagraph, an assignee for the
benefit of creditors shall be any person who, by authority of law, by
the order of any court, by oral or written agreement, or in any other
manner acquires control or possession of or title to all or
substantially all the assets of a debtor, and who under such acquisition
is authorized to use, reassign, sell, or in any manner dispose of such
assets so that the proceeds from the use, sale, or other disposition may
be paid to or may inure directly or indirectly to the benefit of a
creditor or creditors of such debtor.
(4) Contents of notice -- (i) Proceedings other than bankruptcy. The
written notice required under paragraph (a)(2) of this section shall
contain:
(a) The name and address of the person making such notice and the
date of his appointment or of his taking possession of the assets of the
debtor or other person whose assets are controlled,
(b) The name, address, and, for notices filed after December 21,
1972, the taxpayer identification number of the debtor or other person
whose assets are controlled.
(c) In the case of a court proceeding:
(1) The name and location of the court in which the proceedings are
pending,
(2) The date on which such proceedings were instituted,
(3) The number under which such proceedings are docketed, and
(4) When possible, the date, time, and place of any hearing, meeting
of creditors, or other scheduled action with respect to such
proceedings.
(ii) Assignment for benefit of creditors. The written notice
required under subparagraph (3) of this paragraph shall contain:
(a) The name and address of, and the date the asset or assets were
assigned to, the assignee,
(b) The name, address, and, for notice filed after December 21, 1972,
the taxpayer identification number of the debtor whose assets were
assigned.
(c) A brief description of the assets assigned,
(d) An explanation of the action expected to be taken with respect to
such assets, and
(e) When possible, the date, time, and place of any hearing, meeting
of creditors, sale, or other scheduled action with respect to such
assets.
(iii) The notice required by this section shall be sent to the
attention of the Chief, Special Procedures Staff, of the district office
to which it is required to be sent.
(b) Executors, administrators, and persons in possession of property
of decedent. For provisions relating to the requirement of filing, by
an executor, administrator, or person in possession of property of a
decedent, of a preliminary notice in the case of the estate of a
decedent dying before January 1, 1971, see 20.6036-1 of this chapter
(Estate Tax Regulations).
(c) Notice of fiduciary relationship. When a notice is required
under 301.6903-1 of a person acting in a fiduciary capacity and is also
required of such person under this section, notice given in accordance
with the provisions of this section shall be considered as complying
with both sections.
(d) Suspension of period on assessment. For suspension of the
running of the period of limitations on the making of assessments from
the date a proceeding is instituted to a date 30 days after receipt of
notice from a fiduciary in any proceeding under the Bankruptcy Act or
from a receiver in any other court proceeding, see section 6872 and
301.6872-1.
(e) Applicability. Except as provided in paragraph (a)(1)(ii) of
this section, the provisions of this section shall apply to those
persons referred to in this section whose appointments, authorizations,
or assignments occur on or after the date of publication of these
regulations in the Federal Register as a Treasury decision.
(f) Cross references. (1) For criminal penalty for willful failure
to supply information, see section 7203.
(2) For criminal penalties for willfully making false or fraudulent
statements, see sections 7206 and 7207.
(3) For time for performance of acts where the last day falls on a
Saturday, Sunday, or legal holiday, see section 7503 and 301.7503-1.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7218, 37 FR 24748,
Nov. 21, 1972; T.D. 7238, 37 FR 28738, Dec. 29, 1972; T.D. 8172, 53 FR
2600, Jan. 29, 1988)
26 CFR 301.6037-1 Return of electing small business corporation.
For provisions relating to requirement of return of electing small
business corporation, see 1.6037-1 of this chapter (Income Tax
Regulations).
26 CFR 301.6038-1 Information returns required of U.S. persons with
respect to certain foreign corporations.
For provisions relating to information returns required of U.S.
persons with respect to certain foreign corporations, see 1.6038-1 and
1.6038-2 of this chapter (Income Tax Regulations).
26 CFR 301.6039-1 Information returns and statements required in
connection with certain options.
For provisions relating to information returns and statements
required in connection with certain options, see 1.6039-1 and 1.6039-2
of this chapter (Income Tax Regulations).
(T.D. 7275, 38 FR 11346, May 7, 1973)
26 CFR 301.6039-1 Information Concerning Transactions With Other Persons
26 CFR 301.6041-1 Returns of information regarding certain payments.
For provisions relating to the requirement of returns of information
regarding certain payments, see 1.6041-1 to 1.6041-6, inclusive, of
this chapter (Income Tax Regulations).
26 CFR 301.6042-1 Returns of information regarding payments of
dividends and corporate earnings and profits.
For provisions relating to the requirement of returns of information
regarding payments of dividends and corporate earnings and profits, see
1.6042-1 to 1.6042-4, inclusive, of this chapter (Income Tax
Regulations).
26 CFR 301.6043-1 Returns regarding liquidation, dissolution,
termination, or contraction.
For provisions relating to the requirement of returns of information
regarding liquidations, dissolutions, terminations, or contracts, see
l.6043-1, 1.6043-2, and 1.6043-3 of this chapter (Income Tax
Regulations).
(T.D. 7563, 43 FR 40222, Sept. 11, 1978)
26 CFR 301.6044-1 Returns of information regarding payments of
patronage dividends.
For provisions relating to the requirement of returns of information
regarding payments of patronage dividends, see 1.6044-1 to 1.6044-5,
inclusive, of this chapter (Income Tax Regulations).
26 CFR 301.6046-1 Returns as to organization or reorganization of
foreign corporations and as to acquisitions of their stock.
For provisions relating to requirement of returns as to organization
or reorganization of foreign corporations and as to acquisitions of
their stock, see 1.6046-1 to 1.6046-3, inclusive, of this chapter.
(Income Tax Regulations.)
26 CFR 301.6047-1 Information relating to certain trusts and annuity
and bond purchase plans.
For provisions relating to the requirement of returns of information
regarding certain trusts and annuity and bond purchase plans, see
1.6047-1 of this chapter (Income Tax Regulations).
26 CFR 301.6048-1 Returns as to creation of or transfers to certain
foreign trusts.
For provisions relating to the requirement of returns as to creation
of or transfers to certain foreign trusts, see 16.3-1 of this chapter
(Temporary Regulations under the Revenue Act of 1962).
26 CFR 301.6049-1 Returns regarding payments of interest.
For provisions relating to the requirement of returns regarding
payments of interest, see 1.6049-1 to 1.6049-3, inclusive, of this
chapter (Income Tax Regulations).
26 CFR 301.6050A-1 Information returns regarding services performed by
certain crewmen on fishing boats.
For provisions relating to the requirement of returns of information
regarding services performed by certain crewmen on fishing boats, see
1.6050A-1 of this chapter (Income Tax Regulations) and 301.6652-1 of
this chapter (Regulations on Procedure and Administration).
(T.D. 7716, 45 FR 57124, Aug. 27, 1980)
26 CFR 301.6050M-1 Information returns relating to persons receiving
contracts from certain Federal executive agencies.
For provisions relating to the requirements of returns of information
relating to persons receiving contracts from certain Federal executive
agencies, see 1.6050M-1 of this chapter (Income Tax Regulations).
(T.D. 8275, 54 FR 50372, Dec. 6, 1989)
26 CFR 301.6050M-1 Information Regarding Wages Paid Employees
26 CFR 301.6051-1 Receipts for employees.
For provisions relating to statements for employees regarding
remuneration paid during calendar year, see 31.6051-1 of this chapter
(Employment Tax Regulations).
26 CFR 301.6052-1 Information returns and statements regarding payment
of wages in the form of group-term life insurance.
For provisions relating to information returns and statements
required in connection with the payment of wages in the form of
group-term life insurance, see 1.6052-1 and 1.6052-2 of this chapter
(income tax regulations).
(T.D. 7275, 38 FR 11346, May 7, 1973)
26 CFR 301.6057-1 Employee retirement benefit plans; identification of
participant with deferred vested retirement benefit.
(a) Annual registration statement -- (1) In general. Under section
6057(a), the plan administrator (within the meaning of section 414(g))
of an employee retirement benefit plan must file with the Internal
Revenue Service information relating to each plan participant who
separates from service covered by the plan and is entitled to a deferred
vested retirement benefit under the plan, but is not paid this
retirement benefit. Plans subject to this filing requirement are
described in subparagraph (3) of this paragraph. Subparagraph (4)
describes how the information is to be filed with the Internal Revenue
Service. In the case of a plan to which only one employer contributes,
the time for filing the information with respect to each separated
participant is described in subparagraph (5). In the case of a plan to
which more than one employer contributes the time for filing the
information with respect to a participant is described in paragraph
(b)(2) of this section. Paragraph (b) of this section also provides
other rules applicable only to plans to which more than one employer
contributes.
(2) Deferred vested retirement benefit. For purposes of this
section, a plan participant's deferred retirement benefit is considered
a vested benefit if it is vested under the terms of the plan at the
close of the plan year described in paragraph (a)(5) or (b)(4) of this
section (whichever is applicable) for which information relating to any
deferred vested retirement benefit of the participant must be filed. A
participant's deferred retirement benefit need not be a nonforfeitable
benefit within the meaning of section 411(a) for the filing requirements
described in this section to apply. Accordingly, information relating
to a participant's deferred vested retirement benefit must be filed as
required by this section notwithstanding that the benefit is subject to
forfeiture by reason of an event or condition occurring subsequent to
the close of the plan year described in paragraph (a)(5) or (b)(4) of
this section (whichever is applicable) for which information relating to
any deferred vested retirement benefit of the participant must be filed.
(3) Plans subject to filing requirement. The term ''employee
retirement benefit plan'' means a plan to which the vesting standards of
section 203 of part 2 of subtitle B of title I of the Employee
Retirement Income Security Act of 1974 (88 Stat. 854) apply for any day
in the plan year. (For purposes of this section, ''plan year'' means
the plan year as determined for purposes of the annual return required
by section 6058(a)). Accordingly, a plan need not be a qualified plan
within the meaning of section 401(a) to be subject to these filing
requirements. A plan to which more than one employer contributes must
file the report of deferred vested retirement benefits described in this
section, but see paragraph (b) of this section for special rules
applicable to such a plan. The filing requirements described in this
section and 301.6057-2 (relating to notification of change in plan
status) do not apply to a governmental or church plan described in
section 414 (d) or (e).
(4) Filing requirements. Information relating to the deferred vested
retirement benefit of a plan participant must be filed on schedule SSA
as an attachment to the Annual Return/Report of Employee Benefit Plan
(form 5500 series). Schedule SSA shall be filed on behalf of an
employee retirement benefit plan for each plan year for which
information relating to the deferred vested retirement benefit of a plan
participant is filed under paragraph (a)(5) or (b)(2) of this section.
There shall be filed on schedule SSA the name and social security number
of the participant, a description of the nature, form, and amount of the
deferred vested retirement benefit to which the participant is entitled,
and such other information as is required by section 6057(a) or schedule
SSA and the accompanying instructions. The form of the benefit reported
on schedule SSA shall be the normal form of benefit under the plan, or,
if the plan administrator (within the meaning of section 414(g))
considers it more appropriate, any other form of benefit.
(5) Time for reporting deferred vested retirement benefit -- (i) In
general. In the case of a plan to which only one employer contributes,
information relating to the deferred vested retirement benefit of a plan
participant must be filed no later than on the schedule SSA filed for
the plan year following the plan year within which the participant
separates from service covered by the plan. Information relating to a
separated participant may, at the option of the plan administrator, be
reported earlier (that is, on the schedule SSA filed for the plan year
in which the participant separates from service covered by the plan).
For purposes of this paragraph a participant is not considered to
separate from service covered by the plan solely because the participant
incurs a break in service under the plan. In addition, for purposes of
this paragraph, in the case of a plan which uses the elapsed time method
described in Department of Labor regulations for crediting service for
benefit accrual purposes, a participant is considered to separate from
service covered by the plan on the date the participant severs from
service covered by the plan.
(ii) Exception. Notwithstanding subdivision (i), no information
relating to the deferred vested retirement benefit of a separated
participant is required to be filed on schedule SSA if, before the date
such schedule SSA is required to be filed (including any extension of
time for filing granted pursuant to section 6081), the participant (A)
is paid some or all of the deferred vested retirement benefit under the
plan, (B) returns to service covered by the plan, or (C) forfeits all of
the deferred vested retirement benefit under the plan.
(b) Plans to which more than one employer contributes -- (1)
Application. Section 6057 and this section apply to a plan to which
more than one employer contributes with the modifications set forth in
this paragraph. For purposes of section 6057 and this section, whether
or not more than one employer contributes to a plan shall be determined
by the number of employers who are required to contribute to the plan.
Thus, for example, this paragraph applies to plans maintained by more
than one employer which are collectively bargained as described in
section 413(a), multiple-employer plans described in section 413(c) and
the regulations thereunder, multiemployer plans described in section
414(f), and plans adopted by more than one employer of certain
controlled and common control groups described in section 414 (b) and
(c).
(2) Time for reporting deferred vested retirement benefit -- (i) In
general. In the case of a plan to which more than one employer
contributes, information relating to the deferred vested retirement
benefit of a plan participant must be filed no later than on the
schedule SSA filed for the plan year within which the participant
completes the second of two consecutive one-year breaks in service (as
defined in the plan for vesting percentage purposes) in service
computation periods (as defined in the plan for vesting percentage
purposes) which begin after December 31, 1974. At the option of the
plan administrator, information relating to a participant's deferred
vested retirement benefit may be filed earlier (that is, on the schedule
SSA filed for the plan year in which the participant incurs the first
one-year break in service or, in the case of a separated participant, on
the schedule SSA filed for the plan year in which the participant
separates from service).
(ii) Special rules -- For purposes of this subparagraph (1) --
(A) For the definition of the term ''1-year break in service'' in the
case of a plan which uses the elapsed time method described in
Department of Labor Regulations for crediting service for vesting
percentage purposes, see 1.411(a)-6(c)(2).
(B) In the case of a plan which does not define the term ''1-year
break in service'' for vesting percentage purposes, a plan participant
shall be deemed to incur a 1-year break in service under the plan in any
plan year within which the participant does not complete more than 500
hours of service covered by the plan.
(iii) Transitional rule. Notwithstanding subdivision (i), if the
second consecutive 1-year break in service described in subdivision (i)
is incurred in a plan year beginning before January 1, 1978, information
relating to the participant's deferred vested retirement benefit is not
required to be filed earlier than on the schedule SSA filed for the
first plan year beginning after December 31, 1977.
(iv) Exception. Notwithstanding subdivision (i) or (iii) of this
subparagraph, no information relating to a participant's deferred vested
retirement benefit is required to be filed on schedule SSA if, before
the date such schedule SSA is required to be filed (including any
extension of time for filing granted pursuant to section 6081), the
participant (A) is paid some or all of the deferred vested retirement
benefit under the plan, (B) accrues additional retirement benefits under
the plan, or (C) forfeits all of the deferred vested retirement benefit
under the plan.
(3) Information relating to deferred vested retirement benefit -- (i)
Incomplete records. Section 6057(a) and paragraph (a)(4) of this
section require the filing on schedule SSA of a description of the
deferred vested retirement benefit to which the participant is entitled.
If the plan administrator of a plan to which more than one employer
contributes maintains records of a participant's service covered by the
plan which are incomplete as of the close of the plan year with respect
to which the plan administrator files information relating to the
participant on schedule SSA, the plan administrator may elect to file
the information required by schedule SSA based only upon these
incomplete records. The plan administrator is not required, for
purposes of completing schedule SSA, to compile from sources other than
such records a complete record of a participant's years of service
covered by the plan. Similarly, if retirement benefits under the plan
are determined by taking into account a participant's service with an
employer which is not service covered by the plan, but the plan
administrator maintains records only with respect to periods of service
covered by the plan, the plan administrator may complete schedule SSA
taking into account only the participant's period of service covered by
the plan.
(ii) Inability to determine correct amount of participant's deferred
vested retirement benefit. If the amount of a participant's deferred
vested retirement benefit which is filed on schedule SSA is computed on
the basis of plan records maintained by the plan administrator which --
(A) Are incomplete with respect to the participant's service covered
by the plan (as described in subdivision (i)), or
(B) Fail to account for the participant's service not covered by the
plan which is relevant to a determination of the participant's deferred
vested retirement benefit under the plan (as described in subdivision
(i)),
then the plan administrator must indicate on schedule SSA that the
amount of the deferred vested retirement benefit shown therein may be
other than that to which the participant is actually entitled because
the amount is based upon incomplete records.
(iii) Inability to determine whether participant vested in deferred
retirement benefit. Where, as described in subdivision (i), information
to be reported on schedule SSA is to be based upon records which are
incomplete with respect to a participant's service covered by the plan
or which fail to take into account relevant service not covered by the
plan, the plan administrator may be unable to determine whether or not
the participant is vested in any deferred retirement benefit. If, in
view of information provided either by the incomplete records or the
plan participant, there is a significant likelihood that the plan
participant is vested in a deferred retirement benefit under the plan,
information relating to the participant must be filed on schedule SSA
with the notation that the participant may be entitled to a deferred
vested retirement benefit under the plan, but information relating to
the amount of the benefit may be omitted. This subdivision (iii) does
not apply in a case in which it can be determined from plan records
maintained by the plan administrator that the participant is vested in a
deferred retirement benefit. Subdivision (ii), however, may apply in
such a case.
(c) Voluntary filing -- (1) In general. The plan administrator of an
employee retirement benefit plan described in paragraph (a)(3) of this
section, or any other employee retirement benefit plan (including a
governmental or church plan), may at its option, file on schedule SSA
information relating to the deferred vested retirement benefit of any
plan participant who separates at any time from service covered by the
plan, including plan participants who separate from service in plan
years beginning before 1976.
(2) Deleting previously filed information. If, after information
relating to the deferred vested retirement benefit of a plan participant
is filed on schedule SSA, the plan participant --
(i) Is paid some or all of the deferred vested retirement benefit
under the plan, or
(ii) Forfeits all of the deferred vested retirement benefit under the
plan, the plan administrator may, at its option, file on schedule SSA
(or such other form as may be provided for this purpose) the name and
social security number of the participant with the notation that
information previously filed relating to the participant's deferred
vested retirement benefit should be deleted.
(d) Filing incident to cessation of payment of benefits -- (1) In
general. As described in this section, no information relating to the
deferred vested retirement benefit of a plan participant is required to
be filed on schedule SSA if before the date such schedule SSA is
required to be filed, some of the deferred vested retirement benefit is
paid to the participant, and information relating to a participant's
deferred vested retirement benefit which was previously filed on
schedule SSA may be deleted if the participant is paid some of the
deferred vested retirement benefit. If payment of the deferred vested
retirement benefit ceases before all of the benefit to which the
participant is entitled is paid to the participant, information relating
to the deferred vested retirement benefit to which the participant
remains entitled shall be filed on the schedule SSA filed for the plan
year following the last plan year within which a portion of the benefit
is paid to the participant.
(2) Exception. Notwithstanding subparagraph (1) of this paragraph,
no information relating to the deferred vested retirement benefit to
which the participant remains entitled is required to be filed on
schedule SSA if, before the date such schedule SSA is required to be
filed (including any extension of time for filing granted pursuant to
section 6081), the participant (i) returns to service covered by the
plan, (ii) accures additional retirement benefits under the plan, or
(iii) forfeits the benefit under the plan.
(e) Individual statement to participant. The plan administrator of
an employee retirement benefit plan defined in paragraph (a)(3) of this
section must provide each participant with respect to whom information
is required to be filed on schedule SSA a statement describing the
deferred vested retirement benefit to which the participant is entitled.
The description provided the participant must include the information
filed with respect to the participant on schedule SSA. The statement is
to be delivered to the participant or forwarded to the participant's
last known address no later than the date on which any schedule SSA
reporting information with respect to the participant is required to be
filed (including any extension of time for filing granted pursuant to
section 6081).
(f) Penalties. For amounts imposed in the case of failure to file
the report of deferred vested retirement benefits required by section
6057 (a) and paragraph (a) or (b) of this section, see section
6652(e)(1). For the penalty relating to a failure to provide the
participant the individual statement of deferred vested retirement
benefit required by section 6057(e) and paragraph (e) of this section,
see section 6690.
(g) Effective dates -- (1) Plans to which only one employer
contributes. In the case of a plan to which only one employer
contributes, this section is effective for plan years beginning after
December 31, 1975, and with respect to a participant who separates from
service covered by the plan in plan years beginning after that date.
(2) Plans to which more than one employer contributes. In the case
of a plan to which more than one employer contributes, this section is
effective for plan years beginning after December 31, 1977, and with
respect to a particpant who completes two consecutive 1-year breaks in
service under the plan in service computation periods beginning after
December 31, 1974.
(T.D. 7561, 43 FR 38004, Aug. 25, 1978)
26 CFR 301.6057-2 Employee retirement benefit plans; notification of
change in plan status.
(a) Change in plan status. The plan administrator (within the
meaning of section 414(g)) of an employee retirement benefit plan
defined in 301.6057-1(a)(3) (including a plan to which more than one
employer contributes, as described in 301.6057-1(b)(1)) must notify the
Internal Revenue Service of the following changes in plan status --
(1) A change in the name of the plan.
(2) A change in the name or address of the plan administrator,
(3) The termination of the plan, or
(4) The merger or consolidation of the plan with another plan or the
division of the plan into two or more plans.
(b) Notification. A notification of a change in status described in
paragraph (a) of this section, must be filed on the Annual Return/Report
of Employee Benefit Plan (form 5500 series) for the plan year in which
the change in status occurred. The notification must be filed at the
time and place and in the manner prescribed in the form and any
accompanying instructions.
(c) Penalty. For amounts imposed in the case of failure to file a
notification of a charge in plan status required by section 6057(b) and
this section, see section 6652(e)(2).
(d) Effective date. This section is effective for changes in plan
status occurring within plan years beginning after December 31, 1975.
(T.D. 7561, 43 FR 38006, Aug. 25, 1978)
26 CFR 301.6058-1 Information required in connection with certain plans
of deferred compensation.
(a) Reporting of information -- (1) Annual return. For each funded
plan of deferred compensation an annual return must be filed with the
Internal Revenue Service. The annual return of the plan is the
appropriate Annual Return/Report of Employee Benefit Plan (Form 5500
series) as determined under these forms. The annual period for the
annual return of the plan shall be either the plan year or the taxable
year of the employer maintaining the plan as determined under these
forms. These forms are hereinafter referred to as the ''forms
prescribed by section 6058(a).''
(2) Plans subject to requirements. For purposes of this section, the
term ''funded plan of deferred compensation'' means each pension,
annuity, stock bonus, profit-sharing, or other funded plan of deferred
compensation described in Part 1 of Subchapter D of Chapter 1.
Accordingly, the term includes qualified plans under sections 401(a),
403(a), and 405(a); individual retirement accounts and annuities
described in sections 408(a) and 408(b); and custodial accounts under
section 403(b)(7). The term also includes: funded plans of deferred
compensation which are not qualified plans; funded governmental plans
and church plans, whether or not qualified (See sections 414(d) and
414(e)); and plans maintained outside the United States primarily for
nonresident aliens (as described in subsection (b)(4) of section 4 of
Subtitle A of Title I of the Employee Retirement Income Security Act of
1974; (88 Stat. 840)). The term does not include annuity contracts
described in section 403(b)(1) or individual retirement accounts (an
individual participant or surviving beneficiary in such account must
file under paragraph (d)(2) of this section) and bonds described in
sections 408(c) and 409.
(3) Required information. The information required to be furnished
on the forms prescribed by section 6058(a) shall include such
information concerning the qualification of the plan, the financial
condition of the trust, fund, or custodial or fiduciary account which is
a part of the plan, and the operation of the plan as shall be required
by the forms, applicable accompanying schedules and related instructions
applicable to the annual period.
(4) Time of filing. The forms prescribed by section 6058(a) shall be
filed in the manner and at the time as required by the forms and related
instructions applicable to the annual period.
(b) Who must file -- (1) In general. The annual return required to
be filed under section 6058(a) and paragraph (a) of this section for the
annual period shall be filed by either the employer maintaining the plan
or the plan administrator (as defined in section 414(g)) of the plan for
that annual period. Whether the employer or plan administrator files
shall be determined under the forms prescribed by section 6058(a) and
related instructions applicable to the annual period. Nothing in these
forms shall preclude an employer from filing the return on behalf of the
plan administrator, or the plan administrator from filing on behalf of
the employer.
(2) Definition of employer. For purposes of subparagraph (1) of this
paragraph, the term ''employer'' includes a sole proprietor and a
partnership.
(c) Other rules applicable to annual returns -- (1) Extensions of
time for filing. For rules relating to the extension of time for
filing, see section 6081 and the regulations thereunder and the
instructions on the forms prescribed by section 6058(a).
(2) Amended filing. Any form prescribed by this section may be filed
as an amendment to a form previously filed under this section with
respect to the same annual period pursuant to the instructions for such
forms.
(3) Additional information. In addition to the information otherwise
required to be furnished by this section, the district director may
require any further information that is considered necessary to
determine allowable deductions under section 404, qualification under
section 401, or the financial condition and operation of the plan.
(4) Records. Records substantiating all data and information
required by this section to be filed must be kept at all times available
for inspection by internal revenue officers at the principal office or
place of business of the employer or plan administrator.
(5) Relief from filing. Notwithstanding paragraph (a) of this
section, the Commissioner may, in his discretion, relieve an employer,
or plan administrator, from reporting information on the forms
prescribed by section 6058(a). This discretion includes the ability to
relieve an employer, or plan administrator, from filing the applicable
form.
(d) Special rules for individual retirement arrangements -- (1)
Application. This paragraph, in lieu of paragraph (a) of this section,
applies to an individual retirement account described in section 408(a)
and an individual retirement annuity described in section 408(b),
including such accounts and annuities for which a deduction is allowable
under section 220 (spousal individual retirement arrangements).
(2) General rule. For each taxable year beginning after December 31,
1974, every individual who during such taxable year --
(i) Establishes or maintains an individual retirement account
described in section 408(a) (including an individual who is a
participant in an individual retirement account described in section
408(c)).
(ii) Purchases or maintains an individual retirement annuity
described in section 408(b), or
(iii) Is a surviving beneficiary with respect to an account or
annuity referred to in this subparagraph which is in existence during
such taxable year, shall file Form 5329 (or any other form designated by
the Commissioner for this purpose), as an attachment to or part of the
Form 1040 filed by such individual for such taxable year, setting forth
in full the information required by that form and the accompanying
instructions.
(3) Special information returns. If an individual described in
subparagraph (2) of this paragraph is not required to file a Form 1040
for such taxable year, such individual shall file a Form 5329 (or any
other designated form) with the Internal Revenue Service by the 15th day
of the 4th month following the close of such individual's taxable year
setting forth in full the information required by that form and the
accompanying instructions.
(4) Relief from filing. The Commissioner may, in his discretion,
relieve an individual from filing the form prescribed by this paragraph.
(5) Retirement bonds. An individual who purchases, holds, or
maintains a retirement bond described in section 409 may be required to
file a return under other provisions of the Code.
(e) Actuarial statement in case of mergers, etc. For requirements
with respect to the filing of actuarial statements in the case of a
merger, consolidation, or transfer of assets or liabilities, see section
6058(b) and section 414(l) and the regulations thereunder.
(f) Effective dates -- (1) Section 6058 (a) requirements. The rules
with respect to annual returns required under section 6058(a) (the rules
in this section, other than paragraph (e) thereof) are effective for
plan years beginning after September 2, 1974.
(2) Section 6058(b) requirements. The requirements of section
6058(b) relating to mergers, etc., and paragraph (e) of this section are
effective on September 2, 1974, with respect to events described in
section 6058(b) occurring on or after such date.
(T.D. 7551, 43 FR 29292, July 7, 1978)
26 CFR 301.6059-1 Periodic report of actuary.
(a) In general. The actuarial report described in this section must
be filed on behalf on a defined benefit plan to which the minimum
funding standards of section 412 apply. The actuarial report must be
filed by the plan administrator (within the meaning of section 414(g))
on Schedule B as an attachment to the annual Return/Report of Employee
Benefit Plan (Form 5500 series). The instructions accompanying the Form
5500 series prescribe the place and date for filing Schedule B.
(b) Plan years for which report required. In the case of a plan in
existence on January 1, 1974, Schedule B must be filed for the first
plan year beginning after December 31, 1975, for which the minimum
funding standards apply to the plan, and for each plan year thereafter
for which the Schedule must be filed under the instructions accompanying
the Schedule and the Form 5500 series. In the case of a plan not in
existence on January 1, 1974, Schedule B must be filed for the first
plan year beginning after September 2, 1974, for which the minimum
funding standards apply to the plan, and for each plan year thereafter
for which the Schedule must be filed under the instructions accompanying
the Schedule and the Form 5500 series. For rules relating to when a
plan is considered to be in existence, see 1.410(a)-2(c). For purposes
of this section, ''plan year'' means the plan year as determined for
purposes of the minimum funding standards.
(c) Contents of report. The actuarial report of a plan filed on
Schedule B must contain --
(1) The date of the actuarial valuation applicable to the plan year
for which the report is filed (see section 412(c)(9) for rules relating
to the frequency with which an actuarial valuation of the plan is
required to be made),
(2) A description of the funding method and actuarial assumptions
used to determine costs under the plan,
(3) A certification of the contribution necessary to reduce the
accumulated funding deficiency (as defined in section 412(a)) to zero,
(4) A statement by the enrolled actuary signing the report that to
the best of the actuary's knowledge the report is complete and accurate,
(5) A statement by the enrolled actuary signing the report that in
the actuary's opinion the actuarial assumptions used are in the
aggregate (i) reasonably related to the experience of the plan and to
reasonable expectations, and (ii) represent the actuary's best estimate
of anticipated experience under the plan,
(6) Such other information as may be necessary to fully and fairly
disclose the actuarial position of the plan, and
(7) Such other information as may be required by Schedule B or the
instructions accompanying the Schedule and the Form 5500 series.
(d) Certification by enrolled actuary. The actuarial report filed on
Schedule B must be signed by an enrolled actuary (within the meaning of
section 7701(a)(35)) or there may be attached to the report a statement
signed by the actuary that contains the statements described in
paragraph (c) (4) and (5) of this section.
An actuarial report filed for a plan year ending after January 25,
1982, does not satisfy the requirements of this section if the actuary
seeks to materially qualify such statements. For this purpose, the
following are not considered to materially qualify a statement required
by paragraph (c) (4) or (5) of this section:
(1) A statement that the report is based in part on information
provided to the actuary by another person, that such information would
customarily not be verified by the actuary, and that the actuary has no
reason to doubt the substantial accuracy of the information (taking into
account the facts and circumstances that are known or reasonably should
be known to the actuary, including the contents of any other actuarial
report prepared by the actuary for the plan),
(2) A statement that the report is based in part on information
provided by another person, that the actuary believes such information
is or may be inaccurate or incomplete, but that the inaccuracies or
omissions are not material, the inaccuracies or omissions are not so
numerous or flagrant as to suggest that there may be material
inaccuracies, and that therefore the actuarial report is substantially
accurate and complete and fairly discloses the actuarial position of the
plan,
(3) A statement that the report reflects the requirement of a
regulation or ruling, and that any statement regarding the actuarial
position of the plan is made only in light of such requirement,
(4) A statement that the report reflects an interpretation of a
statute, regulation or ruling, that the actuary has no reason to doubt
the validity of that interpretation, and that any statement regarding
the actuarial position of the plan is made only in light of such
interpretation,
(5) A statement that in the opinion of the actuary the report fully
reflects the requirements of an applicable statute, but does not conform
to the requirements of a regulation or ruling promulgated under the
statute that the actuary believes is contrary to the statute, or
(6) A statement furnished to comply with the requirements of
paragraph (c)(6) of this section.
A statement otherwise described in a subparagraph of this paragraph
(d) shall not be considered to satisfy the requirements of such
subparagraph unless the statement identifies, with particularity, that
matter to which the statement relates and the facts and circumstances
surrounding the statement. In addition, a statement otherwise described
in subparagraph (5) of this paragraph (d) shall not be considered to
satisfy the requirements of that subparagraph unless the statement
indicates whether an accumulated funding deficiency or a contribution
that is not wholly deductible may result if the actuary's belief is
determined to be incorrect.
(e) Relief from filing. Notwithstanding paragraph (a) of this
section, the Commissioner may, in the Commissioner's discretion, relieve
a plan administrator from filing Schedule B or from reporting
information required by Schedule B or paragraph (c) of this section.
(f) Penalty. For the penalty imposed in the case of a failure to
file the actuarial report required by this section, see section 6692 and
301.6692-1.
(Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat.
947, 68A Stat. 917; 26 U.S.C. 6059, 7805))
(T.D. 7798, 46 FR 57483, Nov. 24, 1981; 46 FR 60435, Dec. 10, 1981)
26 CFR 301.6059-1 signing and verifying of returns and other documents
26 CFR 301.6061-1 Signing of returns and other documents.
For provisions concerning the signing of returns and other documents,
see the regulations relating to the particular tax.
26 CFR 301.6062-1 Signing of corporation returns.
For provisions relating to the signing of corporation income tax
returns, see 1.6062-1 of this chapter (Income Tax Regulations).
26 CFR 301.6063-1 Signing of partnership returns.
For provisions relating to the signing of returns of partnership
income, see 1.6063-1 of this chapter (Income Tax Regulations).
26 CFR 301.6064-1 Signature presumed authentic.
An individual's name signed to a return, statement, or other document
shall be prima facie evidence for all purposes that the return,
statement, or other document was actually signed by him.
26 CFR 301.6065-1 Verification of returns.
For provisions concerning the verification of returns and other
documents, see the regulations relating to the particular tax.
26 CFR 301.6065-1 time for filing returns and other documents
26 CFR 301.6071-1 Time for filing returns and other documents.
For provisions concerning the time for filing returns and other
documents, see the regulations relating to the particular tax.
26 CFR 301.6072-1 Time for filing income tax returns.
For provisions relating to time for filing income tax returns, see
1.6072-1 to 1.6072-4, inclusive, of this chapter (Income Tax
Regulations).
26 CFR 301.6073-1 Time for filing declarations of estimated income tax
by individuals.
For provisions relating to time for filing declarations of estimated
income tax by individuals, see 1.6073-1 to 1.6073-4, inclusive, of
this chapter (Income Tax Regulations).
26 CFR 301.6074-1 Time for filing declarations of estimated income tax
by corporations.
For provisions relating to time for filing declarations of estimated
income tax by corporations, see 1.6074-1 to 1.6074-3, inclusive, of
this chapter (Income Tax Regulations).
26 CFR 301.6075-1 Time for filing estate and gift tax returns.
For provisions relating to time for filing estate tax returns and
gift tax returns, see 20.6075-1 of this chapter (Estate Tax
Regulations) and 25.6075-1 of this chapter (Gift Tax Regulations),
respectively.
26 CFR 301.6075-1 extension of time for filing returns
26 CFR 301.6081-1 Extension of time for filing returns.
For provisions concerning extensions of time for filing returns or
other documents, see the regulations relating to the particular tax.
26 CFR 301.6081-1 place for filing returns or other documents
26 CFR 301.6091-1 Place for filing returns and other documents.
(a) General rule. For provisions concerning the place for filing
returns, including hand-carried returns, see the regulations relating to
the particular tax. Except as provided in paragraph (b) of this
section, for provisions concerning the place for filing documents other
than returns, see the regulations relating to the particular tax.
(b) Exception for hand-carried documents other than returns.
Notwithstanding any other provisions of this chapter --
(1) Persons other than corporations. If a document, other than a
return, of a person (other than a corporation) is hand carried, and if
the document is otherwise required to be filed with a service center,
such document may be filed with the district director (or with any
person assigned the administrative supervision of an area, zone or local
office constituting a permanent post of duty within the internal revenue
district of such director) for the internal revenue district in which is
located the legal residence or principal place of business of such
person, or, in the case of an estate, the internal revenue district in
which was the domicile of the decedent at the time of his death. A
document may also be filed by hand carrying such document to the
appropriate service center, or, in the case of a document required to be
filed (i) with the Office of International Operations, by hand carrying
to such Office, or (ii) with the office of the assistant regional
commissioner (alcohol and tobacco tax) by hand carrying to such office.
(2) Corporations. If a document, other than a return, of a
corporation is hand carried, and if the document is otherwise required
to be filed with a service center, such document may be filed with the
district director (or with any person assigned the administrative
supervision of an area, zone or local office constituting a permanent
post of duty within the internal revenue district of such director) for
the internal revenue district in which is located the principal place of
business or principal office or agency of the corporation. A document
may also be filed by hand carrying such document to the appropriate
service center, or, in the case of a document required to be filed (i)
with the Office of International Operations, by hand carrying to such
Office, or (ii) with the office of the assistant regional commissioner
(alcohol and tobacco tax) by hand carrying to such office.
(c) Definition of hand carried. For purposes of this section and
section 6091 (b) (4) and the regulations issued thereunder, a return or
document will be considered to be hand carried if it is brought to the
district director by the person required to file the return or other
document, or by his agent. Examples of persons who will be considered
to be agents, for purposes of the preceding sentence, are: Members of
the taxpayer's family, an employee of the taxpayer, the taxpayer's
attorney, accountant, or tax advisor, and messengers employed by the
taxpayer. A return or document will not be considered to be hand
carried if it is sent to the Internal Revenue Service through the U.S.
Mail.
(T.D. 6950, 33 FR 5359, Apr. 4, 1968, as amended by T.D. 7008, 34 FR
3673, Mar. 1, 1969; T.D. 7012, 34 FR 7697, May 15, 1969; T.D. 7188,
37 FR 12794, June 29, 1972; T.D. 7238, 37 FR 28739, Dec. 29, 1972;
T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D. 7495, 42 FR 33727, July 1,
1977)
26 CFR 301.6096-1 Designation by individuals for taxable years beginning
after December 31, 1972.
(a) In general. Every individual (other than a nonresident alien)
whose income tax liability, as defined in paragraph (b) of this section,
is one dollar or more may, at his option, designate that one dollar
shall be paid over to the Presidential Election Campaign Fund, in
accordance with the provisions of section 9006. In the case of a joint
return of a husband and wife, each spouse may designate that one dollar
be paid to the fund as provided in this paragraph only if the joint
income tax liability of the husband and wife is two dollars or more.
(b) Income tax liability. For purposes of paragraph (a) of this
section, the income tax liability of an individual for any taxable year
is the amount of the tax imposed by chapter 1 on such individual for the
taxable year (as shown on his or her return) reduced by the sum of the
credits (as shown on his or her return) allowable under sections 33, 37,
38, 40, 41, 42, 44, and 44A.
(c) Manner and time of designation. (1) A designation under
paragraph (a) of this section may be made with respect to any taxable
year at the time of the filing of the return of the tax imposed by
chapter 1 for such taxable year, and shall be made either on the first
page of the return or on the page bearing the taxpayer's signature, in
accordance with the instructions applicable thereto.
(2) With respect to any taxable year beginning after December 31,
1972 for which no designation was made under paragraph (c) (1) of this
section, a designation may be made on the form furnished by the Internal
Revenue Service for such purpose, filed within 20 and one half months
after the due date for the original return for such taxable year. In
the case of a joint return where neither spouse made a designation or
where only one spouse made a designation, a designation may be made, as
provided in this subparagraph, by the spouse or spouses who had not
previously made a designation.
(3) A designation once made, whether by an original return or
otherwise, may not be revoked.
(d) Effective date. This section shall apply to taxable years
beginning after December 31, 1972.
(T.D. 7304, 39 FR 4476, Feb. 4, 1974, as amended by T.D. 7643, 44 FR
50338, Aug. 28, 1979)
26 CFR 301.6096-2 Designation by individuals for taxable years ending
on or after December 31, 1972 and beginning before January 1, 1973.
(a) In general. (1) For taxable years ending on or after December
31, 1972 and beginning before January 1, 1973, every individual (other
than a non-resident alien) whose income tax liability, as defined in
paragraph (b) of this section, is one dollar or more, may, at his
option, designate that one dollar shall be paid over to the Presidential
Election Campaign Fund, referred to in 301.6096-1 (a). Where in
accordance with prior law, such a designation was made for the account
of any candidate of any specified political party, or for a general
account for all candidates for election to the offices of President and
Vice President of the United States, such a designation shall be treated
solely as a designation to such fund.
(2) In the case of a joint return of a husband and wife, each spouse
may designate that one dollar be paid to the fund as provided in
paragraph (a) (1) of this section only if the joint income tax liability
of the husband and wife is two dollars or more.
(b) Income tax liability. For purposes of paragraph (a) of this
section, the income tax liability of an individual for any taxable year
is the amount of the tax imposed by chapter 1 on such individual for
such taxable year (as shown on his return), reduced by the sum of the
credits (as shown on his return).
(c) Manner and time of designation. (1) A designation under
paragraph (a) of this section may be made with respect to any such
taxable year at the time of the filing of the return of the tax imposed
by chapter 1 for such taxable year. If such designation is made at the
time of filing the original return for such year, it shall be made by
the individual on the form furnished by the Internal Revenue Service for
such purpose in accordance with the instructions applicable thereto.
(2) With respect to any taxable year ending on or after December 31,
1972 and beginning before January 1, 1973, for which no designation was
made under paragraph (c) (1) of this section, a designation may be made
on the form furnished by the Internal Revenue Service for such purpose,
filed within 20 and one half months after the due date for the original
return for such taxable year. In the case of a joint return where
neither spouse made a designation or where only one spouse made a
designation, a designation may be made, as provided in this
subparagraph, by the spouse or spouses who had not previously made a
designation.
(3) A designation once made, whether by an original return or
otherwise, may not be revoked.
(T.D. 7304, 39 FR 4476, Feb. 4, 1974)
26 CFR 301.6096-2 miscellaneous provisions
26 CFR 301.6101-1 Period covered by returns or other documents.
For provisions concerning the period covered by returns or other
documents, see the regulations relating to the particular tax.
26 CFR 301.6102-1 Computations on returns or other documents.
(a) Amounts shown on forms. To the extent permitted by any internal
revenue form or instructions prescribed for use with respect to any
internal revenue return, declaration, statement, other document, or
supporting schedules, any amount required to be reported on such form
shall be entered at the nearest whole dollar amount. The extent to
which, and the conditions under which, such whole dollar amounts shall
be entered on any form will be set forth in the instructions issued with
respect to such form. For the purpose of the computation to the nearest
dollar, a fractional part of a dollar shall be disregarded unless it
amounts to one-half dollar or more, in which case the amount (determined
without regard to the fractional part of a dollar) shall be increased by
$1. The following illustrates the application of this paragraph:
(b) Election not to use whole dollar amounts -- (1) Method of
election. Where any internal revenue form, or the instructions issued
with respect to such form, provide that whole dollar amounts shall be
reported, any person making a return, declaration, statement, or other
document on such form may elect not to use whole dollar amounts by
reporting thereon all amounts in full, including cents.
(2) Time of election. The election not to use whole dollar amounts
must be made at the time of filing the return, declaration, statement,
or other document. Such election may not be revoked after the time
prescribed for filing such return, declaration, statement, or other
document, including extensions of time granted for such filing. Such
election may be made on any return, declaration, statement, or other
document which is filed after the time prescribed for filing (including
extensions of time), and such an election is irrevocable.
(3) Effect of election. The taxpayer's election shall be binding
only on the return, declaration, statement, or other document filed for
a taxable year or period, and a new election may be made on the return,
declaration, statement, or other document filed for a subsequent taxable
year or period. An election by either a husband or a wife not to report
whole dollar amounts on a separate income tax return shall be binding on
any subsequent joint return filed under the provisions of section
6013(b).
(4) Fractional part of a cent. For treatment of the fractional part
of a cent in the payment of taxes, see section 6313 and 301.6313-1.
(c) Inapplicability to computation of amount. The provisions of
paragraph (a) of this section apply only to amounts required to be
reported on a return, declaration, statement, or other document. They
do not apply to items which must be taken into account in making the
computations necessary to determine such amounts. For example, each
item of receipt must be taken into account at its exact amount,
including cents, in computing the amount of total receipts required to
be reported on an income tax return or supporting schedule. It is the
amount of total receipts, so computed, which is to be reported at the
nearest whole dollar on the return or supporting schedule.
(d) Effect on accounting method. Section 6102 and this section have
no effect on any authorized accounting method.
26 CFR 301.6103(a)-1 Disclosures after December 31, 1976, by officers
and employees of Federal agencies of returns and return information
(including taxpayer return information) disclosed to such officers and
employees by the Internal Revenue Service before January 1, 1977, for a
purpose not involving tax administration.
(a) General rule. Except as provided by paragraph (b) of this
section, a return or return information (including taxpayer return
information), as defined in section 6103(b) (1), (2), and (3) of the
Internal Revenue Code, disclosed by the Internal Revenue Service before
January 1, 1977, to an officer or employee of a Federal agency (as
defined in section 6103(b)(9)) for a purpose not involving tax
administration (as defined in section 6103(b)(4)) pursuant to the
authority of section 6103 (or any order of the President under section
6103 or rules and regulations thereunder prescribed by the Secretary or
his delegate and approved by the President) before amendment of such
section by section 1202 of the Tax Reform Act of 1976 (Pub. L. 94-455,
90 Stat. 1667) may be disclosed by, or on behalf of, such officer,
employee, or agency after December 31, 1976, for any purpose authorized
by such section (or such order or rules and regulations) before such
amendment.
(b) Exception. Notwithstanding the provisions of paragraph (a) of
this section, a return or return information (including taxpayer return
information) disclosed before January 1, 1977, by the Service to an
officer or employee of a Federal agency for a purpose unrelated to tax
administration as described in paragraph (a) may, after December 31,
1976, be disclosed by, or on behalf of, such agency, officer, or
employee in an administrative or judicial proceeding only if such
proceeding is one described in section 6103(i)(4) of the Code and if the
requirements of section 6103(i)(4) have first been met.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65566, Oct. 3, 1980)
26 CFR 301.6103(a)-2 Disclosures after December 31, 1976, by attorneys
of the Department of Justice and officers and employees of the Office of
the Chief Counsel for the Internal Revenue Service of returns and return
information (including taxpayer return information) disclosed to such
attorneys, officers, and employees by the Service before January 1,
1977, for a purpose involving tax administration.
(a) General rule. Except as provided by paragraph (b) of this
section and subject to the requirements of this paragraph, a return or
return information (including taxpayer return information), as defined
in section 6103(b) (1), (2), and (3), of the Internal Revenue Code
disclosed by the Internal Revenue Service before January 1, 1977, to an
attorney of the Department of Justice (including a United States
attorney) or to an officer or employee of the Office of the Chief
Counsel for the Service for a purpose involving tax administration (as
defined in section 6103(b)(4)) pursuant to the authority of section 6103
(or any order of the President under section 6103 or rules and
regulations thereunder prescribed by the Secretary or his delegate and
approved by the President) before amendment of such section by section
1202 of the Tax Reform Act of 1976 (Pub. L. 94-455, 90 Stat. 1667) may
be disclosed by, or on behalf of, such attorney, officer, or employee
after December 31, 1976, for any purpose authorized by such section (or
such order or rules and regulations) before such amendment.
(b) Exception. Notwithstanding the provisions of paragraph (a) of
this section, a return or return information (including taxpayer return
information) disclosed before January 1, 1977, by the Service to an
attorney of the Department of Justice or to an officer or employee of
the Office of the Chief Counsel for the Service for a purpose related to
tax administration as described in paragraph (a) may, after December 31,
1976, be disclosed by, or on behalf of, such attorney, officer, or
employee in an administrative or judicial proceeding only if such
proceeding is one described in section 6103 (h) (4) of the Code and if
the requirements of section 6103 (h)(4) have first been met.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65567, Oct. 3, 1980)
26 CFR 301.6103(c)-1 Disclosure of returns and return information
(including taxpayer return information) to designee of taxpayer.
(a) Disclosure of returns and return information (including taxpayer
return information) to person or persons designated in a written request
or consent. Section 6103 (c) of the Internal Revenue Code applies to
disclosures of a return or return information (including taxpayer return
information) to a person designated in a written request for or consent
to disclosure. A request for or consent to disclosure must be in the
form of a written document pertaining solely to the authorized
disclosure. The written document must be signed and dated by the
taxpayer who filed the return or to whom the return information relates.
The taxpayer must also indicate in the written document --
(1) The taxpayer's taxpayer identity information described in section
6103(b)(6);
(2) The identity of the person to whom disclosure is to be made;
(3) The type of return (or specified portion of the return) or return
information (and the particular data) that is to be disclosed; and
(4) The taxable year covered by the return or return information.
Thus, for example, a provision included in a taxpayer's application
for a loan or other benefit authorizing the Internal Revenue Service to
disclose to the grantor of the loan or other benefit such returns or
return information as the grantor may request for purposes of verifying
information supplied on the application does not meet the requirements
of this paragraph. The disclosure of a return or return information
authorized by a request for or consent to the disclosure shall not be
made unless the request or consent is received by the Service within 60
days following the date upon which the request or consent was signed and
dated by the taxpayer.
(b) Disclosure of returns and return information (including taxpayer
return information) to designee of taxpayer to comply with request for
information or assistance. Section 6103(c) of the Code applies to
requests made by the taxpayer to other persons (for example, members of
Congress, friends or relatives of the taxpayer, and, when not acting as
a taxpayer's representative, income tax return preparers) for
information or assistance relating to the taxpayer's return or a
transaction or other contact between the taxpayer and the Service.
The taxpayer's request for information or assistance must be in the
form of a letter or other written document signed and dated by the
taxpayer. The taxpayer must also indicate in the written request --
(1) The taxpayer's taxpayer identity information described in section
6103(b)(6);
(2) The identity of the person to whom disclosure is to be made; and
(3) Sufficient facts underlying the request for information or
assistance to enable the Service to determine the nature and extent of
the information or assistance requested and the returns or return
information to be disclosed in order to comply with the taxpayer's
request.
A return or return information will be disclosed to the taxpayer's
designee as provided by this paragraph only to the extent considered
necessary by the Service to comply with the taxpayer's request for
information or assistance. This paragraph does not apply to disclosures
to a taxpayer's representative in connection with practice before the
Service (as defined in Treasury Department Circular No. 230). For
disclosures in these cases, see 601.502(c) of this chapter.
(c) Exceptions. A disclosure of return information shall not be made
under this section if the Service determines that the disclosure would
seriously impair Federal tax administration (as defined in section
6103(b)(4) of the Code).
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 65567, Oct. 3, 1980)
26 CFR 301.6103(h)(2)-1 Disclosure of returns and return information
(including taxpayer return information) to and by officers and employees
of the Department of Justice for use in Federal grand jury proceeding,
or in preparation for proceeding or investigation, involving tax
administration.
(a) Disclosure of returns and return information (including taxpayer
return information) to and by officers and employees of the Department
of Justice. (1) Returns and return information (including taxpayer
return information), as defined in section 6103(b) (1), (2), and (3) of
the Internal Revenue Code, shall, to the extent provided by section
6103(h)(2) (A), (B), and (C) and subject to the requirements of section
6103(h)(3), be open to inspection by or disclosure to officers and
employees of the Department of Justice (including United States
attorneys) personally and directly engaged in, and for their necessary
use in, any Federal grand jury proceeding, or preparation for any
proceeding (or for their necessary use in an investigation which may
result in such a proceeding) before a Federal grand jury or any Federal
or State court, in a matter involving tax administration (as defined in
section 6103(b)(4)), including any such proceeding (or any such
investigation) also involving the enforcement of a related Federal
criminal statute which has been referred by the Secretary to the
Department of Justice.
(2) Returns and return information (including taxpayer return
information) inspected by or disclosed to officers and employees of the
Department of Justice as provided in paragraph (a)(1) of this section
may also be used by such officers and employees or disclosed by them to
other officers and employees (including United States attorneys and
supervisory personnel, such as Section Chiefs, Deputy Assistant
Attorneys General, Assistant Attorneys General, the Deputy Attorney
General, and the Attorney General), of the Department of Justice where
necessary --
(i) In connection with any Federal grand jury proceeding, or
preparation for any proceeding (or with an investigation which may
result in such a proceeding), described in paragraph (a)(1), or
(ii) In connection with any Federal grand jury proceeding, or
preparation for any proceeding (or with an investigation which may
result in such a proceeding), described in paragraph (a)(1) which also
involves enforcement of a specific Federal criminal statute other than
one described in paragraph (a)(1) to which the United States is or may
be a party, provided such matter involves or arises out of the
particular facts and circumstances giving rise to the proceeding (or
investigation) described in paragraph (a)(1) and further provided the
tax portion of such proceeding (or investigation) has been duly
authorized by or on behalf of the Assistant Attorney General for the Tax
Division of the Department of Justice, pursuant to the request of the
Secretary, as a proceeding (or investigation) described in paragraph
(a)(1). If, in the course of a Federal grand jury proceeding, or
preparation for a proceeding (or the conduct of an investigation which
may result in such a proceeding), described in subdivision (ii) of this
subparagraph, the tax administration portion thereof is terminated for
any reason, any further use or disclosure of such returns or taxpayer
return information in such Federal grand jury proceeding, or preparation
or investigation, with respect to the remaining portion may be made only
pursuant to, and upon the grant of, a court order as provided by section
6103(i)(1)(A), provided, however, that the returns and taxpayer return
information may in any event be used for purposes of obtaining the
necessary court order.
(b) Disclosure of returns and return information (including taxpayer
return information) by officers and employees of the Department of
Justice. (1) Returns and return information (including taxpayer return
information), as defined in section 6103(b) (1), (2), and (3) of the
Code, inspected by or disclosed to officers and employees of the
Department of Justice as provided by paragraph (a) of this section may
be disclosed by such officers and employees to other persons, including,
but not limited to, persons described in paragraph (b)(2), but only to
the extent necessary in connection with a Federal grand jury proceeding,
or the proper preparation for a proceeding (or in connection with an
investigation which may result in such a proceeding), described in
paragraph (a). Such disclosures may include, but are not limited to,
disclosures --
(i) To properly accomplish any purpose or activity of the nature
described in section 6103(k)(6) and the regulations thereunder which is
essential to such Federal grand jury proceeding, or to such proper
preparation (or to such investigation);
(ii) To properly interview, consult, depose, or interrogate or
otherwise obtain relevant information from, the taxpayer to whom such
return or return information relates (or such taxpayer's legal
representative) or from any witness who may be called to give evidence
in the proceeding; or
(iii) To properly conduct negotiations concerning, or obtain
authorization for, settlement or disposition of the proceeding, in whole
or in part, or stipulations of fact in connection with the proceeding.
Disclosure of a return or return information to a person other than
the taxpayer to whom such return or return information relates or such
taxpayer's legal representative to properly accomplish any purpose or
activity described in this paragraph should be made, however, only if
such purpose or activity cannot otherwise properly be accomplished
without making such disclosure.
(2) Among those persons to whom returns and return information may be
disclosed by officers and employees of the Department of Justice as
provided by paragraph (a)(1) of this section are --
(i) Other officers and employees of the Department of Justice, such
as personnel of an office, board, division, or bureau of such department
(for example, the Federal Bureau of Investigation or the Drug
Enforcement Administration), clerical personnel (for example,
secretaries, stenographers, docket and file room clerks, and mail room
employees) and supervisory personnel (such as supervisory personnel of
the Federal Bureau of Investigation or the Drug Enforcement
Administration);
(ii) Officers and employees of another Federal agency (as defined in
section 6103(b)(9)) working under the direction and control of any such
officers and employees of the Department of Justice; and
(iii) Court reporters.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65567, Oct. 3, 1980)
26 CFR 301.6103(i)-1 Disclosure of returns and return information
(including taxpayer return information) to and by officers and employees
of the Department of Justice or another Federal agency for use in
Federal grand jury proceeding, or preparation for proceeding or
investigation, involving enforcement of Federal criminal statute not
involving tax administration.
(a) Disclosure of returns and return information (including taxpayer
return information) to officers and employees of the Department of
Justice or another Federal agency. Returns and return information
(including taxpayer return information), as defined in section
6103(b)(1), (2), and (3) of the Internal Revenue Code, shall, to the
extent provided by section 6103(i) (1), (2), and (3) and subject to the
requirements of section 6103(i) (1) and (2), be open to inspection by or
disclosure to officers and employees of the Department of Justice
(including United States attorneys) or of another Federal agency (as
defined in section 6103(b)(9)) personally and directly engaged in, and
for their necessary use in, any Federal grand jury proceeding, or
preparation for any administration or judicial proceeding (or their
necessary use in an investigation which may result in such a
proceeding), pertaining to enforcement of a specifically designated
Federal criminal statute not involving or related to tax administration
to which the United States or such agency is or may be a party.
(b) Disclosure of returns and return information (including taxpayer
return information) by officers and employees of the Department of
Justice or another Federal agency. (1) Returns and return information
(including taxpayer return information), as defined in section 6103(b)
(1), (2), and (3) of the Code, disclosed to officers and employees of
the Department of Justice or other Federal agency (as defined in section
6103(b)(9)) as provided by paragraph (a) of this section may be
disclosed by such officers and employees to other persons, including,
but not limited to, persons described in subparagraph (2) of this
paragraph, but only to the extent necessary in connection with a Federal
grand jury proceeding, or the proper preparation for a proceeding (or in
connection with an investigation which may result in such a proceeding),
described in paragraph (a). Such disclosures may include, but are not
limited to, disclosures where necessary --
(i) To properly obtain the services of persons having special
knowledge or technical skills (such as, but not limited to, handwriting
analysis, photographic development, sound recording enhancement, or
voice identification);
(ii) To properly interview, consult, depose, or interrogate or
otherwise obtain relevant information from, the taxpayer to whom such
return or return information relates (or such taxpayer's legal
representative) or any witness who may be called to give evidence in the
proceeding; or
(iii) To properly conduct negotiations concerning, or obtain
authorization for, disposition of the proceeding, in whole or in part,
or stipulations of fact in connection with the proceeding.
Disclosure of a return or return information to a person other than
the taxpayer to whom such return or return information relates or such
taxpayer's legal representative to properly accomplish any purpose or
activity described in this subparagraph should be made, however, only if
such purpose or activity cannot otherwise properly be accomplished
without making such disclosures.
(2) Among those persons to whom returns and return information may be
disclosed by officers and employees of the Department of Justice or
other Federal agency as provided by subparagraph (1) of this paragraph
are --
(i) Other officers and employees of the Department of Justice
(including an office, board, division, or bureau of such department,
such as the Federal Bureau of Investigation or the Drug Enforcement
Administration) or other Federal agency described in subparagraph (1),
such as clerical personnel (for example, secretaries, stenographers,
docket and file room clerks, and mail room employees) and supervisory
personnel (for example, in the case of the Department of Justice,
Section Chiefs, Deputy Assistant Attorneys General, Assistant Attorneys
General, the Deputy Attorney General, the Attorney General, and
supervisory personnel of the Federal Bureau of Investigation or the Drug
Enforcement Administration);
(ii) Officers and employees of another Federal agency (as defined in
section 6103(b)(9)) working under the direction and control of such
officers and employees of the Department of Justice or other Federal
agency described in subparagraph (1); and
(iii) Court reporters.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65568, Oct. 3, 1980)
26 CFR 301.6103(j)(1)-1 Disclosures of return information to officers
and employees of the Department of Commerce for certain statistical
purposes and related activities.
(a) General rule. Pursuant to the provisions of section 6103(j)(1)
of the Internal Revenue Code and subject to the requirements of
paragraph (d) of this section, officers or employees of the Internal
Revenue Service will disclose return information (as defined by section
6103(b)(2) but not including return information described in section
6103(o)(2)) to officers and employees of the Department of Commerce to
the extent, and for such purposes as may be, provided by paragraphs (b)
and (c) of this section. Further, in the case of any disclosure of
return information so provided by paragraphs (b) and (c), the tax period
or accounting period to which such return information relates will also
be disclosed.
(b) Disclosure of return information to officers and employees of the
Bureau of the Census. -- (1) Officers or employees of the Service will
disclose the following return information reflected on returns of an
individual taxpayer to officers and employees of the Bureau of the
Census for purposes of, but only to the extent necessary in, conducting
and preparing, as authorized by chapter 5 of title 13, United States
Code, intercensal estimates of population and income for all geographic
areas included in the population estimates program and demographic
statistics programs, censuses, and related program evaluation --
(i) Taxpayer identity information (as defined in section 6103(b)(6)
of the Code), validity code with respect to the taxpayer identifying
number (as described in section 6109), and taxpayer identity information
of spouse and dependents, if reported;
(ii) District office and service center codes;
(iii) Marital status;
(iv) Number and classification of reported exemptions;
(v) Wage and salary income;
(vi) Dividend income;
(vii) Interest income;
(viii) Gross rent and royalty income;
(ix) Total of --
(A) Wages, salaries, tips, etc.,
(B) Interest income,
(C) Dividend income,
(D) Alimony received,
(E) Business income,
(F) Pensions and annuities,
(G) Income from rents, royalties, partnerships, estates, trusts,
etc.,
(H) Farm income,
(I) Unemployment compensation, and
(J) Total Social Security benefits.
(x) Adjusted gross income;
(xi) Type of tax return filed;
(xii) Entity code;
(xiii) Code indicators for Form 1040, Form 8814, Schedules A, C, D,
E, F, and SE;
(xiv) Posting cycle date relative to filing; and
(xv) Social Security benefits.
(2) Officers or employees of the Service will disclose to officers
and employees of the Bureau of the Census for purposes of, but only to
the extent necessary in, conducting, as authorized by chapter 5 of title
13, United States Code, demographic, economic, and agricultural
statistics programs and censuses and related program evaluation --
(i) From the business master files of the Service, the taxpayer name
directory and entity records consisting of taxpayer identity information
(as defined in section 6103(b)(6)) with respect to taxpayers engaged in
a trade or business, the principal industrial activity code, the filing
requirement code, the employment code, the physical location, the
service center and district and area office codes, and monthly
corrections of, and additions to, such entity records;
(ii) From Form SS-4, all return information reflected on such return;
(iii) From an employment tax return --
(A) Taxpayer identifying number (as described in section 6109) of the
employer,
(B) Total compensation reported,
(C) Master file tax account code (MFT),
(D) Taxable period covered by such return,
(E) Employer code,
(F) Document locator number,
(G) Record code,
(H) Total number of individuals employed in the taxable period
covered by the return,
(I) Total taxable wages paid for purposes of Chapter 21, and
(J) Total taxable tip income reported for purposes of chapter 21;
and
(iv) From Form 1040, Schedule SE --
(A) Taxpayer identifying number of self-employed individual,
(B) Business activities subject to the tax imposed by chapter 21,
(C) Net earnings from farming,
(D) Net earnings from nonfarming activities,
(E) Total net earnings from self-employment, and
(F) Taxable self-employment income for purposes of chapter 2.
(3) Officers or employees of the Service will disclose the following
business related return information reflected on the return of a
taxpayer to officers and employees of the Bureau of the Census for
purposes of, but only to the extent necessary in, conducting and
preparing, as authorized by chapter 5 of title 13, United States Code,
demographic, economic, and agricultural statistics programs, censuses,
and surveys. The ''return of a taxpayer'' includes, but is not limited
to, Form 941; Form 990 series; Form 1040 series and Schedules C, F,
and SE; Form 1065 and all attending schedules and Form 8825; Form 1120
series and all attending schedules and Form 8825; Form 851; Form 1096;
and other business returns, schedules and forms that the Service may
issue --
(i) Taxpayer identity information (as defined in section 6103(b)(6)
of the Code) including shareholder, partner, and employer identity
information;
(ii) Gross income, profits, or receipts;
(iii) Net farm profits;
(iv) Sales of livestock and produce raised;
(v) Returns and allowances;
(vi) Cost of labor, salaries, and wages;
(vii) Total assets;
(viii) Royalty income;
(ix) Interest income, including portfolio interest;
(x) Rental income, including gross rents;
(xi) Tax-exempt interest income;
(xii) Percentage of stock owned by each shareholder;
(xiii) Percentage of capital ownership of each partner;
(xiv) Agricultural activity code;
(xv) Answers to material participation questions;
(xvi) End-of-year code;
(xvii) Months actively operated;
(xviii) Principal industrial activity code, including the business
description;
(xix) All information on Schedule E filed with Form 1120 series;
(xx) Total number of documents and the total amount reported on the
Form 1096 transmitting Forms 1099-MISC;
(xxi) Form 941 indicator and business address on Schedule C; and
(xxii) Consolidated return indicator.
(4) Officers or employees of the Service will disclose return
information relating to a taxpayer contained in the exempt organization
master files of the Service to officers and employees of the Bureau of
the Census for purposes of, but only to the extent necessary in,
conducting and preparing, as authorized by chapter 5 of Title 13, United
States Code, economic censuses. This return information consists of
taxpayer identity information (as defined in section 6103(b)(6)),
activity codes, and filing requirement code, and monthly corrections of,
and additions to, such return information.
(5) Subject to the requirements of paragraph (d) of this section and
301.6103(p)(2)(B)-1, officers or employees of the Social Security
Administration to whom the following return information has been
disclosed as provided by section 6103(l) (1)(A) or (5) may disclose such
return information to officers and employees of the Bureau of the Census
for necessary purposes described in paragraph (b) (2) or (3) of this
section --
(i) From Form SS-4, all information reflected on such return; and
(ii) From Form 1040, Schedule SE --
(A) Taxpayer identifying number of self-employed individual,
(B) Business activities subject to the tax imposed by Chapter 21,
(C) Net earnings from farming,
(D) Net earnings from nonfarming activities,
(E) Total net earnings from self-employment, and
(F) Taxable self-employment income for purposes of chapter 2.
(6)(i) Officers or employees of the Service will disclose the
following return information (but not including return information
described in section 6103(o)(2)) reflected on the return of a
corporation with respect to the tax imposed by Chapter 1 to officers and
employees of the Bureau of the Census for purposes of, but only to the
extent necessary in, developing and preparing, as authorized by law, the
Quarterly Financial Report --
(A) From the business master files of the Service --
(1) Taxpayer identity information (as defined in section 6103(b)(6)),
(2) Consolidated return and final return indicators,
(3) Principal industrial activity code,
(4) Partial year indicator,
(5) Annual accounting period,
(6) Gross receipts less returns and allowances,
(7) Net income or loss, and
(8) Total assets; and
(B) From Form SS-4 --
(1) Month and year in which such return was executed,
(2) Taxpayer identity information,
(3) Principal industrial activity, geographic, firm size, and reason
for application codes.
(ii) Subject to the requirements of paragraph (d) of this section and
301.6103(p)(2)(B)-1, officers or employees of the Social Security
Administration to whom return information described in paragraph
(b)(6)(i)(B) of this section with respect to a corporation has been
disclosed as provided by section 6103(l)(1)(A) may disclose such return
information to officers and employees of the Bureau of the Census for a
purpose described in this paragraph (b)(6).
(c) Disclosure of return information to officers and employees of the
Bureau of Economic Analysis. (1) Officers or employees of the Service
will disclose to officers and employees of the Bureau of Economic
Analysis for purposes of, but only to the extent necessary in,
conducting and preparing, as authorized by law, statistical analyses
return information consisting of Statistics of Income transcript-edit
sheets containing return information reflected on returns of designated
classes or categories of corporations with respect to the tax imposed by
chapter 1 and microfilmed records of return information reflected on
such returns where needed for further use in connection with such
conduct or preparation.
(2) Subject to the requirements of paragraph (d) of this section and
301.6103(p)(2)(B)-1, officers and employees of the Social Security
Administration to whom the following return information reflected on
returns of designated classes or categories of corporations of
designated classes or categories of corporations has been disclosed as
provided by section 6103(l)(1)(A)(5) may disclose such return
information to officers and employees of the Bureau of Economic Analysis
for necessary purposes described in paragraph (c)(1) of this section --
(i) From Form SS-4, principal industrial activity and geographic
codes; and
(ii) From an employment tax return --
(A) Total compensation reported, and
(B) Taxable wages paid for purposes of chapter 21 to each employee.
(d) Procedures and restrictions. Disclosure of return information by
officers or employees of the Service or the Social Security
Administration as provided by paragraphs (b) and (c) of this section
will be made only upon written request to the Commissioner of Internal
Revenue by the Secretary of Commerce describing --
(1) The particular return information to be disclosed,
(2) The taxable period or date to which such return information
relates, and
(3) The particular purpose for which the return information is to be
used, and designating by name and title the officers and employees of
the Bureau of the Census or the Bureau of Economic Analysis to whom such
disclosure is authorized. No such officer or employee to whom return
information is disclosed pursuant to the provisions of paragraph (b) or
(c) shall disclose such return information to any person, other than the
taxpayer to whom such return information relates or other officers or
employees of such bureau whose duties or responsibilities requires such
disclosure for a purpose described in paragraph (b) or (c), except in a
form which cannot be associated with, or otherwise identify, directly or
indirectly, a particular taxpayer. If the Service determines that the
Bureau of the Census or the Bureau of Economic Analysis, or any officer
or employee thereof, has failed to, or does not, satisfy the
requirements of section 6103(p)(4) of the Code or regulations or
published procedures thereunder, the Service may take such actions as
are deemed necessary to ensure that such requirements are or will be
satisfied, including suspension of disclosures of return information
otherwise authorized by section 6103 (j)(1) and paragraph (b) or (c) of
this section, until the Service determines that such requirements have
been or will be satisfied.
(Secs. 6103(j)(1) and (g) and 7805 of the Internal Revenue Code of
1954 (90 Stat. 1678, and 1685, 68A Stat. 917; 26 U.S.C. 6103(j)(1) and
(g); 7805))
(T.D. 7724, 45 FR 65562, Oct. 3, 1980, as amended by T.D. 7824, 47 FR
33477, Aug. 2, 1982; T.D. 8118, 51 FR 47017, Dec. 30, 1986; T.D.
8296, 55 FR 11368, Mar. 28, 1990; T.D. 8377, 56 FR 65187, Dec. 16,
1991)
26 CFR 301.6103(k)(6)-1 Disclosure of return information by Internal
Revenue officers and employees for investigative purposes.
(a) Disclosure of taxpayer identity information and fact of
investigation in connection with official duties relating to
examination, collection activity, civil or criminal investigation,
enforcement activity, or other offense under the internal revenue laws.
In connection with the performance of official duties relating to any
examination, collection activity, civil or criminal investigation,
enforcement activity, or other offense under the internal revenue laws,
or in connection with preparation for any proceeding (or investigation
which may result in such a proceeding) described in section 6103(h)(2)
of the Internal Revenue Code, an officer or employee of the Internal
Revenue Service or Office of the Chief Counsel therefor is authorized to
disclose taxpayer identity information (as defined in section
6103(b)(6)), the fact that the inquiry pertains to the performance of
official duties, and the nature of the official duties in order to
obtain necessary information relating to performance of such official
duties or where necessary in order to properly accomplish any activity
described in subparagraph (6) of paragraph (b) of this section.
Disclosure of taxpayer identity information to a person other than the
taxpayer to whom such taxpayer identity information relates or such
taxpayer's legal representative for the purpose of obtaining such
necessary information or otherwise properly accomplishing such
activities as authorized by this paragraph should be made, however, only
if the necessary information cannot, under the facts and circumstances
of the particular case, otherwise reasonably be obtained in accurate and
sufficiently probative form, or in a timely manner, and without
impairing the proper performance of the official duties, or if such
activities cannot otherwise properly be accomplished without making such
disclosure.
(b) Disclosure of return information in connection with official
duties relating to examination, collection activity, civil or criminal
investigation, enforcement activity, or other offense under the internal
revenue laws. In connection with the performance of official duties
relating to any examination, collection activity, civil or criminal
investigation, enforcement activity, or other offense under the internal
revenue laws, an officer or employee of the Service or Office of the
Chief Counsel therefor is authorized to disclose return information (as
defined in section 6103(b)(2)) in order to obtain necessary information
relating to the following --
(1) To establish or verify the correctness or completeness of any
return (as defined in section 6103(b)(1) of the Code) or return
information;
(2) To determine the responsibility for filing a return, for making a
return where none has been made, or for performing such acts as may be
required by law concerning such matters;
(3) To establish or verify the liability (or possible liability) of
any person, or the liability (or possible liability) at law or in equity
of any transferee or fiduciary of any person, for any tax, penalty,
interest, fine, forfeiture, or other imposition or offense under the
internal revenue laws or the amount thereof to be collected;
(4) To establish or verify misconduct (or possible misconduct) or
other activity proscribed by the internal revenue laws;
(5) To obtain the services of persons having special knowledge or
technical skills (such as, but not limited to, knowledge of particular
facts and circumstances relevant to a correct determination of a
liability described in subparagraph (3) of this paragraph or skills
relating to handwriting analysis, photographic development, sound
recording enhancement, or voice identification) or having recognized
expertise in matters involving the valuation of property where relevant
to proper performance of a duty or responsibility described in this
paragraph;
(6) To establish or verify the financial status or condition and
location of the taxpayer against whom collection activity is or may be
directed, to locate assets in which the taxpayer has an interest, to
ascertain the amount of any liability described in subparagraph (3) of
this paragraph to be collected, or otherwise to apply the provisions of
the Code relating to establishment of liens against such assets, or levy
on, or seizure, or sale of, the assets to satisfy any such liability;
or
(7) To prepare for any proceeding described in section 6103(h)(2) or
conduct an investigation which may result in such a proceeding, or where
necessary in order to accomplish any activity described in subparagraph
(6) of this paragraph.
Disclosure of return information to a person other than the taxpayer
to whom such return information relates or such taxpayer's legal
representative for the purpose of obtaining information necessary to
properly carry out the foregoing duties and responsibilities as
authorized by this paragraph or for the purpose of otherwise properly
accomplishing any activity described in subparagraph (6) of this
paragraph should be made, however, only if such necessary information
cannot, under the facts and circumstances of the particular case,
otherwise reasonably be obtained in accurate and sufficiently probative
form, or in a timely manner, and without impairing the proper
performance of such duties and responsibilities, or if the activities
described in subparagraph (6) of this paragraph cannot otherwise
properly be accomplished without making such disclosure.
(c) Disclosure of return information in connection with certain
personnel or claimant representative matters. In connection with the
performance of official duties relating to any investigation concerned
with the enforcement of any provision of the Code, including enforcement
of any rules, directives, or manual issuances prescribed by the
Secretary or his delegate under section 7803 or any other provision of
the Code, which affect or may affect the personnel or employment rights
or status, or civil or criminal liability, of any employee or former or
prospective employee of the Treasury Department or the rights of any
person who is or may be a party to an administrative action or
proceeding pursuant to 31 U.S.C. 1026, an officer or employee of the
Service or Office of the Chief Counsel therefor is authorized to
disclose return information (as defined in section 6103(b)(2)) for the
purpose of obtaining, verifying, or establishing other information which
is or may be relevant and material to such investigation. Disclosure of
return information to a person other than the taxpayer to whom such
return information relates or such taxpayer's legal representative for
the purpose of obtaining information necessary to properly carry out the
foregoing duties and responsibilities as authorized by this paragraph
should be made, however, only if such necessary information cannot,
under the facts and circumstances of the particular case, otherwise
reasonably be obtained in accurate and sufficiently probative form, or
in a timely manner, and without impairing the proper performance of such
duties and responsibilities.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65569, Oct. 3, 1980)
26 CFR 301.6103(l)(2)-1 Disclosure of returns and return information to
Pension Benefit Guaranty Corporation for purposes of research and
studies.
(a) General rule. Pursuant to the provisions of section 6103(l)(2)
of the Internal Revenue Code and subject to the requirements of
paragraph (b) of this section, officers and employees of the Internal
Revenue Service may disclose returns and return information (as defined
by section 6103(b)) to officers and employees of the Pension Benefit
Guaranty Corporation for purposes of, but only to the extent necessary
in, conducting research and studies authorized by title IV of the
Employee Retirement Income Security Act of 1974.
(b) Procedures and restrictions. Disclosure of returns or return
information by officers or employees of the Service as provided by
paragraph (a) of this section will be made only upon written request to
the Commissioner of Internal Revenue by the Executive Director of the
Pension Benefit Guaranty Corporation describing the returns or return
information to be disclosed, the taxable period or date to which such
returns or return information relates, and the purpose for which the
returns or return information is needed in the administration of title
IV of the Employee Retirement Income Security Act of 1974, and
designating by title the officers and employees of such corporation to
whom such disclosure is authorized. No such officer or employee to whom
returns or return information is disclosed pursuant to the provisions of
paragraph (a) shall disclose such returns or return information to any
person, other than the taxpayer by whom the return was made or to whom
the return information relates or other officers or employees of such
corporation whose duties or responsibilities require such disclosure for
a purpose described in paragraph (a), except in a form which cannot be
associated with, or otherwise identify, directly or indirectly, a
particular taxpayer.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65570, Oct. 3, 1980)
26 CFR 301.6103(l)(2)-2 Disclosure of returns and return information to
Department of Labor for purposes of research and studies.
(a) General rule. Pursuant to the provisions of section 6103(l)(2)
of the Internal Revenue Code and subject to the requirements of
paragraph (b) of this section, officers or employees of the Internal
Revenue Service may disclose returns and return information (as defined
by section 6103(b)) to officers and employees of the Department of Labor
for purposes of, but only to the extent necessary in, conducting
research and studies authorized by section 513 of the Employee
Retirement Income Security Act of 1974.
(b) Procedures and restrictions. Disclosure of returns or return
information by officers or employees of the Service as provided by
paragraph (a) of this section will be made only upon written request to
the Commissioner of Internal Revenue by the Administrator of the Pension
and Welfare Benefit Programs of the Department of Labor describing the
returns or return information to be disclosed, the taxable period or
date to which such returns or return information relates, and the
purpose for which the returns or return information is needed in the
administration of title I of the Employee Retirement Income Security Act
of 1974, and designating by title the officers and employees of such
department to whom such disclosure is authorized. No such officer or
employee to whom returns or return information is disclosed pursuant to
the provisions of paragraph (a) shall disclose such returns or return
information to any person, other than the taxpayer by whom the return
was made or to whom the return information relates or other officers or
employees of such department whose duties or responsibilities require
such disclosure for a purpose described in paragraph (a), except in a
form which cannot be associated with, or otherwise identify, directly or
indirectly, a particular taxpayer.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65571, Oct. 3, 1980)
26 CFR 301.6103(l)(2)-3 Disclosure to Department of Labor and Pension
Benefit Guaranty Corporation of certain returns and return information.
(a) Disclosures following general requests. Pursuant to the
provisions of section 6103(l)(2) of the Internal Revenue Code and
subject to the requirements of this paragraph, officers or employees of
the Internal Revenue Service may disclose the following returns and
return information (as defined by section 6103(b)) to officers and
employees of the Department of Labor or the Pension Benefit Guaranty
Corporation for purposes of, but only to the extent necessary in, the
administration of title I or IV of the Employee Retirement Income
Security Act of 1974 (hereinafter referred to in this section as the
Act) --
(1) Notification of receipt by the Service of an application by a
particular taxpayer for a determination of whether a pension,
profit-sharing, or stock bonus plan, a trust which is a part of such a
plan, or an annuity or bond purchase plan meets the applicable
requirements of part I of subchapter D of chapter 1 of the Code;
(2) Notification that a particular application described in
subparagraph (1) of this paragraph alleges that certain employees may be
excluded from participation by reason of section 410(b)(2) (A) and (B)
for the purpose of obtaining the finding necessary for the application
of such section;
(3) An application by a particular taxpayer for a determination of
whether a pension, profit-sharing, or stock bonus plan, or an annuity or
bond purchase plan, meets the applicable requirements of part I of
subchapter D of chapter 1 of the Code with respect to a termination or
proposed termination of the plan or to a partial termination or proposed
partial termination of the plan, and any statement filed as provided by
section 6058(b);
(4) Notification that the Service has determined that a plan or trust
described in subparagraph (1) or (3) of this paragraph meets or does not
meet the applicable requirements of part I of subchapter D of chapter 1
of the Code and has issued a determination letter to such effect to a
particular taxpayer or that an application for such a determination has
been withdrawn by the taxpayer;
(5) If the Department of Labor or the Pension Benefit Guaranty
Corporation has commented on an application upon which a determination
letter described in subparagraph (4) of this paragraph has been issued,
a copy of the letter or document issued to the applicant;
(6) Notification to a particular taxpayer that the Service intends to
disqualify a pension, profit-sharing, or stock bonus plan, a trust which
is a part of such plan, or an annuity or bond purchase plan because such
plan or trust does not meet the requirements of section 410(a) or 411 as
of the date that such notification is issued;
(7) Notification required by section 3002(a) of the Act of the
commencement of any proceeding to determine whether a particular
pension, profit-sharing, or stock bonus plan, a trust which is a part of
such plan, or an annuity or bond purchase plan meets the requirements of
section 410(a) or 411;
(8) Prior to issuance of a notice of deficiency to a particular
taxpayer under section 6212, notification that the Service has
determined that a deficiency exists under section 6211 with respect to
the tax imposed by section 4971 (a) or (b) on such taxpayer, except that
if the Service determines that the collection of such tax is in jeopardy
within the meaning of section 6861(a), such notification may be
disclosed after issuance of the notice of deficiency or jeopardy
assessment;
(9) Notification of receipt by the Service of, and action taken with
respect to, an application by or on behalf of a particular taxpayer for
a waiver of the tax imposed by section 4971 (b);
(10) Prior to issuance of a notice of deficiency to a particular
taxpayer under section 6212, notification that a deficiency exists under
section 6211 with respect to the tax imposed by section 4975 (a) or (b)
on such taxpayer, except that if the Service determines that the
collection of such tax is in jeopardy within the meaning of section
6861(a), such notification may be disclosed after issuance of the notice
of deficiency or jeopardy assessment;
(11) Notification that the Service has waived the tax imposed by
section 4975(b) on a particular taxpayer;
(12) Notification of applicability of section 4975 to a particular
pension, profit-sharing, or stock bonus plan, a trust which is a part of
such plan, or an annuity or stock purchase plan engaged in prohibited
transactions within the meaning of section 4975(c);
(13) Notification to a plan administrator that the Service has
determined that a pension, profit-sharing, stock bonus, annuity, or
stock purchase plan no longer meets the requirements of section 401(a)
or 404(a)(2);
(14) Notification that the Service has determined that there has been
a termination or partial termination of a particular pension,
profit-sharing, stock bonus, annuity, or stock purchase plan within the
meaning of section 411(d)(3);
(15) Notification of the occurrence of an event (other than an event
described in subparagraph (13), (14), or (18) of this paragraph) which
the Service has determined to indicate that a particular pension,
profit-sharing, stock bonus, annuity, or stock purchase plan may not be
sound under section 4043(c)(2) of the Act;
(16) Notification that the Service has received and responded to a
request on behalf of a particular pension, profit-sharing, or stock
bonus plan, a trust which is a part of such plan, or an annuity or stock
purchase plan for an extension of time for filing an annual return by
such plan or trust;
(17) Notification that the Service has received and responded to a
request on behalf of a particular pension, profit-sharing, or stock
bonus plan, a trust which is a part of such plan, or an annuity or stock
purchase plan to change the annual accounting period of such plan or
trust;
(18) Notification that the Service has determined that a particular
plan does not meet the requirements of section 412 without regard to
whether such plan is one described in section 4021(a)(2) of the Act;
(19) Notification of the results of an investigation by the Service
requested by the Department of Labor or the Pension Benefit Guaranty
Corporation, or both, with respect to whether the tax described in
section 4971 should be imposed on any employer named in such request or
whether the tax imposed by section 4975 should be paid by any person
named in the request;
(20) Notification of receipt by the Service of an application by a
particular taxpayer for exemption under section 4975(c)(2) or of
initiation by the Service of an administrative proceeding for such
exemption;
(21) Notification of receipt by the Service of, and action taken with
respect to, an application by or on behalf of a particular taxpayer for
a waiver or variance of the minimum funding standard under section 303
of the Act or section 412(d);
(22) Notification that the Service intends to undertake, is
undertaking, or has completed, an examination to determine whether --
(i) A particular pension, profit-sharing, or stock bonus plan, a
trust which is a part of such plan, or an annuity or stock purchase plan
meets the applicable requirements of part I of subchapter D of chapter 1
of the Code,
(ii) Any particular person is, or may be, liable for any tax imposed
by section 4971 or 4975, or
(iii) A particular employee welfare benefit plan, as defined in
section 3(1) of the Act, meets the applicable requirements of section
501(c) or 120, together with any completed Department of Labor or
Pension Benefit Guaranty Corporation form (and supplemental schedules)
relating to such examination;
(23) Copies of initial pleadings indicating that the Service intends
to intervene in a civil action under section 502(h) of the Act;
(24) Notification of receipt by the Service of a request for
technical advice as to whether a particular pension, profit-sharing, or
stock bonus plan, a trust which is a part of such plan, or an annuity or
bond purchase plan should be disqualified because of fiduciary actions
subject to part 4 of subtitle B of title I of the Act which may violate
the exclusive benefit rule of section 401(a);
(25) Notification of receipt by the National Office of the Service of
a request by or on behalf of a particular taxpayer for a ruling,
opinion, variance, or waiver under any provision of title I of the Act
and a copy of any such ruling, opinion, variance or waiver;
(26) Notification that the Service proposes to take substantive
action which would significantly impact on or substantially affect
collectively bargained plans and a description of such proposed
substantive action; and
(27) Notification of receipt by the Service of, and action taken with
respect to, a request by a particular taxpayer for a ruling under
section 412(c)(8), 412(e), or 412(f).
Return information disclosed under this paragraph includes the
taxpayer identity information (as defined in section 6103(b)(6)) of the
plan or trust, the name and address of the sponsor and administrator of
the plan or trustee of the trust, and the name and address of the person
authorized to represent the plan or trust before the Service.
Disclosure of returns or return information as provided by this
paragraph will be made only following receipt by the Commissioner of
Internal Revenue or his delegate of an annual written request for such
disclosure by the Secretary of Labor or his delegate or the Executive
Director of the Pension Benefit Guaranty Corporation or his delegate
describing the categories of returns or return information to be
disclosed by the Service and the particular purpose for which the
returns or return information is needed in the administration of title I
or IV of the Act, and designating by title the officers and employees of
the Department of Labor or such corporation to whom such disclosure is
authorized.
(b) Additional returns and return information subject to disclosure
-- (1) Returns and return information relating to automatic
notification. (i) Subject to the requirements of subparagraph (3)(i) of
this paragraph, officers or employees of the Service may disclose to
officers and employees of the Department of Labor or the Pension Benefit
Guaranty Corporation for purposes of, but only to the extent necessary
in, the administration of title I or IV of the Act additional return and
return information relating to any item described in paragraph (a) of
this section.
(ii) Subject to the requirements of subparagraph (3)(ii) of this
paragraph, in connection with the disclosure of any item as provided by
paragraph (a) of this section, officers and employees of the Service may
disclose to officers and employees of the Department of Labor or the
Pension Benefit Guaranty Corporation such additional returns and return
information relating to such item as the Service determines are or may
be necessary in the administration of title I or IV of the Act.
(2) Other returns and return information. Subject to the
requirements of subparagraph (3)(i) of this paragraph, officers or
employees of the Service may disclose to officers and employees of the
Department of Labor or the Pension Benefit Guaranty Corporation returns
and return information (other than returns and return information
disclosed as provided by paragraph (a) of this section or
301.6103(l)(2)-1 or 301.6103(l)(2)-2 for purposes of, but only to the
extent necessary in, administration of title I or IV of the Act.
(3) Procedures. (i) Disclosure of returns or return information by
officers or employees of the Service as provided by subparagraph (1)(i)
or (2) of this paragraph will be made only following receipt by the
Commissioner of Internal Revenue or his delegate of a written request
for such disclosure by the Secretary of Labor or his delegate or the
Executive Director of the Pension Benefit Guaranty Corporation or his
delegate identifying the particular taxpayer by whom such return was
made or to whom such return information relates, describing the
particular returns or return information to be disclosed, stating the
purpose for which the returns or return information is needed in the
administration of title I or IV of the Act, and designating by title the
officers and employees of such department or corporation to whom such
disclosure is authorized.
(ii) Disclosure of returns or return information by officers or
employees of the Service as provided by subparagraph (1)(ii) of this
paragraph will be made only following receipt by the Commissioner of
Internal Revenue or his delegate of an annual written request for such
disclosure by the Secretary of Labor or his delegate or the Executive
Director of the Pension Benefit Guaranty Corporation or his delegate
stating the purpose for which the returns or return information is
needed in the administration of title I or IV of the Act, and
designating by title the officers and employees of such department or
corporation to whom such disclosure is authorized.
(c) Disclosure and use of returns and return information by officers
and employees of Department of Labor, Pension Benefit Guaranty
Corporation, and Department of Justice -- (1) Use by officers and
employees of Department of Labor and Pension Benefit Guaranty
Corporation. Returns and return information disclosed to officers and
employees of the Department of Labor and the Pension Benefit Guaranty
Corporation as provided by this section may be used by such officers and
employees for purposes of, but only to the extent necessary in,
administration of any provision of title I or IV of the Act, including
any preparation for any administrative or judicial proceeding (or
investigation which may result in such a proceeding) authorized by, or
described in, title I or IV of the Act.
(2) Disclosure by officers and employees of Department of Labor and
Pension Benefit Guaranty Corporation to, and use by, other persons,
including officers and employees of the Department of Justice. (i)
Returns and return information disclosed to officers and employees of
the Department of Labor or the Pension Benefit Guaranty Corporation as
provided by this section may be disclosed by such officers and employees
to officers and employees of the Department of Justice (including United
States attorneys) personally and directly engaged in, and for their
necessary use in, any Federal grand jury proceeding, or preparation for
any civil or criminal judicial proceeding (or for their necessary use in
an investigation which may result in such a proceeding), authorized by,
or described in, title I or IV of the Act.
(ii) Returns and return information disclosed to officers and
employees of the Department of Labor, the Pension Benefit Guaranty
Corporation, and the Department of Justice as provided by this section
may be disclosed by such officers and employees to other persons,
including, but not limited to, persons described in subparagraph
(2)(iii) of this paragraph, but only to the extent necessary in
connection with administration of the provisions of title I or IV of the
Act, including a Federal grand jury proceeding, and proper preparation
for a proceeding (or investigation), described in subparagraph (1) or
(2)(i). Such disclosures may include, but are not limited to,
disclosures where necessary --
(A) To properly obtain the services of persons having special
knowledge or technical skills;
(B) To properly interview, consult, depose, or interrogate or
otherwise obtain relevant information from the taxpayer to whom such
return or return information relates (or the legal representative of
such taxpayer) or any witness who may be called to give evidence in the
proceeding; or
(C) To properly conduct negotiations concerning, or obtain
authorization for, settlement or disposition of the proceeding, in whole
or in part, or stipulations of fact in connection with the proceeding.
Disclosure of a return or return information to a person other than
the taxpayer to whom such return or return information relates (or the
legal representative of such taxpayer) to properly accomplish any
purpose or activity described in this subparagraph should be made,
however, only if such purpose or activity cannot otherwise properly be
accomplished without making such disclosure.
(iii) Among those persons to whom returns and return information may
be disclosed by officers and employees of the Department of Labor, the
Pension Benefit Guaranty Corporation, and the Department of Justice as
provided by subparagraph (2)(ii) of this paragraph are:
(A) Other officers and employees of the Department of Labor, the
Pension Benefit Guaranty Corporation, and the Department of Justice;
(B) Officers and employees of another Federal agency (as defined in
section 6103(b)(9)) working under the direction and control of such
officers and employees of the Department of Labor, the Pension Benefit
Guaranty Corporation, or the Department of Justice; and
(C) Court reporters.
Disclosure of returns or return information to other persons by
officers and employees of the Department of Labor or the Pension Benefit
Guaranty Corporation as provided by subparagraph (2)(ii) of this
paragraph for purposes of conducting research, surveys, studies, and
publications referred to in section 513(a), or authorized by title IV,
of the Act shall be restricted, however, to disclosure to other officers
and employees of such department or corporation to whom such disclosure
is necessary in connection with such conduct or to the taxpayer by whom
such return was made or to whom such return information relates if the
return or return information can be associated with, or otherwise
identify, directly or indirectly, a particular taxpayer.
(3) Disclosure in judicial proceedings. A return or return
information disclosed to officers and employees of the Department of
Labor, the Pension Benefit Guaranty Corporation, or the Department of
Justice as provided by this section may be entered into evidence by such
officers or employees in a civil or criminal judicial proceeding
authorized by, or described in, title I or IV of the Act, provided that,
in the case of a judicial proceeding described in section 6103(i)(4),
the requirements of section 6103(i)(4) have first been met.
(d) Disclosure of returns and return information in connection with
certain consultations between Departments of the Treasury and Labor.
Upon general written request to the Commissioner of Internal Revenue by
the Secretary of Labor, officers and employees of the Service may
disclose to officers and employees of the Department of Labor such
returns and return information as may be necessary to properly carry out
any consultation required by section 3002, 3003, or 3004 of the Act.
(e) Return information open to public inspection under section 6104.
Nothing in these regulations shall be construed to deny officers and
employees of the Department of Labor and the Pension Benefit Guaranty
Corporation the right to inspect return information available to the
public under section 6104 of the Code.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 1685, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65571, Oct. 3, 1980, as amended by T.D. 7757, 46 FR
6930, Jan. 22, 1981; T.D. 7911, 48 FR 40377, Sept. 7, 1983)
26 CFR 301.6103(n)-1 Disclosure of returns and return information in
connection with procurement of property and services for tax
administration purposes.
(a) General rule. Pursuant to the provisions of section 6103(n) of
the Internal Revenue Code and subject to the requirements of paragraphs
(b), (c), and (d) of this section, officers or employees of the Treasury
Department, a State tax agency, the Social Security Administration, or
the Tax Division, Department of Justice, are authorized to disclose
returns and return information (as defined in section 6103(b)) to any
person (including, in the case of the Treasury Department, any person
described in section 7513(a)), or to an officer or employee of such
person, to the extent necessary in connection with contractual
procurement of --
(1) Equipment or other property, or
(2) Services relating to the processing, storage, transmission, or
reproduction of such returns or return information, or to the
programming, maintenance, repair, or testing of equipment or other
property, for purposes of tax administration (as defined in section
6103(b)(4)).
No person, or officer or employee of such person, to whom a return or
return information is disclosed by an officer or employee of the
Treasury Department, the State tax agency, the Social Security
Administration, or the Tax Division, Department of Justice, under the
authority of this paragraph shall in turn disclose such return or return
information for any purpose other than as described in this paragraph,
and no such further disclosure for any such described purpose shall be
made by such person, officer, or employee to anyone, other than another
officer or employee of such person whose duties or responsibilities
require such disclosure for a purpose described in this paragraph,
without written approval by the Internal Revenue Service.
(b) Limitations. For purposes of paragraph (a) of this section,
disclosure of returns or return information in connection with
contractual procurement of property or services described in such
paragraph will be treated as necessary only if such procurement or the
performance of such services cannot otherwise be reasonably, properly,
or economically carried out or performed without such disclosure. Thus,
for example, disclosures of returns or return information to employees
of a contractor for purposes of programming, maintaining, repairing, or
testing computer equipment used by the Internal Revenue Service or a
State tax agency should be made only if such services cannot be
reasonably, properly, or economically performed by use of information or
other data in a form which does not identify a particular taxpayer. If,
however, disclosure of returns or return information is in fact
necessary in order for such employees to reasonably, properly, or
economically perform the computer related services, such disclosures
should be restricted to returns or return information selected or
appearing at random. Further, for purposes of paragraph (a), disclosure
of returns or return information in connection with the contractual
procurement of property or services described in such paragraph should
be made only to the extent necessary to reasonably, properly, or
economically conduct such procurement activity. Thus, for example, if
an activity described in paragraph (a) can be reasonably, properly, and
economically conducted by disclosure of only parts or portions of a
return or if deletion of taxpayer identity information (as defined in
section 6103(b)(6) of the Code) reflected on a return would not
seriously impair the ability of the contractor or his officers or
employees to conduct the activity, then only such parts or portions of
the return, or only the return with taxpayer identity information
deleted, should be disclosed.
(c) Notification requirements. Each officer or employee of any
person to whom returns or return information is or may be disclosed as
authorized by paragraph (a) of this section shall be notified in writing
by such person that returns or return information disclosed to such
officer or employee can be used only for a purpose and to the extent
authorized by paragraph (a) of this section and that further disclosure
of any such returns or return information for a purpose or to an extent
unauthorized by such paragraph constitutes a felony, punishable upon
conviction by a fine of as much as $5,000, or imprisonment for as long
as 5 years, or both, together with the costs of prosecution. Such
person shall also so notify each such officer and employee that any such
unauthorized further disclosure of returns or return information may
also result in an award of civil damages against the officer or employee
in an amount not less than $1,000 with respect to each instance of
unauthorized disclosure.
(d) Safeguards. Any person to whom a return or return information is
disclosed as authorized by paragraph (a) of this section shall comply
with all applicable conditions and requirements which may be prescribed
by the Internal Revenue Service for the purposes of protecting the
confidentiality of returns and return information and preventing
disclosures of returns or return information in a manner unauthorized by
paragraph (a). The terms of any contract between the Treasury
Department, a State tax agency, the Social Security Administration, or
the Tax Division, Department of Justice, and a person pursuant to which
a return or return information is or may be disclosed for a purpose
described in paragraph (a) shall provide, or shall be amended to
provide, that such person, and officers and employees of the person,
shall comply with all such applicable conditions and restrictions as may
be prescribed by the Service by regulation, published rules or
procedures, or written communication to such person. If the Service
determines that any person, or an officer or employee of any such
person, to whom returns or return information has been disclosed as
provided in paragraph (a) has failed to, or does not, satisfy such
prescribed conditions or requirements, the Service may take such actions
as are deemed necessary to ensure that such conditions or requirements
are or will be satisfied, including --
(1) Suspension or termination of any duty or obligation arising under
a contract with the Treasury Department referred to in this paragraph or
suspension of disclosures by the Treasury Department otherwise
authorized by paragraph (a) of this section, or
(2) Suspension of further disclosures of returns or return
information by the Service to the State tax agency, or to the Tax
Division, Department of Justice, until the Service determines that such
conditions and requirements have been or will be satisfied.
(e) Definitions. For purposes of this section --
(1) The term ''Treasury Department'' includes the Internal Revenue
Service and the Office of the Chief Counsel for the Internal Revenue
Service, and
(2) The term ''State tax agency'' means an agency, body, or
commission described in section 6103(d) of the Code.
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65573, Oct. 3, 1980, as amended by T.D.. 8271, 54
FR 46383, Nov. 3, 1989)
26 CFR 301.6103(p)(2)(B)-1 Disclosure of certain returns and return
information by other Federal agencies.
(a) General rule. Subject to the requirements of this section,
returns and return information disclosed by the Internal Revenue Service
to officers and employees of another Federal agency (as defined in
section 6103(b)(9) of the Internal Revenue Code) as provided by section
6103 may, if the Commissioner of Internal Revenue determines that such
returns or return information is more readily available from such
Federal agency, be disclosed by such officers and employees to officers
and employees of another Federal agency, the General Accounting Office,
an agency, body, or commission described in section 6103(d) or (l)(6),
or to a person described in section 6103 (c) or (e) for a purpose or use
authorized or required by, but subject to any requirements imposed by,
any other provision of section 6103 and the regulations thereunder. Any
such disclosure may be made only as, to the extent, and to such persons
as may be authorized in writing by the Commissioner pursuant to a
written request for such disclosure by such person, and containing such
information, as may be designated or provided by the applicable
provisions of section 6103 and the regulations thereunder pursuant to
which the disclosure is sought. Such disclosure authorization by the
Commissioner shall be directed to the head of the Federal agency from
which disclosure is sought and may contain such conditions or
restrictions as the Commissioner may prescribe.
(b) Records and reports of disclosure. The Federal agency making a
disclosure authorized by paragraph (a) of this section shall maintain to
the satisfaction of the Service a permanent system of standardized
records with respect to any disclosure authorization by the Commissioner
described in paragraph (a) and any disclosure of returns or return
information made pursuant to such authorization. In order to enable the
Service to make a timely submission of the public report on disclosures
to the Joint Committee on Taxation as required by section 6103(p)(3)(C)
of the Code, the Federal agency shall, within 30 days after the close of
each calendar year, furnish to the Commissioner a report with respect to
such records which provides the number of --
(1) Disclosure authorizations by the Commissioner,
(2) Instances in which returns or return information was disclosed
pursuant to such disclosure authorizations and to disclosure
authorizations executed in prior calendar years, and
(3) Taxpayers whose returns or return information with respect to
whom was disclosed pursuant to the disclosure authorization described in
subparagraph (2).
In addition, in order to enable the Service to make a timely
submission of the report to the Joint Committee on Taxation required by
section 6103(p)(3)(B), the Federal agency shall furnish to the
Commissioner a report with respect to, or summary of, the records at
such time or times, in such form, and containing such information as the
Commissioner may prescribe in a written request directed to the head of
such Federal agency. The requirements of this paragraph do not apply to
disclosures of taxpayer identity information described in section
6103(m) or to disclosures of returns and return information as provided
by paragraph (a) which, had such disclosures been made directly by the
Service, would not have been subject to the recordkeeping requirements
imposed by section 6103(p)(3)(A).
(Secs. 6103 and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1667, 68A Stat. 917; 26 U.S.C. 6103 and 7805))
(T.D. 7723, 45 FR 65574, Oct. 3, 1980, as amended by T.D. 7824, 47 FR
33477, Aug. 2, 1982)
26 CFR 301.6103(p)(7)-1 Procedures for administrative review of a
determination that a State tax agency has failed to safeguard Federal
tax returns or return information.
(a) Notice of Service's intention to terminate disclosure to a State
tax agency. Notwithstanding subsection (d) of section 6103, the
Internal Revenue Service may terminate disclosure of Federal returns and
return information to a State agency, body, or commission described in
section 6103(d) (hereinafter in this section referred to as a State tax
agency) if the Service makes a determination that:
(1) A State tax agency has made unauthorized disclosure of Federal
returns or return information received from the Service and that the
State tax agency has not taken adequate corrective action to prevent
repetition of the unauthorized disclosure, or
(2) A State tax agency does not satisfactorily maintain the
safeguards described in subsection (p)(4) of section 6103, and has made
no adequate plan to improve its system to maintain those safeguards
satisfactorily. Prior to terminating disclosure, the Service will
notify the State tax agency in writing of the Service's preliminary
determination and of the Service's intention to discontinue disclosure
of Federal returns and return information to the State tax agency. Upon
so notifying the State tax agency, the Service, if it determines that
Federal tax administration would otherwise be seriously impaired, may
suspend further disclosure of Federal returns and return information to
the State tax agency pending a final determination by the Commissioner
or Deputy Commissioner described in subparagraph (2) of paragraph (c) of
this section.
(b) State tax agency's right to appeal. A State tax agency shall
have 30 days from the date of receipt of a notice described in paragraph
(a) of this section to appeal the preliminary determination described in
paragraph (a) of this section. The appeal shall be made directly to the
Commissioner.
(c) Procedures for administrative review. (1) To appeal a
preliminary determination described in paragraph (a) of this section,
the State agency shall send a written request for a conference to:
Commissioner of Internal Revenue (Attention: C), 1111 Constitution
Avenue, NW., Washington, D.C. 20224. The request must include a complete
description of the State tax agency's present system of safeguarding
Federal returns or return information received from the Service. The
request must then state the reason or reasons that the State agency
believes that such system, including improvements, if any, to such
system expected to be made in the near future, is or will be adequate to
safeguard Federal returns or return information received from the
Service.
(2) Within 45 days of the receipt of a request made in accordance
with the provisions of subparagraph (1) of this paragraph, the
Commissioner or Deputy Commissioner will personally hold a conference
with representatives of the State tax agency, after which the
Commissioner or Deputy Commissioner will make a final determination with
respect to the appeal.
(Secs. 6103(p)(7) and 7805 of the Internal Revenue Code of 1954 (90
Stat. 1685, 26 U.S.C. 6103(p)(7); 68A Stat. 917; 26 U.S.C. 7805))
(T.D. 7693, 45 FR 26325, Apr. 18, 1980)
26 CFR 301.6104(a)-1 Public inspection of material relating to
tax-exempt organizations.
(a) Application for tax exemption and supporting documents. If the
Internal Revenue Service determines that an organization described in
section 501 (c) or (d) is exempt from taxation for any taxable year, the
application for tax exemption upon which the determination is based,
together with any supporting documents, is open to public inspection.
Some applications for tax exemption have been destroyed and therefore
are not available for inspection. For purposes of determining the
availability for public inspection, a claim for tax exemption filed to
reestablish exempt status after denial thereof under the provisions of
section 503 or 504 (as in effect on December 31, 1969), or under the
corresponding provisions of any prior revenue law, is considered an
application for tax exemption.
(b) Letters or documents issued by the Internal Revenue Service with
respect to an application for tax exemption. If an application for tax
exemption is filed with the Internal Revenue Service after October 31,
1976, and is open to public inspection under paragraph (a) of this
section, then any letter or document issued to the applicant by the
Internal Revenue Service which relates to the application is also open
to public inspection. For rules relating to when a letter or document
is issued, see 301.6110-2(h). Letters or documents to which this
paragraph applies include, but are not limited to --
(1) Favorable rulings and determination letters (see 601.201(n)(1))
issued in response to applications for tax exemption,
(2) Technical advice memoranda (see 601.201(n)(9)) issued with
respect to an approved, or subsequently approved, application for tax
exemption, and
(3) Letters issued in response to an application for tax exemption
that propose a finding that the organization is not entitled to be
exempt from tax, if the organization is subsequently determined, on the
basis of the application, to be exempt from tax.
(c) Requirement of exempt status. An application for tax exemption,
supporting documents, and letters or documents issued by the Internal
Revenue Service that relate to the application will not be open to
public inspection before the organization filing the application is
determined, on the basis of the application, to be exempt from taxation
for any taxable year. On the other hand, if the organization is
determined to be exempt for any taxable year, the material will not be
withheld from public inspection on the ground that the organization is
determined not to be exempt for any other taxable year.
(d) Documents included in the term ''application for tax exemption''.
For purposes of this section --
(1) Prescribed application form. If a form is prescribed for an
organization's application for tax exemption, the application for tax
exemption includes the form and all documents and statements the
Internal Revenue Service requires to be filed with the form.
(2) No prescribed application form. If no form is prescribed for an
organization's application for tax exemption, the application for tax
exemption includes:
(i) The application letter and a copy of the articles of
incorporation, declaration of trust, or other instrument of similar
import that sets forth the permitted powers or activities of the
organization,
(ii) The bylaws or other code of regulations,
(iii) The latest financial statement showing assets, liabilities,
receipts and disbursements,
(iv) Statements showing the character of the organization, the
purpose for which it was organized, and its actual activities,
(v) Statements showing sources of income and receipts and the
disposition thereof, and whether or not any income or receipts is
credited to surplus or may inure to the benefit of any private
shareholder or individual, and
(vi) Any other statements or documents the Internal Revenue Service
requires to be filed with the application lettter.
(3) Prohibited transactions. An application for tax exemption does
not include a request for a ruling as to whether a proposed transaction
is a prohibited transaction under section 503.
(e) Supporting documents defined. For purposes of this section,
''supporting documents'', as used with respect to an application for tax
exemption, means any statement or document not described in paragraph
(d) of this section that is submitted by an organization in support of
its application. For example, a legal brief submitted in support of an
application for tax exemption is a supporting document.
(f) Statement of exempt status. In addition to having the
opportunity to inspect material relating to tax exempt organizations, a
person may request a statement setting forth the following information:
(1) The subsection and paragraph of section 501 (or the corresponding
provision of any prior revenue law) under which an organization has been
determined, on the basis of an application open to public inspection, to
qualify for exemption from taxation, and
(2) Whether the organization is currently held to be exempt.
The request for the statement must be made in the same manner as a
request for inspection (see 301.6104(a)-6).
(g) Withholding of certain information from public inspection. For
rules relating to certain information contained in an application for
tax exemption and related material which will be withheld from public
inspection, see 301.6104(a)-5(a).
(h) Procedures for inspection. For rules relating to procedures for
public inspection of applications for tax exemption and related
material, see 301.6104(a)-6.
(i) Material not open to public inspection under section 6104 or
6110. Under section 6110 certain written determinations issued by the
Internal Revenue Service are made available for public inspection.
Section 6110 does not apply, however, to matters on which the
determination of availability for public inspection is made under
section 6104. Accordingly, 301.6110-1(a) describes matters which, for
purposes of section 6110, are considered within the ambit of section
6104. Some determination letters and other documents relating to tax
exempt organizations that are not open to public inspection under
section 6104(a)(1)(A) and this section are nevertheless within the ambit
of section 6104 for purposes of section 6110. These determination
letters and other documents are therefore not available for public
inspection under either section 6104 or section 6110. They include but
are not limited to --
(1) Unfavorable rulings or determination letters (see 601.201(n))
issued in response to applications for tax exemption,
(2) Rulings or determination letters revoking or modifying a
favorable determination letter (see 601.201(n)(6)),
(3) Technical advice memoranda (see 601.201(n)(9)) relating to a
disapproved application for tax exemption or the revocation or
modification of a favorable determination letter,
(4) Any letter or document filed with or issued by the Internal
Revenue Service relating to whether a proposed or accomplished
transaction is a prohibited transaction under section 503,
(5) Any letter or document filed with or issued by the Internal
Revenue Service relating to an organization's status as an organization
described in section 509 (a) or 4942(j)(3), unless the letter or
document relates to the organization's application for tax exemption,
and
(6) Any other letter or document filed with or issued by the Internal
Revenue Service which, although it relates to an organization's tax
exempt status as an organization described in section 501 (c) or (d),
does not relate to that organization's application for tax exemption,
within the meaning of paragraph (d).
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7845, 47 FR 50486, Nov. 8, 1982)
26 CFR 301.6104(a)-2 Public inspection of material relating to pension
and other plans.
(a) Material open to inspection. Except as provided in
301.6104(a)-4 with respect to plans having fewer than 26 participants,
an application for a determination letter which is filed with the
Internal Revenue Service after September 2, 1974, together with
supporting documents filed by the applicant in support of the
application, will be open to public inspection under section
6104(a)(1)(B) (i) and (ii). An application for a determination letter
and supporting documents will be open to public inspection whether or
not the application is withdrawn by the applicant, and whether or not
the Internal Revenue Service determines that the plan, account, or
annuity to which the application relates is qualified or that any
related trust or custodial account is exempt from tax.
(b) Documents included in the term ''application for a determination
letter'' -- (1) Employees' plans and individual retirement plans. For
purposes of this section, the term ''application for a determination
letter'' includes the documents that an applicant files with respect to
a request that the Internal Revenue Service determine the qualification
of --
(i) A pension, profit-sharing, or stock bonus plan under section
401(a),
(ii) An annuity plan under section 403(a),
(iii) A bond purchase plan under section 405(a), or
(iv) An individual retirement account or annuity described in section
408 (a), (b) or (c).
(2) Tax exempt trusts or custodial accounts. The term ''application
for a determination letter'' also includes the documents an applicant
files with respect to a request that the Internal Revenue Service
determine the exemption from tax under section 501(a) of an organization
forming part of a plan or account described in subparagraph (1) of this
paragraph, or a custodial account described in section 401(f).
(3) Master, prototype and pattern plans. The term ''application for
a determination letter'' also includes documents which an applicant
files with respect to a request for approval of a master, prototype,
pattern or other such plan or account.
(4) Prescribed forms and application letters. With respect to an
application for a determination letter described in this paragraph (b)
for which an application form is prescribed, the application for a
determination letter includes the form and all documents and statements
required to be filed in connection with the form. With respect to an
application for a determination letter for which no application form is
prescribed, the application for a determination letter includes the
application letter and all documents and statements the Internal Revenue
Service requires to be submitted with the application letter.
(c) Documents not constituting an ''application for a determination
letter''. The following are not applications for a determination letter
for purposes of this section:
(1) An incomplete application that is returned without action for
proper completion,
(2) An application that is returned without action to the applicant
for failure to notify all interested parties in accordance with the
regulations under section 7476 (relating to declaratory judgments), and
(3) A request for a ruling as to whether a proposed transaction is a
prohibited transaction under section 4975.
(d) Supporting documents. ''Supporting documents'', as used with
respect to an application for a determination letter which is open to
public inspection under this section, means any statement or document
submitted in support of the application which is not specifically
required by the application form or the Internal Revenue Service. For
example, a legal brief submitted in support of an application for a
determination letter is a supporting document.
(e) Applicant. For purposes of this section, 301.6104(a)-3
(relating to Internal Revenue Service letters and documents open to
public inspection) and 301.6104(a)-5 (relating to the withholding of
certain information from public inspection), an ''applicant'' includes,
but is not limited to, an employer, plan administrator (as defined in
section 414(g)), labor union, bank, or insurance company that files an
application for a determination letter.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7845, 47 FR 50487, Nov. 8, 1982)
26 CFR 301.6104(a)-3 Public inspection of Internal Revenue Service
letters and documents relating to pension and other plans.
(a) In general. Except as provided in 301.6104(a)-4 with respect to
plans having fewer than 26 participants, a letter or other document
issued by the Internal Revenue Service after September 2, 1974, is open
to public inspection under section 6104(a)(1)(B)(iv) and this section,
if it is issued with respect to --
(1) The qualification of a pension, profit-sharing or stock bonus
plan under section 401(a), an annuity plan under section 403(a), a bond
purchase plan under section 405(a), or an individual retirement account
or annuity described in section 408 (a), (b) or (c),
(2) The exemption from tax under section 501(a) of an organization
forming part of such a plan or account, or a custodial account described
in section 401(f), or
(3) The approval of a master, prototype, pattern or other such plan
or account.
(b) Scope. Internal Revenue Service letters and documents open to
public inspection under section 6104(a)(1)(B)(iv) and this section are
not limited to those issued in response to an application for a
determination letter described in 301.6104(a)-2. They are, however,
limited to those issued by the Internal Revenue Service to the person or
organization which either did or could file an application for a
determination letter for the plan, account or annuity to which the
letter or document relates. If such a person or organization designates
a representative having a power of attorney, however, then the letter or
document will be open to inspection if issued to the representative.
For rules relating to when a letter or document is issued, see
301.6110-2(h). Internal Revenue Service letters and documents are open
to public inspection under section 6104(a)(1)(B)(iv) and this section
whether or not the Internal Revenue Service determines that the plan,
account or annuity to which the letter or document relates is qualified
or that any related trust or custodial account is exempt from tax.
(c) Letters and documents open to public inspection. Internal
Revenue Service letters and documents open to public inspection under
section 6104(a)(1)(B)(iv) and this section include, but are not limited
to:
(1) Determination letters relating to the qualification of a plan,
account or annuity described in paragraph (a)(1) of this section (see
601.201 (o)),
(2) Technical advice memoranda (see 601.201(n)(9)) relating to the
issuance of such determination letters,
(3) Technical advice memoranda relating to the continuing
qualification of a plan, account or annuity previously determined to be
qualified, or to the qualification of a plan, account or annuity for
which no determination letter has been issued,
(4) Letters or documents revoking or modifying any prior favorable
determination letter or denying the qualification of a plan, account or
annuity for which no determination letter has been issued,
(5) Determination letters relating to the exemption from tax of a
trust or custodial account described in paragraph (a)(2) of this section
(see 601.201 (o)(2)(i)(b)), or
(6) Opinion letters relating to the acceptability of the form of any
master, prototype or other such plan or account (see 601.201 (p) and
(q)) or notification letters issued with respect to pattern plans.
(d) Extent letter or document open to public inspection. A letter or
document issued by the Internal Revenue Service is open to public
inspection under section 6104(a)(1)(B)(iv) and this section only to the
extent it relates directly to the qualification of a plan, account or
annuity, the exemption from tax of a related organization or custodial
account, or the approval of a master, prototype, pattern or other such
plan. Any part of the letter or document which does not directly relate
to such a qualification, exemption or approval is not open to public
inspection. For example, a letter to an employer which concludes that
an employee's plan is not qualified and the related trust is not tax
exempt will be open to public inspection. However, that same letter may
also assert an income tax deficiency because employer contributions to
the trust are, therefore, not deductible. In such a case, that part of
the letter relating to the tax deficiency will be deleted before the
letter is opened to public inspection.
(e) Letters or documents issued with respect to tax return
examination. In the case of an examination of a taxpayer's return or
consideration of a taxpayer's claim for credit or refund, no letter or
document issued to the taxpayer before the preliminary or ''30-day''
letter described in 601.105(d)(1) is issued to the taxpayer will be
open to public inspection under section 6104(a)(1)(B)(iv) and this
section. The ''30-day'' letter and any statutory notice of deficiency
subsequently issued to the taxpayer under section 6212 will be open to
public inspection to the extent provided in paragraph (d) of this
section. If any letter or document other than a statutory notice of
deficiency is issued to the taxpayer after the ''30-day'' letter is
issued, such letter or document will be open to inspection to the extent
provided in paragraph (d) of this section only if it finally resolves or
otherwise disposes of a plan qualification or tax exemption issue raised
in the ''30-day'' letter.
(f) Letters or documents issued after September 2, 1974. Section
6104(a)(1)(B)(iv) and this section apply to letters or documents issued
by the Internal Revenue Service after September 2, 1974, even though the
relevant application for a determination letter or other initiating
correspondence from the applicant was filed with the Internal Revenue
Service before September 2, 1974.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(47 FR 7845, 47 FR 50487, Nov. 8, 1982)
26 CFR 301.6104(a)-4 Requirement for 26 or more plan participants.
(a) Inspection by plan participants. In the case of a plan, annuity
or account described in 301.6104(a)-2(b) and 301.6104(a)-3(a) that has
fewer than 26 participants, material described in 301.6104(a)-2 and
301.6104(a)-3 as open to public inspection is only open to inspection by
a plan participant or the participant's authorized representative. This
limitation does not apply, however, with respect to documents which an
applicant files with respect to a request for approval of a master,
prototype, pattern or other such plan (see 301.6104 (a)-2 (b)(3)) or to
opinion, notification or other such letters issued by the Internal
Revenue Service with respect to such plans (see 301.6104 (a)-3 (a)(3)).
(b) Determining number of plan participants -- (1) In general. For
purposes of determining whether a plan has fewer than 26 participants,
the number of plan participants will be the number indicated on the most
recent annual return filed for the plan under section 6058. Where an
annual return indicates the number of participants both at the beginning
and end of the plan year, the number indicated on the return means the
number at the end of the plan year. If no annual return has been filed
for the plan, then the number of plan participants will be the number
indicated on the most recent application for a determination letter
filed for the plan. If, however, the number of plan participants is
increased prior to final Internal Revenue Service action on the
application, the number of plan participants will be that increased
number.
(2) Decreasing number of plan participants. If a plan having 26 or
more participants, as indicated on an annual return or application for a
determination letter, subsequently files an annual return indicating
fewer than 26 plan participants, then material relating to the plan
which is issued or received by the Internal Revenue Service after the
date the annual return is filed will be open to inspection only by plan
participants or their authorized representatives. Similarly, if a plan
having 26 or more participants as indicated on an annual return or an
application for a determination letter, subsequently files an
application for a determination letter which indicates fewer than 26
plan participants, then that application and related material, as well
as any other material relating to the plan which is received or issued
by the Internal Revenue Service after the date of receipt of that
application, will be open to inspection only by plan participants or
their authorized representatives. In either case, material open to
public inspection pursuant to the number of plan participants indicated
on previous annual returns or applications for a determination letter
will remain open to public inspection.
(3) Increasing number of plan participants. If a plan having fewer
than 26 plan participants, as indicated on an annual return or
application for a determination letter, files a subsequent return or
application indicating 26 or more plan participants, all the plan's
prior applications and other material received or issued by the Internal
Revenue Service after September 2, 1974, will be open to public
inspection regardless of the number of plan participants indicated on
any prior return or application.
(c) Plan participant. Solely for purposes of determining who is a
plan participant permitted to inspect material relating to a plan having
fewer that 26 participants, the term ''plan participant'' includes, but
is not limited to, former employees (such as certain retired and
terminated employees) who have a nonforfeitable right to benefits under
the plan. An individual who is merely a beneficiary of an employee or
former employee is not a plan participant, unless the individual is a
beneficiary of a deceased former employee and is receiving benefits or
entitled to receive future benefits under the plan. The term ''plan
participant'' also includes the administrator, executor, or trustee of
the estate of a deceased plan participant if such administrator,
executor, or trustee is receiving benefits or entitled to receive future
benefits under the plan in his or her official capacity. That material
may be available for inspection to an individual under this paragraph
does not constitute a determination by the Internal Revenue Service that
the individual is a plan participant for any purpose other than
inspection under section 6104(a)(1)(B).
(d) Authorized representative. ''Authorized representative'' means
the representative of a plan participant designated by the participant
in writing to inspect material described in 301.6104(a)-2 and
301.6104(a)-3. The document designating the authorized representative
must be signed by the plan participant and must specify that the
representative is authorized to inspect the material. The document, or
a copy, must be filed with the office of the Internal Revenue Service in
which the authorized representative is to inspect the material. A copy
which is reproduced by a photographic process need not be certified as a
true and correct copy of the original.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7845, 47 FR 50488, Nov. 8, 1982)
26 CFR 301.6104(a)-5 Withholding of certain information from public
inspection.
(a) Tax exempt organizations -- (1) Trade secrets, patents,
processes, styles of work, or apparatus. An organization whose
application for tax exemption is open to public inspection under section
6104(a)(1)(A) and 301.6104(a)-1 may in writing request the withholding
of information contained in the application or supporting documents
which relates to any trade secret, patent, process, style of work, or
apparatus of the organization. The information will be withheld from
public inspection if the Commissioner determines that the disclosure of
such information would adversely affect the organization. Requests for
withholding information from public inspection should be filed with the
office with which the organization files the documents containing the
information. The request must clearly identify the material desired to
be withheld (the document, page, paragraph, and line) and must state why
the information should not be open to public inspection. The
organization will be notified of the Commissioner's determination as to
whether the information will be withheld from public inspection. If the
Commissioner determines that the information will be disclosed, the
organization will be given 15 days after notification of the
Commissioner's decision to contest that decision before the document is
disclosed.
(2) National defense material. The Internal Revenue Service will
withhold from public inspection any information which is submitted by an
organization whose application for tax exemption is open to inspection
under section 6104(a)(1)(A) and 301.6104(a)-1, if the Commissioner
determines that public disclosure would adversely affect the national
defense.
(b) Pension and other plans -- (1) Applicant's exclusion of certain
information. Except as provided in subparagraph (2) of this paragraph,
information that, in the opinion of the applicant, is of the type
described in section 6104 (a) (1) (C) or (D) should not be included in
an application for a determination letter, supporting documents, or any
other document open to inspection under section 6104(a)(1)(B).
Accordingly, an applicant should not include in an application for a
determination letter or supporting documents confidential compensation
information as described in subparagraph (4) of this paragraph. Neither
should an applicant include information relating to any trade secret,
patent, process, style of work or apparatus, the disclosure of which
would be adverse to the applicant.
(2) Exception for separate document. The rule that an applicant
should exclude from an application for a determination letter or other
documents information of the type in section 6104(a)(1) (C) or (D) does
not apply --
(i) In the case of the separate schedule to certain applications for
a determination letter which is provided for the purpose of setting
forth confidential compensation information (as described in
subparagraph (4) of this paragraph) which must be submitted by the
applicant.
(ii) If the applicant determines that it is impossible to provide the
Internal Revenue Service with sufficient information to support an
application for a determination letter without submitting what is
believed to be information of the type described in section 6104(a)(1)
(C) or (D), or
(iii) If the Internal Revenue Service requests that the applicant
submit information of the type described in section 6104(a)(1) (C) and
(D).
In a case described in subdivision (ii) or (iii) of this
subparagraph, the applicant is to set forth the information in a
document separate from the remainder of the application for a
determination letter or other documents. The separate document is to
state why the information is to be witheld from public inspection under
section 6104(a)(1) (C) or (D). If the Internal Revenue Service has not
requested the information, the separate document is to also state why it
is impossible to provide the Internal Revenue Service sufficient
information to support the application for a determination letter
without including information which is to be withheld. The separate
document should clearly identify the relevant portion of the application
for a determination letter or other document (the document, page,
paragraph, and line) to which the information set forth in the separate
document relates. The Internal Revenue Service will withhold from
public inspection (including inspection by a plan participant or
authorized representative) information contained in the separate
document if the Commissioner determines that the information is in fact
information of the type described in section 6104(a)(1) (C) or (D), and,
in the case of information relating to any trade secret, patent,
process, style of work or apparatus, the Commissioner further determines
that disclosure would be adverse to the applicant. If the Commissioner
determines that the information will be disclosed, the organization will
be given 15 days after notification of the Commissioner's decision to
contest the decision before the document is disclosed.
(3) National defense material. The Internal Revenue Service will
withhold from public inspection (including inspection by a plan
participant or authorized representative) any information which is
included in an application for a determination letter or supporting
documents if the Commissioner determines that public disclosure would
adversely affect the national defense. The information will be withheld
whether or not submitted on a separate document pursuant to subparagraph
(2) of this paragraph.
(4) Confidential compensation information. If an application for a
determination letter, supporting document, or related letter or document
referred to in section 6104(a)(1)(B) and 301.6104(a)-2 and
301.6104(a)-3 contains information (including aggregate figures) from
which an individual's compensation (including deferred compensation) may
be ascertained, that information is not open to public inspection
(including inspection by a plan participant or authorized
representative). Confidential compensation information includes the
amount of benefit a specific plan participant may expect to receive at
normal or early retirement age and the amount of the employer's
contributions under the plan that may be allocated to a specific plan
participant. However, so long as a plan has more than one participant,
the amount of benefit provided under the plan to plan participants, in
general, at normal or early retirement age, or the amount of the
employer's contributions under the plan that are allocable to plan
participants, in general, does not constitute confidential compensation
information. Further, a description of the numbers of individuals
covered and not covered by a plan, listed by compensation range, does
not constitute confidential compensation information.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7845, 47 FR 50489, Nov. 8, 1982)
26 CFR 301.6104(a)-6 Procedural rules for inspection.
(a) Place of inspection; tax exempt organizations and pension and
other plans. Material relating either to tax exempt organizations or to
pension and other plans that is open to public inspection under section
6104(a)(1) and 301.6104(a)-1 through 301.6104(a)-3 will be made
available for inspection at the Freedom of Information Reading Room,
National Office, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, D.C. 20224, and in the office of any district director of
internal revenue.
(b) Request for inspection -- (1) Tax exempt organizations and
pension and other plans; public inspection. Material relating to
either tax exempt organizations or pension and other plans that is open
to public inspection under section 6104(a)(1) and 301.6104(a)-1
through 301.6104(a)-3 will be available for inspection only upon
request. If inspection at the National Office is desired, a request
should be made in writing to the Commissioner of Internal Revenue,
Attention: Freedom of Information Reading Room, 1111 Constitution
Avenue, NW., Washington, D.C. 20224. Requests for inspection in the
office of a district director should be made in writing to the district
director's office. The request must describe the material to be
inspected in reasonably sufficient detail so that Internal Revenue
Service personnel can locate the material. If a tax-exempt organization
has more than one application for tax exemption open to public
inspection, or if a pension or other plan has more than one application
for a determination letter open to public inspection, only the most
recent application and related material will be made available for
inspection unless the request states otherwise. Further, in the case of
a pension or other plan, only Internal Revenue Service documents issued
or delivered after the date of the filing of the most recent application
for a determination letter will be made available for inspection, unless
the request states otherwise.
(2) Pension and other plans; inspection by plan participant or
authorized representative. As described in 301.6104(a)-4, material
relating to plans having fewer than 26 participants is only open to
inspection by a plan participant or authorized representative. In the
case of such a plan, the rules described in subparagraph (1) of this
paragraph apply. The request for inspection must include satisfactory
evidence that the person requesting inspection is a plan participant
(see 301.6104(a)-4(c)) or an authorized representative of such a plan
participant within the meaning of 301.6104(a)-4(d).
(c) Time and extent of inspection. A person requesting inspection
will be notified when the material will be made available for
inspection. The material will be made available for inspection at times
that will not interfere with its use by the Internal Revenue Service or
exclude other persons from inspecting it. In addition, the Commissioner
or district director may limit the number of applications for tax
exemption, applications for a determination letter, supporting
documents, or letters and documents issued by the Internal Revenue
Service that will be made available to any person for inspection on a
given date. Inspection will be allowed only in the presence of an
Internal Revenue Service employee and only during regular business
hours.
(d) Copies. Notes may be taken of the material open for inspection.
Copies may be made manually or, if a person provides the equipment,
photographically at the place of inspection. Photographic copying is
subject to reasonable supervision with regard to the facilities and
equipment used. A fee will be charged for copies of the material
furnished by the Internal Revenue Service. Copies will be certified
upon request.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7845, 47 FR 50490, Nov. 8, 1982)
26 CFR 301.6104(b)-1 Publicity of information on certain information
returns.
(a) In general. The following information, together with the name
and address of the organization or trust furnishing such information,
shall be a matter of public record:
(1) Except as otherwise provided in section 6104 and the regulations
thereunder, the information required by section 6033.
(2) The information furnished pursuant to section 6034 (relating to
returns by certain trusts) on Form 1041-A.
(3) The information required to be furnished by section 6058.
(b) Nondisclosure of certain information -- (1) Names and addresses
of contributors. The names and addresses of contributors to an
organization other than a private foundation shall not be made available
for public inspection under section 6104(b.
(2) Amounts of contributions. The amounts of contributions and
bequests to an organization shall be available for public inspection
unless the disclosure of such information can reasonably be expected to
identify any contributor. Notwithstanding the preceding sentence, the
amounts of contributions and bequests to a private foundation shall be
available for public inspection.
(3) Foreign organizations. The names, addresses, and amounts of
contributions or bequests of persons who are not citizens of the United
States to a foreign organization described in section 4948(b) shall not
be made available for public inspection under section 6104(b).
(4) Confidential business information. Confidential business
information of contributors to any trust described in section 501(c)(21)
(black lung trusts) shall not be available for public inspection under
section 6104(b) provided:
(i) A request if filed with the office with which the trustee filed
the documents in which the information to be withheld is contained.
(ii) Such request clearly specifies the information to be withheld
and the reasons supporting the request for withholding, and
(iii) The Commissioner determines that such information is
confidential business information.
Information such as the contributor's estimated total liability for
black lung benefits, the contributor's coal pricing policies, or any
background information necessary to establish estimated total liability
or coal pricing policies are examples of confidential business
information that shall not be disclosed to the public under this
subparagraph.
(c) Place of inspection. Information furnished on the public portion
of returns (as described in paragraph (a) of this section) shall be made
available for public inspection at the Freedom of Information Reading
Room. Internal Revenue Service, 1111 Constitution Avenue, NW.,
Washington, D.C. 20224, and at the office of any district director.
(d) Procedure for public inspection -- (1) Requests for inspection.
Information furnished on the public portion of returns (as described in
paragraph (a) of this section) shall be available for public inspection
only upon request. Requests for public inspection must be in writing to
or at any of the offices mentioned in paragraph (c) of this section.
Persons submitting requests for inspection must provide the name and
address of the organization that filed the return, the type of return,
and the year for which the organization filed.
(2) Time and extent of inspection. A person requesting public
inspection in the manner specified in subparagraph (1) of this paragraph
shall be notified by the Internal Revenue Service when the material he
desires to inspect will be made available for his inspection.
Information on returns required by sections 6033, 6034, and 6058 will be
made available for public inspection at such reasonable and proper
times, and under such conditions, that will not interfere with their use
by the Internal Revenue Service and will not exclude other persons from
inspecting them. In addition the Commissioner, Director of the Service
Center, or district director may limit the number of returns to be made
available to any person for inspection on a given date. Inspection will
be allowed only in the presence of an internal revenue officer or
employee and only during the regular hours of business of the Internal
Revenue Service office.
(3) Returns available. Returns filed before January 1, 1970, shall
be available for public inspection only pursuant to the provisions of
sectin 6104 in effect for such years. The information furnished on all
returns filed after December 31, 1969, purusant to the requirements of
section 6033, 6034, or 6058, shall be available for public inspection in
accordance with the provisions of section 6104.
(4) Copies. Notes may be taken of the material opened for inspection
under this section. Copies may be made manually or, if a person
provides the equipment, photographically at the place of inspection,
subject to reasonable supervision with regard to the facilities and
equipment to be employed. Copies of the material opened for inspection
will be furnished by the Internal Revenue Service to any person making
request therefor. Requests for such copies shall be made in the same
manner as requests for inspection (see subparagraph (1) of this
paragraph) to the office of the Internal Revenue Service in which such
material is available for inspection as provided in paragraph (c) of
this section. Copies may also be obtained by written request to the
director of any service center. If made at the time of inspection, the
request for copies need not be in writing. Any copies furnished will be
certified upon request. The Commissioner may prescribe a reasonable fee
for furnishing copies of information pursuant to this section.
(T.D. 8026, 50 FR 20757, May 20, 1985)
26 CFR 301.6104(c)-1 Disclosure of certain information to State
officers.
(a) Notification of determinations -- (1) Automatic notification.
Upon making a determination described in paragraph (c) of this section,
the Internal Revenue Service will notify the Attorney General and the
principal tax officer of each of the following States of such
determination without application or request by such State officer --
(i) In the case of any organization described in section 501(c)(3),
the State in which the principal office of the organization is located
(as shown on the last-filed return required by section 6033, or on the
application for exemption if no return has been filed), and the State in
which the organization was incorporated, or if a trust, in which it was
created, and
(ii) In the case of a private foundation, each State which the
organization was required to list as an attachment to its last-filed
return pursuant to 1.6033-2(a)(2)(iv).
(2) Applications for notification by other State officers. Other
officers of States described in subparagraph (1) of this paragraph, and
officers of States not described in such subparagraph, may request that
they be notified (either generally or with respect to a particular
organization or type of organization) of determinations described in
paragraph (c) of this section. In such cases, these State officers must
show that they are appropriate State officers within the meaning of
section 6104(c)(2). The required showing may be made by presenting a
letter from the Attorney General of the State setting forth (i) the
functions and authority of the State officer under State law, and (ii)
sufficient facts for the Internal Revenue Service to determine that such
officer is an appropriate State officer within the meaning of section
6104(c)(2).
(3) Manner of notification. A State officer who is entitled to be
notified of a determination under this paragraph will be notified by
sending him a copy of the communication from the Internal Revenue
Service to the organization which informs such organization of the
determination.
(b) Inspection by State officers -- (1) In general. After a
determination described in paragraph (c) of this section has been made,
appropriate State officers within the meaning of section 6104(c)(2) may
inspect the material described in subparagraph (3) of this paragraph.
Such material may be inspected at an office of the Internal Revenue
Service which will be designated upon receipt of a request for
inspection; the location of such office will be determined with due
consideration of the needs of the Internal Revenue Service and the needs
of the State officer entitled to inspect.
(2) State officers who may inspect material. Any State officer
entitled to be notified of a determination without application (under
paragraph (a)(1) of this section) may inspect the material described in
subparagraph (3) of this paragraph upon demonstrating that he is so
entitled. Any State officer who has in fact been notified by the
Internal Revenue Service of a determination may inspect such material
without further demonstration, unless it shall be determined by the
Internal Revenue Service that such officer was not entitled to be so
notified. Other State officers must demonstrate to the satisfaction of
the Internal Revenue Service that they are entitled to be notified under
paragraph (a)(2) of this section before they may inspect such material.
(3) Material which may be inspected. (i) Except as provided in
subdivision (ii) of this subparagraph, a State officer who is so
entitled under subparagraphs (1) and (2) of this paragraph will be
permitted to inspect and copy all returns, filed statements, records,
reports, and other information relating to a determination described in
paragraph (c) of this section which is relevant to a determination under
State law, and which is in the hands of the Internal Revenue Service.
(ii) The following material will not be made available for inspection
by State officers under section 6104(c) and this section --
(a) Interpretations by the Internal Revenue Service or other federal
agency of federal laws (including the Internal Revenue Code of 1954 and
its predecessors) which would not otherwise be made available to State
officers under section 6103(d),
(b) Reports of informers, or any other material which would disclose
the identity, or threaten the safety or anonymity, of an informer,
(c) Returns of persons (other than those exempt from taxation) which
would not be available under section 6103(d) to the State officer
requesting inspection, or
(d) Other material the disclosure of which the Commissioner has
determined would prejudice the proper administration of the internal
revenue laws.
(4) Statement by State officer. Before any State officer will be
permitted to inspect material described in this paragraph, he must
submit a statement to the Internal Revenue Service that he intends to
use such material solely in fulfilling his functions under State law
relating to organizations of the type described in section 501(c)(3);
material is made available to State officers under this section in
reliance on such statements. For provisions relating to penalties for
misuse of information which is made available under section 6104(c) and
this section, see 18 U.S.C. 1001.
(c) Determinations defined. For purposes of this section, a
determination means a final determination by the Internal Revenue
Service that --
(1) An organization is refused recognition as an organization
described in section 501(c)(3), or has been operated in such a manner
that it will not, or will no longer, be recognized as meeting the
requirements for exemption under that section, or
(2) A deficiency of tax exists under section 507 or chapter 41 or 42.
For purposes of this paragraph, a determination by the Internal
Revenue Service is not final until all administrative review with
respect to such determination has been completed. For purposes of this
section, a waiver of restrictions on assessment and collection of
deficiency in tax is treated as a final determination that a deficiency
of tax exists when such waiver has been finally accepted by the Internal
Revenue Service. For example, a final determination that a deficiency
of tax exists under section 507 or chapter 41 or 42 is made when the
organization is sent a notice of deficiency with respect to such tax.
(d) Effective date. The provisions of this section apply with
respect to all determinations made after December 31, 1969.
(Secs. 6033(a)(1), 6104(b), and 7805 of the Internal Revenue Code of
1954 (83 Stat. 519, 68A Stat. 755 as amended by 83 Stat. 530, and 68A
Stat. 917; 26 U.S.C. 6033(a)(1), 6104(b), and 7805); secs.
6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue Code of
1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7122, 36 FR 11031, June 8, 1971, as amended by T.D. 7290, 38 FR
31835, Nov. 19, 1973; T.D. 7785, 46 FR 38508, July 28, 1981.
Redesignated by T.D. 7845, 47 FR 50490, Nov. 8, 1982)
26 CFR 301.6104(d)-1 Public inspection of private foundations' annual
returns.
(a) In general. The annual return which a private foundation must
file under section 6056 shall be made available by its foundation
managers for inspection at its principal office during regular business
hours by any citizen on request made within 180 days after the
publication of notice of the availability of such return. Such notice
shall be published not later than the day prescribed for filing such
return (determined with regard to any extension of time for filing) in a
newspaper having general circulation in the county in which the
foundation's principal office is located. The notice shall state that
the annual return is available at the foundation's principal office for
inspection during regular business hours by any citizen who requests
inspection within 180 days after the date of such publication, and shall
state the address of the foundation's principal office and the name of
its principal manager.
(b) Definitions and special rules -- (1) Private foundation. For
purposes of this section, the term ''private foundation'' includes both
exempt and nonexempt private foundations and also includes trusts
described in section 4947(a)(1) that are treated as private foundations
for purposes of section 6033.
(2) Manner of making annual return available for public inspection.
The foundation managers of a private foundation which has no principal
office, or whose principal office is in a personal residence, may
satisfy the requirement that the annual return be made available for
public inspection at the foundation's principal office by having the
return available for public inspection at an appropriate substitute
location or by furnishing a copy free of charge (including postage and
copying) to persons who request inspection in the manner and at the time
prescribed therefor in section 6104(d) and the regulations thereunder.
In addition to its principal office, a private foundation may designate
an additional location at which its annual return shall be made
available in the manner and at the time prescribed therefor in section
6104(d).
(3) Newspaper having general circulation. The term ''newspaper
having general circulation'' in section 6104(d) shall include any
newspaper or journal which is permitted to publish statements in
satisfaction of State statutory requirements relating to transfers of
title to real estate or other similar legal notices.
(4) Principal manager. A private foundation may furnish the name of
its ''principal manager'' in the notice required by section 6104(d) by
furnishing the name of the individual foundation manager who is
responsible for publishing such notice or for making the annual return
available for inspection under section 6104(d).
(c) Cross-reference. For additional rules with respect to private
foundations' annual returns and their public inspection, see section
6033 and the regulations thereunder.
(Secs. 6104(a)(1)(A), 6104(a)(1)(B), and 7805 of the Internal Revenue
Code of 1954 (72 Stat. 1660, 88 Stat. 940, 68A Stat. 917; 26 U.S.C.
6104(a)(1)(A), 6104(a)(1)(B), 7805))
(T.D. 7122, 36 FR 11032, June 8, 1971. Redesignated by T.D. 7845, 47
FR 50490, Nov. 8, 1982, and amended by T.D. 8026, 50 FR 20757, May 20,
1985)
26 CFR 301.6105-1 Compilation of relief from excess profits tax cases.
Pursuant to and in accordance with the provisions of section 6105,
the Commissioner shall make and publish in the Federal Register a
compilation, for each fiscal year beginning after June 30, 1941, of all
cases in which relief under the provisions of section 722 of the
Internal Revenue Code of 1939, as amended, has been allowed during such
fiscal year by the Commissioner and by the Tax Court of the United
States.
26 CFR 301.6106-1 Publicity of unemployment tax returns.
For provisions relating to publicity of returns made in respect of
unemployment tax imposed by chapter 23 of the Code, see 301.6103(a)-1,
301.6103 (b)-1, 301.6103(c)-1, 301.6103 (d)-1, and 301.6103(f)-1.
26 CFR 301.6108-1 Publication of statistics of income.
Pursuant to and in accordance with the provisions of section 6108,
statistics reasonably available with respect to the operation of the
income tax laws shall be prepared and published annually by the
Commissioner.
26 CFR 301.6109-1 Identifying numbers.
(a) In general -- (1) Social security numbers and employer
identification numbers. There are two types of taxpayer identifying
numbers: social security numbers and employer identification numbers.
Social security numbers take the form 000-00-0000, while employer
identification numbers take the form 00-0000000. Social security
numbers identify individual persons and estates of decedents, while
employer identification numbers identify corporations, partnerships,
nonprofit associations, trusts, and similar nonindividual persons. Both
types of taxpayer identifying numbers are used by individuals who are
employers or who are engaged in trade or business as sole proprietors,
as required by returns, statements or other documents and their related
instructions. Such documents often require an individual's own social
security number in connection with his individual taxes, and his
employer identification number in connection with his business taxes.
(2) Certain grantor trusts. A grantor trust described in 1.671-4(b)
shall not obtain an employer identification number until such time as
the trust is no longer described in 1.671-4(b). Instead, the grantor of
such a trust must furnish his or her social security number (or, when
applicable, his or her employer identification number) to payers of
income, and payees must report income as if paid to the grantor, not the
trust.
(b) Use of one's own number. Every person who files under this title
a return, statement, or other document shall furnish his taxpayer
identifying number as required by the forms and the instructions
relating thereto. A person whose number must be included on a document
filed by another person shall give the taxpayer identifying number so
required to the other person on request. For provisions dealing
specifically with the duty of employees with respect to their social
security numbers, see paragraphs (a) and (b) of 31.6011(b)-2 of this
chapter (Employment Tax Regulations). For provisions dealing
specifically with the duty of employers with respect to employer
identification numbers, see 31.6011(b)-1 of this chapter (Employment
Tax Regulations).
(c) Use of another's number. Every person required under this title
to file a return, statement, or other document shall furnish such
taxpayer identifying numbers of other persons as required by the forms
and the instructions relating thereto. If he does not know the taxpayer
identifying number of the other person, he shall request such number of
the other person. A request should state that the identifying number is
required to be furnished under authority of law. When the person filing
the return, statement, or other document does not know the number of the
other person, and has complied with the request provision of this
paragraph, he shall sign an affidavit on the transmittal document
forwarding such returns, statements, or other documents to the Internal
Revenue Service, so stating. A person required to file a taxpayer
identifying number shall correct any errors in such filing when his
attention has been drawn to them.
(d) Obtaining a taxpayer identifying number -- (1) Social security
number. Any individual required to furnish a social security number
pursuant to paragraph (b) of this section shall apply for one, if he has
not done so previously, on Form SS-5, which may be obtained from any
Social Security Administration or Internal Revenue Service office. He
shall make such application far enough in advance of the first required
use of such number to permit issuance of the number in time for
compliance with such requirement. The form, together with any
supplementary statement, shall be prepared and filed in accordance with
the form, instructions, and regulations applicable thereto, and shall
set forth fully and clearly the data therein called for. Individuals
who are ineligible for or do not wish to participate in the benefits of
the social security program shall nevertheless obtain a social security
number if they are required to furnish such a number pursuant to
paragraph (b) of this section.
(2) Employer identification number. Any person required to furnish
an employer identification number pursuant to paragraph (b) of this
section shall apply for one, if he has not done so previously, on Form
SS-4, which may be obtained from any office of the Internal Revenue
Service. He shall make such application far enough in advance of the
first required use of such number to permit issuance of the number in
time for compliance with such requirement. The form, together with any
supplementary statement, shall be prepared and filed in accordance with
the form, instructions, and regulations applicable thereto, and shall
set forth fully and clearly the data therein called for.
(e) Banks, and brokers and dealers in securities. For additional
requirements relating to deposits, share accounts, and brokerage
accounts, see 31 CFR 103.34 and 103.35.
(f) Penalty. For penalty for failure to supply identifying numbers,
see section 6676 and 301.6676-1.
(g) Nonresident alien exclusion. This section shall not apply to
nonresident aliens, foreign corporations, foreign partnerships, or
foreign private foundations that do not have income effectively
connected with the conduct of a trade or business within the United
States and do not have an office or place of business or a fiscal or
paying agent in the United States. The exclusion in this paragraph does
not apply to nonresident aliens treated as residents under section 6013
(g) or (h).
(h) Effective date. The provisions of this section are effective for
information which must be furnished after April 15, 1974. See the parts
of 26 CFR (revised as of April 1, 1973) which relate to the particular
tax for provisions with respect to information which must be furnished
before April 16, 1974, and for information which must be furnished to
the Bureau of Alcohol, Tobacco and Firearms prior to the effective date
of comparable procedural regulations promulgated by the Bureau in 27 CFR
Part 70. Nothing contained in the regulations under section 6109 shall
limit the authority of the Internal Revenue Service to obtain taxpayer
identifying numbers required before or after the effective date of this
paragraph after notice is served upon the taxpayer pursuant to section
6001.
(T.D. 7306, 39 FR 9946, Mar. 15, 1974 as amended by T.D. 7670, 45 FR
6932, Jan. 31, 1980; T.D. 7796, 46 FR 57482, Nov. 24, 1981)
26 CFR 301.6109-2 Authority of the Secretary of Agriculture to collect
employer identification numbers for purposes of the Food Stamp Act of
1977.
(a) In general. The Secretary of Agriculture may require each
applicant retail food store or wholesale food concern to furnish its
employer identification number in connection with the administration of
section 9 of the Food Stamp Act of 1977 (7 U.S.C. 2018) (relating to the
determination of the qualifications of applicants under the Food Stamp
Act).
(b) Limited purpose. The Secretary of Agriculture may have access to
the employer identification numbers obtained pursuant to paragraph (a)
of this section, but only for the purpose of establishing and
maintaining a list of the names and employer identification numbers of
the stores and concerns for use in determining those applicants who have
been previously sanctioned or convicted under section 12 or 15 of the
Food Stamp Act of 1977 (7 U.S.C. 2021 or 2024). The Secretary of
Agriculture may use this determination of sanctions and convictions in
administering section 9 of the Food Stamp Act of 1977.
(c) Safeguards -- (1) Restrictions on access to employer
identification numbers. The persons permitted access to employer
identification numbers obtained pursuant to paragraph (a) of this
section are officers and employees of the United States whose duties or
responsibilities require access to the employer identification numbers
for the administration or enforcement of the Food Stamp Act of 1977.
(2) Other safeguards. The Secretary of Agriculture must provide for
any additional safeguards that the Secretary of the Treasury determines
to be necessary or appropriate to protect the confidentiality of the
employer identification numbers. The Secretary of Agriculture may also
provide for any additional safeguards to protect the confidentiality of
employer identification numbers so long as these safeguards are
consistent with any safeguards determined by the Secretary of the
Treasury to be necessary or appropriate.
(d) Confidentiality and disclosure of employer identification
numbers. Employer identification numbers obtained pursuant to paragraph
(a) of this section are confidential. No officer or employee of the
United States who has or had access to any such employer identification
number may disclose that number in any manner, except to persons
described in paragraph (c) of this section. For purposes of this
paragraph (d), the term ''officer or employee'' includes a former
officer or employee.
(e) Sanctions -- (1) Unauthorized, willful disclosure of employer
identification numbers. Sections 7213(a) (1), (2), and (3) apply with
respect to the unauthorized, willful disclosure to any person of
employer identification numbers that are maintained by the Secretary of
Agriculture pursuant to this section in the same manner and to the same
extent as sections 7213(a) (1), (2), and (3) apply with respect to
unauthorized disclosures of returns and return information described in
those sections.
(2) Willful solicitation of employer identification numbers. Section
7213(a)(4) applies with respect to the willful offer of any item of
material value in exchange for any employer identification number
maintained by the Secretary of Agriculture pursuant to this section in
the same manner and to the same extent as section 7213(a)(4) applies
with respect to offers (in exchange for any return or return
information) described in that section.
(f) Delegation. All references in this section to the Secretary of
Agriculture are references to the Secretary of Agriculture or his
delegate.
(g) Effective date. The provisions of this section are effective on
February 1, 1992.
(T.D. 8369, 56 FR 49685, Oct. 1, 1991)
26 CFR 301.6110-1 Public inspection of written determinations and
background file documents.
(a) General rule. Except as provided in 301.6110-3, relating to
deletion of certain information, 301.6110-5(b), relating to actions to
restrain disclosure, paragraph (b)(2) of this section, relating to
technical advice memoranda involving civil fraud and criminal
investigations, and jeopardy and termination assessments, and paragraph
(b)(3) of this section, relating to general written determinations
relating to accounting or funding periods and methods, the text of any
written determination (as defined in 301.6110-2(a)) issued pursuant to
a request postmarked or hand delivered after October 31, 1976, shall be
open to public inspection in the places provided in paragraph (c)(1) of
this section. The text of any written determination issued pursuant to
a request postmarked or hand delivered before November 1, 1976, shall be
open to public inspection pursuant to section 6110(h) and 301.6110-6,
when funds are appropriated by Congress for such purpose. The
procedures and rules set forth in 301.6110-1 through 301.6110-5 and
301.6110-7 do not apply to written determinations issued pursuant to
requests postmarked or hand delivered before November 1, 1976, unless
301.6110-6 states otherwise. There shall also be open to public
inspection in each place of public inspection an index to the written
determinations open or subject to inspection at such place. Each such
index shall be arranged by section of the Internal Revenue Code, related
statute, or tax treaty and by subject matter description with such
section in such manner as the Commissioner may from time to time
provide. The Commissioner shall not be required to make any written
determination or background file document open to public inspection
pursuant to section 6110 or refrain from disclosure of any such
documents or any information therein, except as provided by section 6110
or with respect to a discovery order made in connection with a judicial
proceeding. The provisions of section 6110 shall not apply to matters
for which the determination of whether public inspection should occur is
made pursuant to section 6104. Matters within the ambit of section 6104
include: Any application filed with the Internal Revenue Service with
respect to the qualification or exempt status of an organization, plan,
or account described in section 6104(a)(1), whether the plan or account
has more than 25 or less than 26 participants; any document issued by
the Internal Revenue Service in which the qualification or exempt status
of an organization, plan, or account described in section 6104 (a)(1) is
granted, denied or revoked or the portion of any document in which
technical advice with respect thereto is given to a district director;
any application filed, and any document issued by the Internal Revenue
Service, with respect to the qualification or status of master,
prototype, and pattern employee plans; the portion of any document
issued by the Internal Revenue Service in which is discussed the effect
on the qualification or exempt status of an organization, plan, or
account described in section 6104(a)(1) of proposed transactions by such
organization, plan, or account; and any document issued by the Internal
Revenue Service in which is discussed the qualification or status of an
organization described in section 509(a) or 4942(j)(3), but not
including any document issued to nonexempt charitable trusts described
in section 4947(a)(1).
(b) Items that may be inspected only under certain circumstances --
(1) Background file documents. A background file document (as such term
is defined in 301.6110-2(g)) relating to a particular written
determination issued pursuant to a request postmarked or hand delivered
after October 31, 1976, shall not be subject to inspection until such
written determination is open to public inspection or available for
inspection pursuant to paragraph (b) (2) or (3) of this section, and
then only if a written request pursuant to paragraph (c)(4) of this
section is made for inspection of such background file document.
Background file documents relating to written determinations issued
pursuant to requests postmarked or hand delivered before November 1,
1976, shall be subject to inspection pursuant to section 6110 (h) and
301.6110-6, when funds are appropriated by Congress for such purpose.
The version of the background file document which is available for
inspection shall be the version originally made available for
inspection, as modified by any additional disclosure pursuant to section
6110(d)(3) and (f)(4).
(2) Technical advice memoranda involving civil fraud and criminal
investigations, jeopardy and termination assessments. Any technical
advice memorandum (as such term is defined in 301.6110-2(f) involving
any matter that is the subject of a civil fraud or criminal
investigation, a jeopardy assessment (as such term is defined in section
6861), or a termination assessment (as such term is defined in section
6851) shall not be subject to inspection until all actions relating to
such investigation or assessment are completed and then only if a
written request pursuant to paragraph (c)(4) of this section is made for
inspection of such technical advice memorandum. A ''civil fraud
investigation'' is any administrative step or judicial proceeding in
which an issue for determination is whether the Commissioner should
impose additional tax pursuant to section 6653(b). A ''criminal
investigation'' is any administrative step or judicial proceeding in
which an issue for determination is whether a taxpayer should be charged
with or is guility of criminal conduct. An action relating to a civil
fraud or criminal investigation includes any such administrative step or
judicial proceeding, the review of subsequent related activities and
related returns of the taxpayer or related taxpayers, and any other
administrative step or judicial procedure or proceeding or appellate
process that is initiated as a consequence of the facts and
circumstances disclosed by such investigation. An action relating to a
jeopardy or termination assessment includes any administrative step or
judicial proceeding that is initiated to determine whether to make such
assessment, that is brought pursuant to section 7429 to determine the
appropriateness or reasonableness of such assessment, or that is brought
to resolve the legal consequences of the tax status or liability issue
underlying the making of such assessment. Any action relating to a civil
fraud or criminal investigation, a jeopardy assessment, or a termination
assessment is not completed until all available administrative steps and
judicial proceedings and remedies, including appeals, have been
completed.
(3) Written determinations with respect to adoption of or change in
certain accounting or funding periods and methods. Any general written
determination (as defined in 301.6110-2(c) that relates solely to
approval of any adoption of or change in --
(i) The funding method or plan year of a plan under section 412.
(ii) A taxpayer's annual accounting period under section 442.
(iii) A taxpayer's method of accounting under section 446(e), or
(iv) A partnership's or partner's taxable year under section 706
shall not be subject to inspection until such written determination
would, but for this paragraph (b)(3), be open to public inspection
pursuant to 301.6110-5(c) and then only if a written request pursuant
to paragraph (c)(4) of this section is made for inspection of such
written determination.
(c) Procecure for public inspection -- (1) Place of public
inspection. The text of any ruling (as such term is defined in
301.6110-2(d) or technical advice memorandum that is open to public
inspection pursuant to section 6110 shall be located in the National
Office Reading Room. The text of any determination letter (as such term
is defined in 301.6110-2(e)) that is open to public inspection pursuant
to section 6110 shall be located in the Reading Room of the Regional
Office in which is located the district office that issued such
determination letter. Inspection of any written determination subject to
inspection only upon written request shall be requested from the
National Office Reading Room. Inspection of any background file document
shall be requested only from the reading room in which the related
written determination is either open to public inspection or subject to
inspection upon written request. The locations and mailing addresses of
the reading rooms are set forth in 601.702(b)(3)(ii) of this chapter.
(2) Time and manner of public inspection. The inspection authorized
by section 6110 will be allowed only in the place provided for such
inspection in the presence of an Internal Revenue officer or employee
and only during the regular hours of business of the Internal Revenue
Service office in which the reading room is located. The public will
not be allowed to remove any record from a reading room. A person who
wishes to inspect reading room material without visiting a reading room
may submit a written request pursuant to paragraph (c)(4) of this
section for copies of any such material to the Internal Revenue Service
reading room in which is located such material.
(3) Copies. Notes may be taken of any material open to public
inspection under section 6110, and copies may be made manually. Copies
of any material open to public inspection or subject to inspection upon
written request will be furnished by the Internal Revenue Service to any
person making requests therefor pursuant to paragraph (c)(4) of this
section. If made at the time of inspection the request for copies need
not be in writing, unless the material is not immediately available for
copying. The Commissioner may prescribe fees pursuant to section
6110(j) for furnishing copies of material open or subject to inspection.
(4) Requests. Any request for copies of written determinations, for
inspection of general written determinations relating to accounting or
funding periods and methods or technical advice memoranda involving
civil fraud and criminal investigations, and jeopardy and termination
assessments, for inspection or copies of background file documents, and
for copies of the index shall be submitted to the reading room in which
is located the requested material. If made in person, the request may
be submitted to the internal revenue employee supervising the reading
room. The request shall contain:
(i) Authorization for the Internal Revenue Service to charge the
person making such request for making copies, searching for material,
and making deletions therefrom;
(ii) The maximum amount of charges which the Internal Revenue Service
may incur without further authorization from the person making such
request;
(iii) With respect to requests for inspection and copies of
background file documents, the file number of the written determination
to which such background file document relates and a specific
identification of the nature or type of the background file document
requested;
(iv) With respect to requests for inspections of general written
determinations relating to accounting or funding periods and methods,
the day, week, or month of issuance of such written determination, and
the applicable category as selected from a special summary listing of
categories prepared by the Internal Revenue Service;
(v) With respect to requests for copies of written determinations,
the file number of the written determination to be copied, which can be
ascertained in the reading room or from the index;
(vi) With respect to requests for copies of portions of the index,
the section of the Internal Revenue Code, related statute or tax treaty
in which the person making such request is interested;
(vii) With respect to material which is to be mailed, the name,
address, and telephone number of the person making such request and the
address to which copies of the requested material should be sent; and
(viii) Such other information as the Internal Revenue Service may
from time to time require in its operation of reading rooms.
(T.D. 7524, 42 FR 63412, Dec. 16, 1977)
26 CFR 301.6110-2 Meaning of terms.
(a) Written determination. A ''written determination'' is a ruling,
a determination letter, or a technical advice memorandum, as such terms
are defined in paragraphs (d), (e), and (f) of this section,
respectively. Notwithstanding paragraphs (d) through (f) of this
section, a written determination does not include for example, opinion
letters (as defined in 601.201(a)(4) of this chapter), information
letters (as defined in 601.201(a)(5) of this chapter), technical
information responses, technical assistance memoranda, notices of
deficiency, reports on claims for refund, Internal Revenue Service
decisions to accept taxpayers' offers in compromise, earnings and
profits determinations, or documents issued by the Internal Revenue
Service in the course of tax administration that are not disclosed to
the persons to whose tax returns or tax liability the documents relate.
(b) Reference written determination. A ''reference written
determination'' is any written determination that the Commissioner
determines to have significant reference value. Any written
determination that the Commissioner determines to be the basis for a
published revenue ruling is a reference written determination until such
revenue ruling is obsoleted, revoked, superseded or otherwise held to
have no effect.
(c) General written determination. A ''general written
determination'' is any written determination that is not a reference
written determination.
(d) Ruling. A ''ruling'' is a written statement issued by the
National Office to a taxpayer or to the taxpayer's authorized
representative (as such term is defined in 601.201(e)(7) of this
chapter) on behalf of the taxpayer, that interprets and applies tax laws
to a specific set of facts. A ruling generally recites the relevant
facts, sets forth the applicable provisions of law, and shows the
application of the law to the facts.
(e) Determination letter. A ''determination letter'' is a written
statement issued by a district director in response to a written inquiry
by an individual or an organization that applies principles and
precedents previously announced by the National Office to the particular
facts involved.
(f) Technical advice memorandum. A ''technical advice memorandum''
is a written statement issued by the National Office to, and adopted by,
a district director in connection with the examination of a taxpayer's
return or consideration of a taxpayer's claim for refund or credit. A
technical advice memorandum generally recites the relevant facts, sets
forth the applicable law, and states a legal conclusion.
(g) Background file document -- (1) General rule. A ''background
file document'' is -- (i) The request for a written determination.
(ii) Any written material submitted in support of such request by the
person by whom or on whose behalf the request for a written
determination is made,
(iii) Any written communication, or memorandum of a meeting,
telephone communication, or other contact, between employees of the
Internal Revenue Service or Office of its Chief Counsel and persons
outside the Internal Revenue Service in connection with such request or
written determination which is received prior to the issuance (as such
term is defined in paragraph (h) of this section) of the written
determination, but not including communications described in paragraph
(g)(2) of this section, and
(iv) Any subsequent communication between the National Office and a
district director concerning the factual circumstances underlying the
request for a technical advice memorandum, or concerning a request by
the district director for reconsideration by the National Office of a
proposed technical advice memorandum.
(2) Limitations. Notwithstanding paragraph (g)(1) of this section, a
''background file document'' shall not include any --
(i) Communication between the Department of Justice and the Internal
Revenue Service or the Office of its Chief Counsel relating to any
pending civil or criminal case or investigation.
(ii) Communiucation between Internal Revenue Service employees and
employees of the Office of its Chief Counsel,
(iii) Internal memorandum or attorney work product prepared by the
Internal Revenue Service or Office of its Chief Counsel which relates to
the development of the conclusion of the Internal Revenue Service in a
written determination, including, with respect to a technical advice
memorandum, the Transmittal Memorandum, as defined in
601.105(b)(5)(vi)(c) of this chapter,
(iv) Correspondence or any portion of correspondence between the
Internal Revenue Service and any person relating solely to the making of
or extent of deletions pursuant to section 6110(c), or a request
pursuant to section 6110(g) (3) and (4) for postponement of the time at
which a written determination is made open or subject to inspection,
(v) Material relating to (A) a request for a ruling or determination
letter that is withdrawn prior to issuance thereof or that the Internal
Revenue Service declines to answer, (B) a request for technical advice
that the National Office declines to answer, or (C) the appeal of a
taxpayer from the decision of a district director not to seek technical
advice, or
(vi) Response to a request for technical advice which the district
director declines to adopt, and the district director's request for
reconsideration thereof.
(h) Issuance. ''Issuance'' of a written determination occurs, with
respect to rulings and determination letters, upon the mailing of the
ruling or determination letter to the person to whom it pertains.
Issuance of a technical advice memorandum occurs upon the adoption of
the technical advice memorandum by the district director.
(i) Person to whom written determination pertains. A ''person to
whom a written determination pertains'' in the person by whom a ruling
or determination letter is requested, but if requested by an authorized
representative, the person on whose behalf the request is made. With
respect to a technical advice memorandum, a ''person to whom a written
determination pertains'' is the taxpayer whose return is being examined
or whose claim for refund or credit is being considered.
(j) Person to whom a background file document relates. A ''person to
whom a background file document relates'' is the person to whom the
related written determination pertains, as such term is defined in
paragraph (i) of this section.
(k) Person who has a direct interest in maintaining confidentiality.
A ''person who has a direct interest in maintaining the confidentiality
of a written determination'' is any person whose name and address is
listed in the request for such written determination, as required by
601.201(e)(2) of this chapter. A ''person who has a direct interest in
maintaining the confidentiality of a background file document'' is any
person whose name and address is in such background file document, or
who has a direct interest in maintaining the confidentiality of the
written determination to which such background file document relates.
(l) Successor in interest. A ''successor in interest'' to any person
to whom a written determination pertains or background file document
relates is any person who acquires the rights and assumes the
liabilities of such person with respect to the transaction which was the
subject matter of the written determination, provided that the successor
in interest notifies the Commissioner with respect to the succession in
interest.
(T.D. 7524, 42 FR 63413, Dec. 16, 1977)
26 CFR 301.6110-3 Deletion of certain information in written
determinations open to public inspection.
(a) Information subject to deletion. There shall be deleted from the
text of any written determination open to public inspection or subject
to inspection upon written request and background file document subject
to inspection upon written request pursuant to section 6110 the
following types of information:
(1) Identifying details. (i) The names, addresses, and identifying
numbers (including telephone, license, social security, employer
identification, credit card, and selective service numbers) of any
person, other than the identifying details of a person who makes a
third-party communication described in 301.6110-4(a), and
(ii) Any other information that would permit a person generally
knowledgeable with respect to the appropriate community to identify any
person. The determination of whether information would permit
identification of a particular person will be made in view of
information available to the public at the time the written
determination or background file document is made open or subject to
inspection and in view of information that will subsequently become
available, provided the Internal Revenue Service is made aware of such
information and the potential that such information may identify any
person. The ''appropriate community'' is that group of persons who
would be able to associate a particular person with a category of
transactions one of which is described in the written determination or
background file document. The appropriate community may vary according
to the nature of the transaction which is the subject of the written
determination. For example, if a steel company proposes to enter a
transaction involving the purchase and installation of blast furnaces,
the ''appropriate community'' may include all steel producers and blast
furnace manufacturers, but if the installation process is a unique
process of which everyone in national industry is aware, the
''appropriate community'' might also include the national industrial
community. On the other hand, if the steel company proposes to enter a
transaction involving the purchase of land on which to construct a
building to house the blast furnaces, the ''appropriate community'' may
also include those residing or doing business within the geographical
locale of the land to be purchased.
(2) Information concerning national defense and foreign policy.
Information specifically authorized under criteria established by an
Executive order to be kept secret in the interest of national defense or
foreign policy and which is in fact properly classified pursuant to such
order.
(3) Information exempted by other statutes and agency rules.
Information specifically exempted from disclosure by any statute other
than the Internal Revenue Code of 1954 and 5 U.S.C. 552 which is
applicable to the Internal Revenue Service, and any information obtained
by the Internal Revenue Service solely and directly from another Federal
agency subject to a nondisclosure rule of such agency. Deletion of
information shall not be made solely because the same information was
submitted to another Federal agency subject to a nondisclosure rule
applicable only to such agency.
(4) Trade secrets and privileged or confidential commercial or
financial information -- (i) Deletions to be made. Any --
(A) Trade secrets, and
(B) Commercial or financial information obtained from any person
which, despite the fact that identifying details are deleted pursuant to
paragraph (a) (1) of this section, nonetheless remains privileged or
confidential.
(ii) Trade secret. For purposes of paragraph (a)(4)(i)(A) of this
section, a trade secret may consist of any formula, pattern, device or
compilation of information that is used in one's business, and that
gives one an opportunity to obtain an advantage over competitors who do
not know or use it. It may be a formula for a chemical compound, a
process of manufacturing, treating or preserving materials, a pattern
for a machine or other device, or a list of customers. The subject of a
trade secret must be secret, that is, it must not be of public knowledge
or of a general knowledge in the trade or business. Novelty, in the
patent law sense, is not required for a trade secret.
(iii) Privileged or confidential. For purposes of paragraph
(a)(4)(i) (B) of this section, information is privileged or confidential
if from examination of the request and supporting documents relating to
a written determination, and in consideration of the fact that
identifying details are deleted pursuant to paragraph (a)(1) of this
section, it is determined that disclosure of such information would
cause substantial harm to the competitive position of any person. For
example, while determining whether disclosure of certain information
would cause substantial harm to X's competitive position, the Internal
Revenue Service becomes aware that his information has previously been
disclosed to the public. In this situation, the Internal Revenue
Service will not agree with X's argument that disclosure of the
information would cause substantial harm to X's competitive position.
An example of information previously disclosed to the public is
financial information contained in the published annual reports of
widely held public corporations.
(5) Information within the ambit of personal privacy. Information
the disclosure of which would constitute a clearly unwarranted invasion
of personal privacy, despite the fact that identifying details are
deleted pursuant to paragraph (a)(1) of this section. Personal privacy
information encompasses embarassing or sensitive information that a
reasonable person would not reveal to the public under ordinary
circumstances. Matters of personal privacy include, but are not limited
to, details not yet public of a pending divorce, medical treatment for
physical or mental disease or injury, adoption of a child, the amount of
a gift, and political preferences. A clearly unwarranted invasion of
personal privacy exists if from analysis of information submitted in
support of the request for a written determination it is determined that
the public interest purpose for requiring disclosure is outweighed by
the potential harm attributable to such invasion of personal privacy.
(6) Information concerning agency regulation of financial
institutions. Information contained in or related to reports prepared
by, on behalf of, or for the use of an agency responsible for the
regulation or supervision of financial institutions concerning
examination, operation or condition of a financial institution,
disclosure of which would damage the standing of such financial
institution.
(7) Information concerning wells. Geological or geophysical
information and data, including maps, concerning wells.
(b) Manner of deletions. Whenever information, which is not to be
disclosed pursuant to section 6110(c), is deleted from the text of a
written determination or background file document, substitutions
therefore shall be made to the extent feasible if necessary for an
understanding of the legal analysis developed in such written
determination or to make the disclosed text of a background file
document comprehensible. Wherever any material is deleted, an
indication of such deletion, and of any substitution therefor, shall be
made in such manner as the Commissioner deems appropriate.
(c) Limitations on the making of deletions. Any portion of a written
determination or background file document that has been deleted will be
restored to the text thereof --
(1) If pursuant to section 6110(d)(3) or (f)(4)(A) a court orders
disclosure of such portion, or
(2) If pursuant, to 301.6110-5(d)(1) an agreement is reached to
disclose information.
(T.D. 7524, 42 FR 63414, Dec. 16, 1977)
26 CFR 301.6110-4 Communications from third parties.
(a) General rule. Except as provided in paragraph (b) of this
section a record will be made of any communication, whether written, by
telephone, at a meeting, or otherwise, received by the Internal Revenue
Service or Office of its Chief Counsel prior to the issuance of written
determination from any person other than a person to whom the written
determination pertains or the authorized representative of such person.
This rule applies to any communication concerning such written
determination, any communication concerning the request for such written
determination, or any communication concerning other matters involving
such written determination. A notation that such communication has been
made shall be placed on such written determination when it is made open
to public inspection or available for inspection upon written request
pursuant to 301.6110-5. The notation to be placed on a written
determination shall consist of the date on which the communication was
received and the category of the person making such communication, for
example, Congressional, Department of Commerce, Treasury, trade
association, White House, educational institution. Any person may
request the Internal Revenue Service to disclose the name of any person
about whom a notation has been made pursuant to this paragraph.
(b) Limitations. The provisions of paragraph (a) of this section
shall not apply to communications received by the Internal Revenue
Service from employee of the Internal Revenue Service or Office of its
Chief Counsel, from the Chief of Staff of the Joint Committee on
Internal Revenue Taxation, from the Department of Justice with respect
to any pending civil or criminal case or investigation, or from another
government agency in response to a request made by the Internal Revenue
Service to such agency for assistance involving the expertise of such
agency.
(c) Action to obtain disclosure of identity of person to whom written
determination pertains -- (1) Creation of remedy. With respect to any
written determination on which a notation has been placed pursuant to
paragraph (a) of this section, any person may file a petition in the
United States Tax Court or file a complaint in the United States
District Court for the District of Columbia for an order requiring that
the identity of any person to whom such written determination pertains
be disclosed, but such petition or complaint must be filed within 36
months of the date such written determination is made open or subject to
inspection.
(2) Necessary disclosure. Whenever an action is brought pursuant to
section 6110(d)(3), the court may order that the identity of any person
to whom the written determination pertains be disclosed. Such
disclosure may be ordered if the court determines that there is evidence
in the record from which it could reasonably be concluded that an
impropriety occurred or undue influence was exercised with respect to
such written determination by or on behalf of the person to whom the
written determination pertains. The court may, pursuant to section
6110(d)(3), also order the disclosure of any material deleted pursuant
to section 6110(c) if such disclosure is in the public interest. The
written determination or background file document with respect to which
the disclosure was sought shall be revised to disclose the information
which the court orders to be disclosed.
(3) Required notice. If a proceeding is commenced pursuant to
section 6110(d)(3) and paragraph (c)(1) of this section with respect to
any written determination, the Secretary shall send notice of the
commencement of such proceeding to any person whose identity is subject
to being disclosed and to the person about whom a third-party
communication notation has been made pursuant to section 6110(d)(1).
Such notice shall be sent, by registered or certified mail, to the last
known address of the persons described in this paragraph (c)(3) within
15 days after notice of the petition or complaint filed pursuant to
section 6110(d)(3) is served on the Secretary.
(4) Intervention. Any person who is entitled to receive notice
pursuant to paragraph (c)(3) of this section shall have the right to
intervene in any action brought pursuant to section 6110(d)(3). If
appropriate such person shall be permitted to intervene anonymously.
(T.D. 7524, 42 FR 63415, Dec. 16, 1977)
26 CFR 301.6110-5 Notice and time requirements; actions to restrain
disclosure; actions to obtain additional disclosure.
(a) Notice -- (1) General rule. Before a written determination is
made open to public inspection or subject to inspection upon written
request, or before a background file document is subject to inspection
upon written request, the person to whom the written determination
pertains or background file document relates shall be notified by the
Commissioner of intention to disclose such written determination or
background file document. The notice with respect to a written
determination, other than a written determination described in
301.6110-1(b) (2) or (3) shall be mailed when such written determination
is issued. The notice with respect to any written determination
relating to accounting or funding periods and methods, any technical
advice memoranda involving civil fraud and criminal investigations, and
jeopardy and termination assessments, and any background file document
shall be mailed within a reasonable time after the receipt of the first
written request for inspection thereof.
(2) Contents of notice. The notice required by paragraph (a)(1) of
this section shall --
(i) Include a copy of the text of the written determination or
background file document, which the Commissioner proposes to make open
to public inspection or subject to inspection pursuant to a written
request, on which is indicated (A) the material that the Commissioner
proposes to delete pursuant to section 6110(c), (B) any substitutions
proposed to be made therefor, and (C) any third-party communication
notations required to be placed pursuant to 301.6110-4(a) on the face
of the written determination.
(ii) State that the written determination or background file document
is to be open to public inspection or subject to inspection pursuant to
a written request pursuant to section 6110.
(iii) State that the recipient of the notice has the right to seek
administrative remedies pursuant to paragraph (b)(1) of this section and
to commence judicial proceedings pursuant to section 6110(f)(3) within
indicated time periods, and
(iv) Prominently indicate the date on which the notice is mailed.
(b) Actions to restrain disclosure -- (1) Administrative remedies.
Any person to whom a written determination pertains or background file
document relates, and any successor in interest, executor or authorized
representative of such person may pursue the administrative remedies
described in 601.105(b)(5)(iii) (i) and (vi)(f) and 601.201(e) (11)
and (16) of this chapter. Any person who has a direct interest in
maintaining the confidentiality of any written determination or
background file document or portion thereof may pursue the
administrative remedies described in 601.105(b)(5)(vi)(f) and
601.201(e)(16) of this chapter. No person about whom a third-party
communication notation has been made pursuant to 301.6110-4(a) may
pursue any administrative remedy for the purpose of restraining
disclosure of the identity of such person where such identity appears
with respect to the making of such third-party communication.
(2) Judicial remedy. Except as provided in paragraph (b)(3) of this
section, any person permitted to resort to administrative remedies
pursuant to paragraph (b)(1) of this section may, if such person
proposes any deletion not made pursuant to 301.6110-3 by the
Commissioner, file a petition in the United States Tax Court pursuant to
section 6110(f)(3) for a determination with respect to such proposed
deletion. If appropriate, such petition may be filed anonymously. Any
petition filed pursuant to section 6110(f)(3) must be filed within 60
days after the date on which the Commissioner mails the notice of
intention to disclose required by section 6110(f)(1).
(3) Limitations on right to bring judicial actions. No petition
shall be filed pursuant to section 6110(f)(3) unless the administrative
remedies provided by paragraph (b)(1) of this section have been
exhausted. However, if the petitioner has responded within the
prescribed time period to the notice pursuant to section 6110(f)(1) of
intention to disclose, but has not received the final administrative
conclusion of the Internal Revenue Service within 50 days after the date
on which the Commissioner mails the notice of intention to disclose
required by section 6110(f)(1), the petitioner may file a petition
pursuant to section 6110(f)(3). No judicial action with respect to any
written determination or background file document shall be commenced
pursuant to section 6110(f)(3) by any person who has received a notice
with respect to such written determination or background file document
pursuant to paragraph (b)(4) of this section.
(4) Required notice. If a proceeding is commenced pursuant to
section 6110(f)(3) with respect to any written determination or
background file document, the Secretary shall send notice of the
commencement of such proceeding to any person to whom such written
determination pertains or to whom such background file document relates.
No notice is required to be sent to persons who have filed the petition
that commenced the proceeding pursuant to section 6110(f)(3) with
respect to such written determination or background file document. The
notice shall be sent, by registered or certified mail, to the last known
address of the persons described in this paragraph (b)(4) within 15 days
after notice of the petition filed pursuant to section 6110(f)(3) is
served on the Secretary.
(5) Intervention. Any person who is entitled to receive notice
pursuant to paragraph (b)(4) of this section shall have the right to
intervene in any action brought pursuant to this section. If
appropriate, such person shall be permitted to intervene anonymously.
(c) Time at which open to public inspection -- (1) General rule.
Except as otherwise provided in paragraph (c)(2) of this section, the
text of any written determination or background file document open to
public inspection or available for inspection upon written request
pursuant to section 6110 shall be made open to or available for
inspection no earlier than 75 days and no later than 90 days after the
date on which the Commissioner mails the notice required by paragraph
(a)(1) of this section. However, if an action is brought pursuant to
section 6110(f)(3) to restrain disclosure of any portion of such written
determination or background file document the disputed portion of such
written determination or background file document shall be made open to
or available for inspection pursuant to paragraph (c)(2)(i) of this
section.
(2) Limitations -- (i) Court order. The portion of the text of any
written determination or background file document that was subject to an
action pursuant to section 6110(f)(3) to restrain disclosure in which
the court determined that such disclosure should not be restrained shall
be made open to or available for inspection within 30 days of the date
that the court order becomes final. However, in no event shall such
portion of the text of such written determination or background file
document be made open to or available for inspection earlier than 75
days after the date on which the Commissioner mails the notice of
intention to disclose required by section 6110(f)(1) and paragraph
(a)(1) of this section. Such 30-day period may be extended for such
time as the court finds necessary to allow the Commissioner to comply
with its decision. Any portion of a written determination or background
file document which a court orders open to public inspection or subject
to inspection upon written request pursuant to section 6110(f)(4) or
disclosed pursuant to section 6110(d)(3) shall be made open or subject
to inspection or disclosed within such time as the court provides.
(ii) Postponement based on incomplete status of underlying
transaction -- (A) Initial period not to exceed 90 days. The time
period set forth in paragraph (c)(1) of this section within which a
written detemination shall be made open to public inspection or
available for inspection upon written request shall be extended, upon
the written request of the person to whom such written determination
pertains or the authorized representative of such person, until 15 days
after the date on which the transaction set forth in the written
determination is scheduled to be completed, but such day shall be no
later than 180 days after the date on which the Commissioner mails the
notice of intention to disclose.
(B) Additional period. The time period determined pursuant to
paragraph (c)(2)(ii)(A) of this section shall be further extended upon
an additional written request, if the Commissioner determines from the
information contained in such request that good cause exists to warrant
such extension. This further extension shall be until 15 days after the
date on which the transaction set forth in the written determination is
expected to be completed, but such day shall be no later than 360 days
after the date on which the Commissioner mails the notice of intention
to disclose. The good cause required by this paragraph (B) exists if
the person requesting the delay in inspection demonstrates to the
satisfaction of the Commissioner that it is likely that the lack of such
extention will cause interference with consummation of the pending
transaction.
(C) Written request for extension. The written request for extension
of the time when a written determination is to be made open to public
inspection or available for inspection upon written request shall set
forth the date on which it is expected that the underlying transaction
will be completed, and, with respect to the additional extension
described in paragraph (c)(2)(ii)(B) of this section, set forth the
reason for requesting such extension. A request for extension of time
may not be submitted until the notice of intention to disclose is mailed
and must be received by the Internal Revenue Service office which issued
such written determination no later than --
(1) In the case of the initial extension, 60 days after the date on
which the Commissioner mails the notice of intention to disclose, or
(2) In the case of the additional extension, 15 days before the day
on which, for purposes of paragraph (c)(2)(ii)(A) of this section, the
transaction set forth in the written determination was expected to have
been completed.
(D) Notice and determination of actual completion. If an extension
of time for inspection has been granted, and the transaction is
completed prior to the day on which it was expected to have been
completed, the Internal Revenue Service office which issued such written
determination shall be so notified by the person who requested such
extension. In such event, the written determination shall be made open
to public inspection or available for inspection upon written request on
the earlier of (1) 30 days after the day on which the Commissioner is
notified that the transaction is completed, or (2) the day on which the
written determination was scheduled to be made open to public inspection
or available for inspection upon written request pursuant to paragraph
(c)(2)(ii) of this section. Similarly, if the Commissioner determines
that the transaction was completed prior to the day on which it was
expected to have been completed, even if the person requesting such
extension has not so notified the Internal Revenue Service, the written
determination shall be made open to public inspection or available for
inspection upon written request on the earlier of (1) the day which is
30 days after the Commissioner ascertains that the transaction is
completed sooner than has been expected, or (2) the day on which the
written determination was scheduled to be made open to public inspection
or available for inspection upon written request pursuant to paragraph
(c)(2)(ii) of this section.
(d) Actions to obtain additional disclosure -- (1) Administrative
remedies. Under section 6110(f)(4) any person may seek to obtain
additional disclosure of information contained in any written
determination or background file document that has been made open or
subject to inspection. A request for such additional disclosure shall
be submitted to the Internal Revenue Service office which issued such
written determination, or to which the request for inspection of such
background file document has been submitted pursuant to
301.6110-1(c)(4), and must contain the file number of the written
determination or a description of the background file document
(including the file number of the related written determination), the
deleted information which in the opinion of such person should be open
or subject to inspection, and the basis for such opinion. If the
Internal Revenue Service determines that the request constitutes a
request for disclosure of the name, address, or the identifying numbers
described in 301.6110-3(a)(1)(i) of any person, it shall within a
reasonable time notify the person requesting such disclosure that
disclosure will not be made. If the Internal Revenue Service determines
that the request or any portion thereof constitutes a request for
disclosure of information other than the name, address, or the
identifying numbers described in 301.6110-3(a)(1)(i) of any person, it
shall send a notice that such additional disclosure has been requested
to any person to whom the written determination pertains or background
file document relates, and to all persons who are identified by name and
address in the written determination or background file document.
Notice that such persons have been contacted shall be sent to the person
requesting the additional disclosure. The notice that additional
disclosure has been requested shall state that the Internal Revenue
Service has determined that additional disclosure of information other
than the name, address, or the identifying numbers described in
301.6110-3(a)(1)(i) of any person has been requested, inform the
recipient of the notice that the person seeking the additional
disclosure has the right under section 6110(f)(4) to bring a judicial
action to attempt to compel such disclosure, and request the recipient
of the notice to reply within 20 days by submitting a statement of
whether or not the recipient of the notice agrees to the requested
disclosure or portion thereof. If all persons to whom a notice is sent
pursuant to this paragraph (d)(1) of this section agree to disclose the
requested information or any portion thereof, the person seeking such
disclosure will be so informed; the written determination or background
file document shall be accordingly revised to disclose the information
with respect to which an agreement to disclose has been reached. If any
of the persons to whom a notice is sent pursuant to this paragraph
(d)(1) of this section do not agree to the additional disclosure or do
not respond to such notice, the Internal Revenue Service shall within a
reasonable time so notify the person requesting such disclosure, and
deny the request for additional disclosure.
(2) Judicial remedy. Except as provided in paragraph (d)(3) of this
section, any person who seeks to obtain additional disclosure of
information contained in any written determination or background file
document may file a petition pursuant to section 6110(f)(4) in the
United States Tax Court or a complaint in the United States District
Court for the District of Columbia for an order requiring that such
information be made open or subject to inspection. Nothing in this
paragraph shall prevent the Commissioner from disposing of written
determinations and related background file documents pursuant to
301.6110-7(a).
(3) Limitations on right to bring judicial action -- (i) Exhaustion
of administrative remedies. No petition or complaint shall be filed
pursuant to section 6110(f)(4) unless the administrative remedies
provided by paragraph (d)(1) of this section have been exhausted.
However, if the Internal Revenue Service does not approve or deny the
request for additional disclosure within 180 days after the request is
submitted, the person making the request may file a petition pursuant to
section 6110(f)(4).
(ii) Actions to obtain identity. No petition or complaint shall be
filed pursuant to section 6110(f)(4) to obtain disclosure of the
identity of any person to whom a written determination on which a
third-party communication notation has been placed pursuant to
301.6110-4(a) pertains. Such actions shall be brought pursuant to
section 6110(d)(3).
(4) Required notice. If a proceeding is commenced pursuant to
section 6110(f)(4) with respect to any written determination or
background file document, the Secretary shall send notice of the
commencement of such proceeding to any person to whom the written
determination pertains or background file document relates, and to all
persons who are identified by name and address in the written
determination or background file document. The notice shall be sent, by
registered or certified mail, to the last known address of the persons
described in this paragraph (d)(4) within 15 days after notice of the
petition or complaint filed pursuant to section 6110(f)(4) is served on
the Secretary.
(5) Intervention. Any person who is entitled to receive notice
pursuant to paragraph (d)(4) of this section shall have the right to
intervene in any action brought pursuant to this section. If
appropriate, such person shall be permitted to intervene anonymously.
(T.D. 7524, 42 FR 63415, Dec. 16, 1977)
26 CFR 301.6110-6 Written determinations issued in response to requests
submitted before November 1, 1976.
(a) Inspection of written determinations and background file
documents -- (1) General rule. Except as provided in this section, the
text of any written determination issued in response to a request
postmarked or hand delivered before November 1, 1976 and any related
background file document shall be open or subject to inspection in
accordance with the rules in 301.6110-1 through 301.6110-5 and
301.6110-7. However, the rules in 301.6110-4 do not apply to inspection
under this section. The rules in 301.6110-5 (a), (b) and (c) also do
not apply, except with respect to background file documents.
(2) Exclusions. The Following written determinations are not open or
subject to inspection under this section.
(i) Written determinations with respect to matters for which the
determination of whether public inspection should occur is made under
section 6104. Some of these matters are listed in 301.6110-1(a).
(ii) Written determinations issued before September 2, 1974, dealing
with the qualification of a plan described in section 6104(a)(1)(B)(i)
or the exemption from tax under section 501(a) of an organization
forming part of such a plan.
(iii) Written determination issued pursuant to requests submitted
before November 1, 1976 with respect to the exempt staus under section
501(a) of organizations described in section 501 (c) or (d), the status
of organizations as private foundations under section 509(a), or the
status of organizations as operating foundations under section
4942(j)(3).
(iv) General written determinations that relate solely to accounting
or funding periods and methods, as defined in 301.6110-1(b)(3).
(v) Determination letters.
(3) Items that may be inspected only under certain circumstances --
(i) Background file documents. A background file document relating to a
particular written determination issued in response to a request
submitted before November 1, 1976 shall not be subject to inspection
until the related written determination is open to public inspection or
available for inspection, and then only if a written request pursuant to
301.6110-1(c)(4) is made for inspection of the background file
document. However, the following background file documents are not open
or subject to inspection:
(A) Background file documents relating to general written
determinations issued before July 5, 1967.
(B) Background file documents relating to written determinations
described in paragraph (a)(2) of this section.
(ii) General written determinations issued before July 5, 1967.
General written determinations issued before July 5, 1967 shall not be
subject to inspection until all other written determinations issued in
response to requests postmarked or hand delivered before November 1,
1976 that are open to inspection under this section have been made open
to public inspection, and then only if a written request pursuant to
301.6110-1(c)(4) is made for inspection of the written determination.
In this regard, the request for inspection must also contain the section
of the Internal Revenue Code in which the requester is interested and
the dates of issuance of the written determinations.
(b) Notice and time requirements, and actions to restrain disclosure
-- (1) Notice -- (i) General rule. Before a written determination is
made open to public inspection and before a particular written
determination is subject to inspection in response to the first written
request therefor, the Commissioner shall publish in the Federal Register
a notice that the written determination is to be made open or subject to
inspection. Notices with respect to written determinations, other than
those described in paragraph (a)(3)(ii) of this section, shall be
published at the earliest practicable time after this regulation is
adopted as a Treasury decision. Notices with respect to written
determinations subject to inspection upon written request shall be
published within a reasonable time after the receipt of the first
written request for inspection thereof, but no sooner than the day as of
which all other written determinations open to public inspection under
this section have been made open to public inspection. Notices with
respect to background file documents shall be sent in accordance with
the rules in 301.6110-5(a) and will be mailed by the Internal Revenue
Service to the most recent addresses of the persons to whom the
background file document relates that are in the written determination
file.
(ii) Sequence of notices. Notices with respect to written
determinations, other than general written determinations issued before
July 5, 1967, shall be published in the following order. The first
category is notices with respect to reference written determinations
issued under the Internal Revenue Code of 1954. The second category is
notices with respect to general written determinations issued after July
4. 1967. The third category is notices with respect to reference
written determinations issued under the Internal Revenue Code of 1939 or
corresponding provisions of prior law. Within a category, the
Commissioner may publish notices individually or for groups of written
determinations arranged according to the jurisdictions of the ruling
branches in the Office of the Assistant Commissioner (Technical) and the
Assistant Commissioner (Employee Plans and Exempt Organizations), as the
Commissioner may find reasonable. To the extent practicable, notices
published individually shall be published in the reverse order of the
issuance of the written determinations for which they are published,
starting with the most recent written determination issued. To the
extent practicable, each group shall consist of consecutively issued
written determinations. Notices for groups shall be published, to the
extent practicable, in the reverse order of the time period of issuance
of the written determinations in each group, starting with the most
recent time period.
(iii) Contents of notice. The notice required by paragraph (b)(1)(i)
of this section shall:
(A) Identify by subject matter description and dates of issuance the
written determinations that the Commissioner proposes to make open or
subject to inspection.
(B) State that the written determinations will be made open or
subject to inspection pursuant to section 6110(h),
(C) State that the persons to whom the written determinations pertain
have the right to seek administrative remedies under paragraph
(b)(2)(ii) of this section and to commence judicial proceedings under
section 6110(h)(4) within indicated time periods,
(D) State that there exist the possibilities that someone might
request additional disclosure under section 6110(f)(4) and that someone
might request inspection of a related background file document, and
(E) State that any notice that must be mailed by the Internal Revenue
Service will be sent to the most recent address of the person to whom
the notice must be sent that is in the relevent written determination
file.
(2) Actions to restrain disclosure -- (i) Information on written
determinations described by notice. Any person may, within 15 days
after the Commissioner publishes in the Federal Register a notice of
intention to disclose a written determination under section 6110(h),
request the Internal Revenue Service to provide certain information.
This information includes whether any of the written determinations
described by the notice is one that was issued to the person requesting
this information. The Internal Revenue Service will also inform the
person whether any of the written determinations described by the notice
is one that was issued to a person with respect to whom the person
requesting this information is a successor in interest executor or
authorized representative. However, in order to do so, the Internal
Revenue Service must be given the name and taxpayer identifying number
of this other person and documentation of the relationship between that
person and the person requesting the information. If the person
requesting this information is a person to whom a written determination
described by the notice pertains, or a successor in interest, executor,
or authorized representative of that person, the Internal Revenue
Service will also provide the person with a copy of the written
determination on which is indicated the material that the Commissioner
proposes to delete under section 6110(c) and any substitution proposed
to be made therefor.
(ii) Administrative remedies. Any person to whom a written
determination described by the notice in the Federal Register pertains,
and any successor in interest, executor or authorized representative of
that person may pursue the administrative remedies described in this
paragraph (b)(2)(ii). If after receiving the information described in
paragraph (b)(2)(i) of this section, the person pursuing these
administrative remedies desires to protest the disclosure of certain
information in the written determination, that person must within 35
days after the notice is published submit a written statement
identifying those deletions not made by the Internal Revenue Service
which the person believes should have been made. The person pursuing
these administrative remedies must also submit a copy of the version of
the written determination proposed to be open or subject to inspection
on which that person indicates, by the use of brackets, the deletions
which the person believes should have been made. The Internal Revenue
Service shall, within 20 days after receipt of the response by the
person pursuing these administrative remedies, mail to that person its
final administrative conclusion with respect to the deletions to be
made.
(iii) Judicial remedy. Except as provided in paragraph (b)(2)(iv) of
this section, any person permitted to resort to administrative remedies
under paragraph (b)(2)(ii) of this section may, if that person proposed
any deletion not made under section 6110(c) by the Commissioner, file a
petition in the United States Tax Court under section 6110(h)(4) for a
determination with respect to the proposed deletion. If appropriate,
the petition may be filed anonymously. Any petition filed under section
6110(h)(4) must be filed within 75 days after the date on which the
Commissioner publishes in the Federal Register the notice of intention
to disclose required under section 6110(h)(4).
(iv) Limitations on right to bring judicial actions. No petition
shall be filed under section 6110(h)(4) unless the administrative
remedies provided by paragraph (b)(2)(ii) of this section have been
exhausted. However, under two circumstances the petition may be filed
even though the administrative remedies have not been exhausted. The
first circumstance is if the petitioner requests the information
described in paragraph (b)(2)(i) of this section within 15 days after
the notice of intention to disclose is published in the Federal
Register, but does not receive it within 30 days after the notice is
published. The other circumstance is if the petitioner submits the
statement of deletions within 35 days after the notice is published, but
does not receive the final administrative conclusion of the Internal
Revenue Service within 65 days after the notice is published. No
judicial action with respect to any written determination shall be
commenced under section 6110(h)(4) by any person who has received a
notice with respect to the written determination under paragraph
(b)(2)(v) of this section.
(v) Required notice. If a proceeding is commenced under section
6110(h)(4) with respect to any written determination, the Secretary
shall send notice of the commencement of the proceeding to any person to
whom the written determination pertains. No notice is required to be
sent to persons who have filed the petition that commenced the
proceeding under section 6110(h)(4) with respect to the written
determination. The notice shall be sent, by registered or certified
mail, to the last known address of the persons described in this
paragraph (b)(2)(v) within 15 days after notice of the petition filed
under section 6110(h)(4) is served on the Secretary.
(vi) Intervention. Any person who is entitled to receive notice
under paragraph (b)(2)(v) of this section has the right to intervene in
any action brought under this paragraph (b)(2). If appropriate, this
person shall be permitted to intervene anonymously.
(vii) Background file documents. The following qualifications of the
rules in 301.6110-5(b) apply with respect to the restraint of
disclosure of background file documents related to written
determinations to which this section applies. First, the administrative
remedies described in 601.105 (b)(5)(iii)(i) and 601.201(e)(11) of
this chapter do not apply. Second, the rule in 601.105(b)(5)(vi)(f)
and 601.201(e)(16) that the Internal Revenue Service will not consider
the deletion of material not proposed for deletion prior to the issuance
of the written determination does not apply.
(3) Time at which open to public inspection -- (i) General rule.
Except as otherwise provided in paragraph (b)(3)(ii) of this section,
the text of any written determination open to public inspection or
available for inspection upon written request under section 6110(h)
shall be made open to or available for inspection no earlier than 90
days and no later than 120 days after the date on which the Commissioner
publishes in the Federal Register the notice of intention to disclose
required under section 6110(h)(4). However, if an action is brought
under section 6110(h)(4) to restrain disclosure of any portion of a
written determination, the disputed portion of that written
determination shall be made open to or available for inspection under
paragraph (b)(3)(ii) of this section.
(ii) Limitation on account of court order. The portion of the text
of any written determination that was subject to an action under section
6110(h)(4) to restrain disclosure in which the court determined that the
disclosure should not be restrained shall be made open to or available
for inspection within 30 days of the date that the court order becomes
final. However, in no event shall that portion of the text of that
written determination be made open to or available for inspection
earlier than 90 days after the date on which the Commissioner publishes
in the Federal Register the notice of intention to disclose required by
section 6110(h)(4) and paragraph (b)(1) of this section. This 30-day
period may be extended for such time as the court finds necessary to
allow the Commissioner to comply with its decision. Any portion of a
written determination which a court orders open to public inspection or
subject to inspection upon written request under section 6110(f)(4)
shall be open or subject to inspection within such time as the court
provides.
(iii) Background file documents. The rules in 301.6110-5(c)(2)(ii)
do not apply with respect to the time at which background file documents
related to written determinations to which this section applies are
subject to inspection.
(T.D. 7548, 43 FR 20791, May 15, 1978)
26 CFR 301.6110-7 Miscellaneous provisions.
(a) Disposition of written determinations and background file
documents -- (1) Reference written determinations. The Internal Revenue
Service shall not dispose of any reference written determinations or
related background file documents. The Commissioner may reclassify
reference written determinations as general written determinations if
the classification as reference was erroneous or if the Commissioner
determines that such written determination no longer has any significant
reference value. Notwithstanding the preceding sentence, the
Commissioner shall not classify as a general written determination any
written determination which is determined to be the basis for a
published revenue ruling unless such revenue ruling is obsoleted,
revoked, superseded or otherwise held to have no effect.
(2) General written determinations. The Internal Revenue Service may
dispose of general written determinations and any background file
document relating to such written determination pursuant to its
established records disposition procedures. Disposition of a written
determination shall not occur earlier than 3 years after the date on
which such written determination is made open to public inspection or
available for inspection upon written request. Disposition of a
background file document shall not occur earlier than 3 years after the
date on which the related written determination is made open to public
inspection or available for inspection upon written request.
(b) Precedential status of written determinations open to public
inspection. A written determination may not be used or cited as
precedent, but the rule set forth in this paragraph shall not apply to
change the precedential status, if any, of written determinations issued
with respect to taxes imposed by subtitle D of the Internal Revenue Code
of 1954.
(c) Civil remedies -- (1) Liability for failure to make deletions or
to conform to time limitations -- (i) Creation of remedy. An exclusive
remedy against the Commissioner shall exist in the Court of Claims for
--
(A) The person to whom the written determination pertains whenever
the Commissioner fails to act in accordance with the time requirements
of section 6110(g), and
(B) The person to whom the written determination pertains and any
person identified in such written determination whenever the
Commissioner fails to make deletions required by section 6110(c) if as a
consequence of such failure there is disclosed the identity of such
person or other information with respect to such person that is reqiured
to be deleted pursuant to section 6110(c).
(ii) Limitations. The remedy provided in paragraph (c)(1)(i) of this
section for failure to make deletions shall be available only if --
(A) The failure of the Commissioner to make the deletions required by
section 6110(c) is intentional or willful,
(B) The Commissioner fails to make any deletion required by section
6110(c) which the Commissioner has agreed to make, or
(C) The Commissioner fails to make any deletion which a court has
ordered to be made pursuant to section 6110(f)(3).
(iii) Damages. In any suit brought pursuant to paragraph (c)(1)(i)
of this section in which the court determines that an employee of the
Internal Revenue Service intentionally or willfully failed to make a
deletion required by section 6110(c), or intentionally or willfully
failed to act in accordance with the time requirements of section
6110(g), the United States shall be liable, to the person described in
paragraph (c)(1)(i) of this section who brought the action, in an amount
equal to the sum of --
(A) Actual damages sustained by such person but in no case shall such
person be entitled to receive less than the sum of $1,000.
(B) The costs of the action, and
(C) Reasonable attorney's fees as determined by the court.
(2) Liability for making additional disclosure of information. The
Commissioner shall not be liable for making any additional disclosure
ordered pursuant to an action described in 301.6110-5(d)(2) if the
notice required by 301.6110-5(d)(4) is sent.
(3) Obligation to defend action for additional disclosure. The
Commissioner shall not be required to defend any action brought to
obtain additional disclosure pursuant to section 6110(f)(4) if the
notice required by 301.6110-5(d)(4) is sent.
(4) Obligation to make deletions. The Commissioner shall be
obligated to make only those deletions required by section 6110(c) which
he has agreed to make, those which a court has ordered to be made
pursuant to 301.6110-5(b)(2) and those the omission of which would be
intentional or willful.
(d) Fees -- (1) General rule -- (i) Copies. The Commissioner may
prescribe fees pursuant to 607.702(f)(4) of this chapter for the costs
of furnishing copies of material open to public inspection or subject to
inspection upon written request pursuant to section 6110.
(ii) Preparation of information available upon request. The
Commissioner may prescribe fees pursuant to 601.702(f) of this chapter
for the costs of searching for and making deletions from any written
determinations and background fi documents that are subject to
inspection only upon written request pursuant to 301.6110-1(b).
(2) Reduction or waiver of fees -- (i) Public interest. The
Commissioner shall reduce or waive the fees described in paragraph
(d)(1) of this section if the Commissioner determines that furnishing
copies of, searching for, or making deletions from any written
determination or background file document primarily benefits the general
public, as described in 601.702(f)(2)(ii)(B) of this chapter.
(ii) Previous requests. The Commissioner may waive the fees
described in paragraph (d)(1) of this section for searching for any
written determination or background file document if the search for such
written determination or background file document was made pursuant to a
previous request for inspection thereof. The Commissioner shall waive
the fees described in paragraph (d)(1) of this section for making
deletions from any written determination or background file document if
the making of such deletions from such written determination or
background file document was made pursuant to a previous request for
inspection thereof. Nothing in this (d)(2)(ii) shall prevent the
Commissioner from prescribing fees for making additional deletions from
such written determination or background file document pursuant to
301.6110-5(b).
(T.D. 7524, 42 FR 63417, Dec. 16, 1977)
26 CFR 301.6111-1T Questions and answers relating to tax shelter
registration.
The following questions and answers relate to the tax shelter
registration requirements of section 6111 of the Internal Revenue Code
of 1954, as added by section 141(a) of the Tax Reform Act of 1984 (Pub.
L. 98-369, 98 Stat. 678).
The following table of contents is provided as part of these
temporary regulations to help the reader locate relevant provisions.
The headings are to be used only as a matter of convenience and have no
substantive effect.
Overview of tax shelter registration, A-1
Overview of applicable penalties, A-2
Effect of registration, A-3
Definition of tax shelter, A-4
Definition of tax shelter ratio, A-5
Definition of amount of deductions and credits, A-6
Definition of year, A-7
Definition of explicit representation, A-8
Definition of inferred representation, A-9
Effect of qualified representation, A-10
Representation regarding interest deduction, A-11
Representation regarding unintended events, A-12
Definition of investment base, A-13
Amounts eliminated from investment base, A-14
Effect of different ratios for different investors, A-15
Effect of alternate financing arrangements, A-16
Federal law regulating securities, A-17
State law regulating securities, A-18
Exemptions from federal securities registration, A-19
Exemptions from state securities registration, A-20
Definition of substantial investment, A-21
Aggregation rules, A-22 and A-23
Investments excepted from tax shelter registration, A-24
Certain persons not treated as investors, A-24A
Tax shelter organizer, A-25 and A-26
Principal organizer, A-27
Participant in the organization, A-28 Manager, A-29
Exception for certain unrelated persons, A-30
Sellers, A-31
Absence of representations by organizer, A-32
Exception for suport services, A-33
Principal organizer and a participant in the organization, A-34
Manager who has not signed designation agreement, A-35
Seller who has not signed designation agreement, A-36
Person acting in multiple capacities, A-37
Designation agreement (designated organizer), A-38
Person who has signed designation agreement, A-39
Date registration is required, A-40
Requirement to provide registration notice to sellers and others,
A-41
Definition of sale of an interest, A-42
Definition of offering for sale, A-43
No requirement to submit revised registration form A-44 -- A-45
Information reported on an amended application, 45A
Effect of resale of an asset, A-46
When registration is complete, A-47
Separate forms required for certain aggregated investments, A-48
Applicability of section 7502, A-49
Required investor disclaimer, A-50
Who must furnish number, A-51
When number must be furnished, A-52
Form required to furnish number, A-53 and A-54
Requirement to include registration number on investor's return, A-55
and A-57
Special rules for projected income investments, A-57A
Definitions relating to projected income, investments A57B -- A-57D
Tax shelters ineligible for the special rules, A-57E
Consequences of bad faith or unreasonable projections, A-57F
When a tax shelter ceases to be a projected income investment, A-57G
Special rule for registration, A-57H
Special rule for furnishing registration number, A-57I
Special rule for including registration number on tax return, A-57J
Effective dates, A-58 and A-60
26 CFR 301.6111-1T In General
Q-1. What is tax shelter registration?
A-1. Tax shelter registration is a new provision of the Internal
Revenue Code that affects organizers, sellers, investors, and certain
other persons associated with investments that are considered tax
shelters. The new provision imposes the following three requirements.
First, a tax shelter must be registered by the tax shelter organizer.
(See A-4 of this section for the definition of a tax shelter. See A-25
through A-39 of this section for rules relating to tax shelter
organizers. See A-26 of this section for rules regarding when the seller
of an interest in a tax shelter is treated as the tax shelter
organizer.) Registration is accomplished by filing a properly completed
Form 8264 with the Internal Revenue Service. The Internal Revenue
Service will assign a registration number to each tax shelter that is
registered. Second, any person who sells or otherwise transfers an
interest in a tax shelter must furnish the registration number of the
tax shelter to the purchaser or transferee of the interest. (See A-51
through A-54 of this section for the time and manner in which the number
must be furnished.) Third, any person who claims a deduction, loss,
credit, or other tax benefit or reports any income from the tax shelter
must report the registration number of the tax shelter on any return on
which the deduction, loss, credit, benefit, or income in included. (See
A-55 through A-57 of this section for rules relating to the reporting of
tax shelter registration numbers.)
Q-2. Are penalties provided for failure to comply with the
requirements of tax shelter registration?
A-2. Yes. Separate penalties are provided for failure to satisfy any
of the requirements set forth in A-1 of this section. See A-1 of
301.6707-1T for the penalty for failure to register a tax shelter and
A-8 of 301.6707-1T for the penalty for filing false or incomplete
information will respect to the registration of a tax shelter. See A-12
of 301.6707-1T for the penalty for failure to furnish the tax shelter
registration number to purchasers or transferees. See A-13 of
301.6707-1T for the penalty for failure to report the tax shelter
registration number on a tax return on which a deduction, loss, credit,
income, or other tax benefit is included. In addition, criminal
penalties may be imposed for willful noncompliance with the requirements
of tax shelter registration. See, for example, section 7203, relating
to willful failure to supply information, and section 7206, relating to
fraudulent and false statements.
Q-3. Does registration of a tax shelter with the Internal Revenue
Service indicate that the Internal Revenue Service has reviewed,
examined, or approved the tax shelter or the claimed tax benefits?
A-3. No. Moreover, any representation to prospective investors that
states that a tax shelter is registered with the Internal Revenue
Service (or that registration is being sought) must include a legend
stating that registration does not indicate that the Internal Revenue
Service has reviewed, examined or approved the tax shelter or any of the
claimed tax benefits. (See A-50 of this section for the form and
content of the legend.)
26 CFR 301.6111-1T Tax Shelter Defined
Q-4. What investments are tax shelters that are required to be
registered with the Internal Revenue Service?
A-4. A tax shelter is any investment that meets the following two
requirements:
(I) The investment must be one with respect to which a person could
reasonably infer, from the representations made or to be made in
connection with any offer for sale of any interest in the investment,
that the tax shelter ratio for any investor may be greater than 2 to 1
as of the close of any of the first 5 years ending after the date on
which the investment is offered for sale.
(II) The investment must be (i) required to be registered under a
federal or state law regulating securities, (ii) sold pursuant to an
exemption from registration requiring the filing of a notice with a
federal or state agency regulating the offering or sale of securities,
or (iii) a substantial investment.
An investment that satisfies these two requirements is considered a
tax shelter for registration purposes regardless of whether it is
marketed or customarily designated as a tax shelter. See A-5 of this
section for the definition of tax shelter ratio. See A-17 and A-18 of
this section for the definition of an investment required to be
registered under a federal or state law regulating securities. See A-19
and A-20 of this section for the definition of an investment sold
pursuant to an exemption from registration requiring the filing of a
notice. See A-21 of this section for the definition of a substantial
investment.
26 CFR 301.6111-1T Tax Shelter Ratio
Q-5. What does the term ''tax shelter ratio'' mean?
A-5. The term ''tax shelter ratio'' means, with respect to any year,
the ratio that the aggregate amount of deductions and 200 percent of the
credits that are or will be represented as potentially allowable to an
investor under subtitle A of the Internal Revenue Code for all periods
up to (and including) the close of such year, bears to the investment
base for such investor as of the close of such year.
26 CFR 301.6111-1T Deductions and Credits Represented as Potentially
Allowable
Q-6. What do the terms ''amount of deductions'' and ''credits'' mean?
A-6. The term ''amount of deductions'' means the amount of gross
deductions and other similar tax benefits potentially allowable with
respect to the investment. The gross deductions are not to be offset by
any gross income to be derived or potentially derived from the
investment. Thus, the term ''amount of deductions'' is not equvalent to
the net loss, if any, attributable to the investment. The term
''credits'' means the gross amount of credits potentially allowable with
respect to the investment without regard to any possible tax liability
resulting from the investment or any potential recapture of the credits.
Q-7. What does the term ''year'' mean for purposes of determining the
tax shelter ratio?
A-7. The term ''year'' means the taxable year of a tax shelter, or if
the tax shelter has no taxable year, the calendar year.
Q-8. Under what circumstances is a deduction or credit considered to
be represented as being potentially allowable to an investor?
A-8. A deduction or credit is considered to be represented as being
potentially allowable to an investor if any statement is made (or will
be made) in connection with the offering for sale of an interest in an
investment indicating that a tax deduction or credit is available or may
be used to reduce federal income tax or federal taxable income.
Representations of tax benefits may be oral or written and include those
made at the time of the initial offering for sale of interests in the
investment, such as advertisements, written offering materials,
prospectuses, or tax opinions, and those that are expected to be made
subsequent to the initial offering. Representations are not confined
solely to statements regarding actual dollar amounts of tax benefits,
but also include general representations that tax benefits are available
with respect to an investment. Thus, for example, an advertisement
stating that ''purchase of restaurant includes trade fixtures (5-year
write-off and investment tax credit)'' constitutes an explicit
representation of tax benefits.
Q-9. If a deduction or credit is not explicitly represented as being
potentially allowable to an investor may it be inferred as a represented
tax benefit that is includible in the tax shelter ratio?
A-9. Yes. Although some explicit representation concerning tax
benefits is necessary before an investment may be considered a tax
shelter, once an explicit representation is made (or will be made)
regarding any tax benefit, all deductions or credits typically
associated with the investment will be inferred to have been represented
as potentially allowable. Thus, the tax shelter ratio will be
determined with reference to those tax benefits that are explicitly
represented as being potentially allowable as well as all other tax
benefits that are typically associated with the investment. The amount
of each deduction or credit that is includible in the tax shelter ratio,
if not specifically represented as to amount, should be reasonably
estimated based on representations of economic value or economic
projections, if any, or on any other information available to the tax
shelter organizer. Reasonable estimates of deductions or credits may
take into account past experience with similar investments. Reasonable
estimates must assume use of the most accelerated allowable basis for
cost recovery deductions.
As an example of the application of this A-9, assume that an
advertisement explicitly states that a building is eligible for the
investment tax credit for rehabilitation of a certified historic
structure, but makes no mention of cost recovery deductions,
amortization deductions for construction period interest and taxes, real
estate taxes after construction, ongoing maintenance expenses, or other
deductions or credits typically associated with a building. Reasonable
estimates of all such deductions and credits must be included with the
investment tax credit explicitly represented in determining the tax
shelter ratio associated with any investor's acquisition of an interest
in the building.
Q-10. Does the fact that representations are made (or to be made)
indicating that a deduction may be offset by income from the investment
or that a deduction or credit may be subject to recapture or may be
disallowed on audit affect the computation of the tax shelter ratio?
A-10. No. Deductions and credits represented as being potentially
allowable are taken into account in computing the tax shelter ratio
regardless of whether any qualifying statements are made.
Q-11. Is interest to be paid by an investor with respect to a debt
obligation incurred in connection with the acquisition of an interest in
the tax shelter included in the aggregate amount of deductions?
A-11. If a deduction for such interest is explicitly represented (or
will be represented) as being potentially allowable, the interest is
includible in the aggregate amount of the deductions. In addition, any
interest to be paid with respect to a debt obligation the proceeds of
which reduce the investment base (see A-14 of this section), regardless
of whether a deduction for such interest is explicitly represented as
being allowable, will be considered a deduction typically associated
with the investment (see A-9 of this section). Accordingly, such
interest will be considered to be represented as being potentially
allowable and must be taken into account in computing the tax shelter
ratio. If interest to be paid with respect to a debt obligation the
proceeds of which do not reduce the investment base (see A-14 of this
section) is not explicitly represented as being potentially allowable,
however, such interest will not be considered typically associated with
the investment and will not be taken into account in computing the tax
shelter ratio.
Q-12. If representations are made that part or all of an amount
invested in a tax shelter will be deductible upon the occurrence of an
unintended event, will the deduction be included in the aggregate amount
of deductions?
A-12. No. Thus, for example, if representations are made that a
person's investment in a tax shelter may give rise to a loss deduction
if the investment becomes worthless, the amount of the loss deduction
will not be included in the aggregate amount of deductions and will not
be taken into account in computing the tax shelter ratio. Similarly, if
representations are made that the costs of acquiring oil and gas lease
interests may be deductible if the lease is proved worthless by
abandonment, the amount of any loss deduction will not be included in
the aggregate amount of deductions.
26 CFR 301.6111-1T Investment Base
Q-13. What does the term ''investment base'' mean?
A-13. The term ''investment base'' means, with respect to any year
(as defined in A-7 of this section), means the cumulative amount of
money and the adjusted basis of other property (reduced by any liability
to which such other property is subject) that is unconditionally
required to be contributed or paid directly to the tax shelter on or
before the close of such year by an investor.
Q-14. What amounts must be eliminated from the investment base?
A-14. The investment base must be reduced by the following amounts:
(1) Any amount borrowed by the investor, even if borrowed on a
recourse basis, from any person who participated in the organization,
sale, or management of the investment or who has an interest (other than
an interest as a creditor) in the investment (''a participating
person'') or from any person who is related (as defined in section 168
(e)(4)) to a participating person, unless the amount is unconditionally
required to be repaid by the investor before the close of the year for
which the determination is being made. An amount will be considered
unconditionally required to be repaid by the investor only if any
offering material in which the borrowed amount is described and any
agreement to be entered into between a participating (or related) person
and the investor provide that the amount must be repaid (without
exception) by the end of the year for which the determination is being
made. An amount that is to be repaid only from earnings of the
investment is not an amount that is unconditionally required to be
repaid and is thus excluded from the investment base. In addition, an
amount is not unconditionally required to be repaid if the amount will
be (or is expected to be) reloaned to the investor during the 5-year
period ending after the date the investment is offered for sale.
(2) Any amount borrowed by the investor, even if borrowed on a
recourse basis, from a person, if the loan is arranged by a
participating (or related) person, unless the amount is unconditionally
required to be repaid by the investor before the close of the year for
which the determination is being made. Any borrowing that is
represented (orally or in writing) as being available from a specific
source will be treated as arranged by a participating (or related)
person, if the participating (or related) person provides a list of
investors, or information relating to the investment, to the lender or
otherwise informs the lender about the investment. However, in the case
of an amount borrowed on a recourse basis, the mere fact that a lender
who is actively and regularly engaged in the business of lending money
obtained information relating to the investment, from a participating
(or related) person, solely in response to a lender's request made in
connection with such borrowing or a prior loan to the investment, a
participating (or related) person, or an investor, will not, by itself,
result in a determination that the loans are arranged by a participating
(or related) person. Financing may be treated as arranged by a
participating (or related) person regardless of whether a commitment to
provide the financing is made by the lender to the participating or
related person.
For example, assume that a tax shelter organizer represents that the
purchase of an interest in a tax shelter may be financed with the
proceeds of a revolving loan, and the tax shelter organizer provides
investors with the names of several banks or other lending institutions
to which the tax shelter organizer has provided information about the
investment. Assume further that the information was not provided in
response to requests from such lending institutions made in connection
with prior loans. The proceeds of the revolving loan will be excluded
from the investment base because the loan is not unconditionally
required to be repaid and it is treated as having been arranged by the
tax shelter organizer.
(3) Any amount borrowed, directly or indirectly, from a lender
located outside the United States (''foreign-connected financing''), of
which a participating (or related) person knows or has reason to know.
(4) Any amounts to be held for the benefit of investors in cash, cash
equivalents, or marketable securities. An amount is to be held in cash
equivalents if the amount is to be held in a checking account, savings
account, mutual fund, certificate of deposit, book entry government
obligation, or any other similar account or arrangement. Marketable
securities are any securities that are part of an issue any portion of
which is traded on an established securities market and any securities
that are regularly quoted by brokers or dealers making a market.
(5) Any distributions (whether of cash or property) that will be made
without regard to the income of the tax shelter, but only to the extent
such distributions exceed the amount to be held as of the close of the
year in cash, cash equivalents, or marketable securities.
26 CFR 301.6111-1T Tax Shelter Ratio -- Miscellaneous
Q-15. Does an investment satisfy the requirement in A-4 (I) of this
section (''the tax shelter ratio requirement'') if it may be inferred
from the representations made or to be made to investors that the tax
shelter ratio for some, but not all, of the investors may be greater
than 2 to 1 as of the close of any one of the first five years?
A-15. Yes. If the tax shelter ratio for any one investor may be
greater that 2 to 1, the investment satisfies the the tax shelter ratio
requirement and is a tax shelter if it also meets the requirement in
A-4(II) of this section. Moreover, an investment will satisfy the tax
shelter ratio requirement even if the tax shelte ratio for a single
investor exceeds 2 to 1 as of the close of only one of the first five
years.
For purposes of computing the tax shelter ratio for a year, all
persons with interests in the investment are considered investors,
except that general partners in a limited partnership will not be
treated as investors in the partnership if the general partners'
aggregate interest in each item of partnership income, gain, loss,
deduction, and credit for such year is not expected to exceed 2 percent.
In determining the general partners' interest in such items, limited
partnership interests owned by general partners shall not be taken into
account. For purposes other than the computation of the tax shelter
ratio, however, all general partners will be treated as investors.
Thus, for example, a general partner with a 1 percent interest in a
limited partnership will be treated as an investor for the purpose of
determining whether the partnership is a substantial investment.
Q-16. If a person could reasonably infer from the representations
made or to be made about an investment that the tax shelter ratio for
the investment may be greater than 2 to 1 under one arrangement for
financing the purchase of an interest by an investor, but would be 2 to
1 or less under an alternative financing arrangement, does the
investment satisfy the tax shelter ratio requirement of A-4 (I) of this
section.
A-16. Yes. An investment satisfies the tax shelter ratio requirement
of A-4 (I) of this section if a person could reasonably infer from the
representations made or to be made that the tax shelter ratio for any
person may be greater than 2 to 1 as of the close of any one of the
first five years. The tax shelter ratio requirement is met if the tax
shelter ratio may exceed 2 to 1 under any type of financing arrangement
that is or will be represented as being available to investors.
26 CFR 301.6111-1T Investments Subject to Securities Regulation
Q-17. What is an investment that is required to be registered under a
federal law regulating securities?
A-17. An investment required to be registered under a federal law
regulating securities is any public offering of an investment that is
required to be registered under the Securities Act of 1933 (1933 Act),
the Investment Company Act of 1940, or any other federal law regulating
securities. An investment is required to be registered under the 1933
Act, the Investment Company Act, or any other federal law regulating
securities, if failure to register the investment would result in a
violations of the applicable federal law, whether or not the investment
has in fact been registered and, if proper notice has not been filed,
whether or not the investment could have been sold pursuant to an
exemption listed in A-19 of this section if such notice had been filed.
Q-18. What is an investment required to be registered under a state
law regulating securities?
A-18. An investment required to be registered under a state law
regulating securities is any investment required to be registered under
a blue sky law or other similar state statute regulating securities.
The term ''state'' includes the 50 states, the District of Columbia, and
possessions of the United States.
Q-19. What is an investment sold pursuant to an exemption from
registration requiring the filing of a notice with a federal agency
regulating the offering or sale of securities?
A-19. An investment sold pursuant to an exemption from registration
requiring the filing of a notice with such a federal agency is any
investment that is sold pursuant to an exemption from registration
requiring the filing or submission of a notice or other document with
the Securities and Exchange Commission or any other federal agency
regulating the offering or sale of securities, including the following
exemptions (and applicable filing):
(1) Regulation A, as promulgated under section (3)(b) of the 1933 Act
(Form 1(A)),
(2) Regulation B, as promulgated under section 3(b) of the 1933 Act
(Schedules A through F),
(3) Regulation D, as promulgated under sections (3)(b) and 4(2) of
the 1933 Act (Form D), and
(4) Any other statutory or regulatory exemption from registration
requiring the filing or submission of a notice or other document.
Q-20. What is an investment sold pursuant to an exemption from
registration requiring the filing of a notice with a state agency
regulating the offering or sale of securities?
A-20. An investment sold pursuant to an exemption from registration
requiring the filing of a notice with such a state agency is any
investment sold pursuant to an exemption under a blue sky law or other
similar state statutory or regulatory scheme that requires the filing or
submission of a notice or other document with such a state agency. See
A-18 of this section for the definition of state.
26 CFR 301.6111-1T Substantial Investment
Q-21. What is a substantial investment?
A-21. An investment is a substantial investment if the aggregate
amount that may be offered for sale to all investors exceeds $250,000
and 5 or more investors are expected. The aggregate amount offered for
sale is the aggregate amount to be received from the sale of interests
in the investment and includes all cash, the fair market value of all
property contributed, and the principal amount of all indebtedness
received in exchange for interests in the investment, regardless of
whether the proceeds of the indebtedness are included in the investment
base under A-14 of this section. For purposes of determining whether 5
or more investors are expected in an investment involving real property
(and related personal property) that is used as a farm (as defined in
section 2032A(e)(4)) for farming purposes (as defined in section
2032A(e)(5)), interests in the investment expected to be held by a
husband and wife, their children and parents, and the spouses of their
children (or any of them) will be treated as if the interests were to be
held by one investor. Thus, for example, interests in a farm that are
offered to two brothers and their wives would be treated as interests
offered to one investor. Such an investment could be a substantial
investment only if four or more persons who were not members of the
family were expected to be investors in the farm.
Q-22. Will an investment be considered a substantial investment if
the investment involves a number of parts each including fewer than 5
investors or an aggregate amount of $250,000 or less?
A-22. Yes, under the circumstances described in this A-22. For
purposes of determining whether investments are parts of a substantial
investment, similar investments offered by the same person or related
persons (as defined in section 168(e)(4)) are aggregated together.
Investments are considered similar if they involve similar principal
business assets and similar plans or arrangements. Investments that
include no business assets will be considered similar if they involve
similar plans or arrangements.
Similar investments are aggregated solely for the purpose of
determining whether investments involving fewer than 5 investors or an
aggregate amount of $250,000 or less are substantial investments. For
this purpose, similar investments are aggregated even though some, but
not all, of the investments are (i) required to be registered under a
Federal or State law regulating securities or are sold pursuant to an
exemption from securities registration requiring the filing of a notice
with a Federal or State agency regulating the offering or sale of
securities (i.e., required to be registered as tax shelters whether or
not a substantial investment) or (ii) substantial investments without
regard to aggregation.
Assume, for example, that a person develops similar arrangements
involving 8 different partnerships, each investing in a separate but
similar asset (such as a separate master recording or separate piece of
similar real estate), each with a different general partner and each
with 3 different limited partners. Assume further that the arrangements
of all the partnerships are similar. These partnerships involving
similar arrangements and similar assets would be aggregated together.
Thus, if each partner is expected to invest $11,000, there will be 32
investors (1 general partner plus 3 limited partners times 8
partnerships) and an aggregate investment of $352,000 (32 partners times
$11,000). Accordingly, each partnership will constitute part of a
substantial investment. If representations are made that $1,000 in tax
credits and $3,000 in deductions are available to each limited partner
in the first year and $10,000 of the cash invested was expected to be
the proceeds of a loan arranged by the organizer, the tax shelter ratio
as of the close of the first year (assuming there are no deductions or
credits typically associated with such investment, as described in A-9
of this section) would be 5 to 1 ($5,000 in total tax benefits and
$1,000 investment base). Accordingly, the organizer would be required
to register the partnerships with the Internal Revenue Service.
Q-23. If an investment involving fewer than 5 investors or an
aggregate amount of $250,000 or less is offered for sale and, at the
time of the offering, it is not known (and there is no reason to know)
that subsequent similar investments will be offered by the person who
made the first offering (or a related person), will subsequent similar
investments offered by that person (or a related person) be aggregated
with the first investment for purposes of determining whether the
investments constitute a substantial investment?
A-23. No. However, a tax shelter organizer will be presumed to have
known of any similar investments (as defined in A-22 of this section)
offered during the 12 months following the first offering of an
investment.
26 CFR 301.6111-1T Exceptions From Tax Shelter Registration
Q-24. Are there any investments that will not be subject to tax
shelter registration even if they satisfy the requirements of a tax
shelter (as defined in A-4 of this section)?
A-24. Yes. The following investments are not subject to tax shelter
registration:
(1) Sales of residences primarily to persons who are expected to use
the residences as their principal place of residence,
(2) Sales or leases or tangible personal property (other than master
sound recordings, motion picture or television films, videotapes,
lithograph plates, or other property relating to a literary, musical, or
artistic composition) by the manufacturer (or a member of an affiliated
group, within the meaning of section 1502, including the manufacturer)
of the property primarily to persons who are expected to use the
property in their principal active trade or business (see, however, A-32
and A-46 of this section for the additional rules applicable to a
purchaser of property described in this A-24 who organizes an investment
involving the property),
(3) Any other investment as specified by the Secretary in a
rule-related notice published in the Federal Register.
Q-24A. Under what other circumstances are particular sales or leases
of tangible personal property to certain persons or the performance of
particular services for certain persons exempt from tax shelter
registration?
A-24A. A person who, in the ordinary course of a trade or business,
sells or leases tangible personal property (other than collectibles (as
defined in section 408(m)(2)), master sound recordings, motion picture
or television films, videotapes, lithograph plates, or other property
that includes or relates to a literary, musical or artistic composition)
to a purchaser or lessee who is reasonably expected to use the property
either for a personal use or in the purchaser's or lessee's principal
active trade or business is not required for any purpose to treat such a
purchaser or lessee as an investor in a tax shelter. Property may be
reasonably expected to be used by a purchaser or lessee for personal use
only if sold or leased to the purchaser or lessee in a quantity that is
customary for such use. Similarly, a person who performs services for
another person in connection with the principal active trade or business
of the recipient of the services or for the recipient's personal use is
not required to treat the recipient as an investor in a tax shelter.
Persons who are not reasonably expected to use property or services
either in their principal active trade or business or for personal use
must be treated as tax shelter investors in the event the sales, leases,
or performance of services otherwise constitute a tax shelter.
Assume, for example, that an organizer forms Z corporation to feed
cattle and to provide services in connection with the cattle feeding
operations. Z will agree to serve customers with a minimum of 200 head
of cattle. The fee for the services is $20 per head. Feed for cattle
will cost $280 per head. Z represents that the service fee and the cost
of the feed may be financed by $5,000 of cash and $55,000 of proceeds of
a revolving recourse note that Z has arranged be available. Z provides
its services to 100 customers. Ninety-five of the customers are persons
whose principal active trade or business is reasonably expected to be
farming (as defined in section 464(e)(1)). Five of the customers are
not reasonably expected to engage in farming as their principal active
trade or business. Although all the individual investments involve
similar principal business assets and similar plans or arrangements,
only the 5 customers who are not reasonably expected to be in the
principal active trade or business of farming will be treated as
investors in a tax shelter and aggregated to determine whether a
substantial investment exists. Thus, there will be 5 investors and an
aggregate investment of $300,000. If representations are made that the
service fee and the cost of the feed are tax deductible, the tax shelter
ratio (assuming there are no deductions or credits typically associated
with such an investment, as described in A-9 of this section) would be
12 to 1 ($60,000 in total tax benefits and $5,000 investment base) and
the organizer would be required to register the five aggregated feeding
arrangements as a tax shelter. The registration number of the tax
shelter must be provided to the five customers treated as investors in
the tax shelter, but would not be required to be furnished to the
customers whose principal active trade or business is reasonably
expected to be farming.
26 CFR 301.6111-1T Persons Required To Register a Tax Shelter
Q-25. Who has the legal obligation to register a tax shelter?
A-25. A tax shelter organizer is obligated to register the tax
shelter.
Q-26. What is the definition of tax shelter organizer?
A-26. Several categories of persons may be tax shelter organizers.
In general, the term tax shelter organizer means a person principally
responsible for organizing a tax shelter. If a person principally
responsible for organizing a tax shelter has not registered the tax
shelter by the day on which interests in the shelter are first offered
for sale, any other person who participated in the organization of the
tax shelter will be treated as a tax shelter organizer. If neither a
person principally responsible for organizing the tax shelter nor any
other person who participated in the organization of a tax shelter has
registered the tax shelter by the day on which interests in the tax
shelter are first offered for sale, then any person who participates in
the management of the tax shelter at a time when the tax shelter is not
registered will be treated as a tax shelter organizer. Finally, if a
person participates in the sale of a tax shelter at a time when the
person knows or has reason to know that a tax shelter has not been
registered, that person will be treated as a tax shelter organizer. See
A-38 of this section for rules relating to the execution of an agreement
among persons who may be treated as tax shelter organizers to designate
one person to register a tax shelter.
Q-27. Who is a person principally responsible for organizing a tax
shelter?
A-27. A person principally responsible for organizing a tax shelter
(''principal organizer'') is any person who discovers, creates,
investigates, or initiates the investment, devises the business or
financial plans for the investment, or carries out those plans through
negotiations or transactions with others.
Q-28. What constitutes participation in the organization of a tax
shelter?
A-28. Participation in the organization of a tax shelter includes the
performance of any act (directly or through an agent) related to the
establishment of the tax shelter, including the following:
(1) Preparation of any document establishing the tax shelter (for
example, articles of incorporation, a trust instrument, or a partnership
agreement);
(2) Preparation of any document in connection with the registration
(or exemption from registration) of the tax shelter with any federal,
state, or local government body;
(3) Preparation of a prospectus, offering memorandum, financial
statement, or other statement describing the tax shelter;
(4) Preparation of a tax or other legal opinion relating to the tax
shelter;
(5) Preparation of an appraisal relating to the tax shelter;
(6) Negotiation or other participation on behalf of the tax shelter
in the purchase of any property relating to the tax shelter.
Q-29. What constitutes participation in the management of a tax
shelter?
A-29. Participation in the management of a tax shelter includes
managing the assets of the tax shelter, directing the business activity
of the tax shelter, or, depending on the form of the tax shelter, acting
as a general partner who actively participates in the management of a
partnership, a trustee of a trust, a director or an officer of a
corporation (including a corporate general partner of a partnership), or
performing activities similar to those performed by such a general
partner, a trustee, a director, or an officer.
Q-30. Will the performance of any act described in A-27 through A-29
of this section constitute participation in the organization or
management of a tax shelter if the person performing the act is
unrelated to the tax shelter (or any principal organizer of the tax
shelter) and does not participate in the entrepreneurial risks or
benefits of the tax shelter?
A-30. No. The performance of an act desbribed in A-27 through A-29 of
this section will not constitute participation in the organization or
management of a tax shelter unless the person performing the act is
unrelated to the tax shelter (or any principal organizer of the tax
shelter) or the person participates in the entrepreneurial risks or
benefits of the tax shelter. A person will be considered related to a
tax shelter if the person is related to the tax shelter or a principal
organizer of the tax shelter within the meaning of section 168(e)(4) or
is employed by the tax shelter or a principal organizer of the tax
shelter or has an interest (other than an interest as a creditor) in the
tax shelter. A person will be considered a participant in the
entrepreneurial risks or benefits of a tax shelter if the person's
compensation for performing an act described in A-27 through A-29 of
this section is contingent on any matter relating to the tax shelter
(e.g., the compensation is based in whole or in part upon (i) whether
interests in the tax shelter are actually sold or (ii) the number or
value of the units in the tax shelter that are sold), or if the person
will receive an interest in the tax shelter as part or all of the
person's compensation.
For example, assume that A forms Z partnership, a tax shelter for
which registration is required. Z hires the X law firm, none of the
partners of which is related to the tax shelter, to prepare the
documents necessary to register the offering of Z securities with the
Securities and Exchange Commission. X charges $100 an hour for its
services in connection with the preparation of the necessary documents,
and payment of the fee is not contingent. X will not be treated as a
participant in the organization of the tax shelter. If, however, X were
to charge a fee equal to 1 percent of the value of the units in the tax
shelter that are sold, X would be considered a participant in the
organization of the shelter.
As another example, assume that individual C is an attorney employed
by W corporation, the corporate general partner and principal organizer
of Z, and that C prepares the documents necessary to register the tax
shelter with the Securities and Exchange Commission. C will be treated
as having participated in the organization of the tax shelter regardless
of the way in which C's compensation is structured, because C, as an
employee, is related to the principal organizer of the tax shelter.
Q-31. What constitutes participation in the sale of a tax shelter?
A-31. Participation in the sale of a tax shelter includes any
marketing activities (directly or through an agent) with respect to an
investment, including the following:
(1) Direct contact with a prospective purchaser of an interest, or
with a representative or agent of a prospective purchaser, but only if
the contract relates to the possible purchase of an interest in the tax
shelter;
(2) Solicitation of investors using the mail, telephone, or other
means, or by placing an advertisement for the tax shelter in a
newspaper, magazine, or other publication or medium;
(3) Instructing or advising salespersons regarding the tax shelter or
sales presentations.
Q-32. May persons be treated as tax shelter organizers if such
persons do not make any representations of tax benefits to investors?
A-32. Yes. If a person described in A-26 of this section knows or has
reason to know that representations of tax benefits have been made, that
person may be treated as a tax shelter organizer. For example, a
participant in the sale of a tax shelter may know or have reason to know
that representations of tax benefits have been made by the principal
organizer or others who participate in the organization of the tax
shelter. In addition, a person who acquires property from a
manufacturer in a transaction exempt from tax shelter registration under
A-24 of this section and who organizes an investment involving the
property may know or have reason to know of any representation of tax
benefits made by the manufacturer.
Q-33. If a person performs support services such as typing,
photocopying, or printing for a tax shelter (or a tax shelter organizer)
or performs other ministerial functions for the tax shelter (or a tax
shelter organizer), may the person be considered to have participated in
the organization, management, or sale of the tax shelter?
A-33. No. Merely performing support services or ministerial functions
will not be considered participation in the organization, management, or
sale of a tax shelter.
26 CFR 301.6111-1T Circumstances Under Which Tax Shelter Organizers Are
Required To Register a Tax Shelter
Q-34. When is a principal organizer or a person who participates in
the organization of a tax shelter required to register a tax shelter?
A-34. A principal organizer or a person who participates in the
organization of a tax shelter (i.e., a person who could be treated as a
tax shelter organizer within the meaning of A-26 of this section) is
required to register the tax shelter by the day on which the first
offering for sale of interests in the tax shelter occurs, unless the
person has signed a designation agreement pursuant to A-38 of this
section. If a group of persons who could be treated as tax shelter
organizers has signed a designation agreement pursuant to A-38 of this
section, the designated organizer is required to register the tax
shelter by the day on which the first offering for sale of interests in
the tax shelter occurs. See A-39 of this section for additional rules
applicable to tax shelter organizers (other than a designated organizer)
who have signed a designation agreement.
Q-35. When is a person who participates in the management of a tax
shelter (''manager'') required to register a tax shelter?
A-35. A manager who has not signed a designation agreement pursuant
to A-38 of this section must register the tax shelter if the manager
participates in the management of the tax shelter on or after the first
offering for sale of interests in the tax shelter at a time when the tax
shelter has not been properly registered (i.e., the manager is treated
as a tax shelter organizer within the meaning of A-26 of this section).
Such a manager must register the tax shelter by the day on which the
first offering for sale of interests in the tax shelter occurs, or by
the day on which the manager's participation in the management of the
tax shelter commences, whichever is later. See A-39 of this section for
rules applicable to a manager who has signed a designation agreement.
Q-36. When is a person who participates in the sale of a tax shelter
(''seller'') required to register the tax shelter?
A-36. A seller who has not signed a designation agreement pursuant to
A-38 of this section must register the tax shelter if the seller
participates in the sale of the tax shelter at a time when the seller
knows or has reason to know that the tax shelter has not been properly
registered (i.e., the seller is treated as a tax shelter organizer
within the meaning of A-26 of this section). A seller who has not
signed a designation agreement will be deemed to have reason to know
that the tax shelter has not been properly registered if the seller does
not receive a copy of the Internal Revenue Service tax shelter
registration notice containing the registration number within the 30-day
period after the seller first offers interests in the tax shelter for
sale. A seller must register the tax shelter as soon as practicable
after the seller first knows or has reason to know that the tax shelter
has not been properly registered. See A-39 of this section for rules
applicable to a seller who has signed a designation agreement.
Q-37. When is a person who acts in more than one capacity with
respect to a tax shelter required to register the shelter?
A-37. A person who acts in more than one capacity with respect to a
tax shelter (i.e., as two or more of the following: principal
organizer, participant in the organization, manager, or seller) must
register the tax shelter by the earliest day on which a tax shelter
organizer acting in any of the person's several capacities would be
required to register the tax shelter.
Q-38. May a group of persons who could be treated as tax shelter
organizers under A-26 of this section designate one person to register
the tax shelter?
A-38. Yes. A group of persons who could be treated as tax shelter
organizers under A-26 of this section may enter into a written agreement
designating one person as the tax shelter organizer responsible for
registering the tax shelter (''designated organizer''). The designated
organizer should ordinarily be a person principally responsible for
organizing the tax shelter, but may be any person who participates in
the organization of the tax shelter. Although persons who participate
only in the sale or management of a tax shelter may sign a designation
agreement, they may not be the designated organizer. In addition, the
designated organizer may not be a person who is a resident in a country
other than the United States. Any person who signs a designation
agreement, other than the designated organizer, will not be liable for
failing to register the tax shelter and will not be subject to a
penalty, even if the designated organizer fails to register the tax
shelter, unless the person fails to register the tax shelter when such
registration is required under A-39 of this section. See A-7 of
301.6707-1T for additional rules relating to the reasonable cause
exception applicable to persons who sign a designation agreement.
Q-39. Is a tax shelter organizer who has signed a designation
agreement and who is not the designated organizer required to register
the tax shelter under any circumstances?
A-39. Yes. If a tax shelter organizer who has signed a designation
agreement pursuant to A-38 of this section knows or has reason to know
on or after the day on which the first offering for sale of interests in
a tax shelter occurs that the designated organizer failed to register
the tax shelter, such tax shelter organizer must register the tax
shelter as soon as practicable after he first knows or has reason to
know of the failure. A tax shelter organizer who has signed a
designation agreement is deemed to have reason to know that the
designated organizer has failed to register the tax shelter if the tax
shelter organizer does not receive a copy of the Internal Revenue
Service registration notice containing the registration number from the
designated organizer within the 60-day period after the day on which the
first offering for sale of interests in the tax shelter occurs (or the
person signs the designation agreement, if later). See A-41 of this
section for the requirement that the designated organizer provide a copy
of the registration notice and number to persons who have signed the
designation agreement.
26 CFR 301.6111-1T Registration -- General Rules
Q-40. By what date must a tax shelter be registered?
A-40. A tax shelter must be registered not later than the day on
which the first offering for sale of an interest in the tax shelter
occurs.
Q-41. Is a tax shelter organizer (including a designated organizer)
who registers a tax shelter responsible for performing any act with
respect to tax shelter registration other than registering the tax
shelter?
A-41. Yes. A tax shelter organizer (including a designated organizer)
who registers a tax shelter must provide a copy of the Internal Revenue
Service registration notice containing the registration number within 7
days after the notice is received from the Internal Revenue Service to
the principal organizer (if a different person) and to any persons who
the tax shelter organizer knows or has reason to know are participating
in the sale of interests in the tax shelter (if such persons begin to
participate after the registration number is received, they must be
provided the notice within 7 days after they commence their
participation). In addition, a designated organizer must provide a copy
of the notice within 7 days after it is received to all persons who have
signed the designation agreement.
Q-42. What is the sale of an interest in a tax shelter?
A-42. The sale of an interest in a tax shelter includes the sale of
property, or any interest in property, the entry into a leasing
arrangement, a consulting, management or other agreement for the
performance of services, or the sale or entry into any other plan,
investment, or arrangement.
Q-43. What does the term ''offering for sale'' mean?
A-43. The term ''offering for sale'' means making any representation,
whether oral or written, relating to participation in a tax shelter as
an investor. The term includes any advertisement relating to the tax
shelter and any mail, telephonic, or other contact with prospective
investors. A representation relating to participation in a tax shelter
will be considered an offering for sale of an interest in the tax
shelter even though there is included in the representation an explicit
statement that the representation does not constitute an offer to sell
or a solicitation of an offer to buy an interest in the tax shelter. In
determining whether an offering for sale of an interest has occurred,
federal and state laws regulating securities are not controlling.
Q-44. After a tax shelter has been registered, must it be registered
again each year that it continues to be offered for sale?
A-44. No. Registration is effective for the year in which first
accomplished and all subsequent years.
Q-45. If the facts relating to a tax shelter change after the tax
shelter has been registered, must the tax shelter be registered again or
must an amended application for registration be filed by the tax shelter
organizer?
A-45. No. The tax shelter organizer, however, is permitted to file an
amended application if a material change in facts occurs after the
initial registration. A material change in facts is --
(1) A change in the identifying information relating to the tax
shelter or tax shelter organizer,
(2) The acquisition or construction of a principal asset not reported
on the initial application for registration,
(3) A change in the method of financing a minimum investment unit, or
(4) A change in the principal business activity.
In addition, a change in any tax shelter ratio reported on the
initial application for registration that increases or decreases the
reciprocal of the tax shelter ratio (i.e., the fraction in which the
amount of the applicable investment base is the numerator and the amount
of the applicable deductions and credits is the denominator) by 50
percent or more is a material change in facts. For example, if the tax
shelter ratio increases from 2 to 1 to 4 to 1, the reciprocal of the tax
shelter ratio decreases from 1/2 to 1/4, a 50-percent decrease.
Similarly, if the tax shelter ratio decreases from 6 to 1 to 4 to 1, the
reciprocal of the tax shelter ratio increases from 1/6 to 1/4, a
50-percent increase. In either case, there is a material change in
facts and an amended application could be filed.
Q-45A. What information should be included on an amended application
for registration?
A-45A. The tax shelter organizer must include the identifying
information requested on Form 8264, Application for Registration of a
Tax Shelter, and the tax shelter registration number that has been
assigned to the tax shelter. In addition, the tax shelter organizer
should include any other information requested on Form 8364(1) that has
changed since the tax shelter was registered, or (2) that the tax
shelter organizer did not know at the time the tax shelter was
registered but has learned of since the registration.
For example, assume that A organizes partnership L, a blind pool that
will invest in real estate. Before the real estate is identified or
acquired, interests in L will be offered to the public in an offering
that must be registered with the Securities and Exchange Commission.
Although A does not know what real estate L will acquire and therefore
is unable to calculate the tax shelter ratio with certainty, A concludes
(based on representations made or to be made) that the tax shelter ratio
will exceed 2 to 1 as to some of the investors. Accordingly, A
registers L as a tax shelter. A attaches a statement to the application
for registration, explaining that L is a blind pool organized to invest
in real estate, but that L has not yet acquired any real estate. In
addition, A attaches a statement explaining that although the tax
shelter ratio is expected to exceed 2 to 1, A cannot compute the tax
shelter ratio with certainty because L has not yet acquired any real
estate. Several months after L is registered, L acquires a shopping
center. A may file an amended application for registration. In
addition to reporting the identifying information and the tax shelter
registration number on the amended application, A should report the
shopping center as the principal asset and the recomputed tax shelter
ratio.
As another example, assume that C organizes a limited partnership
that is a tax shelter. On the application for registration, C reports
that the tax shelter ratio is 2.2 to 1. After the partnership has been
registered, C finds that the partnership is unable to attract sufficient
investors. To make investing in the partnership more attractive, C
decides to offer financing for the purchase or interests in the
partnership. As a result of the change in financing, the tax shelter
ratio will be 5 to 1. Because there is a change in financing and a
change in the tax shelter ratio that decreases the reciprocal of the tax
shelter ratio by 50 percent or more, C may file an amended application
for registration. In addition to reporting the identifying information
and the tax shelter registration number on the amended application, C
should report the recomputed tax shelter ratio and information relating
to the change in financing.
Q-46. If assets constituting a tax shelter are sold (''original
sale'') and, subsequently, either the assets or interests in the assets
are offered for sale by the purchaser (''resale''), must the purchaser
file a new application for registration if the resale is an offering or
sale of interests in a tax shelter?
A-46. If the resale constitutes a tax shelter, the purchaser must
file a new application for registration, unless the tax shelter
organizer with respect to the original sale is also the tax shelter
organizer with respect to the resale and the facts pertaining to the
resale were reflected in the application for registration filed with
respect to the original sale. For example, assume that A intends to
sell a building with an estimated fair market value of $2.5 million to a
group of 5 investors (i.e., a substantial investment, as defined in A-21
of this section). A also intends to make representations of tax
benefits attributable to an investment in the building. Based on these
representations and the investment base, the tax shelter ratio
attributable to an investment in the building may be greater than 2 to
1. A therefore files an application for registration relating to the
building with the Internal Revenue Service. The Internal Revenue
Service issues a registration number for the investment, and A furnishes
the registration number to each of the 5 investors in accordance with
A-53 of this section. In an unrelated transaction, the 5 investors
decide to syndicate the building and to offer interests in the syndicate
to approximately 500 investors. In connection with this offer, the
investors expect to make representations concerning tax benefits with
respect to the syndication. If based on these representations and the
investment base, the tax shelter ratio may be greater than 2 to 1 for an
investor in the syndicate, the 5 investors must file an application for
registration for the syndicate before interests in the syndicate may be
offered for sale. The investors in the syndicate must be furnished with
the new registration number and not the registration number issued with
respect to A. On the other hand, if the original sale and the
syndication were part of A's plan to sell interests in the building, A
is a tax shelter organizer with respect to the syndication. If the
facts pertaining to the syndication were reflected on A's application
for registration with respect to the original sale, a second application
for registration would not be required with respect to the syndication.
However, the investors in the syndicate would have to be furnished with
the tax shelter registration number issued to A.
Q-47. When is a tax shelter considered registered?
A-47. A tax shelter is considered registered when a properly
completed Form 8264, Application for Registration of a Tax Shelter, is
filed with the appropriate Internal Revenue Service Center. See A-7 of
301.6111-2T for rules relating to the information required to be
included on the form, and A-8 of 301.6707-1T for rules relating to the
penalty for filing incomplete information.
Q-48. Must a person registering a tax shelter that is a substantial
investment only by reason of an aggregation of multiple investments
under A-22 of this section complete a separate Form 8264 for each
investment constituting part of the substantial investment?
A-48. A separate Form 8264 must be completed for each investment that
differs from the other investments in a substantial investment with
respect to any of the following:
(1) Principal asset,
(2) Accounting methods,
(3) Federal or state agencies with which the investment is registered
or with which an exemption notice is filed,
(4) Methods of financing the purchase of an interest in the
investment,
(5) Tax shelter ratio.
Such aggregated investments, however, are part of a single tax
shelter.
Q-49. Do the rules of section 7502 of the Internal Revenue Code,
regarding timely mailing, apply to the filing of registration forms?
A-49. Yes.
Q-50. After a tax shelter has been registered, may representations
that the investment has been registered with the Internal Revenue
Service be made to potential investors?
A-50. Investors may be informed that the investment has been
registered with the Internal Revenue Service. Investors also must be
informed, however, that registration does not imply that the Internal
Revenue Service has reviewed, examined, or approved the investment or
the claimed tax benefits. The disclaimer must be substantially in the
form provided below:
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR
APPROVED BY THE INTERNAL REVENUE SERVICE.
See A-53 of this section for rules relating to the legend that must
be included on any statement on which the tax shelter registration
number is furnished to investors.
26 CFR 301.6111-1T Furnishing Tax Shelter Registration Numbers to
Investors
Q-51. Who must furnish investors in a tax shelter with the
registration number of the tax shelter?
A-51. Any person who sells (or otherwise transfers) an interest in a
tax shelter is required to furnish the registration number assigned to
that tax shelter to each person who purchases (or otherwise acquires) an
interest in that tax shelter from the seller or transferor. For
example, X, a tax shelter organizer, sells an interest in a tax shelter
to A. One year later A sells A's interest in the shelter to B. X must
furnish the tax shelter registration number to A, and A must furnish the
number to B. If B sells or otherwise transfers the interest (by gift,
for example), B must furnish the number to the purchaser or transferee
of B's interest in the tax shelter.
Q-52. When must the registration number be furnished to purchasers of
interests in the tax shelter?
A-52. The person who sells (or otherwise transfers) an interest in a
tax shelter must furnish the registration number to the purchaser (or
transferee) at the time of sale (or transfer) of the interest (or, if
later, within 20 days after the seller or transferor receives the
registration number). If the registration number is not furnished at
the time of the sale (or other transfer), the seller (or transferor)
must furnish the statement described in A-54 to the purchaser (or
transferee) at the time of the sale (or other transfer). If interests
in a tax shelter were sold before September 1, 1984, all investors who
acquired their interests in the tax shelter before September 1, 1984,
must be furnished with the registration number of the tax shelter by
December 31, 1984. The registration number will be considered furnished
to the investor if it is mailed to the investor at the last address of
the investor known to the person required to furnish the number.
Q-53. How is a seller or transferor of an interest in a tax shelter
required to furnish the registration number to investors?
A-53. The person who sells (or otherwise transfers) an interest in a
tax shelter must furnish the registration number of the tax shelter to
the tax shelter to the purchaser (or transferee) on a written statement.
The written statement shall show the name, registration number, and
taxpayer identification number of the tax shelter, and include a
prominent legend in bold and conspicuous type stating that the
registration number must be included on any return on which the investor
claims any deduction, loss, credit, or other tax benefit, or reports any
income, by reason of the tax shelter. The statment must also include a
prominent legend in bold and conspicuous type stating that the issuance
of the registration number does not indicate that the Internal Revenue
Service has reviewed, examined, or approved the investment or the
claimed tax benefits. The statement shall be substantially in the form
provided below:
You have acquired an interest in (name and address of tax shelter)
whose taxpayer identification number is (if any). The Internal Revenue
Service has issued (name of tax shelter) the following tax shelter
registration number: (Number)
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE
SERVICE, IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT
OR REPORT ANY INCOME BY REASON OR YOUR INVESTMENT IN (NAME OF TAX
SHELTER).
You must report the registration number (as well as the name, and
taxpayer identification number of (name of tax shelter)) on Form 8271.
FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE
DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR
APPROVED BY THE INTERNAL REVENUE SERVICE.
This statement may be modified as necessary if the tax shelter is not
a separate entity (e.g., certain Schedule F or Schedule C activities) or
has no name or taxpayer identification number.
Q-54. If a registration number has not been received by a seller (or
transferor) from the person who registered the tax shelter by the time
interests in the tax shelter are sold (or otherwise transferred), must
the seller (or transferor) of the interests furnish the purchaser (or
transferee) with any information regarding the registration?
A-54. Yes. At the time of the sale (or other transfer) the seller (or
other transferor) must furnish the purchaser (or transferee) with a
written statement in substantially the form prescribed in A-53 of this
section, except that the second sentence of the form prescribed in A-53
shall be replaced by a statement in the form provided below:
On behalf of (name of tax shelter), (name of tax shelter organizer
who has applied for registration) has applied to the Internal Revenue
Service for a tax shelter registration number. The number will be
furnished to you when it is received.
26 CFR 301.6111-1T Including the Registration Number on Tax Returns
Q-55. Is an investor required to report the registration number of a
tax shelter in which the investor has acquired an interest to the
Internal Revenue Service?
A-55. Yes. Any person claiming any deduction, loss, credit, or other
tax benefit by reason of a tax shelter must report the registration
number of the tax shelter on Form 8271, Investor Reporting of Tax
Shelter Registration Number, which must be attached to the return on
which any deduction, loss credit, or other tax benefit attributable to
the tax shelter is claimed. For purposes of determining whether the tax
shelter registration number must be reported by an investor, income
attributable to an investment, such as a partner's distributive share of
income, constitutes a deduction or tax benefit that is claimed, because
gross deductions and other tax benefits are included in the net income
reported by the investor. Thus, the registration number also must be
reported on any return on which an investor reports any income
attributable to a tax shelter.
Q-56. What should the investor do if the investor has received a
notice that a registration number for the tax shelter has been applied
for, but the investor has not received the registration number by the
time the investor files a return on which a deduction, loss credit,
other tax benefit, or income attributable to the tax shelter is
included?
A-56. The investor must attach to the return a Form 8271 with the
words ''Applied For'' written in the space for the registration number
and must include on the Form 8271 the name and taxpayer identification
number (if any) of the tax shelter and the name of the person who has
applied for registration of the tax shelter.
Q-57. Does the requirement to include the tax shelter registration
number on a return apply to applications for tentative refund (Form 1045
and Form 1139) and amended returns (Form 1040X, Form 1120X)?
A-57. Yes. A completed Form 8271 must be attached to any such return
on which any deduction, loss, credit, other tax benefit, or income
relating to a tax shelter is included.
26 CFR 301.6111-1T Projected Income Investments
Q-57A. Are the registration requirements suspended with respect to
any tax shelters?
A-57A. Yes. If a tax shelter is a projected income investment, it is
not required to be registered before the first offering for sale of an
interest in the tax shelters occurs, but is subject only to the
registration requirements set forth in A-57H through A-57J of this
section. A tax shelter is a projected income investment if --
(a) The tax shelter is not expected to reduce the cumulative tax
liability of any investor for any year during the 5-year period
described in A-4 (I) of this section; and
(b) The assets of the tax shelter do not include or relate to any
property described in A-57E of this section.
Q-57B. Under what circumstances does a tax shelter satisfy the
requirement of paragraph (a) of A-57A of this section?
A-57B. A tax shelter is not expected to reduce the cumulative tax
liability of any investor for any year during the 5-year period
described in A-4 (I) of this section only if --
(a) A written financial projection or other written representation
that is provided to investors before the sale of interests in the
investment states (or leads a reasonable investor to believe) that the
investment will not reduce the cumulative tax liability of any investor
with respect to any year (within the meaning of A-7 of this section) in
such 5-year period; and
(b) No written or oral projections or representations, other than
those related to circumstances that are highly unlikely to occur, state
(or lead a reasonable investor to believe) that the investment may
reduce the cumulative tax liability of any investor with respect to any
such year.
Thus, a tax shelter for which there are multiple written or oral
financial projections or other representations is not a projected income
investment if any such projection or representation that relates to
circumstances that are not highly unlikely to occur states (or leads a
reasonable investor to believe) that the investment may reduce the
cumulative tax liability of any investor. See A-57D and A-57F of this
section for rules relating to financial projections or other
representations that are not made in good faith, that are not based on
reasonable economic and business assumptions, or that relate to
circumstances that are highly unlikely.
Q-57C. When does an investment reduce the cumulative tax liability of
an investor?
A-57C. (a) An investment reduces the cumulative tax liability of an
investor with respect to a year during the 5-year period described in
A-4 (I) of this section if, as of the close of such year, (i) cumulative
projected deductions for the investor exceed cumulative projected income
for the investor, or (ii) cumulative projected credits for the investor
exceed cumulative projected tax liability (without regard to credits)
for the investor.
(b) The cumulative projected deductions for an investor as of the
close of a year are the gross deductions of the investor with respect to
the investment, for all periods up to (and including) the end of such
year, that are included in the financial projection or upon which the
representation is based. The deductions with respect to an investment
include all deductions explicitly represented as being allowable and all
deductions typically associated (within the meaning of A-9 of this
section) with the investment. Therefore, interest to be paid by the
investor that is taken into account in determining the tax shelter ratio
of the investment (see A-11 of this section) is treated as a deduction
with respect to the investment.
(c) The cumulative projected income for an investor as of the close
of a year is the gross income of the investor with respect to the
investment, for all periods up to (and including) the end of such year,
that is included in the financial projection or upon which the
representation is based. For this purpose, income attributable to cash,
cash equivalents, or marketable securities (within the meaning of A-14
(4) of this section) may not be treated as income from the investment.
(d) The cumulative projected credits for an investor as of the close
of a year are the gross credits of the investor with respect to the
investment, for all periods up to (and including) the close of such
year, that are included in the financial projection or upon which the
representation is based. The credits with respect to an investment
include all credits explicitly represented as being allowable and all
credits typically associated (within the meaning of A-9 of this section)
with the investment.
(e) The cumulative projected tax liability (without regard to
credits) for an investor as of the close of a year is 50 percent of the
excess of cumulative projected income for the investor over cumulative
projected deductions for the investor with respect to the investment as
of the close of such year.
(f) The following examples illustrate the application of the
principles of this A-57C:
Example 1. The promotional material with respect to a tax shelter
includes a written financial projection indicating that the expected
income of the investment in each of its first 5 years is $800,000. In
subsequent oral discussions, investors are advised that, in certain
circumstances that are not highly unlikely, the income expected from the
investment may be as little as $500,000 per year. The subsequent oral
discussions are taken into account in determining whether any
projections or representations state or lead a reasonable investor to
believe that the investment may reduce the cumulative tax liability of
any investor. Thus, if the written financial projections indicate that
the gross deductions attributable to the investment in each of its first
5 years are expected to be $600,000 and the subsequent oral discussions
do not indicate that the amount of those deductions will change under
the circumstances in which the income expected may be as little as
$500,000, the subsequent oral discussions taken together with the
written financial projections state (or lead a reasonable investor to
believe) that the cumulative tax liability of an investor may be reduced
(i.e., the subsequent oral discussions (taken together with the
projections) state or lead a reasonable investor to believe that
cumulative projected deductions may exceed cumulative projected income
under circumstances that are not highly unlikely). Accordingly, under
paragraph (b) of A-57B of this section, the tax shelter would not
qualify as a projected income investment.
Example 2. The written promotional material with respect to a tax
shelter states that certain deductions are allowable to an investor
(without specifying their amount), but there is no written statement
relating to the amount of income expected from the investment. Because
there is no written financial projection or other written representation
that states or leads a reasonable investor to believe that the
investment will not reduce the investor's cumulative tax liability
(i.e., the cumulative projected deductions, although not specified in
the projections, may exceed the cumulative projected income (0)), the
requirement of paragraph (a) of A-57B of this section would not be
satisifed. The result in this example would be the same if there were
only oral representations that the income to be derived from the
investment would exceed the deductions with respect to the investment,
because there would be no written statement as required by paragraph (a)
of A-57B of this section. The tax shelter in this case would qualify as
a projected income investment, however, if the written promotional
material contains good-faith representations based on reasonable
economic and business assumptions that state or lead reasonable
investors to believe that the cumulative projected income from the
investment will exceed the cumulative projected deductions allowable
with respect to the investment for each year in the 5-year period, even
though the amounts of income and deductions are not specified.
Example 3. The written promotional material with respect to a tax
shelter includes a good-faith financial projection for the first 5 years
of the investment. Based on reasonable economic and business
assumptions, the projection indicates that the expected net income of
the investment in each of its first 4 years is $100,000 ($500,000 of
gross income and $400,000 of gross deductions), but as a result of the
anticipated acquisition of new business assets a loss of $20,000 is
expected in the fifth year of the investment ($500,000 of gross income
and $520,000 of gross deductions). The projection also indicates that a
credit of $50,000 is expected in the fifth year of the investment. Such
a written financial projection would be considered to state that the
investment will not reduce the cumulative tax liability of any investor
with respect to any year in the 5-year period described in A-4 (I) of
this section. Although a loss and a credit are projected in the fifth
year of the investment, as of the close of such year, cumulative
projected income ($2,500,000) exceeds cumulative projected deductions
($2,120,000), and cumulative projected tax liability (without regard to
credits) ($380,000 x 50 percent = $190,000) exceeds cumulative projected
credits ($50,000). Assuming no contrary oral or written projections or
representations are made, the tax shelter would thus be a projected
income investment.
Example 4. The written promotional material with respect to a tax
shelter states that an investor will be entitled to a ''1.5 to 1
write-off'' in the year of investment. This statement is a
representation that the investment will reduce the cumulative tax
liability of an investor with respect to the first year of the
investment and, accordingly, the investment is not a projected income
investment. The result in this example would be the same if any
''write-off'' were represented, even if the write-off were less than 1.5
to 1.
Q-57D. Are all financial projections and representations relating to
the cumulative tax liability of an investor taken into account for
purposes of A-57B of this section?
A-57D. (a) No. A financial projection or other representation
relating to the cumulative tax liability of an investor is not taken
into account for purposes of A-57B of this section unless it is made in
good faith and is based on reasonable economic and business assumptions.
In addition, a financial projection or other representation is not
taken into account if it relates to circumstances that are highly
unlikely. Moreover, a general statement or disclaimer indicating that
projected income is not guaranteed or otherwise assured, standing alone,
is not a projection or representation for purposes of paragraph (b) of
A-57B of this section.
(b) The following example illustrates the application of the
principles of this A-57D:
Example. The written promotional material with respect to a tax
shelter contains a representation stating that the investment is
projected to produce net income for all investors in each of its first
five years and there are no credits potentially allowable with respect
to the investment. This statement is based on reasonable economic and
business assumptions. Such a written representation, if made in good
faith, would be considered under paragraph (a) of A-57B of this section
to state that the investment will not reduce the cumulative tax
liability of any investor with respect to any year in the 5-year period
described in A-4(I) of this section. In addition, no oral or written
statements or representations are communicated to investors that would
indicate under paragraph (b) of A-57B of this section that the
investment might reduce the cumulative tax liability of any investor
with respect to any year in the 5-year period.
Assume the tax shelter organizer has knowledge of certain other facts
that lead the tax shelter organizer to believe that it is more likely
than not that the investment will produce a net loss in the first year.
The representation projecting net income is thus contrary to the tax
shelter organizer's belief that it is more likely than not that the
investment will produce a net loss in the first year. Therefore, the
representation is not made in good faith. Since representations not
made in good faith are ignored under A-57D, the tax shelter would not be
a projected income investment. If, on the other hand, the tax shelter
organizer did not know of the other facts so that the tax shelter
organizer did not believe that the investment would produce a net loss
in the first year, the representation projecting income is made in good
faith. In that case, the tax shelter would be a projected income
investment.
Q-57E. What assets may not be held by a projected income investment?
A-57E. A tax shelter is not a projected income investment if more
than an incidental amount of its assets include or relate to any
interest in a collectible (as defined in section 408 (m) (2)), a master
sound recording, motion picture or television film, videotape,
lithograph plate, copyright, or a literary, musical, or artistic
composition.
Q-57F. What are the consequences if financial projections or other
representations are not made in good faith or are not based on
reasonable economic and business assumptions?
A-57F. If a tax shelter is not a projected income investment because
the financial projections or other representations are not made in good
faith or are not based on reasonable economic and business assumptions,
it must be registered not later than the day on which the first offering
for sale of an interest in the tax shelter occurs. If the tax shelter
is not registered timely, the tax shelter organizer may be subject to a
penalty. (See A-1 of 301.6707-1T.)
Q-57G. When does a tax shelter cease to be a projected income
investment?
A-57G. A tax shelter ceases to be a projected income investment on
the last day of the first year (as defined in A-7 of this section) in
the 5-year period described in A-4 (I) of this section for which, for
any investor, (i) the gross deductions allocable to the investor for
that year and prior years exceed the gross income allocable to the
investor for such years, or (ii) the credit allocable to the investor
for that year and prior years exceed 50 percent of the amount by which
gross income allocable to the investor exceeds gross deductions
allocable to the investor for such years. For purposes of determining
when a tax shelter ceases to be a projected income investment, the tax
shelter organizer is not required to take into account interest that may
be incurred by an investor with respect to debt described in A-14 (2) or
(3) of this section, but is required to take into account interest
incurred by an investor with respect to debt described in A-14 (1) of
this section. In addition, the tax shelter organizer may not take into
account income attributable to cash, cash equivalents, or marketable
securities (within the meaning of A-14 (4) of this section).
Q-57H. How does the requirement to register apply with respect to a
tax shelter that is a projected income investment?
A-57H. In the case of a tax shelter that is a projected income
investment, registration is not required unless the tax shelter ceases
to be a projected income investment under A-57G of this section. If the
tax shelter ceases to be a projected income investment, the tax shelter
organizer must register the tax shelter in accordance with the rules set
forth in A-1 through A-39 and A-41 through A-50 of this section. The
tax shelter must be registered --
(a) Within 30 days after the date on which the tax shelter ceases to
be a projected income investment, and
(b) Before the date on which the tax shelter or a tax shelter
organizer sends the investor any schedule of profit or loss, or income,
deduction, or credit that may be used in preparing the investor's income
tax return for the taxable year that includes the date on which the tax
shelter ceases to be a projected income investment. If a tax shelter
organizer fails to register timely as required by this A-57H, the tax
shelter organizer may be subject to a penalty. (See A-1 of
301.6707-1T.) For example, assume that C is the principal organizer and
general partner of a limited partnership. Interests in the partnership
will be offered for sale in a public offering required to be registered
with the Securities and Exchange Commission. C knows that the tax
shelter ratio (as defined in A-5 of this section) for the limited
partners will be 5 to 1. Although C knows the partnership is a tax
shelter, C does not register the partnership by the day on which the
first offering for sale of an interest occurs because C believes the
partnership is a projected income investment. In the second year of the
partnership, the gross deductions allocable to each of the limited
partners for the first two years of the partnership exceed the gross
income allocable to the limited partners in such years. Thus, the
partnership ceases to be a projected income investment under A-57G of
this section. Assuming further that C continues as the general partner
and knowingly fails to register the partnership as a tax shelter within
the time prescribed in this A-57H, C will be subject to a penalty of 1
percent of the aggregate amount invested in the partnership. Because
there is an intentional disregard of the registration requirements, the
$10,000 limitation will not apply.
Q-57I. How does the requirement to furnish registration numbers (A-51
through A-54 of this section) apply in the case of a tax shelter that is
a projected income investment?
A-57I. In the case of a tax shelter that is a projected income
investment, a person who sells or transfers an interest in the tax
shelter is not required to furnish a registration number under A-51 of
this section or a notice under A-54 of this section unless the tax
shelter ceases to be a projected income investment. If the tax shelter
ceases to be a projected income investment, the tax shelter organizer
who registers the tax shelter is required to furnish the registration
number to all persons who the tax shelter organizer knows or has reason
to know are participating in the sale of interests in the tax shelter
and to all persons who the tax shelter organizer knows or has reason to
know have acquired interests in the tax shelter. A person who sold (or
otherwise transferred) an interest in the tax shelter before the date on
which the tax shelter ceased to be a projected income investment is
required to furnish the registration number to the purchaser or
transferee as provided in A-51 of this section only if the seller or
transferor knows or has reason to know that the tax shelter has ceased
to be a projected income investment and that the tax shelter organizer
who registered the tax shelter has not provided a registration number to
such purchaser or transferee. In the case of persons who acquired
interests in the tax shelter before the date on which the tax shelter
ceased to be a projected income investment, the registration number must
be provided not later than the date described in paragraph (b) of A-57H
of this section or, if the tax shelter does not provide any schedule
described in paragraph (b) of A-57H of this section, within 60 days
after the date on which the tax shelter ceases to be a projected income
investment. Thus, for example, if a tax shelter that ceases to be a
projected income investment is a partnership, the tax shelter organizer
would be required to provide the registration number to each partner not
later than the date the Schedule K-1 for the year in which the tax
shelter ceases to be a projected income investment is provided to each
partner.
The registration number must be provided in accordance with A-51 and
A-52 of this section and must be accompanied by a statement explaining
that the tax shelter has ceases to be a projected income investment and
instructing the recipient to furnish the registration number to any
persons to whom the recipient has sold or otherwise transferred
interests in the tax shelter. A tax shelter organizer who fails to
provide the registration number as provided in this A-57I may be subject
to penalties. (See A-12 of 301.6707-1T.)
Q-57J. How does the requirement to include the registration number on
tax returns (A-55 through A-57 of this section) apply in the case of a
tax shelter that is a projected income investment?
A-57J. In the case of a tax shelter that is a projected income
investment, an investor is not required to report a registration number
on the investor's tax return unless the tax shelter ceases to be a
projected income investment. If the tax shelter ceases to be a
projected income investment, the requirements of A-55 through A-57 apply
with respect to returns for taxable years ending on or after the date on
which the tax shelter ceases to be a projected income investment.
26 CFR 301.6111-1T Effective Dates
Q-58. On what date does the requirement to register a tax shelter
become effective?
A-58. In general, a tax shelter must be registered if any interest in
the tax shelter (other than an interest previously sold to an investor)
is sold on or after September 1, 1984 (whether or not interests in the
tax shelter were sold or offered for sale before September 1, 1984).
The tax shelter must be registered with the Internal Revenue Service not
later than the first day after August 31, 1984 on which an interest in
the tax shelter is offered for sale.
Q-59. By what date must the tax shelter registration number be
furnished to investors who acquired interests before September 1, 1984
in a tax shelter that is required to be registered.
A-59. All investors who acquired their interests in a tax shelter
before September 1, 1984 must be supplied with the tax shelter
registration number by December 31, 1984. See A-52 of this section for
the date by which registration numbers must be furnished to investors
who acquire their interests on or after September 1, 1984.
Q-60. What interests will be taken into account in determining
whether an investment in which interests were sold before September 1,
1984, is a substantial investment?
A-60. The determination of whether an investment is a substantial
investment will be made by taking into account only the interests that
are offered for sale on or after September 1, 1984. An investment will
be considered a substantial investment if there are expected to be 5 or
more investors on or after September 1, 1984, and the aggregate amount
offered for sale on or after September 1, 1984 is expected to exceed
$250,000. Amounts received from the sale of interests before September
1, 1984, however, are taken into account in computing the amount of the
penalty for failure to register.
(Secs. 6111 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 26
U.S.C. 6111; 68A Stat. 917, 26 U.S.C. 7805); secs. 6111, 6112 and
7805, Internal Revenue Code of 1954 (98 Stat. 678, 98 Stat. 681, 68A
Stat. 917; 26 U.S.C. 6111, 6112 and 7805))
(T.D. 7964, 49 FR 32713, Aug. 15, 1984, as amended by T.D. 7990, 49
FR 43641, Oct. 31, 1984; T.D. 7964, 49 FR 44461, Nov. 7, 1984; T.D.
8078, 51 FR 7440, Mar. 25, 1986)
26 CFR 301.6112-1T Questions and answers relating to the requirement to
maintain a list of investors in potentially abusive tax shelters
(temporary).
The following questions and answers relate to the requirement to
maintain a list of investors in potentially abusive tax shelters that is
imposed by section 6112 of the Internal Revenue Code of 1954, as added
by section 142 of the Tax Reform Act of 1984 (Pub. L. 98-369; 98 Stat.
681):
26 CFR 301.6112-1T In General
Q-1: What requirements are imposed by section 6112 on persons who
organize potentially abusive tax shelters (''organizers'') and persons
who sell interests in such tax shelters (''sellers'')?
A-1: Any organizer of a potentially abusive tax shelter generally
must prepare and maintain for a specified period a list identifying
certain persons who acquire interests in the tax shelter. Any seller of
an interest in such a tax shelter generally must maintain a list
identifying each person who acquires an interest in the tax shelter from
the seller. The lists also must contain the other information required
by this section. The organizer or seller also is required to make the
list available for inspection upon request by the Internal Revenue
Service. For the definition of a potentially abusive tax shelter, see
A-3 of this section. For the definition of an organizer of a
potentially abusive tax shelter, see A-5 of this section. For the
definition of a seller of an interest in a potentially abusive tax
shelter, see A-6 of this section. For rules relating to the designation
of one organizer to maintain a list in cases in which two or more
organizers or sellers would be required to maintain the same list or
portion of a list, see A-11 through A-13 of this section. For the
information that must be included on a list, see A-17 of this section.
For the requirements relating to the retention of lists and making lists
available for inspection, see A-19 through A-21 of this section.
Q-2: What sanctions apply to an organizer or seller who fails
properly to comply with the requirements of section 6112 and this
section?
A-2: Any organizer or seller who fails to comply with the applicable
requirements shall be subject to the penalty imposed by section 6708.
For rules relating to section 6708, see 301.6708-1T.
26 CFR 301.6112-1T Definition of Potentially Abusive Tax Shelter
Q-3: What is the meaning of the term ''potentially abusive tax
shelter''?
A-3: A potentially abusive tax shelter (''tax shelter'') means (a)
any investment that is a tax shelter required to be registered with the
Internal Revenue Service under section 6111, and (b) any other entity,
plan, or arrangement that is treated by regulations as a tax shelter for
purposes of the list requirement. An investment that is required to be
registered under section 6111 is a tax shelter even if the investment
has not been properly registered with the Internal Revenue Service. See
301.6111-1T for rules relating to tax shelter registration.
Q-4: Are any entities, plans, or arrangements other than those
required to be registered with the Internal Revenue Service under
section 6111 treated as tax shelters for purposes of the list
requirement?
A-4: Yes. For purposes of the list requirement, a tax shelter
includes any tax shelter that is a projected income investment, as
defined in A-57A of 301.6111-1T. The extent, if any, to which any other
entity, plan or arrangement will be treated as a potentially abusive tax
shelter for purposes of the list requirement will be prescribed in
future regulations.
26 CFR 301.6112-1T Persons Required To Maintain Lists of Investors
Q-5: Who is an organizer of a tax shelter?
A-5: An organizer is any person who is a principal organizer of a
tax shelter under A-27 of 301.6111-1T. Thus, an organizer, for purposes
of the list requirement, means any person who discovers, creates,
investigates, or initiates the tax shelter investment, devises the
business or financial plans for the tax shelter, or carries out those
plans through negotiations or transactions with others.
Q-6: Who is a seller of an interest in a tax shelter?
A-6: For purposes of the list requirement, a seller is --
(a) Any organizer, underwriter, broker, or dealer (or other similar
person) who transfers any interest in a tax shelter;
(b) Any agent who negotiates the transfer of any interest in a tax
shelter for the tax shelter, an organizer, or other person described in
paragraph (a) of this A-6; and
(c) Any investor (i.e., a person not described in paragraph (a) of
this A-6) who transfers any interest in a tax shelter.
For example, if a broker or underwriter purchases a block of
interests in a tax shelter from an organizer and in turn sells those
interests to individual investors, the broker or underwriter, under
paragraph (a) of this A-6, is a seller for purposes of the list
requirement. Moreover, if a broker or underwriter who purchases a block
of interests in a tax shelter engages other brokers or agents to
negotiate sales of interests, such other brokers or agents, under
paragraph (b) of this A-6, are sellers for purposes of the list
requirement. Similarly, if an organizer engages a broker or other agent
to negotiate sales of interests in a tax shelter to investors, the
broker or other agent, under paragraph (b) of this A-6, is a seller for
purposes of the list requirement. If, on the other hand, an individual
investor engages a broker or other agent to negotiate a sale of the
investor's interest to another investor, the broker or other agent is
not a seller for purposes of the list requirement. The individual
investor who transfers the interest, however, would be a seller for
purposes of the list requirement under paragraph (c) of this A-6.
Q-7: What is the meaning of the term ''an interest'' in a tax
shelter?
A-7: An interest in a tax shelter includes any right to participate
in the tax shelter by reason of (a) a partnership interest, a
shareholder interest, or a beneficial interest in a trust, (b) any
interest in property (including a leasehold interest), or (c) the entry
into a leasing arrangement or a consulting, management, or other
agreement for the performance of services.
26 CFR 301.6112-1T Persons Required To Be Included on a List
Q-8: What persons are required to be included on a list maintained
by an organizer?
A-8: An organizer of a tax shelter must include on a list all
persons who acquire interests in the tax shelter by reason of --
(a) Any transfer of an interest made by the organizer (i.e., a
transfer with respect to which the organizer, under paragraph (a) of A-6
of this section, is also a seller) or through an agent of the organizer
described in paragraph (b) of A-6 of this section;
(b) Any transfer of an interest made by the tax shelter or through an
agent of the tax shelter described in paragraph (b) of A-6 of this
section (provided the organizer is involved in the tax shelter on the
date of the transfer);
(c) Any transfer of an interest made by or through a person related
(within the meaning of section 168 (e)(4)) to the organizer or the tax
shelter (provided the organizer is involved in the tax shelter on the
date of the transfer);
(d) Any transfer of an interest of which the organizer is informed
(regardless of whether the organizer is so informed under A-15 of this
section for the specific purpose of maintaining a list); and
(e) Any other transfer of which the organizer knows or has reason to
know whether on account of the duty of inquiry described in A-9 of this
section or for any other reason.
Example 1. Assume that A, an organizer, offers partnership interests
in a tax shelter for sale through Y, a broker. In 1985, ten individual
investors purchase partnership interests from A through Broker Y. A
must include on A's list the ten individual investors, because
organizers must include on their lists persons who acquire interests by
reason of transfers with respect to which the organizers also are
sellers within the meaning of paragraph (a) of A-6 of this section.
Broker Y, who is a seller within the meaning of paragraph (b) A-6 of
this section, also would be required to maintain a list containing the
names of the ten individual investors (see A-10 of this section). See
A-17 of this section for the other information required to be included
on a list. See A-11 through A-13 of this section for rules relating to
the designation of a single organizer to maintain a list for multiple
organizers and sellers.
Example 2. Assume the same facts as in example 1 and that, in
addition, A is the tax matters partner (within the meaning of section
6231) for the partnership. In 1986, A, as tax matters partner, is
instructed to prepare a Form K-1 for partner Z, a corporation that
acquired its interest from one of the ten investors. A would be
required to include Z on A's list under paragraph (d) of this A-8
because A has been informed of the acquisition of an interest by Z.
Q-9: When does an organizer have a duty to inquire with respect to
transfers of interests in the tax shelter?
A-9: An organizer has a duty to make a reasonable inquiry only with
respect to transfers of interests in the tax shelter made by a seller
described in paragraph (a) of A-6 of this section who acquired the
interests from (a) the organizer or a person related (within the meaning
of section 168(e)(4)) to the organizer, or (b) the tax shelter or a
person related (within the meaning of section 168(e)(4)) to the tax
shelter (provided the organizer is involved in the tax shelter on the
date the interest is transferred to the seller). For example, if a
broker or underwriter purchases a block of interests in a tax shelter
from an organizer and in turn sells those interests to individual
investors, the organizer has a duty to inquire with respect to such
sales. If, as a result of the inquiry, the organizer knows the
investors who acquired interests in the tax shelter from the broker or
underwriter, the organizer would be required to include those persons on
the list. (See paragraph (e) of A-8 of this section.) If the organizer
fails reasonably to inquire with respect to transfers by a seller
described in paragraph (a) of A-6 of this section, the organizer will
have reason to know for purposes of paragraph (e) of A-8 of this section
of those investors who acquired interests in the tax shelter from such a
seller by reason of any transfer that the organizer would have
discovered through a reasonable inquiry.
Q-10: What persons are required to be included on a list maintained
by a seller?
A-10: Any list required to be maintained by a seller must identify
each person who acquired an interest in the tax shelter from the seller,
or, if the seller is an agent described in paragraph (b) of A-6 of this
section, each person who acquired an interest through the seller. Any
list required to be maintained by a seller described in paragraph (a) of
A-6 of this section must also identify each person who acquired an
interest of which the seller is informed under A-15 of this section.
26 CFR 301.6112-1T Designation of One Organizer To Maintain the List
Q-11: If more than one person is required to maintain a list for the
same tax shelter (i.e., multiple organizers, or organizers and sellers),
may a single person be designated to maintain the list or a portion of
the list for the tax shelter?
A-11: Yes. Organizers and sellers who are required to maintain a
list (or a portion of such a list) of persons who have acquired
interests in the same tax shelter may designate one of the organizers
(but not a seller who is not also an organizer) to maintain the required
list or portion of the list (''designated person''). Organizers and
sellers may not designate one person to maintain a list for the tax
shelter, however, unless the tax shelter is timely and properly
registered under section 6111 or unless the tax shelter is a projected
income investment (as defined in A-57A of 301.6111-1T). If the tax
shelter is registered with the Internal Revenue Service under section
6111, the organizer who registered the tax shelter ordinarily should be
the designated person, although any other organizer who meets the
requirements of this A-11 may be the designated person. An organizer
may not be a designated person, however, unless --
(a) It is reasonably expected that the organizer will actively
participate in the management of the tax shelter as (i) a general
partner of the tax shelter, (ii) an officer or director of the tax
shelter, (iii) an officer or director of a corporate general partner of
the tax shelter, or (iv) a trustee of the tax shelter; and
(b) The organizer is not a resident of, and does not maintain its
principal place of business in, a foreign country.
Q-12: What must organizers and sellers do to designate one organizer
to maintain a list under A-11 of this section?
A-12: The organizers and sellers must enter into a written agreement
that identifies the designated person and that is signed by all the
parties to the agreement, including the designated person.
Q-13: What are the consequences of an agreement under A-12 of this
section?
A-13: (a) If the tax shelter is not a projected income investment
(as defined in A-57A of 301.6111-1T) at the time an agreement under
A-12 of this section is signed, a seller or organizer who signs the
agreement shall not be subject to penalty under section 6708 for failing
to maintain a list provided that the seller or organizer --
(1) Submits to the designated person all of the information that the
organizer or seller otherwise would be required to maintain on a list
(as described in A-8, A-10, and A-17 of this section), and
(2) Provides to each investor (within the meaning of paragraph (c) of
A-6 of this section) otherwise required to be included on a list
maintained by such organizer or seller a notice in the form prescribed
in paragraph (c) of this A-13.
(b) If the tax shelter is a projected income investment (as defined
in A-57A of 301.6111-1T) at the time an agreement under A-12 of this
section is signed, a seller or organizer who signs the agreement shall
not be subject to penalty under section 6708 for failing to maintain a
list provided that the seller or organizer submits to the designated
person all of the information that the organizer or seller otherwise
would be required to maintain on a list (as described in A-8, A-10, and
A-17 of this section). If the tax shelter ceases to be a projected
income investment under A-57G of 301.6111-1T, the designated person
must provide to each investor (within the meaning of paragraph (c) of
A-6 of this section) required to be included on the list an explanation
that the tax shelter has ceased to be projected income investment and a
notice substantially in the form prescribed in paragraph (c) of this
A-13.
(c) Any notice required to be provided to an investor (within the
meaning of paragraph (c) of A-6 of this section) under paragraph (a) or
(b) of this A-13 must be substantially in the form set forth below:
You have acquired an interest in (name and address of tax shelter).
If you transfer your interest in this tax shelter to another person, you
are required by the Internal Revenue Service to keep a list containing
that person's name, address, taxpayer identification number, the date on
which you transferred the interest, and the name, address, and tax
shelter registration number of this tax shelter. If you do not want to
keep such a list, you must (1) send the information specified above to
(name and address of designated person), who will keep the list for this
tax shelter, and (2) give a copy of this notice to the person to whom
you transfer your interest.
This notice may be incorporated into the notice required by A-53 or
A-54 of 301.6111-1T (relating to tax shelter registration).
(d) A designated person who fails to maintain a list shall be subject
to penalty under section 6708. For special rules for determining the
amount of the penalty imposed on a designated person under section 6708,
see A-6 of 301.6708.-1T.
26 CFR 301.6112-1T Additional Requirement Imposed on Sellers Who Do Not
Sign Designation Agreements
Q-14: Is any additional requirement imposed on a seller who does not
sign an agreement under A-12 of this section to designate one organizer
to maintain a list for a tax shelter?
A-14: Yes. Any seller described in paragraph (a) of A-6 of this
section who does not sign a designation agreement under A-12 of this
section (including organizers who are such sellers) with respect to a
tax shelter that is not a projected income investment must provide a
notice to all investors (within the meaning of paragraph (c) of A-6 of
this section) who acquire interests in the tax shelter from the seller.
The notice must be substantially in the form prescribed in paragraph (c)
of A-13 of this section except that the notice must include the name and
address of the seller in place of the name and address of the designated
person. In the case of a tax shelter that is a projected income
investment (as defined in A-57A of 301.6111-1T), a notice to investors
need not be provided until such time, if any, as the shelter ceases to
be a projected income investment under A-57G of 301.6111-1T. In such a
case, the seller shall provide, with the notice, an explanation that the
tax shelter has ceased to be a projected income investment.
26 CFR 301.6112-1T Special Rules Applicable to Investors
Q-15: Under what circumstances is an investor described in paragraph
(c) of A-6 of this section who retransfers an interest in a tax shelter
not required to maintain a list disclosing the transferee's name and the
other information required by A-17 of this section?
A-15: An investor who retransfers an interest in a tax shelter that
is projected income investment (as defianed in A-57A of 301.6111-1T) is
not required to maintain a list with respect to the retransfer unless
the tax shelter ceases to be a projected income investment under A-57G
of 301.6111-1T prior to the retransfer. In addition, any investor who
is required to maintain a list for a tax shelter (including a tax
shelter that has ceased to be a projected income investment) may require
a designated person or a seller identified in a notice provided under
either A-13 or A-14 of this section to maintain the investor's list (and
the investor will thus not be subject to any penalty under section 6708
for failing to maintain the list) by --
(a) Submitting to the designated person or seller so identified all
of the information that the investor otherwise would be required to
maintain on a list for that tax shelter, and
(b) Providing a copy of the notice furnished to the investor under
either A-13 or A-14 of this section to the person or persons to whom the
investor retransfers an interest in the tax shelter.
Example. Assume that X, an organizer, retains brokers A and B to sell
interests in a tax shelter that is not a projected income investment.
In 1985, A and B each negotiate sales of interests in the tax shelter to
investors. Assume that X timely and properly registered the tax shelter
under section 6111. A, B, and X enter into an agreement to designate X
to maintain the list of investors who acquired interests in the tax
shelter through A and B. Pursuant to the agreement, A and B submit the
required information to X and provide the required notice to the
investors who acquired interests through A and B. On January 1, 1986,
C, an investor who acquired an interest through A, sells the interest to
D. Since C was provided with the notice required by A-13 of this
section, C may require X to maintain C's list with respect to the sale
to D by submitting to X all of the required information regarding the
sale and by providing a copy of the notice to D. If A, B, and X had not
signed an agreement, X, a seller described in paragraph (a) of A-6 of
this section, would nevertheless have been required to provide a notice
to C (under A-14 of this section) and C would have been able to require
X to keep the list by complying with the two requirements of this A-15.
In the absence of an agreement, however, A and B, who are sellers
described in paragraph (b) of A-6 of this section, would have been
required to keep lists of investors with whom they negotiated sales.
26 CFR 301.6112-1T Manner in Which List Shall Be Maintained
Q-16: In what manner must an organizer or a seller maintain a list?
A-16: A list may be maintained on paper, card file, magnetic media,
or in any other form, provided the method of maintaining the list
enables the Internal Revenue Service to determine without undue delay or
difficulty the information required by A-17 of this section.
Q-17: What information must be included on a list?
A-17: A list must contain the following information:
(1) The name of the tax shelter and the registration number, if any,
obtained under section 6111;
(2) The TIN (as defined in section 7701(a)(41)), if any, of the tax
shelter;
(3) The name, address, and TIN (as defined in section 7701(a)(41)) of
each person who is required to be included on the list under A-8 or A-10
of this section;
(4) The number of units (i.e., percentage of profits, number of
shares, etc.) acquired by each person who is required to be included on
the list;
(5) The date on which each interest was acquired;
(6) If the interest was not acquired from the person maintaining the
list, the name of the person from whom the interest was acquired; and
(7) The name and address of each agent of the person maintaining the
list who is described in paragraph (b) of A-6 of this section.
If the person maintaining the list is an investor described in
paragraph (c) of A-6 of this section, the list is required to include
only the information specified in items (1), (3) and (5).
Q-18: If a person is required to maintain lists for more than one
tax shelter, how should the lists be arranged?
A-18: A separate list, identified by the registration number
obtained under section 6111 (or if there is no registration number, the
name of the tax shelter), must be maintained for each tax shelter.
26 CFR 301.6112-1T Retention of Lists
Q-19: How long must organizers and sellers retain a list?
A-19: A list generally must be retained for 7 years following the
date on which the last acquisition of an interest required to be
included on the list is made (not including any acquisition for which an
organizer or seller is required to maintain a list under A-15 or
paragraph (d) or paragraph (e) of A-8 of this section). In the case of
any acquisition of an interest for which an organizer or seller is
required to maintain a list under A-15 or paragraph (d) or paragraph (e)
of A-8 of this section, the list with respect to the acquisition must be
retained for the longer of the 7-year period determined under the
preceding sentence, or the 3-year period following the date on which the
interest is acquired.
Q-20: Who must retain the list if the person required to maintain
the list is a corporation or a partnership that is dissolved or
liquidated before completion of the period determined under A-19 of this
section?
A-20: If a list is required to be maintained by a corporation or
partnership that is dissolved or liquidated before completion of the
period determined under A-19 of this section, the list shall be retained
by the person or persons who under state law are responsible for winding
up the affairs of the corporation or partnership. If state law does not
specify any person or persons as responsible for winding up, then,
collectively, the directors of the corporation or general partners of
the partnership shall be responsible for retaining the list.
26 CFR 301.6112-1T Availability for Inspection
Q-21: When must a person required to maintain a list make the list
available for inspection?
A-21: Any person required to maintain a list must, upon request by
the Internal Revenue Service, make the list available for inspection as
soon as practicable, but in no event later than 10 calendar days after
such request. The request need not be in the form of an administrative
summons.
26 CFR 301.6112-1T Effective Date
Q-22: With respect to what interests must an organizer or a seller
maintain a list?
A-22: An organizer or seller must maintain a list with respect to
any interest in the tax shelter other than an interest that was acquired
before September 1, 1984, by an investor (within the meaning of
paragraph (c) of A-6 of this section). Thus, if an organizer sells
interests in a tax shelter to investors both before September 1, 1984,
and after August 31, 1984, the organizer must maintain a list
identifying only those inventors to whom the organizer sells an interest
after August 31, 1984. The organizer is not required to include on the
list investors who acquire interests in the tax shelter after August 31,
1984, from other individual investors who acquired the interests before
September 1, 1984.
Example. Assume that on August 21, 1984, A, an organizer, sells a
block of interests in a tax shelter to B, an underwriter, and an
interest in the tax shelter to C, an investor. Assume also, that, on
September 12, 1984, B sells to D, an investor, one of the interests that
B acquired on August 21, 1984. A is not required to maintain a list
with respect to the interest sold to C because that interest was
acquired by an investor before September 1, 1984. B, who is a seller
described in paragraph (a) of A-6 of this section, is required to
maintain a list with respect to the interest sold to D because that
interest was not sold to an investor before September 1, 1984. In
addition, A is required to maintain a list with respect to the interest
sold to D if A knows or has reason to know of the sale to D. (See
paragraph (e) of A-8 and A-9 of this section.)
(Secs. 6111 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 26
U.S.C. 6111; 68A Stat. 917, 26 U.S.C. 7805); secs. 6111, 6112 and
7805, Internal Revenue Code of 1954 (98 Stat. 678, 98 Stat. 681, 68A
Stat. 917; 26 U.S.C. 6111, 6112 and 7805))
(T.D. 7969, 49 FR 34201, Aug. 29, 1984, as amended by T.D. 7990, 49
FR 43646, Oct. 31, 1984; 50 FR 13020, Apr. 2, 1985)
26 CFR 301.6114-1 Treaty-based return positions.
(a) Reporting requirement -- (1) General rule. (i) Except as
provided in paragraph (c) of this section, if a taxpayer takes a return
position that any treaty of the United States (including, but not
limited to, an income tax treaty, estate and gift tax treaty, or
friendship, commerce and navigation treaty) overrules or modifies any
provision of the Internal Revenue Code and thereby effects (or
potentially effects) a reduction of any tax incurred as any time, the
taxpayer shall disclose such return position on a statement (in the form
required in paragraph (d) of this section) attached to such return.
(ii) If a return of tax would not otherwise be required to be filed,
a return must, nevertheless, be filed for purposes of making the
disclosure required by this section. For this purpose, such return need
include only the taxpayer's name, address, Taxpayer Identification
Number (if any), and be signed under the penalties of perjury (as well
as the subject disclosure). Also, the taxpayer's taxable year shall be
deemed to be the calendar year (unless the taxpayer has previously
established, or timely chooses for this purpose to establish, a
different taxable year).
(2) Application. (i) A taxpayer is considered to adopt a ''return
position'' when the taxpayer determines its tax liability with respect
to a particular item of income, deduction or credit. A taxpayer may be
considered to adopt a return position whether or not a return is
actually filed. To determine whether a return position is a
''treaty-based return position'' so that reporting is required under
this paragraph (a), the taxpayer must compare:
(A) The tax liability (including credits, carrybacks, carryovers, and
other tax consequences or attributes for the current year as well as for
any other affected tax years) to be reported on a return of the
taxpayer, and
(B) The tax liability (including such credits, carrybacks,
carryovers, and other tax consequences or attributes) that would be
reported if the relevant treaty provision did not exist.
If there is a difference (or potential difference) in these two
amounts, the position taken on a return is a treaty-based return
position that must be reported.
(ii) In the event a taxpayer's return position is based on a
conclusion that a treaty provision is consistent with a Code provision,
but the effect of the treaty provision is to alter the scope of the Code
provision from the scope that it would have in the absence of the
treaty, then the return position is a treaty-based return position that
must be reported.
(iii) A return position is a treaty-based return position unless the
taxpayer's conclusion that no reporting is required under paragraphs
(a)(2) (i) and (ii) of this section has a substantial probability of
successful defense if challenged.
(3) Examples. The application of section 6114 and paragraph (a)(2)
of this section may be illustrated by the following examples:
Example 1: X, a Country A corporation, claims the benefit of a
provision of the income tax treaty between the United States and Country
A that modifies a provision of the Code. This position does not result
in a change of X's U.S. tax liability for the current tax year but does
give rise to, or increases, a net operating loss which may be carried
back (or forward) such that X's tax liability in the carryback (or
forward) year may be affected by the position taken by X in the current
year. X must disclose this treaty-based return position with its tax
return for the current tax year.
Example 2: Z, a domestic corporation, is engaged in a trade or
business in Country B. Country B imposes a tax on the income from
certain of Z's petroleum activities at a rate significantly greater than
the rate applicable to income from other activities. Z claims a foreign
tax credit for this tax on its tax return. The tax imposed on Z is
specifically listed as a creditable tax in the income tax treaty between
the United States and Country B; however, there is no specific
authority that such tax would otherwise be a creditable tax for U.S.
purposes under sections 901 or 903 of the Code. Therefore, in the
absence of the treaty, the creditability of this petroleum tax would
lack a substantial probability of successful defense if challenged, and
Z must disclose this treaty-based return position (see also paragraph
(b) (7) of this section).
(b) Reporting specifically required. Reporting is required under
this section except as expressly waived under paragraph (c) of this
section. The following list is not a list of all positions for which
reporting is required under this section but is a list of particular
positions for which reporting is specifically required. These positions
are as follows:
(1) That a nondiscrimination provision of a treaty precludes the
application of any otherwise applicable Code provision, other than with
respect to the making of or the effect of an election under section
897(i);
(2) That a treaty reduces or modifies the taxation of gain or loss
from the disposition of a United States real property interest;
(3) That a treaty exempts a foreign corporation from (or reduces the
amount of tax with respect to) the branch profits tax (section 884(a))
or the tax on excess interest (section 884(f)(1)(B));
(4) That, notwithstanding paragraph (c)(1) of this section,
(i) A treaty exempts from tax, or reduces the rate of tax on,
interest or dividends paid by a foreign corporation that are from
sources within the United States by reason of section 861(a)(2)(B) or
section 884(f)(1)(A); or
(ii) A treaty exempts from tax, or reduces the rate of tax on, fixed
or determinable annual or periodical income subject to withholding under
sections 1441 or 1442 that a foreign person receives from a U.S. person,
but only if --
(A) the payment is not properly reported to the Service on a Form
1042S; and
(B) The foreign person is any of the following:
(1) A controlled foreign corporation (as defined in section 957) in
which the U.S. person is a U.S. shareholder within the meaning of
section 951(b);
(2) A foreign corporation that is controlled within the meaning of
section 6038 by the U.S. person;
(3) A foreign shareholder of the U.S. person that, in the case of tax
years beginning on or before July 10, 1989, is controlled within the
meaning of section 6038A by the foreign shareholder, or, in the case of
tax years beginning after July 10, 1989, is 25-percent owned within the
meaning of section 6038A by the foreign shareholder; or
(4) With respect to payments made after October 10, 1990, a foreign
related party, as defined in section 6038A (c)(2)(B), the the U.S.
person; or
(5) That, notwithstanding paragraph (c)(1) of this section, under a
treaty --
(i) Income that is effectively connected with a U.S. trade or
business of a foreign corporation or a nonresident alien is not
attributable to a permanent establishment or a fixed base of operations
in the United States and, thus, is not subject to taxation on a net
basis, or that
(ii) Expenses are allowable in determining net business income so
attributable, notwithstanding an inconsistent provision of the Code;
(6) Except as provided in paragraph (c)(4) of this section, that a
treaty alters the source of any item of income or deduction; or
(7) That a treaty grants a credit for a specific foreign tax for
which a foreign tax credit would not be allowed by the Code.
(c) Reporting requirement waived. Pursuant to the authority
contained in section 6114 (b), reporting is waived under this section
with respect to any of the following return positions taken by the
taxpayer:
(1) Except as provided in paragraph (b) (4) or (5) of this section,
that a treaty has reduced the rate of withholding tax otherwise
applicable to a particular type of fixed or determinable annual or
periodical income subject to withholding under section 1441 or 1442,
such as dividends, interest, rents, or royalties;
(2) That residency of an individual is determined under a treaty and
apart from the Code;
(3) That a treaty reduces or modifies the taxation of income derived
from dependent personal services, pensions, annuities, social security
and other public pensions, or income derived by artistes, athletes,
students, trainees or teachers;
(4) That income of an individual is resourced (for purposes of
applying the foreign tax credit limitation) under a treaty provision
relating to elimination of double taxation;
(5) That a nondiscrimination provision of a treaty allows the making
of an election under section 897(i);
(6) That a Social Security Totalization Agreement or a Diplomatic or
Consular Agreement reduces or modifies the taxation of income derived by
the taxpayer; or
(7) That a treaty exempts the taxpayer from the excise tax imposed by
section 4371, but only if:
(i) The person claiming such treaty-based return position is an
insured, as defined in section 4372(d) (without the limitation therein
referring to section 4371(1)), or a U.S. or foreign broker of insurance
risks,
(ii) Reporting under this section that would otherwise be required to
be made by foreign insurers or reinsurers on a Form 720 on a quarterly
basis is made on an annual basis on a Form 720 by a date no later than
the date on which the return is due for the first quarter after the end
of the calendar year, or
(iii) A closing agreement relating to entitlement to the exemption
from the excise tax has been entered into with the Service by the
foreign insurance company that is the beneficial recipient of the
premium that is subject to the excise tax.
Reporting is waived for an individual where payments or income items
other-wise reportable under this section received by the individual
during the course of the taxable year do not exceed $10,000 in the
aggregate. Reporting with respect to payments or income items the
treatment of which is mandated by the terms of a closing agreement with
the Service, and that would otherwise be subject to the reporting
requirements of this section, is also waived. In addition, if a
partnership, trust, or estate that has the taxpayer as a partner or
beneficiary discloses on its information return a position for which
reporting is otherwise required by the taxpayer, the taxpayer (partner
or beneficiary) is then excused from disclosing that position on a
return. Also, this section does not apply to a withholding agent with
respect to the performance of its withholding functions.
(d) Information to be reported. If reporting is required under this
section, the following information must be furnished in accordance with
paragraph (a) of this section as an attachment to the return and set
forth with the indicated heading and with paragraphs labeled to
correspond with the numbers set forth below:
26 CFR 301.6114-1 Treaty-Based Return Position Disclosure Under Section
6114
(1) Taxpayer's name, T.I.N. (if any), and address both in the country
of residence and in the United States;
(2) Name, T.I.N. (if available to the taxpayer), and address in the
United States of the payor of the income (if fixed, determinable,
annual, or periodical);
(3) A statement whether the taxpayer (if an individual) is a U.S.
citizen or resident or (if a corporation) is incorporated in the United
States;
(4) A separate statement of facts relied upon to support each
separate position taken, including for each position:
(i) The nature and amount (or a reasonable estimate thereof) of gross
receipts, each separate gross payment, each separate gross income item,
or other item (as applicable) for which the treaty benefit is claimed,
(ii) An explanation of the position taken with a brief summary of the
facts on which it is based,
(iii) The specific treaty provision relied upon,
(iv) The Code provision(s) overruled or modified, and
(v) The provision(s) of the limitation on benefits article (if any)
in the treaty which the taxpayer relies upon to prevent application of
that article.
For purposes of paragraph (d)(4)(i) of this section, if a taxpayer
takes a position that it does not have a permanent establishment or
fixed base in the United States and properly discloses that position, it
need not separately report its payment of actual or deemed dividends or
interest exempt from tax by reason of a treaty (or any liability for tax
imposed by reason of section 884). Also, for purposes of paragraph
(d)(4)(i) of this section, a taxpayer may treat payments or income items
of the same type (e.g., interest items) received from the same ultimate
payor (e.g., the obligor on a note) as a single separate payment or
income item. For purposes of paragraph (d)(4), if a taxpayer takes the
return position that, under a treaty, income that is effectively
connected with a U.S. trade or business is not subject to U.S. taxation
because it is derived from sources outside of the United States, the
taxpayer may treat payments or income items of the same type (e.g.,
interest items) as a single separate payment or income item. In
addition, income from separate sales or services, whether or not made by
an agent (independent or dependent), to different U.S. customers on
behalf of a foreign corporation not having a permanent establishment in
the United States may be treated as a single payment or income item.
For purposes of reporting by foreign insurers or reinsurers, as
described in paragraph (c)(7)(ii) of this section, such reporting must
separately set forth premiums paid with respect to: casualty insurance
and indemnity bonds (subject to section 4371(1)); life insurance,
sickness and accident policies, and annuity contracts (subject to
section 4371(2)); and reinsurance (subject to section 4371(3)). All
premiums paid with respect to each of these three categories may be
treated as a single payment or income item within the category. For
reports first due before May 1, 1991, the report may disclose, for each
of the three categories, the total amount of premiums derived by the
foreign insurer or reinsurer in U.S. dollars (even if a portion of these
premiums relate to risks that are not U.S. situs). Reasonable estimates
of the amounts required to be disclosed will satisfy these reporting
requirements.
(e) Effective date. This section is effective for taxable years of
the taxpayer for which the due date for filing returns (without
extensions) occurs after December 31, 1988. However, if --
(1) A taxpayer has filed a return for such a taxable year, without
complying with the reporting requirement of this section, before
November 13, 1989, or
(2) A taxpayer is not otherwise than by paragraph (a) of this section
required to file a return for a taxable year before November 13, 1989,
Such taxpayer must file (apart from any earlier filed return) the
statement required by paragraph (d) of this section before June 12,
1990, by mailing the required statement to the Internal Revenue Service,
P.O. Box 21086, Philadelphia, PA 19114. Any such statement filed apart
from a return must be dated, signed and sworn to by the taxpayer under
the penalties of perjury. In addition, with respect to any return due
(without extensions) on or before March 10, 1990, the reporting required
by paragraph (a) of this section must be made no later than June 12,
1990. If a taxpayer files or has filed a return on or before November
13, 1989, that provides substantially the same information required by
paragraph (d) of this section, no additional submission will be
required. Foreign insurers and reinsurers subject to reporting
described in paragraph (c)(7)(ii) of this section must so report for
calendar years 1988 and 1989 no later than August 15, 1990.
(f) Cross reference. For the provisions concerning penalties for
failure to disclose a treaty-based return position, see section 6712 and
301.6712-1.
(T.D. 8292, 55 FR 9440, Mar. 14, 1990; 55 FR 10237, Mar. 20, 1990,
as amended by T.D. 8305, 55 FR 28609, July 12, 1990)
26 CFR 301.6114-1 Time and Place for Paying Tax
26 CFR 301.6114-1 Place and Due Date for Payment of Tax
26 CFR 301.6151-1 Time and place for paying tax shown on returns.
For provisions concerning the time and place for paying tax shown on
returns with respect to a particular tax, see the regulations relating
to such tax.
26 CFR 301.6152-1 Installment payments.
For provisions relating to the installment payments of income taxes,
see 1.6152-1 of this chapter (Income Tax Regulations).
26 CFR 301.6153-1 Installment payments of estimated income tax by
individuals.
For provisions relating to installment payments of estimated income
tax by individuals, see 1.6153-1 to 1.6153-4, inclusive, of this
chapter (Income Tax Regulations).
26 CFR 301.6154-1 Installment payments of estimated income tax by
corporations.
For provisions relating to installment payments of estimated income
tax by corporations, see 1.6154-1 to 1.6154-3, inclusive, of this
chapter (Income Tax Regulations).
26 CFR 301.6155-1 Payment on notice and demand.
Upon receipt of notice and demand from the district director
(including the Director of International Operations) or the director of
the regional service center, there shall be paid at the place and time
stated in such notice the amount of any tax (including any interest,
additional amounts, additions to the tax, and assessable penalties)
stated in such notice and demand.
26 CFR 301.6156-1 Installment payments of tax on use of highway motor
vehicles.
For provisions relating to installment payments of the tax on use of
highway motor vehicles, see 41.6156-1 of this chapter (Highway Motor
Vehicle Use Tax Regulations).
26 CFR 301.6156-1 Extension of Time for Payment
26 CFR 301.6161-1 Extension of time for paying tax.
For provisions concerning the extension of time for paying a
particular tax or for paying an amount determined as a deficiency, see
the regulations relating to such tax.
26 CFR 301.6162-1 Extension of time for payment of tax on gain
attributable to liquidation of personal holding companies.
For provisions relating to the extension of time for payment of tax
on gain attributable to liquidation of personal holding companies, see
1.6162-1 of this chapter (Income Tax Regulations).
26 CFR 301.6163-1 Extension of time for payment of estate tax on value
of reversionary or remainder interest in property.
For provisions relating to the extension of time for payment of
estate tax on value of reversionary or remainder interest in property,
see 20.6163-1 of this chapter (Estate Tax Regulations).
26 CFR 301.6164-1 Extension of time for payment of taxes by
corporations expecting carrybacks.
For provisions relating to the extension of time for payment of taxes
by corporations expecting carrybacks, see 1.6164-1 to 1.6164-9,
inclusive, of this chapter (Income Tax Regulations).
26 CFR 301.6165-1 Bonds where time to pay the tax or deficiency has
been extended.
For provisions concerning bonds where time to pay a tax or deficiency
has been extended, see the regulations relating to the particular tax.
26 CFR 301.6166-1 Extension of time for payment of estate tax where
estate consists largely of interest in closely held business.
For provisions relating to the extension of time for payment of
estate tax where estate consists largely of interest in closely held
business, see 20.6166-1 to 20.6166-4, inclusive, of this chapter
(Estate Tax Regulations).
26 CFR 301.6166-1 Assessment
26 CFR 301.6166-1 In General
26 CFR 301.6201-1 Assessment authority.
(a) In general. The district director is authorized and required to
make all inquiries necessary to the determination and assessment of all
taxes imposed by the Internal Revenue Code of 1954 or any prior internal
revenue law. The district director is further authorized and required,
and the director of the regional service center is authorized, to make
the determinations and the assessments of such taxes. However, certain
inquiries and determinations are, by direction of the Commissioner, made
by other officials, such as assistant regional commissioners. The term
''taxes'' includes interest, additional amounts, additions to the taxes,
and assessable penalties. The authority of the district director and
the director of the regional service center to make assessments includes
the following:
(1) Taxes shown on return. The district director or the director of
the regional service center shall assess all taxes determined by the
taxpayer or by the district director or the director of the regional
service center and disclosed on a return or list.
(2) Unpaid taxes payable by stamp. (i) If without the use of the
proper stamp:
(a) Any article upon which a tax is required to be paid by means of a
stamp is sold or removed for sale or use by the manufacturer thereof, or
(b) Any transaction or act upon which a tax is required to be paid by
means of a stamp occurs;
The district director, upon such information as he can obtain, must
estimate the amount of the tax which has not been paid and the district
director or the director of the regional service center must make
assessment therefor upon the person the district director determines to
be liable for the tax. However, the district director or the director
of the regional service center may not assess any tax which is payable
by stamp unless the taxpayer fails to pay such tax at the time and in
the manner provided by law or regulations.
(ii) If a taxpayer gives a check or money order as a payment for
stamps but the check or money order is not paid upon presentment, then
the district director or the director of the regional service center
shall assess the amount of the check or money order against the taxpayer
as if it were a tax due at the time the check or money order was
received by the district director.
(3) Erroneous income tax prepayment credits. If the amount of income
tax withheld or the amount of estimated income tax paid is overstated by
a taxpayer on a return or on a claim for refund, the amount so
overstated which is allowed against the tax shown on the return or which
is allowed as a credit or refund shall be assessed by the district
director or the director of the regional service center in the same
manner as in the case of a mathematical error on the return. See
section 6213 (b)(1), relating to exceptions to restrictions on
assessment.
(b) Estimated income tax. Neither the district director nor the
director of the regional service center shall assess any amount of
estimated income tax required to be paid under section 6153 or 6154
which is unpaid.
(c) Compensation of child. Any income tax assessed against a child,
to the extent of the amount attributable to income included in the gross
income of the child solely by reason of section 73(a) or the
corresponding provision of prior law, if not paid by the child, shall,
for the purposes of the income tax imposed by chapter 1 of the Code (or
the corresponding provisions of prior law), be considered as having also
been properly assessed against the parent. In any case in which the
earnings of the child are included in the gross income of the child
solely by reason of section 73(a) or the corresponding provision of
prior law, the parent's liability is an amount equal to the amount by
which the tax assessed against the child (and not paid by him) has been
increased by reason of the inclusion of such earnings in the gross
income of the child. Thus, if for the calendar year 1954 the child has
income of $1,000 from investments and of $3,000 for services rendered,
and the latter amount is includible in the gross income of the child
under section 73(a) and the child has no wife or dependents, the tax
liability determined under section 3 is $625. If the child had only the
investment income of $1,000, his tax liability would be $62. If the tax
of $625 is assessed against the child, the difference between $625 and
$62, or $563, is the amount of such tax which is considered to have been
properly assessed against the parent, if not paid by the child.
26 CFR 301.6203-1 Method of assessment.
The district director and the director of the regional service center
shall appoint one or more assessment officers. The district director
shall also appoint assessment officers in a Service Center servicing his
district. The assessment shall be made by an assessment officer signing
the summary record of assessment. The summary record, through
supporting records, shall provide identification of the taxpayer, the
character of the liability assessed, the taxable period, if applicable,
and the amount of the assessment. The amount of the assessment shall,
in the case of tax shown on a return by the taxpayer, be the amount so
shown, and in all other cases the amount of the assessment shall be the
amount shown on the supporting list or record. The date of the
assessment is the date the summary record is signed by an assessment
officer. If the taxpayer requests a copy of the record of assessment,
he shall be furnished a copy of the pertinent parts of the assessment
which set forth the name of the taxpayer, the date of assessment, the
character of the liability assessed, the taxable period, if applicable,
and the amounts assessed.
26 CFR 301.6204-1 Supplemental assessments.
If any assessment is incomplete or incorrect in any material respect,
the district director or the director of the regional service center,
subject to the restrictions with respect to the assessment of
deficiencies in income, estate, gift, chapter 41, 42, 43, and 44 taxes,
and subject to the applicable period of limitation, may make a
supplemental assessment for the purpose of correcting or completing the
original assessment.
(T.D. 7838, 47 FR 44249, Oct. 7, 1982)
26 CFR 301.6205-1 Special rules applicable to certain employment taxes.
For regulations under section 6205, see 31.6205-1 of this chapter
(Employment Tax Regulations).
26 CFR 301.6206-1 Special rules applicable to excessive claims under
sections 6420 and 6421.
For regulations under section 6206, see 48.6206-1 of this chapter
(Manufacturers and Retailers Excise Tax Regulations).
26 CFR 301.6206-1 Deficiency Procedures
26 CFR 301.6211-1 Deficiency defined.
(a) In the case of the income tax imposed by subtitle A of the Code,
the estate tax imposed by chapter 11, subtitle B, of the Code, the gift
tax imposed by chapter 12, subtitle B, of the Code, and any excise tax
imposed by chapter 41, 42, 43, or 44 of the Code, the term
''deficiency'' means the excess of the tax, (income, estate, gift, or
excise tax as the case may be) over the sum of the amount shown as such
tax by the taxpayer upon his return and the amounts previously assessed
(or collected without assessment) as a deficiency; but such sum shall
first be reduced by the amount of rebates made. If no return is made,
or if the return (except a return of income tax pursuant to sec. 6014)
does not show any tax, for the purpose of the definition ''the amount
shown as the tax by the taxpayer upon his return'' shall be considered
as zero. Accordingly, in any such case, if no deficiencies with respect
to the tax have been assessed, or collected without assessment, and no
rebates with respect to the tax have been made, the deficiency is the
amount of the income tax imposed by subtitle A, the estate tax imposed
by chapter 11, the gift tax imposed by chapter 12, or any excise tax
imposed by chapter 41, 42, 43, or 44. Any amount shown as additional
tax on an ''amended return,'' so-called (other than amounts of
additional tax which such return clearly indicates the taxpayer is
protesting rather than admitting) filed after the due date of the
return, shall be treated as an amount shown by the taxpayer ''upon his
return'' for purposes of computing the amount of a deficiency.
(b) For purposes of the definition, the income tax imposed by
subtitle A and the income tax shown on the return shall both be
determined without regard to the credit provided in section 31 for
income tax withheld at the source and without regard to so much of the
credit provided in section 32 for income taxes withheld at the source as
exceeds 2 percent of the interest on tax-free covenant bonds described
in section 1451. Payments on account of estimated income tax, like
other payments of tax by the taxpayer, shall likewise be disregarded in
the determination of a deficiency. Any credit resulting from the
collection of amounts assessed under section 6851 as the result of a
termination assessment shall not be taken into account in determining a
deficiency.
(c) The computation by the Internal Revenue Service, pursuant to
section 6014, of the income tax imposed by subtitle A shall be
considered as having been made by the taxpayer and the tax so computed
shall be considered as the tax shown by the taxpayer upon his return.
(d) If so much of the credit claimed on the return for income taxes
withheld at the source as exceeds 2 percent of the interest on tax-free
convenant bonds is greater than the amount of such credit allowable, the
unpaid portion of the tax attributable to such difference will be
collected not as a deficiency but as an underpayment of the tax shown on
the return.
(e) This section may be illustrated by the following examples:
Example 1. The amount of income tax shown by the taxpayer upon his
return for the calendar year 1954 was $1,600. The taxpayer had no
amounts previously assessed (or collected without assessment) as a
deficiency. He claimed a credit in the amount of $2,050 for tax
withheld at source on wages under section 3402, and a refund of $450
(not a rebate under section 6211) was made to him as an overpayment of
tax for the taxable year. It is later determined that the correct tax
for the taxable year is $1,850. A deficiency of $250 is determined as
follows:
Example 2. The taxpayer made a return for the calendar year 1954
showing a tax of $1,250 before any credits for tax withheld at the
source. He claimed a credit in the amount of $800 for tax withheld at
source on wages under section 3402 and $60 for tax paid at source under
section 1451 upon interest on bonds containing a tax-free covenant. The
taxpayer had no amounts previously assessed (or collected without
assessment) as a deficiency. The district director determines that the
2 percent tax paid at the source on tax-free covenant bonds is $40
instead of $60 as claimed by the taxpayer and that the tax imposed by
subtitle A is $1,360 (total tax $1,400 less $40 paid at source on
tax-free covenant bonds). A deficiency in the amount of $170 is
determined as follows:
(f) As used in section 6211, the term ''rebate'' means so much of an
abatement, credit, refund, or other repayment as is made on the ground
that the income tax imposed by subtitle A, the estate tax imposed by
chapter 11, the gift tax imposed by chapter 12, or the excise tax
imposed by chapter 41, 42, 43, or 44, is less than the excess of (1) the
amount shown as the tax by the taxpayer upon the return increased by the
amount previously assessed (or collected without assessment) as a
deficiency over (2) the amount of rebates previously made. For example,
assume that the amount of income tax shown by the taxpayer upon his
return for the taxable year is $600 and the amount claimed as a credit
under section 31 for income tax withheld at the source is $900. If the
district director determines that the tax imposed by subtitle A is $600
and makes a refund of $300, no part of such refund constitutes a
''rebate'' since the refund is not made on the ground that the tax
imposed by subtitle A is less than the tax shown on the return. If,
however, the district director determines that the tax imposed by
subtitle A is $500 and refunds $400, the amount of $100 of such refund
would constitute a rebate since it is made on the ground that the tax
imposed by subtitle A ($500) is less than the tax shown on the return
($600). The amount of such rebate ($100) would be taken into account in
arriving at the amount of any deficiency subsequently determined.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar.
24, 1971; T.D. 7575, 43 FR 58817, Dec. 18, 1978; T.D. 7838, 47 FR
44249, Oct. 7, 1982)
26 CFR 301.6212-1 Notice of deficiency.
(a) General rule. If a district director or director of a service
center (or regional director of appeals), determines that there is a
deficiency in respect of income, estate, or gift tax imposed by subtitle
A or B, or excise tax imposed by chapter 41, 42, 43, or 44, of the Code,
such official is authorized to notify the taxpayer of the deficiency by
either registered or certified mail.
(b) Address for notice of deficiency -- (1) Income, gift, and chapter
41, 42, 43, and 44 taxes. Unless the district director for the district
in which the return in question was filed has been notified under the
provisions of section 6903 as to the existence of a fiduciary
relationship, notice of a deficiency in respect of income tax, gift tax,
or tax imposed by chapter 41, 42, 43, or 44 shall be sufficient if
mailed to the taxpayer at his last known address, even though such
taxpayer is deceased, or is under a legal disability, or, in the case of
a corporation, has terminated its existence.
(2) Joint income tax returns. If a joint income tax return has been
filed by husband and wife, the district director (or assistant regional
commissioner, appellate) may, unless the district director for the
district in which such joint return was filed has been notified by
either spouse that a separate residence has been established, send
either a joint or separate notice of deficiency to the taxpayers at
their last known address. If, however, the proper district director has
been so notified, a separate notice of deficiency that is a duplicate
original of the joint notice, must be sent by registered mail prior to
September 3, 1958, and by either registered or certified mail on and
after September 3, 1958, to each spouse at his or her last known
address. The notice of separate residences should be addressed to the
district director for the district in which the joint return was filed.
(3) Estate tax. In the absence of notice, under the provisions of
section 6903 as to the existence of a fiduciary relationship, to the
distric director for the district in which the estate tax return was
filed, notice of a deficiency in respect of the estate tax imposed by
chapter 11, subtitle B, of the Code shall be sufficient if addressed in
the name of the decedent or other person subject to liability and mailed
to his last known address.
(c) Further deficiency letters restricted. If the district director
or director of a service center (or regional director of appeals) mails
to the taxpayer notice of a deficiency, and the taxpayer files a
petition with the Tax Court within the prescribed period, no additional
deficiency may be determined with respect to income tax for the same
taxable year, gift tax for the same ''calendar period'' (as defined in
25.2502-1(c)(1)), estate tax with respect to the taxable estate of the
same decedent, chapter 41, 43, or 44 tax of the taxpayer for the same
taxable year, section 4940 tax for the same taxable year, or chapter 42
tax of the taxpayer (other than under section 4940) with respect to the
same act (or failure to act) to which such petition relates. This
restriction shall not apply in the case of fraud, assertion of
deficiencies with respect to any qualified tax (as defined in paragraph
(b) of 301.6361-4) in respect of which no deficiency was asserted for
the taxable year in the notice, assertion of deficiencies with respect
to the Federal tax when deficiencies with respect to only a qualified
tax (and not the Federal tax) were asserted for the taxable year in the
notice, assertion of greater deficiencies before the Tax Court as
provided in section 6214(a), mathematical errors as provided in section
6213(b)(1), or jeopardy assessments as provided in section 6861(c).
Solely for purposes of applying the restriction of section 6212(c), a
notice of deficiency with respect to second tier tax under chapter 43
shall be deemed to be a notice of deficiency for the taxable year in
which the taxable event occurs. See 53.4963-1(e)(7)(iii) or (iv) for
the date on which the taxable event occurs.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28739,
Dec. 29, 1972; T.D. 7579, 43 FR 59360, Dec. 20, l978; T.D. 7838, 47 FR
44249, Oct. 7, 1982; T.D. 7910, 48 FR 40376, Sept. 7, 1983; T.D.
8084, 51 FR 16305, May 2, 1986)
26 CFR 301.6213-1 Restrictions applicable to deficiencies; petition to
Tax Court.
(a) Time for filing petition and restrictions on assessment -- (1)
Time for filing petition. Within 90 days after notice of the deficiency
is mailed (or within 150 days after mailing in the case of such notice
addressed to a person outside the States of the Union and the District
of Columbia), as provided in section 6212, a petition may be filed with
the Tax Court of the United States for a redetermination of the
deficiency. In determining such 90-day or 150-day period, Saturday,
Sunday, or a legal holiday in the District of Columbia is not counted as
the 90th or 150th day. In determining the time for filing a petition
with the Tax Court in the case of a notice of deficiency mailed to a
resident of Alaska prior to 12:01 p.m., e.s.t., January 3, 1959, and in
the case of a notice of deficiency mailed to a resident of Hawaii prior
to 4 p.m., e.d.s.t., August 21, 1959, the term ''States of the Union''
does not include Alaska or Hawaii, respectively, and the 150-day period
applies. In determining the time within which a petition to the Tax
Court may be filed in the case of a notice of deficiency mailed to a
resident of Alaska after 12:01 p.m., e.s.t., January 3, 1959, and in the
case of a notice of deficiency mailed to a resident of Hawaii after 4
p.m., e.d.s.t., August 21, 1959, the term ''States of the Union''
includes Alaska and Hawaii, respectively, and the 90-day period applies.
(2) Restrictions on assessment. Except as otherwise provided by this
section, by sections 6851 and 6861(a) (relating to termination and
jeopardy assessments), by section 6871(a) (relating to immediate
assessment of claims for income, estate, and gift taxes in bankruptcy
and receivership cases), or by section 7485 (in case taxpayer petitions
for a review of a Tax Court decision without filing bond), no assessment
of a deficiency in respect of a tax imposed by subtitle A or B or
chapter 41, 42, 43, or 44 of the Code and no levy or proceeding in court
for its collection shall be made until notice of deficiency has been
mailed to the taxpayer, nor until the expiration of the 90-day or
150-day period within which a petition may be filed with the Tax Court,
nor, if a petition has been filed with the Tax Court, until the decision
of the Tax Court has become final. As to the date on which a decision
of the Tax court becomes final, see section 7481. Notwithstanding the
provisions of section 7421(a), the making of an assessment or the
beginning of a proceeding or levy which is forbidden by this paragraph
may be enjoined by a proceeding in the proper court. In any case where
the running of the time prescribed for filing a petition in the Tax
Court with respect to a tax imposed by chapter 42 or 43 is suspended
under section 6213(e), no assessment of a deficiency in respect of such
tax shall be made until expiration of the entire period for filing the
petition.
(b) Exceptions to restrictions on assessment of deficiencies -- (1)
Mathematical errors. If a taxpayer is notified of an additional amount
of tax due on account of a mathematical error appearing upon the return,
such notice is not deemed a notice of deficiency, and the taxpayer has
no right to file a petition with the Tax Court upon the basis of such
notice, nor is the assessment of such additional amount prohibited by
section 6213(a).
(2) Tentative carryback adjustments. (i) If the district director or
the director of the regional service center determines that any amount
applied, credited, or refunded under section 6411(b) with respect to an
application for a tentative carryback adjustment is in excess of the
overassessment properly attributable to the carryback upon which such
application was based, the district director or the director of the
regional service center may assess the amount of the excess as a
deficiency as if such deficiency were due to a mathematical error
appearing on the return. That is, the district director or the director
of the regional service center may assess an amount equal to the excess,
and such amount may be collected, without regard to the restrictions on
assessment and collection imposed by section 6213(a). Thus, the
district director or the director of the regional service center may
assess such amount without regard to whether the taxpayer has been
mailed a prior notice of deficiency. Either before or after assessing
such an amount, the district director or the director of the regional
service center will notify the taxpayer that such assessment has been or
will be made. Such notice will not constitute a notice of deficiency,
and the taxpayer may not file a petition with the Tax Court of the
United States based on such notice. However, the taxpayer, within the
applicable period of limitation, may file a regular claim for credit or
refund based on the carryback, if he has not already filed such a claim,
and may maintain a suit based on such claim if it is disallowed or if it
is not acted upon by the Internal Revenue Service within 6 months from
the date the claim was filed.
(ii) The method provided in subdivision (i) of this subparagraph to
recover any amount applied, credited, or refunded in respect of an
application for a tentative carryback adjustment which should not have
been so applied, credited, or refunded is not an exclusive method. Two
other methods are available to recover such amount: (a) By way of a
deficiency notice under section 6212; or (b) by a suit to recover an
erroneous refund under section 7405. Any one or more of the three
available methods may be used to recover any amount which was improperly
applied, credited, or refunded in respect of an application for a
tentative carryback adjustment.
(3) Assessment of amount paid. Any payment made after the mailing of
a notice of deficiency which is made by the taxpayer as a payment with
respect to the proposed deficiency may be assessed without regard to the
restrictions on assessment and collection imposed by section 6213(a)
even though the taxpayer has not filed a waiver of restrictions on
assessment as provided in section 6213(d). A payment of all or part of
the deficiency asserted in the notice together with the assessment of
the amount so paid will not affect the jurisdiction of the Tax Court.
If any payment is made before the mailing of a notice of deficiency, the
district director or the director of the regional service center is not
prohibited by section 6213(a) from assessing such amount, and such
amount may be assessed if such action is deemed to be proper. If such
amount is assessed, the assessment is taken into account in determining
whether or not there is a deficiency for which a notice of deficiency
must be issued. Thus, if such a payment satisfies the taxpayer's tax
liability, no notice of deficiency will be mailed and the Tax Court will
have no jurisdiction over the matter. In any case in which there is a
controversy as to the correct amount of the tax liability, the
assessment of any amount pursuant to the provisions of section
6213(b)(3) shall in no way be considered to be the acceptance of an
offer by the taxpayer to settle such controversy.
(4) Jeopardy. If the district director believes that the assessment
or collection of a deficiency will be jeopardized by delay, such
deficiency shall be assessed immediately, as provided in section
6861(a).
(c) Failure to file petition. If no petition is filed with the Tax
Court within the period prescribed in section 6213(a), the district
director or the director of the regional service center shall assess the
amount determined as the deficiency and of which the taxpayer was
notified by registered or certified mail and the taxpayer shall pay the
same upon notice and demand therefor. In such case the district
director will not be precluded from determining a further deficiency and
notifying the taxpayer thereof by registered or certified mail. If a
petition is filed with the Tax Court the taxpayer should notify the
district director who issued the notice of deficiency that the petition
has been filed in order to prevent an assessment of the amount
determined to be the deficiency.
(d) Waiver of restrictions. The taxpayer may at any time by a signed
notice in writing filed with the district director waive the
restrictions on the assessment and collection of the whole or any part
of the deficiency. The notice must in all cases be filed with the
district director or other authorized official under whose jurisdiction
the audit or other consideration of the return in question is being
conducted. The filing of such notice with the Tax Court does not
constitute filing with the district director within the meaning of the
Code. After such waiver has been acted upon by the district director
and the assessment has been made in accordance with its terms, the
waiver cannot be withdrawn.
(e) Suspension of filing period for certain chapter 42 and chapter 43
taxes. The period prescribed by section 6213(a) for filing a petition
in the Tax Court with respect to the taxes imposed by section 4941,4942,
4943, 4944, 4945, 4951, 4952, 4971, or 4975, shall be suspended for any
other period which the Commissioner has allowed for making correction
under 53.4963-1(e)(3). Where the time for filing a petition with the
Tax Court has been suspended under the authority of this paragraph (e),
the extension shall not be reduced as a result of the correction being
made prior to expiration of the period allowed for making correction.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250,
Oct. 7, 1982; T.D. 8084, 51 FR 16035, May 2, 1986)
26 CFR 301.6215-1 Assessment of deficiency found by Tax Court.
Where a petition has been filed with the Tax Court, the entire amount
redetermined as the deficiency by the decision of the Tax Court which
has become final shall be assessed by the district director or the
director of the regional service center and the unpaid portion of the
amount so assessed shall be paid by the taxpayer upon notice and demand
therefor.
26 CFR 301.6221-1T Tax treatment determined at partnership level
(temporary).
(a) In general. A partner's treatment of partnership items on the
partner's return may not be changed except as provided in sections 6222
through 6231 of the Code and the regulations thereunder. Thus, for
example, if a partner treats an item on the partner's return
consistently with the treatment of the item on the partnership return,
the Internal Revenue Service generally cannot adjust the treatment of
that item on the partner's return except through a partnership-level
proceeding. Similarly, the taxpayer may not put partnership items in
issue in a proceeding relating to nonpartnership items. For example,
the taxpayer may not offset a potential increase in taxable income based
on changes in nonpartnership items by a potential decrease based on
partnership items.
(b) Restrictions inapplicable after items become nonpartnership
items. Section 6221 and paragraph (a) of this section cease to apply to
items arising from a partnership with respect to a partner when those
items cease to be partnership items with respect to that partner under
section 6231 (b).
(c) Cross reference. See 301.6231(c)-1T and 301.6231(c)-2T for
special rules relating to certain applications and claims for refund
based on losses, deductions, or credits from abusive tax shelter
partnerships.
(T.D. 8128, 52 FR 6781, Mar. 5, 1987)
26 CFR 301.6222(a)-1T Consistent treatment of partnership items
(temporary).
(a) In general. The treatment of a partnership item on the partner's
return shall be consistent with the treatment of that item by the
partnership in all respects including the amount, timing, and
characterization of the item.
(b) Treatment must be consistent with partnership return. The
treatment of a partnership item on the partner's return shall be
consistent with the treatment of that item on the partnership return.
Thus, a partner who treats an item consistently with a schedule or other
information furnished to the partner by the partnership has not
satisfied the requirement of paragraph (a) of this section if the
treatment of that item is inconsistent with the treatment of the item on
the partnership return actually filed. For rules relating to the
election to be treated as having reported the inconsistency where the
partner treats an item consistently with an incorrect schedule, see
301.6222(b)-3T.
(c) Examples. The following examples illustrate the principles set
forth in this section.
Example 1. B is a partner of Partnership P. Both B and P use the
calendar year as the taxable year. In December 1983, P receives an
advance payment for services to be performed in 1984 and reports this
amount as income for calendar year 1983. However, B reports B's
distributive share of this amount on B's income tax return for 1984 and
not on B's return for 1983. B's treatment of this partnership item is
inconsistent with the treatment of the item by P.
Example 2. Partnership P incurred certain start-up costs before P
was actively engaged in its business. P capitalized these costs. C, a
partner in P, deducted C's proportionate share of these start-up costs.
C's treatment of the partnership expenditure is inconsistent with the
treatment of that item by P.
Example 3. D is a partner in partnership P which reports a loss of
$100,000 on its return, $5,000 of which it reports on the Schedule K-1
attached to its return as D's distributive share. However, P reports
$15,000 as D's distributive share of P's loss on the Schedule K-1
furnished to D. D reports the $15,000 loss on D's income tax return. D
has not satisfied the consistency requirement. See, however, 301.6222
(b)-3 for an election to be treated as having reported the
inconsistency.
(T.D. 8128, 52 FR 6781, Mar. 5, 1987)
26 CFR 301.6222(a)-2T Application of consistency and notification rules
to indirect partners (temporary).
(a) In general. The consistency requirement of 301.6222(a)-1T is
generally applied with respect to the source partnership. For purposes
of this section, the term ''source partnership'' means the partnership
(within the meaning of section 6231(a)(1)) from which the partnership
item originates.
(b) Indirect partner files consistently with source partnership. An
indirect partner who treats an item from a source partnership in a
manner which is consistent with the treatment of that item on the return
of the source partnership satisfies the consistency requirement of
section 6222(a) regardless of whether the indirect partner treats that
item in a manner which is consistent with the treatment of that item by
the pass-thru partner through which the indirect partner holds the
interest in the source partnerhip. Under these circumstances,
therefore, the Service shall not send to the indirect partner the notice
described in section 6231(b)(1)(A).
(c) Indirect partner files inconsistently with source partnership --
(1) Indirect partner notifies Service of inconsistency. An indirect
partner who --
(i) Treats an item from a source partnership in a manner which is
inconsistent with the treatment of that item on the return of the source
partnership, and
(ii) Files a statement identifying the inconsistency with the source
partnership in accordance with 301.6222(b)-1T,
shall not be subject to a computational adjustment to conform the
treatment of that item to the treatment of that item on the return of
the source partnership.
(2) Indirect partner does not notify Service of inconsistency.
Except as provided in paragraph (c)(3) of this section, an indirect
partner who --
(i) Treats an item from a source partnership in a manner which is
inconsistent with the treatment of that item on the return of the source
partnership, and
(ii) Fails to file a statement identifying the inconsistency with the
source partnership in accordance with 301.6222(b)-1T,
is subject to a computational adjustment to conform the treatment of
that item to the treatment of that item on the return of the source
partnership.
(3) Indirect partner files consistently with a pass-thru partner that
notifies the Service of the inconsistency. If an indirect partner
treats an item from a source partnership in a manner which is consistent
with the treatment of that item by a pass-thru partner through which the
indirect partner holds the interest in the source partnership and that
pass-thru partner --
(i) Treats that item in a manner that is inconsistent with the
treatment of that item on the return of the source partnership, and
(ii) Files a statement identifying the inconsistency with the source
partnership in accordance with 301.6222(b)-1T,
The indirect partner is not subject to a computational adjustment to
conform the treatment of that item to the treatment of that item on the
return of the source partnership.
(d) Examples. The following examples illustrate the principles set
forth in this section.
Example 1. One of the partners in Partnership A is Partnership B,
which has four equal partners C, D, E, and F. Both A and B are
partnerships within the meaning of section 6231(a)(1). On its return, A
reports $100,000 as B's distributive share of A's ordinary income. B,
however, reports only $80,000 as its distributive share of the income
and does not notify the Service of this inconsistent treatment with
respect to A. C reports $20,000 as its distributive share of the item.
Although C reports the item consistently with B, C is subject to a
computational adjustment to conform the treatment of that item on C's
return to the treatment of that item on the return of A.
Example 2. Assume the same facts as in example 1 except that B
notified the Service of its inconsistent treatment with respect to
source partnership A. C is not subject to a computational adjustment.
Example 3. Assume the same facts as in example 1. D reports only
$15,000 as D's distributive share of the income and does not report the
inconsistency. F reports only $9,000 as its distributive share of the
item but reports this inconsistency with respect to source partnership
A. D is subject to a computational adjustment to conform the treatment
of that item on D's return to the treatment of that item on the return
of A. F is not subject to a computational adjsutment.
Example 4. Assume the same facts as in example 3 except that F
reported the inconsistency with respect to B and did not report the
inconsistency with respect to source partnership A. F is subject to a
computational adjustment to conform the treatment of that item on F's
return to the treatment of that item on the return of A.
Example 5. Assume the same facts as in example 1. E reports $25,000
as its distributive share of the item. Regardless of whether E reports
the inconsistency between its treatment of the item and that by B, E is
neither subject to a computational adjustment to conform E's treatment
of that item to that of B nor subject to the notice described in section
6231(b)(1)(A) with respect to any such notification of inconsistent
treatment.
(T.D. 8128, 52 FR 6781, Mar. 5, 1987)
26 CFR 301.6222(b)-1T Notification to Service when partnership items
are treated inconsistently (temporary).
The statement identifying an inconsistency described in section
6222(b)(1)(B) shall be filed by filing the form prescribed for that
purpose in accordance with the instructions accompanying that form.
(T.D. 8128, 52 FR 6782, Mar. 5, 1987)
26 CFR 301.6222(b)-2T Effect of notification of inconsistent treatment
(temporary).
(a) In general. Generally, if a partner treats a partnership item on
the partner's return in a manner which is inconsistent with the
treatment of that item on the partnership return the Service may make a
computational adjustment to conform the treatment of the item by the
partner with the treatment of that item on the partnership return. Any
additional tax resulting from that computational adjustment may be
assessed without either the commencement of a partnership proceeding or
notification to the partner that all partnership items arising from that
partnership will be treated as nonpartnership items. However, if a
partner notifies the Service of the inconsistent treatment of a
partnership item in the manner prescribed in 301.6222(b)-1T, the
Service generally may not make an adjustment with respect to that
partnership item unless the Service --
(1) Conducts a partnership-level proceeding, or
(2) Notifies the partner under section 6231(b)(1)(A) that all
partnership items arising from that partnership will be treated as
nonpartnership items.
See, however, 301.6231(c)-1T and 301.6231(c)-2T for special rules
relating to certain applications and claims for refund based on losses,
deductions, or credits from abusive tax shelter partnerships.
(b) Partner protected only to extent of notification. A partner who
reports the inconsistent treatment of partnership items on the partner's
return is protected from computational adjustments under section 6222(c)
only with respect to those partnership items the inconsistent treatment
of which is reported. Thus, if a partner notifying the Service with
respect to one item fails to report the inconsistent treatment of
another item, the partner is subject to a computational adjustment with
respect to that latter item.
Example. Partner A of Partnership P treats a deduction and a capital
gain arising from P on A's return in a manner that is inconsistent with
the treatment of those items by P. A reports the inconsistent treatment
of the deduction but not of the gain. A is subject to a computational
adjustment under section 6222(c) with respect to the gain.
(c) Adjustments in a separate proceeding not limited to conforming
adjustments. If the Service conducts a separate proceeding with a
partner whose partnership items are treated as nonpartnership items
under section 6231 (b), the Service is not limited to making adjustments
that merely conform the partner's return to the partnership return.
Example. Partnership P allocates to E, one of its partners, a loss of
$8,000. E, however, claims a loss of $9,000 and reports the
inconsistent treatment. The Service notifies E that it will treat all
of E's partnership items arising from P as nonpartnership items. As a
result of a separate proceeding with E, the Service may issue a
deficiency notice which could include reducing the loss to $3,000.
(T.D. 8128, 52 FR 6782, Mar. 5, 1987)
26 CFR 301.6222(b)-3T Partner receiving incorrect schedule (temporary).
(a) In general. A partner shall be treated as having complied with
section 6222(b)(1)(B) and 301.6222(b)-1T with respect to a partnership
item if the partner --
(1) Demonstrates that the treatment of the partnership item on the
partner's return is consistent with the treatment of that item on the
schedule prescribed by the Service and furnished to the partner by the
partnership showing the partner's share of income, credits, deductions,
etc., and
(2) Elects in accordance with the rules prescribed in paragraph (b)
of this section to have this section apply with respect to that item.
(b) Election provisions -- (1) Time and manner of making election.
The election described in paragraph (a) of this section shall be made by
filing a statement with the Internal Revenue Service office issuing the
notice of computational adjustment within 30 days after the notice is
mailed to the partner.
(2) Contents of statement. The statement described in paragraph
(b)(1) of this section shall be:
(i) Clearly identified as an election under section 6222(b)(2),
(ii) Signed by the partner making the election, and
(iii) Accompanied by copies of the schedule furnished to the partner
by the partnership and of the notice of computational adjustment. The
partner need not enclose a copy of the notice of computational
adjustment, however, if the partner clearly identifies the notice of
computational adjustment.
Generally, the requirement described in paragraph (a)(1) of this
section will be satisfied by attaching to the statement a copy of the
schedule furnished to the partner by the partnership. However, if it is
not clear from the information contained on the schedule that the
treatment of the partnership item on the schedule is consistent with the
partner's treatment of such item on the partner's return the statement
shall also include an explanation of how the treatment of such item on
the schedule is consistent with the treatment on the partner's return
with respect to the characterization, timing, and amount of such item.
(T.D. 8128, 52 FR 6782, Mar. 5, 1987)
26 CFR 301.6223(a)-1T Notice sent to tax matters partner (temporary).
(a) In general. For purposes of subchapter C of chapter 63 of the
Code, a notice is treated as mailed to the tax matters partner on the
earlier of --
(1) The date on which the notice is mailed to ''THE TAX MATTERS
PARTNER'' at the address of the partnership (as provided on the
partnership return, except as updated under 301.6223(c)-1T), or
(2) The date on which the notice is mailed to the person who is the
tax matters partner at the address of that person (as provided on the
partner's return, except as updated under 301.6223(c)-1T) or the
partnership. See 301.6223(c)-1T for rules relating to the information
to be used by the Service in providing notices, etc.
(b) Example. The provisions of this section may be illustrated by
the following example:
Example. Partnership P designates B as its tax matters partner in
accordance with 301.6231(a)(7)-1T(b). On December 1 a notice of the
beginning of an administrative proceeding is mailed to ''THE TAX MATTERS
PARTNER'' at the address of P. On January 10, a copy of the notice is
mailed to B at B's address. December 1 is treated as the date that the
notice was mailed to the tax matters partner.
(T.D. 8128, 52 FR 6783, Mar. 5, 1987; 52 FR 9296, Mar. 24, 1987)
26 CFR 301.6223(a)-2T Withdrawal of notice of the beginning of an
administrative proceeding (temporary).
(a) In general. If the Internal Revenue Service, within 45 days
after the day on which the notice specified in section 6223(a)(1) is
mailed to the tax matters partner, decides not to propose any
adjustments to the partnership return as filed, the Service may withdraw
the notice specified in section 6223(a)(1) by mailing a letter to that
effect to the tax matters partner within that 45-day period. If the
Service withdraws the notice, neither the service nor the tax matters
partner is required to furnish any notice with respect to that
proceeding to any other partner. Except as provided in paragraph (b) of
this section, a notice specified in section 6223(a)(1) which has been
withdrawn shall be treated for purposes of subchapter C of chapter 63 of
the Code as if that notice had never been mailed to the tax matters
partner.
(b) Service may not reissue notice except under certain
circumstances. If the notice specified in section 6223(a)(1) was mailed
to the tax matters partner with respect to a partnership taxable year
and that notice was later withdrawn as provided in paragraph (a) of this
section, the Service shall not mail a second notice specified in section
6223(a)(1) with respect to that taxable year unless:
(1) There is evidence of fraud, malfeasance, collusion, concealment,
or misrepresentation of a material fact;
(2) The prior proceeding involved a clearly defined substantial error
with respect to an established Service position existing at the time of
the previous examination; or
(3) Other circumstances exist which indicate that failure to reissue
the notice would be a serious administrative omission.
(T.D. 8128, 52 FR 6783, Mar. 5, 1987)
26 CFR 301.6223(b)-1T Notice group (temporary).
(a) In general. If a group of partners having in the aggregate a 5
percent or more interest in the profits of a partnership so requests and
designates one of their members to receive the notices described in
section 6223(a) (1) and (2), the member so designated shall be treated
as a partner to whom section 6223(a) applies. Thus, the designated
representative is entitled to receive any notice described in section
6223(a) that is mailed to the tax matters partner 30 days or more after
the day on which the Service receives the request from the group.
(b) Request for notice -- (1) In general. The Service shall mail to
the member of the notice group designated to receive such notice any
notice described in section 6223(a) that is mailed to the tax matters
partner 30 days or more after the day on which the Service receives the
request for notice from the group if such request for notice is made in
accordance with the rules prescribed in this paragraph (b).
(2) Content of request. The request for notice from a notice group
shall --
(i) Identify the partnership by name, address, and taxpayer
identification number,
(ii) Specify the taxable year or years for which the notice group is
formed,
(iii) Designate the member of the group to receive the notices,
(iv) Set out the name, address, taxpayer identification number, and
profits interest of each member of the group, and
(v) Be signed by all partners comprising the notice group.
(3) Place for filing. The request for notice from a notice group
generally shall be filed with the service center with which the
partnership return is filed. However, if the notice group
representative knows that the notice described in section 6223(a)(1)
(beginning of an administrative proceeding) has already been mailed to
the tax matters partner, the statement shall be filed with the Internal
Revenue Service office that mailed that notice.
(4) Copy to be sent to the tax matters partner. A copy of the
request for notice from a notice group shall be provided to the tax
matters partner by the notice group representative within 30 days after
the request is filed with the Service.
(5) Years covered by request. A request for notice by a notice group
may relate only to partnership taxable years that have ended before the
request is filed. A request, however, may relate to more than one
partnership taxable year if the 5 percent or more profits interest
requirement of section 6223(b)(2) is satisfied for each year to which
the request relates.
(c) Composition of notice group -- (1) In general. A notice group
shall be comprised only of persons who were partners at some time during
the partnership taxable year for which the group is formed. If a notice
group is formed for more than one taxable year, each member of the group
must have been a partner at some time during at least one of the taxable
years for which the group is formed. A notice group may include a
partner entitled to separate notice. See section 6231(d) and
301.6231(d)-1T for rules relating to determining the interest of a
partner in the profits of a partnership for a partnership taxable year
for purposes of section 6223(b). See paragraph (c)(6) of this section
for rules relating to indirect and pass-thru partners.
(2) Partner may be a member of only one group. A partner cannot be a
member of more than one notice group with respect to the same
partnership for the same partnership taxable year. See paragraph (c)(6)
of this section for rules relating to indirect and pass-thru partners.
(3) Partner may join group after formation. A partner may join a
notice group at any time after the formation of that group by filing
with the Internal Revenue Service office with which the notice group
filed its request a statement that it is joining the notice group. The
statement shall identify the partner joining the notice group, the
partnership, and the members of the notice group by name, address, and
taxpayer identification number and shall be signed by the joining
partner. A copy of the statement shall be provided by the joining
partner to both the tax matters partner and the notice group
representative within 30 days after the request is filed with the
Service. The partner shall become a member of the notice group for each
partnership taxable year for which the group was formed and for which
the partner was a partner at any time during such partnership taxable
year.
(4) Date on which a partner becomes a member of notice group. A
partner shall become a member of a notice group on the 30th day after
the day on which the Service receives --
(i) A request for notice from a notice group that identifies that
partner as a member of that notice group, or
(ii) A statement filed in accordance with paragraph (c)(3) of this
section that states that the partner is joining the notice group.
(5) No withdrawal from notice group. A partner who has signed a
notice group request filed with the Service remains a member of that
notice group until the group terminates. A partner cannot withdraw from
the notice group.
(6) Indirect and pass-thru partners -- (i) Pass-thru partners and
unidentified indirect partners. A pass-thru partner may become a member
of a notice group as provided in this section. For purposes of applying
the aggregate interest requirement specified in paragraph (a) of this
section to a pass-thru partner, the partnership interest held by the
pass-thru partner shall not include any interest held through the
pass-thru partner by an indirect partner that has been identified as
provided in section 6223(c)(3) and 301.6223(c)-1T before the date on
which the pass-thru partner becomes a member of the notice group.
(ii) Indirect partners identified before the pass-thru partner joins
a notice group. An indirect partner may become a member of a notice
group with respect to a partnership taxable year only if:
(A) The indirect partner held an interest in the partnership (either
directly or through one or more pass-thru partners) at some time during
that taxable year, and
(B) The indirect partner was identified as provided in section
6223(c)(3) and 301.6223(c)-1T on or before the date on which the
pass-thru partner became a member of a notice group.
(d) Termination of notice group. Unless the original request for
notice from the notice group or a subsequent statement filed by the
representative (in accordance with paragraph (b)(3) and (4) of this
section) designates a successor to the designated group representative,
the group terminates if the representative dies (or, in the case of an
entity, if the entity is dissolved), resigns, or is adjudicated
incompetent.
(e) Notice group is not a 5-percent group. The forming of a notice
group under this section does not constitute the forming of a 5-percent
group for purposes of litigation. A notice group is formed solely for
the purpose of receiving notices. A 5-percent group is formed solely
for the purpose of filing a petition for judicial review or appealing a
judicial determination. See 301.6226(b)-1T. Thus, a member of a notice
group may choose not to join a 5-percent group formed by other members
of the notice group.
(T.D. 8128, 52 FR 6783, Mar. 5, 1987)
26 CFR 301.6223 (c)-1T Additional information regarding partners
furnished to the Service (temporary).
(a) In general. In addition to the names, addresses, and profits
interests as shown on the partnership return, the Service will use
additional information as provided in this section for purposes of
administering subchapter C of chapter 63 of the Code.
(b) Procedure for furnishing additional information -- (1) In
general. Any person may furnish additional information at any time by
filing a written statement with the Service. However, the information
contained in the statement will be considered for purposes of
determining whether a partner is entitled to a notice described in
section 6223(a) only if the Service receives the statement at least 30
days before the date on which the Service mails the notice to the tax
matters partner. Similarly, information contained in the statement
generally will not be taken into account for other purposes by the
Service until 30 days after the statement is received.
(2) Where statement must be filed. A statement furnished under this
section shall generally be filed with the service center with which the
partnership return is filed. However, if the person filing the
statement knows that the notice described in section 6223(a)(1)
(beginning of an administrative proceeding) has already been mailed to
the tax matters partner, the statement shall be filed with the Internal
Revenue Service office that mailed such notice.
(3) Contents of statement. The statement shall --
(i) Identify the partnership, each partner for whom information is
supplied, and the person supplying the information by name, address, and
taxpayer identification number;
(ii) Explain that the statement is furnished to correct or supplement
earlier information with respect to the partners in the partnership;
(iii) Specify the taxable year to which the information relates;
(iv) Set out the corrected or additional information, and
(v) Be signed by the person supplying the information.
(c) No incorporation by reference to previously furnished documents.
Incorporation by reference of information contained in another document
previously furnished to the Internal Revenue Service will not be given
effect for purposes of sections 6223(c) or 6229(e). For example,
reference to a return filed by a pass-thru partner which contains
identifying information with respect to the indirect partners of that
pass-thru partner is not sufficient to identify the indirect partners
unless a copy of the document referred to is attached to the statement.
(d) Information supplied by a person other than the tax matters
partner. The Service may require appropriate verification in the case
of information furnished by a person other than the tax matters partner.
The 30-day period referred to in paragraph (b)(1) of this section shall
not begin until that verification is supplied.
(e) Power of attorney -- (1) In general. This paragraph (e) applies
to powers of attorney with respect to proceedings under subchapter C of
chapter 63 of the Code (''chapter 63C'') that begin on or after the date
which is 90 days after the date final regulations under this section are
published in the Federal Register.
(2) Specifically for purposes of chapter 63C. A power of attorney
specifically for purposes of chapter 63C shall be furnished in
accordance with paragraph (b)(2) of this section.
(3) Existing power of attorney. A power of attorney granted to
another person by a partner for other tax purposes shall not be given
effect for purposes of chapter 63C unless the partner specifically
requests that the power be given such effect in a statement furnished to
the Service in accordance with paragraph (b) of this section.
(f) Service may use other information. In addition to the
information on the partnership return and that supplied on statements
filed under this section, the Service may use other information in its
possession (for example, a change in address reflected on a partner's
return) in administering subchapter C of chapter 63 of the Code.
However, the Service is not obligated to search its records for
information not expressly furnished under this section.
(T.D. 8128, 52 FR 6784, Mar. 5, 1987; 52 FR 9296, Mar. 24, 1987)
26 CFR 301.6223(e)-1T Effect of Service's failure to provide notice
(temporary).
(a) Notice group. Section 6223(e)(1)(B)(ii) applies with respect to
a notice group only if the request for notice described in
301.6223(b)-1T is received by the Service at least 30 days before the
notice is mailed to the tax matters partner.
(b) Indirect partners -- (1) In general. For purposes of section
6223(e), the Service's failure to provide notice to a pass-thru partner
that is entitled to notice under section 6223(b) is deemed failure to
provide notice to indirect partners holding an interest in the
partnership through the pass-thru partner. However, this rule does not
apply if the indirect partner:
(i) Receives notice from the Service,
(ii) Is identified as provided in section 6223(c)(3) and
301.6223(c)-1T at least 30 days before the notice is mailed to the tax
matters partner, or
(iii) Is a member of a notice group entitled to notice under
paragraph (a) of this section.
(2) Examples. The provisions of paragraph (b)(1) of this section may
be illustrated by the following examples:
Example 1. Partnership ABC has as one of its partners, A, a
partnership with three partners, X, Y, and Z. ABC does not have more
than 100 partners, and partnership A is entitled to notice under section
6223(a). In addition, Z was identified as provided in section
6223(c)(3) and 301.6223(c)-1T on May 1, 1985. The Service mailed
notice to the tax matters partner of ABC on July 1, 1985, but failed to
provide notice to partnership A. Notwithstanding the Service's notice
to the tax matters partner, the Service is deemed to have failed to
provide notice to X and Y. The Service's failure to provide notice to
A, however, has no effect on Z; whether notice was provided to Z is
determined independently.
Example 2. Assume the same facts as in example 1, except that the
Service provided notice to partnership A but did not provide separate
notice to Z. Notwithstanding the Service's notice to partnership A, the
Service is deemed to have failed to provide notice to Z.
Example 3. Assume the same facts as in example 1, except that
partnership ABC has more than 100 partners and partnership A is entitled
to notice under section 6223(b) because it had at least a 1 percent
profits interest in partnership ABC. In addition, X became a member of
a notice group on June 1, 1985, and the Service mailed notice to the
designated member of that notice group. The Service also mailed a
separate notice to Z. The Service's failure to provide notice to
partnership A only affects Y, who is deemed not to have been provided
notice by the Service.
(T.D. 8128, 52 FR 6784, Mar. 5, 1987)
26 CFR 301.6223(e)-2T Elections if Service fails to provide timely
notice (temporary).
(a) Proceeding finished. If at the time the Internal Revenue Service
mails the partner notice of the proceeding --
(1) The period within which a petition for review of a final
partnership administrative adjustment under section 6226 may be filed
has expired and no petition has been filed, or
(2) The decision of a court in an action begun by such a petition has
become final, the partner may elect in accordance with paragraph (c) of
this section to have that adjustment, that decision, or a settlement
agreement described in section 6224(c)(2) with respect to the
partnership taxable year to which the adjustment relates apply to that
partner. If the partner does not make an election in accordance with
paragraph (c) of this section, the partnership items of the partner for
the partnership taxable year to which the proceeding relates shall be
treated as having become nonpartnership items as of the day on which the
Service mails the partner notice of the proceeding.
(b) Proceeding still going on. If paragraph (a) of this section does
not apply, the partner shall be a party to the proceeding unless the
partner elects, in accordance with paragraph (c) of this section, to
have --
(1) A settlement agreement described in section 6224(c)(2) with
respect to the partnership taxable year to which the proceeding relates
apply to the partner, or
(2) The partnership items of the partner for the partnership taxable
year to which the proceeding relates treated as having become
nonpartnership items as of the day on which the Service mails the
partner notice of the proceeding.
(c) Election -- (1) In general. The election described in paragraph
(a) or (b) of this section shall be made in the manner prescribed in
this paragraph (c). The election shall apply to all partnership items
for the partnership taxable year to which the election relates.
(2) Time and manner of making election. The election shall be made
by filing a statement with the Internal Revenue Service office mailing
the notice regarding the proceeding within 45 days after the date on
which that notice was mailed.
(3) Contents of statement. The statement shall --
(i) Be clearly identified as an election under section 6223(e) (2) or
(3),
(ii) Specify the election being made (that is, application of final
partnership administrative adjustment, court decision, consistent
settlement agreement, or nonpartnership item treatment),
(iii) Identify the partner making the election and the partnership by
name, address, and taxpayer identification number,
(iv) Specify the partnership taxable year to which the election
relates, and
(v) Be signed by the partner making the election.
(T.D. 8128, 52 FR 6785, Mar. 5, 1987)
26 CFR 301.6223(f)-1T Duplicate copy of final partnership
administrative adjustment. (temporary).
Section 6223(f) does not prohibit the Service from issuing a
duplicate copy of the notice of final partnership administrative
adjustment (for example, in the event the original notice is lost).
(T.D. 8128, 52 FR 6785, Mar. 5, 1987)
26 CFR 301.6223(g)-1T Responsibilities of the tax matters partner
(temporary).
(a) Notices described in section 6223 (a) -- (1) Notice of beginning
of proceeding. Except as otherwise provided in 301.6223(a)-2T, the tax
matters partner shall, within 75 days after the mailing by the Service
of the notice specified in section 6223(a)(1), forward a copy of that
notice to each partner that is not entitled to notice from the Service
under section 6223. See 301.6230(e)-1T for information to be furnished
to the Service.
(2) Notice of final partnership administrative adjustment. The tax
matters partner shall, within 60 days after the mailing by the Service
of the notice specified in section 6223(a)(2), forward a copy of that
notice to each partner that is not entitled to notice from the Service
under section 6223.
(3) Requirement inapplicable in certain cases. The tax matters
partner is not required to send notice to a partner if --
(i) Before the expiration of the applicable 75-day or 60-day period
the partnership items of that partner have become nonpartnership items
(for example, by settlement),
(ii) That partner is an indirect partner and has not been identified
to the tax matters partner at least 30 days before the tax matters
partner is required to send such notice,
(iii) That partner is treated as a partner solely by virtue of
301.6231(a)(2)-1T,
(iv) That partner was a member of a notice group as of the date on
which the notice was mailed to the tax matters partner (see
301.6223(b)-1T(c)(4) for the date on which a partner becomes a member of
a notice group),
(v) The notice has already been provided to that partner by another
person, or,
(vi) The notice is withdrawn by the Service under 301.6223(a)-2T.
(b) Other notices or information -- (1) In general. The tax matters
partner shall furnish to the partners specified in paragraph (b)(2) of
this section information with respect to the following:
(i) Closing conference with the examining agent,
(ii) Proposed adjustments, rights of appeal, and requirements for
filing of a protest,
(iii) Time and place of any Appeals conference,
(iv) Acceptance by the Service of any settlement offer,
(v) Consent to the extension of the period of limitations with
respect to all partners,
(vi) Filing of a request for administrative adjustment (including a
request for substituted return treatment under 301.6227(b)-2T) on
behalf of the partnership,
(vii) Filing by the tax matters partner or any other partner of any
petition for judicial review under sections 6226 or 6228(a),
(viii) Filing of any appeal with respect to any judicial
determination provided for in sections 6226 or 6228(a), and
(ix) Final judicial redetermination.
(2) Partners to be notified. The tax matters partner shall provide
information with respect to any action or other matter specified in
paragraph (b)(1) of this section to all notice group representatives and
all other partners except partners --
(i) Whose partnership items become nonpartnership items before the
expiration of the period specified in paragraph (b)(3) of this section
for furnishing that information,
(ii) Who are indirect partners and who are not identified to the tax
matters partner at least 30 days before the tax matters partner is
required to provide the information,
(iii) Who are treated as partners solely by virtue of
301.6231(a)(2)-1T,
(iv) Who are members of a notice group as of the date on which the
tax matters partner takes that action or receives information with
respect to that matter (see 301.6223(b)-1T(c)(4) for the date on which
a partner becomes a member of a notice group), or
(v) Who have already received information with respect to the action
or matter from any other person.
(3) Time for furnishing information. The tax matters partner shall
furnish information with respect to an action or other matter described
in paragraph (b)(1) of this section within 30 days of taking the action
or receiving information with respect to that matter.
(T.D. 8128, 52 FR 6785, Mar. 5, 1987)
26 CFR 301.6223(h)-1T Responsibilities of pass-thru partner
(temporary).
The pass-thru partner shall, within 30 days of receiving notice or
any other information regarding a partnership proceeding from the
Internal Revenue Service, the tax matters partner, or another pass-thru
partner, forward a copy of that notice or information to the person or
persons holding an interest through the pass-thru partner in the profits
or losses of the partnership for the partnership taxable year to which
the notice or information relates. In the case of a pass-thru partner
which is a partnership within the meaning of section 6231(a)(1), the tax
matters partner of such partnership shall forward copies of such notice
or information to the partners of such partnership.
(T.D. 8128, 52 FR 6786, Mar. 5, 1987)
26 CFR 301.6224(a)-1T Participation in administrative proceedings
(temporary).
Every partner in the partnership, including an indirect partner, has
the right to participate in any phase of administrative proceedings.
However, except as provided in section 6223 and the regulations
thereunder, neither the Service nor the tax matters partner is required
to provide notice of any proceeding to partners. Consequently, a
partner who wishes, for example, to be present during a preliminary
discussion between an examining agent and the tax matters partner should
make special arrangements with the tax matters partner to obtain
information as to the time and place of the discussion. The Service and
the tax matters partner will determine the time and place for all
administrative proceedings. Arrangements will generally not be changed
merely for the convenience of another partner.
(T.D. 8128, 52 FR 6786, Mar. 5, 1987)
26 CFR 301.6224(b)-1T Partner may waive rights (temporary).
(a) In general. A partner may at any time waive any right that that
partner has or any restriction on action by the Service under subchapter
C of chapter 63 of the Code.
(b) Form and manner of making waiver. The waiver described in
paragraph (a) of this section shall be made by a written statement. If
the Service furnishes a form to be used for this purpose, the partner
may make the waiver by completing the form in accordance with the
instructions accompanying that form. If such a form is not furnished,
the statement shall --
(1) Be clearly identified as a waiver under section 6224(b),
(2) Identify the partner and the partnership by name, address, and
taxpayer identification number,
(3) Specify the right or restriction being waived and the taxable
year(s) to which the waiver applies,
(4) Be signed by the partner making the waiver, and
(5) Be filed with the service center with which the partnership
return is filed. However, if the person filing the statement knows that
the notice described in section 6223(a)(1) (beginning of an
administrative proceeding) has already been mailed to the tax matters
partner, the statement shall be filed with the Internal Revenue Service
office that mailed such notice.
(T.D. 8128, 52 FR 6786, Mar. 5, 1987)
26 CFR 301.6224(c)-1T Tax matters partner may bind nonnotice partners
(temporary).
(a) In general. In the absence of a showing of fraud, malfeasance,
or misrepresentation of fact, if the tax matters partner enters into a
settlement agreement with the Service and expressly states that that
agreement shall be binding on the other partners, that agreement shall
be binding on all partners except those who --
(1) Are, as of the day on which the agreement is entered into, either
notice partners or members of a notice group (see 301.6223(b)-1T(c)(4)
for the date on which a partner becomes a member of a notice group), or
(2) Have, at least 30 days before the day on which the agreement is
entered into, filed with the Service the statement described in
paragraph (c) of this section.
(b) Indirect partners -- (1) In general. If, under paragraph (a) of
this section, a pass-thru partner is not bound by an agreement entered
into by the tax matters partner, all indirect partners holding an
interest in the partnership through that pass-thru partner shall not be
bound by that agreement. If, however, the pass-thru partner is bound by
an agreement entered into by the tax matters partner, paragraph (a) of
this section shall be applied separately to each indirect partner
holding an interest in the partnership through the pass-thru partner to
determine whether the indirect partner is also bound by the agreement.
(2) Example. The following example illustrates the principles set
forth in this section.
Example. Partnership P has over 100 partners. Partnership J is a
partner in partnership P with a profits interest of less than 1 percent.
Partnership J has three partners, A, B, and C. A is a member of a
notice group with respect to partnership P, but B and C are not. On
July 1, 1985, B filed the statement described in paragraph (c) of this
section not to be bound by any settlement agreement entered into by the
tax matters partner of partnership P. On August 1, 1985, the tax
matters partner of partnership P enters into a settlement agreement with
the Service and states that the agreement is binding on other partners
as provided in section 6224(c)(3). Since partnership J is bound by the
settlement agreement, paragraph (a) of this section is applied
separately to each of the indirect partners to determine whether they
are bound. A is not bound by the agreement because he was a member of a
notice group on the day the agreement was entered into and B is not
bound because she filed the statement not to be bound at least 30 days
before the agreement was entered into. C is bound by the settlement
agreement.
(c) Statement not to be bound -- (1) Contents of statement. The
statement referred to in paragraph (a)(2) of this section shall --
(i) Be clearly identified as a statement to deny settlement authority
to the tax matters partner under section 6224(c)(3)(B),
(ii) Identify the partner and partnership by name, address, and
taxpayer identification number,
(iii) Specify the taxable year or years to which the statement
applies, and
(iv) Be signed by the partner filing the statement.
(2) Place where statement is to be filed. The statement described in
paragraph (c)(1) of this section generally shall be filed with the
service center with which the partnership return is filed. However, if
the partner knows that the notice described in section 6223(a)(1)
(beginning of an administrative proceeding) has already been mailed to
the tax matters partner, the statement shall be filed with the Internal
Revenue Service office that mailed that notice.
(3) Consolidated statements. The statement described in paragraph
(c)(1) of this section may be filed with respect to more than one
partner if the requirements of that paragraph (c)(1) (including
signatures) are satisfied with respect to each partner.
(T.D. 8128, 52 FR 6786, Mar. 5, 1987)
26 CFR 301.6224(c)-2T Pass-thru partner binds indirect partners
(temporary).
(a) Pass-thru partner binds unidentified indirect partners -- (1) In
general. If a pass-thru partner enters into a settlement ageement with
the Service with respect to partnership items, that agreement binds all
indirect partners holding an interest in that partnership through the
pass-thru partner except those indirect partners who have been
identified as provided in section 6223(c)(3) and 301.6223(c)-1T at
least 30 days before the date on which the agreement is entered into.
However, if, in addition to the interest in the partnership held through
the pass-thru partner entering into a settlement agreement, an indirect
partner holds a separate interest in that partnership, either directly
or indirectly through a different pass-thru partner, the indirect
partner shall not be bound by that settlement agreement with respect to
the interests held directly or indirectly through a pass-thru partner
other than the pass-thru partner entering into the settlement agreement.
(2) Example. The provisions of paragraph (a)(1) of this section may
be illustrated by the following example:
Example. Partnership J is a partner in partnership P. C is a partner
in J but has not been identified as provided in section 6223(c)(3) and
301.6223(c)-1T. The only interest that C holds in P is through J. The
tax matters partner of J enters into a settlement agreement with the
Service with respect to partnership items arising from P. C is bound by
the settlement agreement entered into by the tax matters partner of J.
(b) Person in pass-thru partner authorized to enter into settlement
agreement that binds indirect partners. In the case of a pass-thru
partner that is --
(1) A partnership within the meaning of section 6231(a)(1), the tax
matters partner of that partnership;
(2) A partnership other than a partnership described in paragraph
(b)(1) of this section, any general partner of that partnership;
(3) An S corporation subject to the provisions of subchapter D of
chapter 63 of the Code, the tax matters person of that S corporation;
(4) An S corporation other than an S corporation described in
paragraph (b)(3) of this section, any officer of that S corporation; or
(5) A trust, estate, or nominee, any person authorized in writing to
act on behalf of that trust, estate, or nominee
may enter into a settlement agreement with the Service on behalf of
its respective entity that would bind the unidentified indirect partners
that hold a partnership interest through the pass-thru partner.
(T.D. 8128, 52 FR 6787, Mar. 5, 1987)
26 CFR 301.6224(c)-3T Consistent settlements (temporary).
(a) In general. If the Service enters into a settlement agreement
with any partner with respect to partnership items, the Service shall
offer to any other partner who so requests in accordance with paragraph
(c) of this section settlement terms which are consistent with those
contained in the settlement agreement entered into.
(b) Requirements for consistent settlements. ''Consistent''
settlement terms are those based on the same determinations with respect
to partnership items. Settlements with respect to partnership items
shall be self-contained; thus, a concession by one party with respect
to a partnership item may not be based upon a concession by the other
party with respect to a nonpartnership item. Settlements shall be
comprehensive, that is, a settlement may not be limited to selected
items. The requirement for consistent settlement terms applies only if
--
(1) The items were partnership items for the partner entering into
the original settlement immediately before the original settlement, and
(2) The items are partnership items for the partner requesting the
consistent settlement at the time the partner files the request.
(c) Time and manner of requesting consistent settlements -- (1) In
general. A partner desiring settlement terms consistent with the terms
of any settlement agreement entered into between any other partner and
the Service shall submit a written statement to the Internal Revenue
Service office that entered into the settlement.
(2) Contents of statement. Except as otherwise provided in
instructions to the taxpayer from the Service, the written statement
described in paragraph (c)(1) of this section shall --
(i) Identify the statement as a request for consistent settlement
terms under section 6224(c)(2),
(ii) Contain the name, address, and taxpayer identification number of
the partnership and of the partner requesting the settlement offer (and,
in the case of an indirect partner, of the pass-thru partner through
which the indirect partner holds an interest),
(iii) Identify the earlier agreement to which the request refers, and
(iv) Be signed by the partner making the request.
(3) Time for filing request. The statement shall be filed not later
than the later of --
(i) The 150th day after the day on which the notice of final
partnership administrative adjustment is mailed to the tax matters
partner, or
(ii) The 60th day after the day on which the settlement was entered
into.
(d) Examples. The following examples illustrate the principles set
out in this section.
Example 1. The Service seeks to disallow a $100,000 loss reported by
Partnership P. The Service agrees to a settlement with X, a partner in
P, in which the Service allows 60 percent of the loss and accepts the
treatment of all other partnership items on the partnership return.
Partner Y, which owns a 10 percent interest in the partnership, requests
settlement terms which are consistent with the settlement made between X
and the Service. The items are partnership items for X immediately
before X enters into the settlement agreement and partnership items for
Y at the time of the request. The Service must offer Y a settlement
agreement allowing a $6,000 loss and otherwise reflecting the treatment
of partnership items on the partnership return.
Example 2. F files inconsistently with partnership P and reports the
inconsistency. The Service notifies F that it will treat all
partnership items arising from P as nonpartnership items with respect to
F. Later, the Service enters into a settlement with F on these items.
The Service is not required to offer the other partners of P settlement
terms consistent with the settlement reached between F and the Service
because at the time of the settlement the items arising from P are no
longer partnership items with respect to F.
Example 3. G, a partner in Partnership P, filed suit under section
6228(b) after the Service failed to allow an administrative adjustment
request with respect to a partnership item arising from P for a taxable
year. Under section 6231(b)(1)(B), the partnership items of G for the
partnership taxable year became nonpartnership items as of the date the
suit was filed. After G filed suit, another partner and the Service
entered into a settlement agreement with respect to items arising from P
in that year. G is not entitled to consistent settlement terms because
the items arising from P are no longer partnership items with respect to
G.
(T.D. 8128, 52 FR 6787, Mar. 5, 1987)
26 CFR 301.6226(a)-1T Principal place of business of partnership
(temporary).
(a) In general. The principal place of business of a partnership for
purposes of determining the appropriate district court in which a
petition for a readjustment of partnership items may be filed is its
principal place of business as of the date the petition is filed.
(b) Example. The provisions of paragraph (a) of this section may be
illustrated by the following example:
Example. The principal place of business of partnership A on the day
that the notice of the final partnership administrative adjustment was
mailed to the tax matters partner of A was Cincinnati, Ohio. However,
by the day on which a petition seeking judicial review of that
adjustment was filed, A had moved its principal place of business to
Louisville, Kentucky. For purposes of section 6226(a)(2), A's principal
place of business is Louisville.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987)
26 CFR 301.6226(b)-1T 5-percent group (temporary).
All members of a 5-percent group shall join in filing any petition
for judicial review. The designation of a partner as a representative
of a notice group does not authorize that partner to file a petition for
a readjustment of partnership items on behalf of the notice group.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987)
26 CFR 301.6226(e)-1T Jurisdictional requirement for bringing an action
in District Court or Claims Court (temporary).
(a) Amount to be deposited -- (1) In general. The jurisdictional
amount that the filing partner (or, in the case of a petition filed by a
5-percent group, each member of the group) shall deposit is the amount
by which the tax liability of the partner would be increased if the
treatment of the partnership items on the partner's return were made
consistent with the treatment of partnership items on the partnership
return, as adjusted by the notice of final partnership administrative
adjustment. The partner is not required to pay other outstanding
liabilities in order to deposit a jurisdictional amount.
(2) Example. The provisions of paragraph (a)(1) of this section may
be illustrated by the following example:
Example. A files a petition for readjustment of partnership items in
the Claims Court. A's tax liability would be increased by $4,000 if
partnership items on his return were conformed to the partnership
return, as adjusted by the notice of final partnership administrative
adjustment. A has an unpaid liability of $10,000 attributable to
nonpartnership items. A is required to deposit only $4,000 in order to
satisfy the jurisdictional requirement.
(b) Deposit taken into account in computing interest. The amount
deposited is treated as a payment of tax for purposes of chapter 67
(relating to interest). Thus, the period of deposit will be treated as
a period of payment for purposes of determining the interest due on any
overpayment or underpayment and computing any penalty under section 6653
(a)(2) or (b)(2).
(c) Deposit generally not treated as payment of tax. Except as
provided in paragraph (b) of this section, an amount deposited under
section 6226(e) shall not be treated as payment of tax. Thus, the
Service may proceed against the depositor for a deficiency based on
nonpartnership items without regard to this deposit.
(d) Amount deposited may be applied against assessment. If the
restriction on assessment provided under section 6225(a) lapses with
respect to a deficiency attributable to partnership items for a
partnership taxable year while an amount is on deposit under section
6226(e) in connection with a petition relating to those items, the
Service may apply the amount deposited against any such deficiency that
is assessed.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987)
26 CFR 301.6226(f)-1T Scope of judicial review (temporary).
(a) In general. A court reviewing a notice of final partnership
administrative adjustment has jurisdiction to determine all partnership
items for the taxable year to which the notice relates and the proper
allocation of such items among the partners. Thus, the review is not
limited to the items adjusted in the notice.
(b) Example. The provisions of paragraph (a) of this section may be
illustrated by the following example.
Example. The Service issues a notice of final partnership
administrative adjustment with respect to Partnership ABC in which the
only item adjusted is depreciation. A petition for judicial review of
that notice is filed. During the judicial proceeding, a partner of ABC,
in accordance with the applicable court rules, raises an issue relating
to the treatment of intangible drilling costs. The court reviewing the
notice has jurisdiction to determine the intangible drilling cost issue
as well as the depreciation issue.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987)
26 CFR 301.6227(b)-1T Administrative adjustment request by the tax
matters partner on behalf of the partnership (temporary).
(a) In general. A request for an administrative adjustment filed by
the tax matters partner on behalf of the partnership shall be filed on
the form prescribed by the Service for that purpose in accordance with
the instructions accompanying that form. Except as otherwise provided
in the instructions accompanying that form, the request shall be --
(1) Filed with the service center where the original partnership
return was filed,
(2) Signed by the tax matters partner, and
(3) Accompanied by revised schedules showing the effects of the
proposed changes on each partner and an explanation of the changes.
(b) Denied request for treatment as a substituted return remains
administrative adjustment request. An administrative adjustment request
filed by the tax matters partner on behalf of the partnership for which
substituted return treatment is requested but not granted remains an
administrative adjustment request. Thus, for example, the tax matters
partner may file suit under section 6228(a) if the Service fails to take
timely action on the request.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987)
26 CFR 301.6227(c)-1T Administrative adjustment request filed on behalf
of a partner (temporary).
A request for an administrative adjustment on behalf of a partner
shall be filed on the form prescribed by the Service for that purpose in
accordance with the instructions accompanying that form. Except as
otherwise provided in the instructions accompanying that form, the
request shall --
(a) Be filed in duplicate, the original copy filed with the partner's
amended income tax return (on which the partner computes the amount by
which the partner's tax liability should be adjusted if the request is
granted) and the other copy filed with the service center where the
partnership return is filed,
(b) Identify the partner and the partnership by name, address, and
taxpayer identification number,
(c) Specify the partnership taxable year to which the administrative
adjustment request applies,
(d) Relate only to partnership items, and
(e) Relate only to one partnership and one partnership taxable year.
(T.D. 8128, 52 FR 6788, Mar. 5, 1987; 52 FR 9296, Mar. 24, 1987)
26 CFR 301.6229(b)-1T Extension by agreement (temporary).
Any partnership may authorize any person to extend the period
described in section 6229(a) with respect to all partners by filing a
statement to that effect with the service center with which the
partnership return is filed. The statement shall --
(a) Provide that it is an authorization for a person other than the
tax matters partner to extend the assessment period with respect to all
partners,
(b) Identify the partnership and the person being authorized by name,
address, and taxpayer identification number,
(c) Specify the partnership taxable year or years for which the
authorization is effective, and
(d) Be signed by all persons who were general partners at any time
during the year or years for which the authorization is effective.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987)
26 CFR 301.6229(e)-1T Information with respect to unidentified partner
(temporary).
A partner who is not properly identified on the partnership return
(including an indirect partner) remains an unidentified partner for
purposes of section 6229(e) until identifying information is furnished
as provided in 301.6223(c)-1T.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987)
26 CFR 301.6230(b)-1T Request that correction not be made (temporary).
The request that a correction not be made under section 6230(b)(2)
shall be in writing and shall --
(a) State that it is a request that a correction not be made under
section 6230(b),
(b) Identify the partnership and the partner filing the request by
name, address, and taxpayer identification number,
(c) Be signed by the partner filing the request, and
(d) Be filed with the Internal Revenue Service office that provided
the notice of the correction of the error.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987)
26 CFR 301.6230(c)-1T Claim arising out of erroneous computation, etc.
(temporary).
A claim for refund under section 6230 (c) shall state the grounds for
the claim and shall be filed with the service center with which the
partner's return is filed.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987)
26 CFR 301.6230(e)-1T Tax matters partner required to furnish names
(temporary).
(a) In general. If a notice of the beginning of an administrative
proceeding is mailed to the tax matters partner with respect to any
partnership taxable year, the tax matters partner shall furnish to the
Internal Revenue Service office that issued the notice the name,
address, profits interest, and taxpayer identification number of each
person who was a partner in the partnership at any time during that
taxable year if that information was not provided on the partnership
return filed for that year.
(b) Revised or additional information. If the tax matters partner
discovers that any information furnished to the Service on the
partnership return or under paragraph (a) of this section was incorrect
or incomplete, the tax matters partner shall furnish revised or
additional information to the Service within 15 days of discovering that
the information furnished to the Service was incorrect or incomplete.
(c) Information required with respect to indirect partners. The
requirements of this section for identifying information apply with
respect to indirect partners to the extent that the tax matters partner
has such information.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987)
26 CFR 301.6231(a)(1)-1T Exception for small partnerships (temporary).
(a) In general. For purposes of the exception for small partnerships
under section 6231(a)(1)(B) the rules contained in this section shall
apply.
(1) ''10 or fewer.'' The ''10 or fewer'' limitation described in
section 6231(a)(1)(B)(i)(I) is applied to the number of natural persons
(other than nonresident aliens) and estates that were partners at any
one time during the partnership taxable year. Thus, for example, a
partnership that at no time during the taxable year had more than 10
partners may be treated as a small partnership even if, because of
transfers of interests in the partnership, 11 or more natural persons or
estates owned interests in the partnership for some portion of the
taxable year. For purposes of section 6231(a)(1)(B) and this section, a
husband and wife (and their estates) are treated as one person.
(2) Pass-thru partner. The exception provided in section
6231(a)(1)(B) does not apply to a partnership for a taxable year if any
partner in the partnership during that taxable year is a pass-thru
partner. For purposes of this paragraph (a)(2), an estate shall not be
treated as a pass-thru partner.
(3) ''Same share.'' The requirement of section 6231(a)(1)(B)(i)(II)
is satisfied for a taxable year if during all periods within that
taxable year each partner's share of each of the partnership items
specified in 301.6231(a)(3)-1(a)(1) (i) through (iv) is the same as
that partner's share of each of the other partnership items specified in
that section during that period (even though the partner's share of all
such specified partnership items changes from period to period within
that taxable year). Thus, a partner whose share of all such specified
partnership items changes as a result of a sale or redemption of a
partnership interest (or portion thereof) or a contribution of cash or
property to the partnership during the partnership taxable year shall
satisfy the same share requirement if during the period before the sale,
redemption, or contribution the partner's share of each specified
partnership item is the same as all other specified partnership items
and during the period after the sale, redemption, or contribution the
partner's share of each specified partnership item is the same as all
other specified partnership items. For purposes of section
6231(a)(1)(B)(i)(II) and this section, if each partner's share of each
partnership item would be the same as his or her share of every other
item but for allocations made under section 704 (c) or allocations made
under similar principles in accordance with applicable regulations the
requirement of section 6231(a)(1)(B)(i)(II) shall be considered
satisfied. Similarly, special basis adjustments pursuant to sections
754, 743, and 734 shall not be taken into account in determining whether
the ''same share'' requirement is met.
(4) Determination made annually. The determination of whether a
partnership meets the requirements for the exception for small
partnerships under section 6231(a)(1)(B) and this paragraph (a) shall be
made with respect to each partnership taxable year. Thus, a partnership
that does not qualify as a small partnership in one taxable year may
qualify as a small partnership in another taxable year if the
requirements for the exception under section 6231(a)(1)(B) and this
paragraph (a) are met with respect to that other taxable year.
(b) Election to have subchapter C of chapter 63 apply -- (1) In
general. Any partnership that meets the requirements set forth in
section 6231(a)(1)(B) of the Code and paragraph (a) of this section
(relating to the exception for small partnerships) may elect under
paragraph (b)(2) of this section to have the provisions of subchapter C
of chapter 63 of the Code apply with respect to that partnership.
(2) Method of election. A partnership shall make the election
described in paragraph (b)(1) of this section by attaching a statement
to the partnership return for the first taxable year for which the
election is to be effective. The statement shall be identified as an
election under section 6231(a)(1)(B)(ii), shall be signed by all persons
who were partners of that partnership at any time during the partnership
taxable year to which the return relates, and shall be filed at the time
(determined with regard to any extension of time for filing) and place
prescribed for filing the partnership return. However, for partnership
taxable years for which a partnership return is to be filed before 90
days after the date final regulations under this section are published
in the Federal Register the partnership may file the statement described
in the preceding sentence on or before the date which is one year before
the date specified in section 6229(a) for the expiration of the period
of limitations with respect to that partnership (determined with regard
to extensions of that period under section 6229(b)).
(3) Years covered by election. The election shall be effective for
the partnership taxable year to which the return relates and all
subsequent partnership taxable years unless revoked with the consent of
the Commissioner.
(T.D. 8128, 52 FR 6789, Mar. 5, 1987; 52 FR 9296, Mar. 24, 1987)
26 CFR 301.6231(a)(2)-1T Persons whose tax liability is determined
indirectly by partnership items (temporary).
(a) Spouse filing joint return with individual holding separate
interest -- (1) In general. Except as otherwise provided in this
paragraph (a), a spouse who files a joint return with an individual
holding a separate interest in the partnership shall be treated as a
partner for purposes of subchapter C of chapter 63 of the Code. Thus,
the spouse who files a joint return with a partner will be permitted to
participate in administrative and judicial proceedings.
(2) Counting rules. A spouse who files a joint return with an
individual holding a separate interest in the partnership shall not be
counted as a partner for purposes of applying section 6223(b) (relating
to special rules for partnerships with more than 100 partners) and
section 6231(a)(1)(B) (relating to the exception for small
partnerships).
(3) Notice rules -- (i) In general. Except as provided in paragraph
(a)(3)(ii) of this section, for purposes of subchapter C of chapter 63
of the Code, a spouse who files a joint return with an individual
holding a separate interest in the partnership shall be treated as
receiving any notice received by the individual holding the separate
interest.
(ii) Spouse identified on partnership return or by statement.
Paragraph (a)(3)(i) of this section shall not apply to a spouse who
files a joint return with an individual holding a separate interest in
the partnership if that spouse:
(A) Is identified on the partnership return; or
(B) Is identified as a partner entitled to notice as provided in
301.6223(c)-1(b).
(4) Cross-reference. See 301.6231(a)(12)-1T for special rules
relating to spouses holding a joint interest in a partnership.
(b) Shareholder of C corporation. A shareholder of a C corporation
(as defined in section 1361(a)(2)) is not a partner in a partnership
merely because the C corporation is a partner in that partnership.
(T.D. 8128, 52 FR 6790, Mar. 5, 1987)
26 CFR 301.6231(a)(3)-1 Partnership items.
(a) In general. For purposes of subtitle F of the Internal Revenue
Code of 1954, the following items which are required to be taken into
account for the taxable year of a partnership under subtitle A of the
Code are more appropriately determined at the partnership level than at
the partner level and, therefore, are partnership items:
(1) The partnership aggregate and each partner's share of each of the
following:
(i) Items of income, gain loss, deduction, or credit of the
partnership;
(ii) Expenditures by the partnership not deductible in computing its
taxable income (for example, charitable contributions);
(iii) Items of the partnership which may be tax preference items
under section 57(a) for any partner;
(iv) Income of the partnership exempt from tax;
(v) Partnership liabilities (including determinations with respect to
the amount of the liabilities, whether the liabilities are nonrecourse,
and changes from the preceding taxable year); and
(vi) Other amounts determinable at the partnership level with respect
to partnership assets, investments, transactions and operations
necessary to enable the partnership or the partners to determine --
(A) The investment credit determined under section 46(a);
(B) Recapture under section 47 of the investment credit;
(C) Amounts at risk in any activity to which section 465 applies;
(D) The depletion allowance under section 613A with respect to oil
and gas wells; and
(E) The application of section 751 (a) and (b);
(2) Guaranteed payments;
(3) Optional adjustments to the basis of partnership property
pursuant to an election under section 754 (including necessary
preliminary determinations, such as the determination of a transferee
partner's basis in a partnership interest); and
(4) Items relating to the following transactions, to the extent that
a determination of such items can be made from determinations that the
partnership is required to make with respect to an amount, the character
of an amount, or the percentage interest of a partner in the
partnership, for purposes of the partnership books and records or for
purposes of furnishing information to a partner:
(i) Contributions to the partnership;
(ii) Distributions from the partnership; and
(iii) Transactions to which section 707(a) applies (including the
application of section 707(b)).
(b) Factors that affect the determination of partnership items. The
term ''partnership item'' includes the accounting practices and the
legal and factual determinations that underlie the determination of the
amount, timing, and characterization of items of income, credit, gain,
loss, deduction, etc. Examples of these determinations are: The
partnership's method of accounting, taxable year, and inventory method;
whether an election was made by the partnership; whether partnership
property is a capital asset, section 1231 property, or inventory;
whether an item is currently deductible or must be capitalized; whether
partnership activities have been engaged in with the intent to make a
profit for purposes of section 183; and whether the partnership
qualifies for the research and development credit under section 30.
(c) Illustrations -- (1) In general. This paragraph (c) illustrates
the provisions of paragraph (a)(4) of this section. The determinations
illustrated in this paragraph (c) that the partnership is required to
make are not exhaustive; there may be additional determinations that
the partnership is required to make which relate to a transaction listed
in paragraph (a)(4) of this section. The critical element is that the
partnership needs to make a determination with respect to a matter for
the purposes stated; failure by the partnership actually to make a
determination (for example, because it does not maintain proper books
and records) does not prevent an item from being a partnership item.
(2) Contributions. For purposes of its books and records, or for
purposes of furnishing information to a partner, the partnership needs
to determine:
(i) The character of the amount received from a partner (for example,
whether it is a contribution, a loan, or a repayment of a loan);
(ii) The amount of money contributed by a partner;
(iii) The applicability of the investment company rules of section
721(b) with respect to a contribution; and
(iv) The basis to the partnership of contributed property (including
necessary preliminary determinations, such as the partner's basis in the
contributed property).
To the extent that a determination of an item relating to a
contribution can be made from these and similar determinations that the
partnership is required to make, therefore, that item is a partnership
item. To the extent that that determination requires other information,
however, that item is not a partnership item. For example, it may be
necessary to determine whether contribution of the property causes
recapture by the contributing partner of the investment credit under
section 47 in certain circumstances in which that determination is
irrelevant to the partnership.
(3) Distributions. For purposes of its books and records, or for
purposes of furnishing information to a partner, the partnership needs
to determine:
(i) The character of the amount transferred to a partner (for
example, whether it is a distribution, a loan, or a repayment of a
loan);
(ii) The amount of money distributed to a partner;
(iii) The adjusted basis to the partnership of distributed property;
and
(iv) The character of partnership property (for example, whether an
item is inventory or a capital asset).
To the extent that a determination of an item relating to a
distribution can be made from these and similar determinations that the
partnership is required to make, therefore, that item is a partnership
item. To the extent that that determination requires other information,
however, that item is not a partnership item. Such other information
would include those factors used in determining the partner's basis for
the partnership interest that are not themselves partnership items, such
as the amount that the partner paid to acquire the partnership interest
from a transferor partner if that transfer was not covered by an
election under section 754.
(4) Transactions to which section 707 (a) applies. For purposes of
its books and records, the partnership needs to determine:
(i) The amount transferred from the partnership to a partner or from
a partner to the partnership in any transaction to which section 707(a)
applies;
(ii) The character of such an amount (for example, whether or not it
is a loan; in the case of amounts paid over time for the purchase of an
asset, what portion is interest); and
(iii) The percentage of the capital interests and profits interests
in the partnership owned by each partner.
To the extent that a determination of an item relating to a
transaction to which section 707(a) applies can be made from these and
similar determinations that the partnership is required to make,
therefore, that item is a partnership item. To the extent that that
determination requires other information, however, that item is not a
partnership item. An example of such other information is the cost to
the partner of goods sold to the partnership.
(d) Effective date. This section shall apply with respect to
partnership taxable years beginning after September 3, 1982. This
section shall also apply with respect to any partnership taxable year
ending after September 3, 1982, if with respect to that year there is an
agreement entered into pursuant to section 407(a)(3) of the Tax Equity
and Fiscal Responsibility Act of 1982.
(T.D. 8082, 51 FR 13214, Apr. 18, 1986; 51 FR 19062, May 27, 1986)
26 CFR 301.6231(a)(5)-1T Definition of affected item (temporary).
(a) In general. The term ''affected item'' includes items unrelated
to the items reflected on the partnership return (for example, an item,
such as the threshold for the medical expense deduction under section
213, that varies if there is a change in an individual partner's
adjusted gross income).
(b) Partner's basis in his partnership interest. A partner's basis
in his interest in the partnership is an affected item to the extent it
is not a partnership item.
(c) At-risk limitation. The application of the at-risk limitation
under section 465 to a partner with respect to a loss flowing from a
partnership is an affected item to the extent it is not a partnership
item.
(d) Addition to tax or additional amount -- (1) In general. The term
''affected item'' includes any addition to tax or additional amount
provided by subchapter A of chapter 68 of the Internal Revenue Code of
1954 to the extent provided in this paragraph (d).
(2) Addition to tax or additional amount without floor. In the case
where an addition to tax or additional amount that does not contain a
floor (that is, a threshold amount of underpayment or understatement
necessary before the imposition of the addition to tax or additional
amount) is imposed on a partner as the result of an adjustment to a
partnership item, the term ''affected item'' shall include the addition
to tax or additional amount computed with reference to the entire
underpayment or understatement.
(3) Addition to tax or additional amount containing floor -- (i)
Floor exceeded prior to adjustment. In the case where a partner would
have been subject to an addition to tax or additional amount that
contains a floor in the absence of an adjustment to a partnership item
(that is, the partner's understatement or underpayment exceeded the
floor even without an adjustment to a partnership item) the term
''affected item'' shall include only the addition to tax or additional
amount computed with reference to the partnership item (or affected
item).
(ii) Floor not exceeded prior to adjustment. In the case of an
addition to tax or additional amount that contains a floor, if the
taxpayer's understatement or underpayment does not exceed the floor
prior to an adjustment to a partnership item but does so after such
adjustment, the term ''affected item'' shall include the addition to tax
or additional amount computed with reference to the entire underpayment
or understatement.
(4) Examples. The provisions of this paragraph (d) may be
illustrated by the following examples:
Example 1. A, a partner of P, had an aggregate underpayment of $1000
of which $100 is attributable to an adjustment to partnership items. A
is negligent in reporting the partnership items. The addition to tax
for negligence computed with reference to the entire $1000 underpayment
is an affected item.
Example 2. B, a partner in partnership P, understated his income tax
liability attributable to nonpartnership items by $6,000. An adjustment
to a partnership item resulting from a partnership proceeding increased
B's income tax by an additional $2,000. Prior to the adjustment, B
would have been subject to the addition to tax under section 6661 with
respect to the $6,000 understatement. The addition to tax under section
6661 computed with reference to the $2,000 increase is an affected item.
The addition to tax computed with reference to the $6,000 pre-existing
understatement is not an affected item.
Example 3. C, a partner in partnership P, understated his income tax
liability attributable to nonpartnership items by $4,000. As result of
adjustment to partnership items, that understatement is increased to
$10,000. Prior to the adjustment, C would not have been subject to any
addition to tax under section 6661. The section 6661 addition to tax
computed with reference to the entire $10,000 underpayment is an
affected item.
(T.D. 8128, 52 FR 6790, Mar. 5, 1987)
26 CFR 301.6231(a)(6)-1T Computational adjustments (temporary).
(a) In general. A change in the tax liability of a partner to
properly reflect the treatment of a partnership item under subchapter C
of chapter 63 of the Code is made through a computational adjustment. A
computational adjustment may include a change in tax liability that
reflects a change in an affected item where that change is necessary to
properly reflect the treatment of a partnership item. However, if a
change in a partner's tax liability cannot be made without making one or
more partner-level determinations, that portion of the change in tax
liability attributable to the partner-level determinations shall be made
under the provisions of subchapter B of chapter 63 of the Code (relating
to deficiency procedures). Thus, changes in a partner's tax liability
with respect to affected items that do not require partner-level
determinations (such as the threshold amount of medical deductions under
section 213 that changes as the result of determinations made at the
partnership level) are included in a computational adjustment. However,
changes in a partner's tax liability with respect to affected items that
require partner-level determinations (such as a partner's at-risk amount
that depends upon the source from which the partner obtained the funds
that the partner contributed to the partnership) are not included in a
computational adjustment.
(b) Interest. A computational adjustment includes any interest due
with respect to any underpayment or overpayment of tax attributable to
adjustments to reflect properly the treatment of partnership items.
(c) Addition to tax or additional amount. A computational adjustment
shall not include an addition to tax or additional amount. Regardless
of whether an addition to tax or additional amount is an affected item
within the meaning of section 6231(a)(5) and 301.6231(a)(5)-1T, the
addition to tax or additional amount shall be subject to the provisions
of subchapter B of chapter 63 of the Code (relating to deficiency
procedures). See section 6229(a) for the period of limitations for
making assessments with respect to affected items.
(T.D. 8128, 52 FR 6790, Mar. 5, 1987)
26 CFR 301.6231(a)(7)-1 Designation of tax matters partner (temporary).
(a) In general. A partnership may designate a partner as its tax
matters partner for a specific taxable year only as provided in this
section. Similarly, the designation of a partner as the tax matters
partner for a specific taxable year may be terminated only as provided
in this section.
(b) Person who may be designated tax matters partner -- (1) General
reqirement. A person may be designated as the tax matters partner of a
partnership for a taxable year only if that person --
(i) Was a general partner in the partnership at some time during the
taxable year for which the designation is made, or
(ii) Is a general partner in the partnership as of the time the
designation is made.
(2) Limitation on designation of tax matters partner who is not a
United States person. If any United States person would be eligible
under paragraph (a) of this section to be designated as the tax matters
partner of a partnership for a taxable year, no person who is not a
United States person may be designated as the tax matters partner of the
partnership for that year without the consent of the Commissioner. For
the definition of the term ''United States person,'' see section
7701(a)(30).
(c) Designation of tax matters partner at time partnership return is
filed -- (1) If the form provided for the partnership return contains
space for designation. If the form provided for the partnership return
for a taxable year contains a space for the designation of a tax matters
partner, the partnership may designate a tax matters partner for that
partnership taxable year on the partnership return in accordance with
the instructions for that form.
(2) If form does not contain space for designation. If the form
provided for the partnership return for a taxable year does not contain
a space for the designation of a tax matters partner, the partnership
may make the designation by attaching a statement to the partnership
return for that year, filed at the time (determined with regard to any
extension of time for filing) and place prescribed for filing the
partnership return. The statement shall --
(i) Identify the partnership and the designated tax matters partner
by name, address, and taxpayer identification number,
(ii) Declare that it is a designation of a tax matters partner for
the taxable year to which the return relates, and
(iii) Be signed by the partner signing the partnership return.
(d) Certification by current tax matters partner of selection of
successor. If a partner properly designated as the tax matters partner
of a partnership for a partnership taxable year under this section
certifies that another partner has been selected as the tax matters
partner of the partnership for that taxable year, that other partner is
thereby designated as the tax matters partner for that year. The
current tax matters partner shall make the certification by filing with
the service center with which the partnership return is filed a
statement that --
(1) Identifies the partnership, the partner filing the statement, and
the successor tax matters partner by name, address, and taxpayer
identification number,
(2) Specifies the partnership taxable year to which the designation
relates,
(3) Declares that the partner filing the statement has been properly
designated as the tax matters partner of the partnership for the
partnership taxable year and that that designation is in effect
immediately before the filing of the statement,
(4) Certifies that the other named partner has been selected as the
tax matters partner of the partnership for that taxable year in
accordance with the partnership's procedure for making that selection,
and
(5) Is signed by the partner filing the statement.
(e) Designation by general partners with majority interest. The
partnership may designate a tax matters partner for a partnership
taxable year at any time after the filing of a partnership return for
that taxable year by filing a statement with the service center with
which the partnership return was filed. The statement shall --
(1) Identify the partnership and the designated partner by name,
address, and taxpayer identification number,
(2) Specify the partnership taxable year to which the designation
relates,
(3) Declare that it is a designation of a tax matters partner for the
taxable year specified, and
(4) Be signed by persons who were general partners at the close of
the year and were shown on the return for that year to hold more than 50
percent of the aggregate interest in partnership profits held by all
general partners as of the close of that taxable year. For purposes of
this paragraph (e)(4), all limited partnership interests held by general
partners shall be included in determining the aggregate interest in
partnership profits held by such general partners.
(f) Designation by partners with majority interest under certain
circumstances -- (1) In general. A tax matters partner may be
designated for a partnership taxable year under this paragraph (f) only
if, at the time the designation is made, each partner who was a general
partner at the close of such partnership taxable year is described in
one or more of the following subdivisions of this paragraph (f)(1).
(i) The general partner is dead, or, if the general partner is an
entity, has been liquidated or dissolved;
(ii) The general partner has been adjudicated by a court of competent
jurisdiction to be no longer capable of managing his or her person or
estate;
(iii) The general partner's partnership items have become
nonpartnership items under section 6231(b); or
(iv) The general partner is no longer a partner in the partnership.
(2) Method of making designation. A tax matters partner for a
partnership taxable year may be designated under this paragraph (f) at
any time after the filing of the partnership return for such taxable
year by filing a written statement with the service center with which
the partnership return was filed. The statement shall --
(i) Identify the partnership and the designated tax matters partner
by name, address, and taxpayer identification number,
(ii) Specify the partnership taxable year to which the designation
relates,
(iii) Declare that it is a designation of a tax matters partner for
the partnership taxable year specified, and
(iv) Be signed by persons who were partners at the close of such
taxable year and were shown on the return for that year to hold more
than 50 percent of the aggregate interest in partnership profits held by
all partners as of the close of such taxable year.
(g) Designation of alternate tax matters partner. If an individual
is designated as the tax matters partner of a partnership under
paragraph (c), (d), (e), or (f) of this section, the document by which
that individual is designated may also designate an alternate tax
matters partner who will become tax matters partner upon the occurrence
of one or more of the events described in paragraph (l) (1) or (2) of
this section. The person designated as the alternate tax matters
partner becomes the tax matters partner as of the time the designation
of the tax matters partner is terminated under paragraph (l) (1) or (2)
of this section. The designation of a person as the alternate tax
matters partner shall have no effect in any other case.
(h) Prior designations superseded. A designation of a tax matters
partner for a partnership taxable year under paragraphs (d), (e), or (f)
of this section shall supersede all prior designations of a tax matters
partner for that year, including a prior designation of an alternate tax
matters partner under paragraph (g) of this section.
(i) Resignation of designated tax matters partner. A person
designated as the tax matters partner of a partnership under this
section may resign at any time by a written statement to that effect.
The statement shall specify the partnership taxable year to which the
resignation relates and shall identify the partnership and the tax
matters partner by name, address, and taxpayer identification number.
The statement shall also be signed by the resigning tax matters partner
and shall be filed with the service center with which the partnership
return was filed.
(j) Revocation of designation. The partnership may revoke the
designation of the tax matters partner for a partnership taxable year at
any time after the filing of a partnership return for that taxable year
by filing a statement with the service center with which the partnership
return was filed. The statement shall --
(1) Identify by name, address, and taxpayer identification number the
partnership and the general partner whose designation as tax matters
partner is being revoked,
(2) Specify the partnership taxable year to which the revocation
relates,
(3) Declare that it is a revocation of a designation of the tax
matters partner for the taxable year specified, and
(4) Be signed by the persons described in paragraph (e)(4) of this
section, or, if at the time that the revocation is made, each partner
who was a general partner at the close of the partnership taxable year
to which the revocation relates is described in one or more of
subdivisions (i) through (iv) of paragraph (f)(1) of this section, by
the persons described in paragraph (f)(2)(iv) of this section.
(k) When designation, etc., becomes effective -- (1) In general.
Except as otherwise provided in paragraph (k)(2) of this section, a
designation, resignation, or revocation provided for in this section
becomes effective on the day that the statement required by the
applicable paragraph of this section is filed.
(2) Notice of proceeding mailed. If a notice of beginning of an
administrative proceeding with respect to a partnership taxable year is
mailed before the date on which a statement of designation, resignation,
or revocation provided for in this section with respect to that taxable
year is filed, the Service is not required to give effect to such
designation, resignation, or revocation until 30 days after the
statement is filed.
(l) Termination of designation. A designation of a tax matters
partner for a taxable year under this section shall remain in effect
until --
(1) The death of the designated tax matters partner,
(2) An adjudication by a court of competent jurisdiction that the
individual designated as the tax matters partner is no longer capable of
managing the individual's person or estate,
(3) The liquidation or dissolution of the tax matters partner, if the
tax matters partner is an entity,
(4) The partnership items of the tax matters partner become
nonpartnership items under section 6231(c) (relating to special
enforcement areas), or
(5) The day on which --
(i) The resignation of the tax matters partner under paragraph (i) of
this section,
(ii) A subsequent designation under paragraph (d), (e), or (f) of
this section, or
(iii) A revocation of the designation under paragraph (j) of this
section becomes effective.
The termination of the designation of a partner as the tax matters
partner under this paragraph (l) does not affect the validity of any
action taken by that partner as tax matters partner before the
designation is terminated. For example, if that tax matters partner had
previously consented to an extension of the period for assessments under
section 6229(b)(1)(B), that extension remains valid even after
termination of the designation.
(m) Tax matters partner where no partnership designation made -- (1)
In general. The tax matters partner for a partnership taxable year
shall be determined under this paragraph (m) if:
(i) The partnership has not designated a tax matters partner under
this section for that taxable year; or
(ii) The partnership has designated a tax matters partner under this
section for that taxable year, that designation has been terminated
under paragraph (l) of this section, and the partnership has not made a
subsequent designation under this section for that taxable year.
(2) General partner having the largest profits interest is the tax
matters partner. The tax matters partner for any partnership taxable
year to which this paragraph (m) applies is the general partner having
the largest profits interest in the partnership at the close of that
taxable year (or where there is more than one such partner, the one of
such partners whose name would appear first in an alphabetical listing).
For purposes of this paragraph (m)(2), all limited partnership
interests held by a general partner shall be included in determining
that general partner's profits interest in the partnership.
(3) Termination of designation. A designation of a tax matters
partner for a partnership taxable year under this paragraph (m) shall
remain in effect until the earlier of the occurrence of one or more of
the events described in paragraph (l) (1) through (4) or the day on
which a designation under paragraph (d), (e), or (f) of this section
becomes effective. If a designation of a tax matters partner for a
partnership taxable year is terminated under this paragraph (m)(3) and
the partnership has not subsequently designated a tax matters partner
for that taxable year under paragraph (d), (e), or (f) of this section
the tax matters partner for that taxable year shall be determined under
paragraph (m)(2) of this section, and, for purposes of applying that
paragraph (m)(2), the general partner whose designation was so
terminated shall be treated as having no profits interest in the
partnership for that taxable year.
(T.D. 8128, 52 FR 6791, Mar. 5, 1987)
26 CFR 301.6231(a)(12)-1T Special rules relating to spouses
(temporary).
(a) In general. For purposes of subchapter C of chapter 63 of the
Code, spouses holding a joint interest in a partnership are treated as
partners. Thus, both spouses are permitted to participate in
administrative and judicial proceedings. The term ''joint interest''
includes tenancies in common, joint tenancies, tenancies by the
entirety, and community property.
(b) Notice and counting rules -- (1) In general. Except as provided
in paragraph (b)(2) of this section, for purposes of applying section
6223 (relating to notice to partners of proceedings) and section
6231(a)(1)(B) (relating to the exception for small partnerships),
spouses holding a joint interest in a partnership shall be treated as
one person. Except as provided in paragraph (b)(2) of this section, the
Service or the tax matters partner may send any required notice to
either spouse.
(2) Identified spouse entitled to notice. For purposes of applying
section 6223 (relating to notice to partners of proceeding) for a
partnership taxable year, an individual who holds a joint interest in a
partnership with his or her spouse who is entitled to notice under
section 6223 shall be entitled to receive separate notice under section
6223 if such individual:
(i) Is identified as a partner on the partnership return for that
taxable year; or
(ii) Is identified as a partner entitled to notice as provided in
301.6223(c)-1T (b).
(c) Cross-reference. See 301.6231(a)(2)-1T(a) for special rules
relating to spouses who file joint returns with individuals holding a
separate interest in a partnership.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-1T Special rules for certain applications for
tentative carryback and refund adjustments based on partnership losses,
deductions, or credits (temporary).
(a) Applications subject to this section. This section applies in
the case of an application under section 6411 (relating to tentative
carryback and refund adjustments) based on losses, deductions, or
credits of a partnership if the Commissioner or his delegate determines,
after review of the available relevant information, that it is highly
likely that a person described in section 6700(a)(1) made, with respect
to the partnership --
(1) A gross valuation overstatement, or
(2) A false or fraudulent statement with respect to the tax benefits
to be secured by reason of holding an interest in the partnership, that
would be subject to a penalty under section 6700 (relating to penalty
for promoting abusive tax shelters, etc.). This section applies only
with respect to an application based upon the original reporting on the
partner's income tax return of partnership losses, deductions, or
credits. Thus, this section does not apply to a request for
administrative adjustment under section 6227 through which a partner
seeks to change the partner's reporting of partnership items on the
partner's income tax return (or on an earlier request for administrative
adjustment).
(b) Determination of special enforcement area. In the case of an
application under section 6411 described in paragraph (a) of this
section, precluding an assessment under section 6225 that would be
permitted under section 6213(b)(3) (relating to assessments arising out
of tentative carry back or refund adjustments) with respect to any
amount applied, credited, or refunded as a result of the application may
encourage the proliferation of abusive tax shelter partnerships and make
the eventual collection of taxes due more difficult. Consequently, the
Commissioner hereby determines that such applications present special
enforcement considerations within the meaning of section 6231(c)(1)(E).
(c) Assessment permitted under section 6213(b)(3). Notwithstanding
section 6225 (relating to restrictions on assessment with respect to
partnership items), an assessment that would be permitted under section
6213(b)(3) with respect to any amount applied, credited, or refunded as
a result of an application described in paragraph (a) of this section
may be made before there is a final partnership-level determination with
respect to the losses, deductions, or credits on which the application
is based. As provided in section 6213(b)(1), the Service shall mail
notice of any such assessment to the partner filing the application.
The notice shall also inform the partner of the partner's limited right
to elect to treat items as nonpartnership items as provided in paragraph
(d) of this section.
(d) Limited right to elect to treat items as nonpartnership items --
(1) In general. A partner to whom the Service mails notice of an
assessment under paragraph (c) of this section may elect in accordance
with this paragraph (d) to have all partnership items for the
partnership taxable year in which the losses, deductions, or credits at
issue arose treated as nonpartnership items.
(2) Time and place of making election. The election shall be made by
filing a statement with the Internal Revenue Service office that mailed
the notice of assessment. The statement may be filed at any time --
(i) After the date which is one year after the date on which the
partnership return was filed for the partnership taxable year in which
the items at issue arose, and
(ii) Before the date on which the Service mails to the tax matters
partner the notice of final partnership administrative adjustment for
the partnership taxable year in which the items at issue arose.
For purposes of this paragraph (d)(2), a partnership return filed
before the last day prescribed by law for its filing (determined without
regard to extensions) shall be treated as filed on that last day.
(3) Contents of the statement. The statement shall --
(i) Be clearly identified as an election to have partnership items
treated as nonpartnership items because of notification of an assessment
under section 6213(b)(3),
(ii) Identify the partnership by name, address, and taxpayer
identification number,
(iii) Identify the partner making the election by name, address, and
taxpayer identification number,
(iv) Specify and partnership taxable year to which the election
applies, and
(v) Be signed by the partner making the election.
(e) Effective date. This section applies with respect to any
application described in paragraph (a) of this section that is filed
after December 10, 1984.
(Secs. 6231 (c) (1) and (3), Internal Revenue Code of 1954 (96 Stat.
665; 26 U.S.C. 6231 (c) (1) and (3)))
(T.D. 7996, 49 FR 48537, Dec. 13, 1984)
26 CFR 301.6231(c)-2T Special rules for certain refund claims based on
losses, deductions, or credits from abusive tax shelter partnerships
(temporary).
(a) Claims subject to this section. This section applies in the case
of a claim for credit or refund based on losses, deductions or credits
of a partnership if the Commissioner or his delegate determines, after
review of available relevant information, that it is highly likely that
a person described in section 6700(a)(1) made, with respect to the
partnership --
(1) A gross valuation overstatement, or
(2) A false or fraudulent statement with respect to the tax benefits
to be secured by reason of holding an interest in the partnership, that
would be subject to a penalty under section 6700 (relating to penalty
for promoting abusive tax shelters, etc.). This section applies only
with respect to a claim that is based upon the partner's original
reporting on the partner's income tax return of partnership losses,
deductions, or credits. Thus, this section does not apply to a request
for administrative adjustment under section 6227 through which a partner
seeks to change the partner's reporting of partnership items on the
partner's income tax return (or on an earlier request for administrative
adjustment). For purposes of this section, any income tax return
requesting a credit or refund shall be treated as a claim for a credit
or refund.
(b) Determination of special enforcement area. Granting a claim for
credit or refund described in paragraph (a) of this section may
encourage the proliferation of abusive tax shelter partnerships and make
the eventual collection of taxes due more difficult. Consequently, the
Commissioner hereby determines that such claims present special
enforcement considerations within the meaning of section 6231(c)(1)(E).
(c) Action on refund claims suspended. In the case of a claim
described in paragraph (a) of this section, the Service may mail to the
partner filing the claim a notice stating that no action will be taken
on the partner's claim until the completion of partnership-level
proceedings. The notice shall also inform the partner of the partner's
limited right to elect to treat items as nonpartnership items as
provided in paragraph (d) of this section.
(d) Limited right to elect to treat items as nonpartnership items --
(1) In general. A partner to whom the Service mails a notice of
suspension of action on a refund claim under paragraph (c) of this
section may elect in accordance with this paragraph (d) to have all
partnership items for the partnership taxable year in which the losses,
deductions, or credits at issue arose treated as nonpartnership items.
(2) Time and place of making election. The election shall be made by
filing a statement with the Internal Revenue Service office that mailed
the notice of suspension. The statement may be filed at any time --
(i) After the date which is one year after the date on which the
partnership return was filed for the partnership taxable year in which
the items at issue arose, and
(ii) Before the date on which the Service mails to the tax matters
partner the notice of final partnership administrative adjustment for
the partnership taxable year in which the items at issue arose.
For purposes of this paragraph (d)(2), a partnership return filed
before the last day prescribed by law for its filing (determined without
regard to extensions) shall be treated as filed on that last day.
(3) Contents of the statement. The statement shall --
(i) Be clearly identified as an election to have partnership items
treated as nonpartnership items because of notification of suspension of
action on a refund claim,
(ii) Identify the partnership by name, address, and taxpayer
identification number,
(iii) Identify the partner making the election by name, address, and
taxpayer identification number,
(iv) Specify the partnership taxable year to which the election
applies, and
(v) Be signed by the partner making the election.
(e) Effective date. This section applies with respect to any claim
described in paragraph (a) of this section that is filed after December
10, 1984.
(Secs. 6231(c)(1) and (3), Internal Revenue Code of 1954 (96 Stat.
665; 26 U.S.C. 6231(c)(1) and (3)))
(T.D. 7996, 49 FR 48538, Dec. 13, 1984)
26 CFR 301.6231(c)-3T Limitation on applicability of 301.6231(c)-4T
through 301.6231(c)-8T (temporary).
A provision of 301.6231(c)-4T through 301.6231(c)-8T shall not
apply with respect to partnership items arising in a partnership taxable
year if, as of the date on which those items would otherwise begin to be
treated as nonpartnership items under that provision --
(a) A notice of final partnership administrative adjustment with
respect to those items has been mailed to the tax matters partner, and
(b) Either --
(1) The period during which an action with respect to that final
partnership administrative adjustment may be brought under section 6226
has expired and no such action has been brought, or
(2) The decision of the court in an action brought under section 6226
with respect to that final partnership administrative adjustment has
become final.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-4T Termination and jeopardy assessment (temporary).
The treatment of items as partnership items with respect to a partner
against whom an assessment of income tax under section 6851 (termination
assessment) or section 6861 (jeopardy assessment) is made will interfere
with the effective and efficient enforcement of the internal revenue
laws. Accordingly, partnership items of such a partner arising in any
partnership taxable year ending with or within the partner's taxable
year for which an assessment of income tax under section 6851 or section
6861 is made shall be treated as nonpartnership items as of the moment
before such assessment is made.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-5T Criminal investigations (temporary).
The treatment of items as partnership items with respect to a partner
under criminal investigation for violation of the internal revenue laws
relating to income tax will interfere with the effective and efficient
enforcement of the internal revenue laws. Accordingly, partnership
items of such a partner arising in any partnership taxable year ending
on or before the last day of the latest taxable year of the partner to
which the criminal investigation relates shall be treated as
nonpartnership items as of the date on which the partner is notified
that he or she is the subject of a criminal investigation and receives
written notification from the Service that his or her partnership items
shall be treated as nonpartnership items. The partnership items of a
partner who is notified that he or she is the subject of a criminal
investigation shall not be treated as nonpartnership items under this
section unless and until such partner receives written notification from
the Service of such treatment.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-6T Indirect method of proof of income (temporary).
The treatment of items as partnership items with respect to a partner
whose taxable income is determined by use of an indirect method of proof
of income will interfere with the effective and efficient enforcement of
the internal revenue laws. Accordingly, partnership items of such a
partner arising in any partnership taxable year ending on or before the
last day of the taxable year of the partner for which a deficiency
notice based upon an indirect method of proof of income is mailed to the
partner shall be treated as nonpartnership items as of the date on which
that deficiency notice is mailed to the partner.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-7T Bankruptcy and receivership (temporary).
(a) Bankruptcy. The treatment of items as partnership items with
respect to a partner named as a debtor in a bankruptcy proceeding will
interfere with the effective and efficient enforcement of the internal
revenue laws. Accordingly, partnership items of such a partner arising
in any partnership taxable year ending on or before the last day of the
latest taxable year of the partner with respect to which the United
States could file a claim for income tax due in the bankruptcy
proceeding shall be treated as nonpartnership items as of the date the
petition naming the partner as debtor is filed in bankruptcy.
(b) Receivership. The treatment of items as partnership items with
respect to a partner for whom a receiver has been appointed in any
receivership proceeding before any court of the United States or of any
State or the District of Columbia will interfere with the effective and
efficient enforcement of the internal revenue laws. Accordingly,
partnership items of such a partner arising in any partnership taxable
year ending on or before the last day of the latest taxable year of the
partner with respect to which the United States could file a claim for
income tax due in the receivership proceeding shall be treated as
nonpartnership items as of the date a receiver is appointed in any
receivership proceeding before any court of the United States or of any
State or the District of Columbia.
(T.D. 8128, 52 FR 6793, Mar. 5, 1987)
26 CFR 301.6231(c)-8T Prompt assessment (temporary).
The treatment of items as partnership items with respect to a partner
on whose behalf a request for a prompt assessment of tax under section
6501(d) is filed will interfere with the effective and efficient
enforcement of the internal revenue laws. Accordingly, partnership
items of such a partner arising in any partnership taxable year ending
with or within any taxable year of the partner with respect to which a
request for a prompt assessment of tax is filed shall be treated as
nonpartnership items as of the date that the request is filed.
(T.D. 8128, 52 FR 6794, Mar. 5, 1987)
26 CFR 301.6231(d)-1T Time for determining profits interest of partners
for purposes of sections 6223(b) and 6231(a)(11) (temporary).
(a) Partner owns interest at close of year. For purposes of section
6223(b) (relating to special rules for partnerships with more than 100
partners) and section 6231(a)(11) (relating to 5-percent groups), except
as otherwise provided in this section, the profits interest held by a
partner, directly or indirectly through one or more pass-thru partners,
in a partnership (the ''audit partnership'') to which subchapter C of
chapter 63 of the Code applies shall be determined at the close of the
audit partnership's taxable year.
(b) Partner does not own interest at close of year. If the entire
direct and indirect interest of a partner in an audit partnership is
terminated by virtue of a disposition by such partner of such interest
(or by virtue of the disposition of an interest held by one or more
pass-thru partners through which the partner holds an interest), then
the profits interest of such partner in the audit partnership shall be
measured as of the moment before the disposition causing such
termination. The preceding sentence shall not apply with respect to a
termination if subsequent to such termination and before the close of
the audit partnership's taxable year the partner acquires a direct or
indirect interest in the audit partnership.
(c) Disposition of last remaining portion of interest is disposition
of entire interest. If a partner (or a pass-thru partner through which
a partner holds an interest) makes several partial dispositions of an
interest in an audit partnership during a taxable year of the audit
partnership, paragraph (b) of this section will apply with respect to
the disposition which causes a termination of the partner's entire
direct and indirect interest in the audit partnership.
(d) No profits interest in certain cases. If --
(1) The interest of a partner in a partnership is entirely disposed
of before the close of the taxable year of the partnership, and
(2) No items of the partnership for that taxable year are required to
be taken into account by the partner,
that partner has no profits interest in the partnership for that
taxable year. For example, if a partner dies before the close of the
taxable year of the partnership, generally no items of the partnership
for that taxable year are required to be taken into account on the final
return of the deceased partner under 1.706-1(c)(3); consequently, the
deceased partner has no profits interest in the partnership for that
taxable year.
(e) Examples. The provisions of this section may be illustrated by
the following examples. Assume in all examples that there have been no
re-acquisitions prior to the close of the audit partnership's taxable
year.
Example 1. B holds an interest in partnership P through T, a
pass-thru partner. P uses a fiscal year ending June 30 as P's taxable
year; B and T use the calendar year as the taxable year. As of the
close of P's taxable year ending June 30, 1985, T holds an interest in P
and B holds an interest in P through T. The profits interest held by B
in P through T for that year is determined as of June 30, 1985.
Example 2. Assume the same facts as in example 1, except that B sold
the entire interest that B held in P through T on November 5, 1984. The
profits interest held by B in P through T for P's taxable year ending
June 30, 1985, is determined as of the moment before the sale on
November 5, 1984.
Example 3. C holds an interest in partnership P through T, a
pass-thru partner. C, P, and T all use the calendar year as the taxable
year. T disposes of T's interest in P on June 5, 1985. The profits
interest held by C in P through T for 1985 is determined as of the
moment before the disposition on June 5, 1985.
Example 4. Assume the same facts as in example 3, except that C sold
her entire interest in T (and, therefore, her entire interest that she
held in P through T) on March 15, 1985. The profits interest held by C
in P through T for 1985 is determined as of the moment before the sale
on March 15, 1985.
Example 5. On January 1, 1985, D held a 2 percent profits interest
in partnership P. Both D and P use the calendar year as the taxable
year. On August 1, 1985, D transfers three-fourths of D's profits
interest in P to E. On September 1, 1985, D sells his remaining .5
profits interest in P to F. For purposes of sections 6223(b) and
6231(a)(11), D had a .5 percent profits interest in P for 1985.
Example 6. Assume the same facts as in example 5, except that on
January 1, 1985, D also held a 1 percent profits interest in partnership
P through T, a pass-thru partner which also uses the calendar year as
the taxable year. In addition to the sale to E on August 1, 1985, D
sold a portion of his interest in T on December 1, 1985, such that after
the sale, D held a .2 percent profits interest in P through T. D made
no other transfers of interests in either P or T. For purposes of
sections 6223(b) and 6231(a)(11), D had a .7 percent profits interest in
P for 1985.
(T.D. 8128, 52 FR 6794, Mar. 5, 1987)
26 CFR 301.6231(e)-1T Effect of a determination with respect to a
nonpartnership item on the determination of a partnership item
(temporary).
The determination of an item after it has become a nonpartnership
item with respect to a partner is not controlling in the determination
of that item with respect to other partners. Thus, for example, the
determination by a court in a separate proceeding relating to a partner
that a certain partnership expenditure was deductible does not bind
either the Service or the other partners in a later partnership or other
proceeding.
26 CFR 301.6231(e)-2T Judicial decision not a bar to certain
adjustments (temporary).
A court decision with respect to a partner's income tax liability
attributable to nonpartnership items shall not be a bar to further
proceedings with respect to that partner's income tax liability if that
partner's partnership items become nonpartnership items after the
appropriate time to include such nonpartnership items in the earlier
court proceeding has passed. Thus, the Service could issue a later
deficiency notice for the same taxable year with respect to that partner
or that partner could bring a refund suit with respect to those items
that have become nonpartnership items.
(T.D. 8128, 52 FR 6794, Mar. 5, 1987)
26 CFR 301.6231(f)-1T Disallowance of losses and credits in certain
cases (temporary).
(a) Application of section. This section applies if --
(1) A partnership, whether domestic or foreign, that is required to
file a return under section 6031 for a taxable year fails to file the
return within the time prescribed, and,
(2) At any time after the close of that taxable year, either --
(i) The tax matters partner of that partnership resides outside the
United States, or
(ii) The books and records of that partnership are maintained outside
the United States.
(b) Computational adjustment permitted if return is not filed after
mailing of notice. Except as otherwise provided in paragraph (c) of
this section, if --
(1) This section applies with respect to a partnership for a
partnership taxable year,
(2) The Service mails a notice to a partner that the losses and
credits arising from that partnership for that year will be disallowed
to that partner unless the partnership files a return for that year
within 60 days after the date on which the notice is mailed, and
(3) The partnership fails to file a return for that year within that
60-day period, the Service may, without conducting a partnership-level
proceeding, mail a notice of computational adjustment to that partner to
reflect the disallowance of any loss (including a capital loss) or
credit arising from that partnership for that year.
(c) Restriction on notices under paragraph (b). Neither the notice
referred to in paragraph (b)(2) of this section nor the notice of
computational adjustment referred to in paragraph (b) of this section
may be mailed on a day on which --
(1) The tax matters partner of the partnership resides within the
United States, and
(2) The books and records of the partnership are maintained within
the United States.
Thus, if this section applies with respect to a partnership for a
taxable year solely because the tax matters partner of that partnership
resided outside the United States for a period after the close of that
taxable year and the tax matters partner later takes up residence within
the United States, no notice may be mailed under paragraph (b) of this
section while the tax matters partner resides within the United States.
(d) No disallowance in certain circumstances. If the person to whom
the notice referred to in paragraph (b)(2) of this section establishes
to the satisfaction of the Service --
(1) That the losses and credits arising from the partnership for the
year are proper, and
(2) That the partner has made a good faith effort to have the
partnership file the required return,
the Service may allow the losses and credits in whole or in part.
(T.D. 8128, 52 FR 6794, Mar. 5, 1987)
26 CFR 301.6233-1T Extension to entities filing partnership returns,
etc. (temporary).
(a) Entities filing a partnership return. Except as provided in
paragraph (d)(1) of this section, the provisions of subchapter C of
chapter 63 of the Code (''subchapter C'') and the regulations thereunder
shall apply with respect to any taxable year of an entity for which such
entity files a partnership return as well as to such entity's items for
that taxable year and to any person holding an interest in such entity
at any time during that taxable year. Any final partnership
administrative adjustment or judicial determination resulting from a
proceeding under subchapter C with respect to such taxable year may
include a determination that the entity is not a partnership for such
taxable year as well as determinations with respect to all items of the
entity which would be partnership items, as defined in section
6231(a)(3) and the regulations thereunder, if such entity had been a
partnership in such taxable year (including, for example, any amounts
taxable to an entity determined to be an association taxable as a
corporation). Thus, a final determination under subchapter C that an
entity that filed a partnership return is an association taxable as a
corporation will serve as a basis for a computational adjustment
reflecting the disallowance of any loss or credit claimed by a purported
partner with respect to that entity.
(b) Entities filing an S corporation return. Except as provided in
paragraph (d)(2) of this section, the provisions of subchapter D of
chapter 63 of the Code (''subchapter D'') and the regulations thereunder
shall apply with respect to any taxable year of an entity for which such
entity files a return as an S corporation as well as to such entity's
items for that taxable year and to any person holding an interest in
such entity at any time during that taxable year. Any final S
corporation administrative adjustment or judicial determination
resulting from a proceeding under subchapter D with respect to such
taxable year may include a determination that the entity is not an S
corporation for such taxable year as well as determinations with respect
to all items of the entity which would be subchapter S items, as defined
in section 6245 and the regulations thereunder, if such entity had been
an S corporation for such taxable year (including, for example, any
amounts taxable to an entity determined to be taxable as a C
corporation).
(c) Partnership or S corporation return filed but no entity found to
exist -- (1) Partnership return filed. Paragraph (a) of this section
shall apply where a partnership return is filed for a taxable year but
it is determined that there is no entity for such taxable year. For
purposes of applying paragraph (a) of this section, the partnership
return shall be treated as if it was filed by an entity. However, any
final partnership administrative adjustment or judicial determination
resulting from a proceeding under subchapter C with respect to such
taxable year may also include a determination that there is no entity
for such taxable year.
(2) S corporation return filed. Paragraph (b) of this section shall
apply where an S corporation return is filed for a taxable year but it
is determined that there is no entity for such taxable year. For
purposes of applying paragraph (b) of this section, the S corporation
return shall be treated as if it was filed by an entity. However, any
final S corporation administrative adjustment or judicial determination
resulting from a proceeding under subchapter D with respect to such
taxable year may also include a determination that there is no entity
for such taxable year.
(d) Exceptions -- (1) Partnership proceedings. Paragraph (a) of this
section shall not apply to:
(i) Entities for any taxable year in which such entity would be
excepted from the provisions of subchapter C under section 6231(a)(1)(B)
and the regulations thereunder (relating to the exception for small
partnerships) if such entity were a partnership for such taxable year,
and
(ii) Entities for any taxable year for which a partnership return was
filed for the sole purpose of making the election described in section
761(a).
(2) S corporation proceedings. (Reserved).
(e) Effective dates. Paragraphs (a), (c)(1), and (d)(1) of this
section shall apply with respect to any taxable year beginning after
September 3, 1982, and with respect to any taxable year beginning on or
before and ending after September 3, 1982, if with respect to that
taxable year there is an agreement entered into pursuant to section
407(a)(3) of the Tax Equity and Fiscal Responsibility Act of 1982.
Paragraphs (b) and (c)(2) of this section shall apply with respect to
any taxable year beginning after December 31, 1982.
(T.D. 8128, 52 FR 6795, Mar. 5, 1987)
26 CFR 301.6241-1T Tax treatment determined at corporate level.
(a) In general. For a taxable year of an S corporation beginning
after December 31, 1982, a shareholder's treatment of a subchapter S
item (as defined in 301.6245-1T) on the shareholder's return may not be
changed except as provided in sections 6241-6245 of the Code and the
regulations thereunder. Thus, for example, if a shareholder treats an
item on the shareholder's return consistently with the treatment of that
item on the S corporation return, the Internal Revenue Service generally
cannot adjust the treatment of that item on the shareholder's return
except through a corporate-level proceeding. Similarly, the shareholder
may not put a subchapter S item in issue in a proceeding relating to
nonsubchapter S items. For example, the shareholder may not offset a
potential increase in taxable income based on changes in nonsubchapter S
items by a potential decrease based on subchapter S items.
(b) Restrictions inapplicable after items become nonsubchapter S
items. Section 6241 and paragraph (a) of this section cease to apply to
items arising from an S corporation with respect to a shareholder when
those items cease to be subchapter S items with respect to that
shareholder under section 6231(b)(1) (as extended to and made applicable
to subchapter S items under section 6244).
(c) S corporation -- (1) In general. For purposes of subchapter D of
chapter 63 of the Code, except as provided in paragraph (c)(2) of this
section, the term ''S corporation'' means any corporation required to
file a return under section 6037(a).
(2) Exception for small S corporations -- (i) Effective date. This
paragraph (c)(2) shall apply to any taxable year of an S corporation the
due date of the return for which (determined without regard to
extensions) is on or after January 30, 1987.
(ii) Five or fewer shareholders. For purposes of this paragraph (c),
an S corporation shall not include a small S corporation. A small S
corporation is defined as an S corporation with 5 or fewer shareholders,
each of whom is a natural person or an estate. For purposes of this
paragraph (c)(2), a husband and wife (and their estates) are treated as
one shareholder. If stock (owned other than by a husband and wife) is
owned by tenants in common or joint tenants, each tenant in common or
joint tenant is considered to be a shareholder of the corporation. The
limitation is applied to the number of natural persons and estates that
were shareholders at any one time during the taxable year of the
corporation. Thus, for example, an S corporation that at no time during
the taxable year had more than 5 shareholders may be treated as a small
S corporation even if, because of transfers of interests in the
corporation, 6 or more natural persons or estates owned stock in the
corporation for some portion of the taxable year.
(iii) Special rule. The exception provided in paragraph (c)(2)(ii)
of this section does not apply to an S corporation for a taxable year if
any shareholder in the corporation during that taxable year is a
pass-through shareholder. For purposes of this paragraph (c)(2)(iii), a
pass-through shareholder is --
(A) A trust;
(B) A nominee; or
(C) Other similar pass-through persons through whom other persons
have an ownership interest in the stock of the S corporation. For
purposes of the preceding sentence, a shareholder's estate shall not be
treated as a pass-through shareholder.
(iv) Determination made annually. The determination of whether an S
corporation meets the requirements for the exception under paragraph
(c)(2)(ii) of this section shall be made for each taxable year of the
corporation. Thus, an S corporation which does not qualify as a small S
corporation in one taxable year may qualify as a small S corporation in
another taxable year if the requirements for the exception under
paragraph (c)(2)(ii) of this section are met with respect to that other
taxable year.
(v) Election to have subchapter D of chapter 63 apply -- (A) In
general. Notwithstanding paragraph (c)(2)(ii) of this section, a small
S corporation may elect to have the provisions of subchapter D of
chapter 63 of the Code apply with respect to that corporation.
(B) Method of election. A small S corporation shall make the
election described in paragraph (c)(2)(v)(A) of this section for a
taxable year of the corporation by attaching a statement to the
corporate return for the first taxable year for which the election is to
be effective. The statement shall be identified as an election under
301.6241-1T(c)(2)(v)(A), shall be signed by all persons who were
shareholders of that corporation at any time during the corporate
taxable year to which the return relates, and shall be filed at the time
(determined with regard to any extensions of time for filing) and place
prescribed for filing the corporate return.
(C) Years covered by election. The election shall be effective for
the taxable year of the corporation to which the return relates and all
subsequent taxable years of the corporation unless revoked with the
consent of the Commissioner.
(T.D. 8122, 52 FR 3002, Jan. 30, 1987)
26 CFR 301.6245-1T Subchapter S items.
(a) In general. For purposes of subtitle F of the Internal Revenue
Code of 1986, the following items which are required to be taken into
account for the taxable year of an S corporation under subtitle A of the
Code are more appropriately determined at the corporate level than at
the shareholder level and, therefore, are subchapter S items:
(1) The S corporation aggregate and each shareholder's share of, and
any factor necessary to determine, each of the following:
(i) Items of income, gain, loss, deduction, or credit of the
corporation;
(ii) Expenditures by the corporation not deductible in computing its
taxable income (for example, charitable contributions);
(iii) Items of the corporation that may be tax preference items under
section 57(a) for any shareholder;
(iv) Items of income of the corporation that are exempt from tax;
(v) Corporate liabilities (including determinations of the amount of
the liability, whether the corporate liability is to a shareholder of
the corporation, and changes from the preceding year); and
(vi) Other amounts determinable at the corporate level with respect
to corporate assets, investments, transactions, and operations necessary
to enable the S corporation or the shareholders to determine --
(A) The general business credit provided by section 38;
(B) Recapture under section 47 of the credit provided by section 38;
(C) Amounts at risk in any activity to which section 465 applies;
(D) The depletion allowance under section 613A with respect to oil
and gas wells;
(E) Amortization of reforestation expenses under section 194;
(F) The credit provided by section 34 for certain uses of gasoline
and special fuels; and
(G) The taxes imposed at the corporate level, such as the taxes
imposed under section 56, 1374, or 1375;
(2) Any factor necessary to determine whether the entity is an S
corporation under section 1361, such as the number, eligibility, and
consent of shareholders and the classes of stock;
(3) Any factor necessary to determine whether the entity has properly
elected to be an S corporation under section 1362 for the taxable year;
(4) Any factor necessary to determine whether and when the S
corporation election of the entity has been revoked or terminated under
section 1362 for the taxable year (for example, the existence and amount
of subchapter C earnings and profits, and passive investment income);
and
(5) Items relating to the following transactions, to the extent that
a determination of such items can be made from determinations that the
corporation is required to make with respect to an amount, the character
of an amount, or the percentage of stock ownership of a shareholder in
the corporation, for purposes of the corporation's books and records or
for purposes of furnishing information to a shareholder:
(i) Contributions to the corporation; and
(ii) Distributions from the corporation.
(b) Factors that affect the determination of subchapter S items. The
term ''subchapter S item'' includes the accounting practices and the
legal and factual determinations that underlie the determination of the
existence, amount, timing, and characterization of items of income,
credit, gain, loss, deduction, etc. Examples of these determinations
are: The S corporation's method of accounting, taxable year, and
inventory method; whether an election was made by the corporation;
whether corporate property is a capital asset, section 1231 property, or
inventory; whether an item is currently deductible or must be
capitalized; whether corporate activities had been engaged in with the
intent to make a profit for purposes of section 183; whether the
corporation qualified for the credit for increasing research activities
under section 41; and whether the corporation qualified for the credit
for clinical testing expenses for a rare disease or condition under
section 28.
(c) Illustrations -- (1) In general. This paragraph (c) illustrates
the provisions of paragraph (a)(5) of this section. The determinations
illustrated in this paragraph (c) that the corporation is required to
make are not exhaustive; there may be additional determinations that
the corporation is required to make which relate to a determination
listed in paragraph (a)(5) of this section. The critical element is
that the corporation is required to make a determination with respect to
a matter for the purposes stated; failure by the corporation actually
to make a determination (for example, because it does not maintain
proper books and records) does not prevent an item from being a
subchapter S item.
(2) Contributions. For purposes of its books and records, or for
purposes of furnishing information to a shareholder, the S corporation
must determine:
(i) The character of the amount received by the corporation (for
example, whether it is a contribution, loan, or repayment of a loan);
(ii) The amount of money received by the corporation; and
(iii) The basis to the corporation of contributed property (including
necessary preliminary determinations, such as the shareholder's basis in
the contributed property).
To the extent that a determination of an item relating to a
contribution can be made from these and similar determinations that the
corporation is required to make, that item is a subchapter S item. To
the extent that the determination requires other information, however,
that item is not a subchapter S item. Such other information would
include those factors used in determining whether there is recapture
under section 47 by the contributing shareholder of the general business
credit because of the contribution of property in circumstances in which
that determination is irrelevant to the corporation.
(3) Distributions. For purposes of its books and records, or for
purposes of furnishing information to a shareholder, the S corporation
must determine:
(i) The character of the amount transferred to a shareholder (for
example, whether it is a dividend, compensation, loan, or repayment of a
loan);
(ii) The amount of money distributed to a shareholder;
(iii) The fair market value of property distributed to a shareholder;
(iv) The adjusted basis to the corporation of distributed property;
and
(v) The character of corporation property (for example, whether an
item is inventory or a capital asset).
To the extent that a determination of an item relating to a
distribution can be made from these and similar determinations that the
corporation is required to make, that item is a subchapter S item. To
the extent that the determination requires other information, however,
that item is not a subchapter S item. Such other information would
include the determination of a shareholder's basis in the shareholder's
stock or in the indebtedness of the S corporation to the shareholder.
(d) Cross reference. For the definition of subchapter S item for
purposes of the windfall profit tax, see 51.6245-1T.
(e) Effective date. This section shall apply to taxable years
beginning after December 31, 1982.
(T.D. 8122, 52 FR 3003, Jan. 30, 1987)
26 CFR 301.6245-1T Collection
26 CFR 301.6245-1T General Provisions
26 CFR 301.6301-1 Collection authority.
The taxes imposed by the internal revenue laws shall be collected by
district directors of internal revenue. See, however, section 6304,
relating to the collection of certain taxes under the provisions of the
Tariff Act of 1930 (19 U.S.C. ch. 4).
26 CFR 301.6302-1 Mode or time of collection of taxes.
(a) Employment and excise taxes. For provisions relating to the mode
or time of collection of certain employment and excise taxes and the use
of Federal Reserve banks and authorized commercial banks in connection
with the payment thereof, see the regulations relating to the particular
tax.
(b) Income taxes. (1) For provisions relating to the use of Federal
Reserve banks or authorized commercial banks in depositing income and
estimated income taxes of certain corporations, see 1.6302-1 of this
chapter (Income Tax Regulations).
(2) For provisions relating to the use of Federal Reserve banks or
authorized commercial banks in depositing the tax required to be
withheld under chapter 3 of the Code on nonresident aliens and foreign
corporations and tax-free covenant bonds, see 1.6302-2 of this chapter.
26 CFR 301.6303-1 Notice and demand for tax.
(a) General rule. Where it is not otherwise provided by the Code,
the district director or the director of the regional service center
shall, after the making of an assessment of a tax pursuant to section
6203, give notice to each person liable for the unpaid tax, stating the
amount and demanding payment thereof. Such notice shall be given as
soon as possible and within 60 days. However, the failure to give
notice within 60 days does not invalidate the notice. Such notice shall
be left at the dwelling or usual place of business of such person, or
shall be sent by mail to such person's last known address.
(b) Assessment prior to last date for payment. If any tax is
assessed prior to the last date prescribed for payment of such tax,
demand that such tax be paid will not be made before such last date,
except where it is believed collection would be jeopardized by delay.
26 CFR 301.6305-1 Assessment and collection of certain liability.
(a) Scope. Section 6305(a) requires the Secretary of the Treasury or
his delegate to assess and collect amounts which have been certified by
the Secretary of Health and Human Services as the amount of a
delinquency determined under a court order, or an order of an
administrative process established under State law, for support and
maintenance of a child or of a child and the parent with whom the child
is living. These amounts, referred to as ''child and spousal support'',
are to be collected in the same manner and with the same powers
exercised by the Secretary of the Treasury or his delegate in the
collection of an employment tax which would be jeopardized by delay.
However, where the assessment is the first assessment against an
individual for a delinquency described in this paragraph for a
particular individual or individuals, the collection is to be stayed for
a period of 60 days following notice and demand. In addition, no
interest or penalties (with the exception of the penalties imposed by
sections 6332(c)(2) and 6657) shall be assessed or collected on the
amounts, paragraphs (4), (6) and (8) of section 6334(a) (relating to
property exempt from levy) shall not apply; and, there shall be exempt
from levy so much of the salary, wages, or other income of the
individual which is subject to garnishment pursuant to a judgment
entered by a court for the support of his or her minor children.
Section 6305(b) provides that sole jurisdiction for any action brought
to restrain or review assessment and collection of the certified amounts
shall be in a State court or a State administrative agency.
(b) Assessment and collection -- (1) General rule. Upon receipt of a
certification or recertification from the Secretary of Health and Human
Services or his delegate under section 452(b) of Title IV of the Social
Security Act as amended (relating to collection of child and spousal
support obligations with respect to an individual), the district
director or his delegate shall assess and collect the certified amount
(or recertified amount). Except as provided in paragraph (c) of this
section, the amount so certified shall be assessed and collected in the
same manner, with the same powers, and subject to the same limitations
as if the amount were an employment tax the collection of which would be
jeopardized by delay. However, the provisions of subtitle F with
respect to assessment and collection of taxes shall not apply with
respect to assessment and collection of a certified amount where such
provisions are clearly inappropriate to, and incompatible with, the
collection of certified amounts generally. For example, section 6861(g)
which allows the Secretary or his delegate to abate a jeopardy
assessment if he finds a jeopardy does not exist will not apply.
(2) Method of assessment. An assessment officer appointed by the
district director pursuant to 301.6203-1 to make assessments of tax
shall also make assessments of certified amounts. The assessment of a
certified amount shall be made by the assessment officer signing the
summary record of assessment. The date of assessment is the date the
summary record is signed by the assessment officer. The summary record,
through supporting records as necessary, shall provide --
(i) The assessed amount;
(ii) The name, social security number, and last known address of the
individual owing the assessed amount;
(iii) A designation of the assessed amount as a certified amount,
together with the date on which the amount was certified and the name,
position, and governmental address of the officer of the Department of
Health and Human Services who certified the amount;
(iv) The period to which the child and spousal support obligation
represented by the certified amount relates;
(v) The State in which was entered the court or administrative order
giving rise to the child and spousal support obligation represented by
the certified amount;
(vi) The name of the person or persons to whom the child and spousal
support obligation represented by the certified amount is owed; and
(vii) The name of the child or children or the parent of the child or
children for whose benefit the child and spousal support obligation
exists.
Upon request, the individual assessed shall be furnished a copy of
pertinent parts of this assessment which set forth the information
listed in subdivision (i) through (vii) of this paragraph (b)(2).
(3) Supplemental assessments and abatements. If any assessment is
incomplete or incorrect in any material respect, the district director
or his delegate may make a supplemental assessment or abatement but only
for the purpose of completing or correcting the original assessment. A
supplemental assessment will not be used as a substitute for an
additional assessment against an individual.
(4) Method of collection. (i) The district director or his delegate
shall make notice and demand for immediate payment of certified amounts.
Upon failure or refusal to pay such amounts, collection by levy shall
be lawful without regard to the 10-day waiting period provided in
section 6331(a). However, in the case of certain first assessments,
paragraph (c)(4) of this section provides a rule for a stay of
collection for 60 days. For purposes of collection, refunds of any
internal revenue tax owed to the individual may be offset against a
certified amount.
(ii) The district director or his delegate shall make diligent and
reasonable efforts to collect certified amounts as if such amounts were
taxes. He shall have no authority to compromise a proceeding by
collection of only part of a certified amount in satisfaction of the
full certified amount owing. However, he may arrange for payment of a
certified amount by installments where advisable.
(iii) The district director or his delegate may offset the amount of
any overpayment of any internal revenue tax (as described in section
301.6401-1) to be refunded to the person making the overpayment by the
amount of any past-due support (as defined in the regulations under
section 6402) owed by the person making the overpayment. The amounts
offset under section 6402(c) may be amounts of child and spousal support
certified (or recertified) for collection under section 6305 and this
section or they may be amounts of past-due support of which the
Secretary of the Treasury has been notified under section 6402(c) and
the regulations under that section.
(5) Credits or refunds. In the case of any overpayment of a
certified amount, the Secretary of the Treasury or his delegate, within
the period of limitations for credit or refund of employment taxes, may
credit the amount of the overpayment against any liability in respect of
an internal revenue tax on the part of the individual who made the
overpayment and shall refund any balance to the individual. However,
the full amount of any overpayment collected by levy upon property
described in paragraph (c)(2) (i), (ii), or (iii) of this section shall
be refunded to the individual. For purposes of applying this
subparagraph, the rules of 301.6402-2 apply where appropriate.
(6) Disposition of certified amounts collected. Any certified amount
collected shall be deposited in the general fund of the United States,
and the officer of the Department of Health and Human Services who
certified the amount shall be promptly notified of its collection.
There shall be established in the Treasury, pursuant to section 452 of
Title IV of the Social Security Act as amended, a revolving fund which
shall be available to the Secretary of Health and Human Services or his
delegate, without fiscal year limitation, for distribution to the States
in accordance with the provisions of section 457 of the Act. Section
452(c)(2) of the Act appropriates to this revolving fund out of any
monies not otherwise appropriated, amounts equal to the certified
amounts collected under this paragraph reduced by the amounts credited
or refunded as overpayments of the certified amounts so collected. The
certified amounts deposited shall be transferred at least quarterly from
the general fund of the Treasury to the revolving fund on the basis of
estimates made by the Secretary of the Treasury or his delegate. Proper
adjustments shall be made in the amounts subsequently transferred to the
extent prior estimates were in excess of or less than the amounts
required to be transferred. See, however, paragraph (c)(1) of this
section for the special rule requiring retention in the general fund of
certain penalties which may be collected.
(c) Additional limitations and conditions -- (1) Interest and
penalties. No interest, penalties or additional amounts, other than
normal and reasonable collection costs, may be assessed or collected in
addition to the certified amount, other than the penalty imposed by
section 6332(c)(2) for failure to surrender property subject to levy and
the penalty imposed by section 6657 for the tender of bad checks. Any
such penalties and collection costs, if collected, will not be treated
as part of the certified amount and will be retained by the United
States as a part of its general fund. No interest shall be allowed or
paid on any overpayment of a certified amount.
(2) Property not exempt from levy. In addition to property not
exempt from levy under section 6334(c) and the regulations thereunder,
the following property shall not be exempt from a levy to collect a
certified amount:
(i) Unemployment benefits described in section 6334(a)(4);
(ii) Certain annuities and pension payments described in section
6334(a)(6); or
(iii) Salary, wages, or other income described in section 6334(a)(8).
(3) Property exempt from levy. In addition to property exempt from
levy under section 6334(a) and the regulations thereunder, other than
property described in paragraph (c)(2) (i), (ii), or (iii) of this
section, there shall be exempt from levy to collect a certified amount
so much of the salary, wages, or other income of an individual as is
withheld therefrom in garnishment pursuant to judgment entered by a
court of competent jurisdiction for the support of minor children of the
individual.
(4) First assessment. In the case of a first assessment against an
individual for a certified amount in whole or part for the benefit of a
particular child or children or the child or children and their parent,
the collection of the certified amount shall be stayed for the period of
60 days immediately following notice and demand as described in section
6303. However, no other stay of the collection of a certified amount
may be granted. Thus, the provisions of section 6863(a), relating to
bonds to stay collection of jeopardy assessments, shall not apply to the
collection of certified amounts.
(5) Priority of liens. A lien for a certified amount shall be valid
as against a lien for taxes imposed by section 6321 only if the date of
assessment of the certified amount precedes the date of assessment of
the taxes. However, no amount collected by levy upon property described
in paragraph (c)(2) (i), (ii), or (iii) of this section may be applied
other than in whole or partial satisfaction of certified amounts. In
the case of two liens for certified amounts, the lien for the certified
amount which is first assessed shall be valid as against the lien for
the certified amount which is later assessed.
(6) Statute of limitations on collections. The periods of limitation
on collection of taxes after assessment prescribed by section 6502 shall
apply to the collection of certified (or recertified) amounts. Such
periods of limitation with respect to a certified amount shall terminate
upon recertification of the amount, and the period of limitation
prescribed by section 6502 shall then apply and commence to run with
respect to the recertified amount.
(d) Review of assessments and collections -- (1) Federal courts. No
court of the United States established under article I or article III of
the Constitution has jurisdiction of any legal or equitable action to
restrain or review the assessment or collection of certified amounts by
the district director or his delegate. See, however, paragraph (d)(3)
of this section for the rule that the prohibition of this paragraph
(d)(1) does not preclude courts established for the District of Columbia
from exercising jurisdiction over certain actions.
(2) Secretary of the Treasury. Neither the Secretary of the Treasury
nor his delegate may subject to review the assessment or collection of
certified amounts in any legal, equitable, or administrative proceeding.
(3) State courts. This paragraph (d) does not preclude a State court
or appropriate State agency, as the case may be, from exercising
jurisdiction over a legal, equitable, or administrative action against
the State by an individual to determine his liability for any certified
amount assessed against him and collected, or to recover any such
certified amount collected, under section 6305 and this section. For
purposes of the preceding sentence, the term ''State'' includes the
District of Columbia.
(e) Internal Revenue regional service centers. For purposes of this
section, the terms ''district director or his delegate'' and ''district
director'' include the director of the Internal Revenue service center
or his delegate, as the case may be.
(Sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C.
7805); sec. 2332(a) of the Omnibus Budget Reconciliation Act of 1981
(95 Stat. 357), amending sec. 464(a) of the Social Security Act (88
Stat. 2351))
(T.D. 7576, 43 FR 59376, Dec. 20, 1978, as amended by T.D. 7808, 47
FR 5713, Feb. 8, 1982)
26 CFR 301.6305-1 Receipt of Payment
26 CFR 301.6311-1 Payment by check or money order.
(a) Authority to receive -- (1) In general. (i) District directors
may accept checks drawn on any bank or trust company incorporated under
the laws of the United States or under the laws of any State, Territory,
or possession of the United States, or money orders in payment for
internal revenue taxes, provided such checks or money orders are
collectible in U.S. currency at par, and subject to the further
provisions contained in this section. District directors may accept
such checks or money orders in payment for internal revenue stamps to
the extent and under the conditions prescribed in subparagraph (2) of
this paragraph (a). A check or money order in payment for internal
revenue taxes or internal revenue stamps should be made payable to the
Internal Revenue Service. A check or money order is payable at par only
if the full amount thereof is payable without any deduction for exchange
or other charges. As used in this section, the term ''money order''
means: (a) U.S. postal, bank, express, or telegraph money order; (b)
money order issued by a domestic building and loan association (as
defined in section 7701(a) (19)) or by a similar association
incorporated under the laws of a possession of the United States; (c) a
money order issued by such other organization as the Commissioner may
designate; and (d) a money order described in subdivision (ii) of this
subparagraph in cases therein described. However, the district director
may refuse to accept any personal check whenever he has good reason to
believe that such check will not be honored upon presentment.
(ii) An American citizen residing in a country with which the United
States maintains direct exchange of money orders on a domestic basis may
pay his tax by postal money order of such country. For a list of such
countries, see section 171.27 of the Postal Manual of the United States.
(iii) If one check or money order is remitted to cover two or more
persons' taxes, the remittance should be accompanied by a letter of
transmittal clearly identifying --
(a) Each person whose tax is to be paid by the remittance;
(b) The amount of the payment on account of each such person; and
(c) The kind of tax paid.
(2) Payment for internal revenue stamps -- (i) In general. The
district director may accept checks and money orders described in
subparagraph (1) of this paragraph (a), in payment for internal revenue
stamps other than stamps for taxes imposed under chapter 34 of the Code
(relating to documentary stamps). However, the district director may
refuse to accept any personal check whenever he has good reason to
believe that such check will not be honored upon presentment. For
special provisions relating to documentary stamps, see subdivision (ii)
of this subparagraph.
(ii) Documentary stamps. The district director may accept in payment
for taxes imposed under chapter 34 of the Code (relating to documentary
stamps) certified, cashiers' or treasurers' checks drawn on any bank or
trust company incorporated under the laws of the United States or under
the laws of any State, Territory, or possession of the United States or
money orders described in subparagraph (1) of this paragraph (a).
However, if an application has been submitted by a person desiring to
tender personal checks for such taxes and the application has been
approved by the district director, the district director may accept such
personal checks as are described in subparagraph (1) (i) of this
paragraph (a). The application shall be made to the district director
and shall contain the applicant's name, address, firm name (if any),
such financial information as will enable the district director to
determine the amount of the credit to be extended to the applicant, and
the approximate value of stamps to be purchased during the period fixed
by the district director. The district director is authorized to
approve or disapprove such application and, if the application is
approved, to fix the maximum amount of the value of the documentary
stamps for which personal checks will be accepted and to prescribe such
other limitations and conditions as he deems appropriate. The district
director may, for good cause, discontinue at any time the acceptance of
personal checks under the provisions of this subdivision.
(3) Payment of tax on distilled spirits, wine, beer, cigars, or
cigarettes; proprietor in default. Where a check or money order
tendered in payment for taxes on distilled spirits, wines, beer, or
rectified products (imposed under chapter 51 of the Code), or cigars or
cigarettes (imposed under chapter 52 of the Code) is not paid on
presentment, or where a taxpayer is otherwise in default in payment of
such taxes, any remittance for such taxes made during the period of such
default, and until the assistant regional commissioner (alcohol, tobacco
and firearms) finds that the revenue will not be jeopardized by the
acceptance of personal checks (if acceptable to the district director
under subparagraph (1) of this paragraph (a)), shall be in cash, or
shall be in the form of a certified, cashier's, or treasurer's check,
drawn on any bank or trust company incorporated under the laws of the
United States, or under the laws of any State or possession of the
United States, or a money order as described in subparagraph (1) of this
paragraph (a).
(b) Checks or money orders not paid -- (1) Ultimate liability. The
person who tenders any check (whether certified or uncertified,
cashier's, treasurer's, or other form of check) or money order in
payment for taxes or stamps is not released from his liability until the
check or money order is paid; and, if the check or money order is not
duly paid, he shall also be liable for all legal penalties and
additions, to the same extent as if such check or money order had not
been tendered. For the penalty in case a check or money order is not
duly paid, see section 6657 and 301.6657-1. For assessment of the
amount of a check or money order not duly paid, see section
6201(a)(2)(B) and paragraph (a)(2) (ii) of 301.6201-1.
(2) Liability of banks and others. If any certified, treasurer's, or
cashier's check or money order is not duly paid, the United States shall
have a lien for the amount of such check upon all assets of the bank or
trust company on which drawn or for the amount of such money order upon
the assets of the issuer thereof. The unpaid amount shall be paid out
of such assets in preference to any other claims against such bank or
issuer except the necessary costs and expenses of administration and the
reimbursement of the United States for the amount expended in the
redemption of the circulating notes of such bank. In addition, the
Government has the right to exact payment from the person required to
make the payment.
(c) Payment in nonconvertible foreign currency. For rules relating
to payment of income taxes and taxes under the Federal Insurance
Contributions Act in nonconvertible foreign currency, see section 6316
and the regulations thereunder.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7188, 37 FR 12795,
June 29, 1972; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976)
26 CFR 301.6312-1 Treasury certificates of indebtedness, Treasury
notes, and Treasury bills acceptable in payment of internal revenue
taxes or stamps.
(a) Treasury certificates of indebtedness, Treasury notes, or
Treasury bills of any series (not including interim receipts issued by
Federal reserve banks in lieu of definitive certificates, notes, or
bills) may be tendered at or before maturity in payment of internal
revenue taxes due on the date (or in payment for stamps purchased on the
date), on which the certificates, notes, or bills mature, or in payment
of internal revenue taxes due on a specified prior date, but only if
such certificates, notes, or bills, according to the express terms of
their issue, are made acceptable in payment of such taxes or for the
purchase of stamps. If the taxes for which the certificates, notes, or
bills are tendered in payment become due, or the stamps are purchased,
on the same date as that on which such certificates, notes, or bills
mature, they will be accepted at par plus accrued interest, if any,
payable with the principal (not represented by coupons attached) in
payment of such taxes or stamps. If the taxes for which the
certificates, notes, or bills are tendered in payment become due, or the
stamps are purchased, on a date prior to that on which the certificates,
notes, or bills mature, they will be accepted at the value specified in
the terms under which such certificates, notes, or bills were issued.
All interest coupons attached to Treasury certificates of indebtedness
or Treasury notes shall be detached by the taxpayer before such
certificates or notes are tendered in payment of taxes or stamps.
(b) Receipts given by a district director for Treasury certificates
of indebtedness, Treasury notes, or Treasury bills received in payment
of internal revenue taxes or for stamps as provided in this section
shall contain an adequate description of such certificates, notes, or
bills, and a statement of the value, including accrued interest, if any,
payable with the principal (not represented by coupons attached), at
which accepted, and shall show that the certificates, notes, or bills
are tendered by the taxpayer and received by the district director,
subject to no conditions, qualification, or reservation whatsoever, in
payment of an amount of taxes or for stamps no greater than such value.
Any certificate, note, or bill offered in payment of internal revenue
taxes or for stamps subject to any condition, qualification, or
reservation, or for any greater amount than the value at which
acceptable in payment of taxes or stamps, as specified in the terms
under which such certificate, note, or bill was issued, shall not be
deemed to be duly tendered and shall be returned to the taxpayer.
(c) For the purpose of saving taxpayers the expense of transmitting
Treasury certificates of indebtedness, Treasury notes, or Treasury bills
to the office of the district director in whose district the taxes are
payable, or stamps are to be purchased, taxpayers desiring to pay taxes,
or purchase stamps, with such certificates, notes, or bills acceptable
in payment of taxes or for the purchase of stamps may deposit such
certificates, notes, or bills with a Federal reserve bank or branch, or
with the Office of the Treasurer of the United States, Treasury
Building, Washington, D.C. In such cases, the Federal reserve bank or
branch, or the Office of the Treasurer of the United States, shall issue
a receipt in the name of the district director, describing the
certificates, notes, or bills by par or dollar face amount and stating
on the face of the receipt that the certificates, notes, or bills
represented thereby are held by the bank or branch, or the Office of the
Treasurer of the United States, for redemption at the value specified in
the terms under which the certificates, notes, or bills were issued, and
for application of the proceeds in payment of taxes due or for the
purchase of stamps on a specified date by the taxpayer named therein.
(d) In the case of payments of tax required to be deposited with
Government depositaries by regulations under section 6302 of the Code,
certificates, notes, or bills referred to in paragraph (a) of this
section may be deposited with a Federal Reserve bank or branch, or with
the Office of the Treasurer of the United States, in part or full
satisfaction of such tax liability. As in the case of all remittances
of amounts so required to be deposited, each such deposit of
certificates, notes, or bills shall be accompanied by the appropriate
deposit form in accordance with the regulations under section 6302. In
such cases, notwithstanding paragraphs (b) and (c) of this section,
receipts for such certificates, notes or bills shall no longer be issued
in the name of the district director.
26 CFR 301.6312-2 Certain Treasury savings notes acceptable in payment
of certain internal revenue taxes.
According to the express terms of their issue, the following series
of Treasury savings notes are presently acceptable in payment of income
taxes (current and back, personal and corporation taxes, and excess
profits taxes) and estate and gift taxes (current and back):
(a) Treasury Savings Notes, Series A,
(b) Treasury Savings Notes, Series B,
(c) Treasury Savings Notes, Series C.
26 CFR 301.6313-1 Fractional parts of a cent.
In the payment of any tax not payable by stamp, a fractional part of
a cent shall be disregarded unless it amounts to one-half cent or more,
in which case it shall be increased to one cent. Fractional parts of a
cent shall not be disregarded in the computation of taxes.
26 CFR 301.6314-1 Receipt for taxes.
(a) In general. The district director or the director of a service
center shall upon request, issue a receipt for each tax payment made
(other than a payment for stamps sold and delivered). In addition, the
district director or the director of a service center shall issue a
receipt for each payment of 1 dollar or more made in cash, whether or
not requested. In the case of payments made by check, the canceled
check is usually a sufficient receipt. No receipt shall be issued in
lieu of a stamp representing a tax, whether the payment is in cash or
otherwise.
(b) Duplicate receipt for payment of estate taxes. Upon request, the
district director or the director of a service center will issue
duplicate receipts to the person paying the estate tax, either of which
will be sufficient evidence of such payment and entitle the executor to
be credited with the amount by any court having jurisdiction to audit or
settle his accounts. For definition of the term ''executor'', see
section 2203.
(T.D. 7214, 37 FR 23176, Oct. 31, 1972)
26 CFR 301.6315-1 Payments of estimated income tax.
The payment of any installment of the estimated income tax (see
sections 6015 and 6016) shall be considered payment on account of the
income tax for the taxable year for which the estimate is made. The
aggregate amount of the payments of estimated tax should be entered upon
the income tax return for such taxable year as payments to be applied
against the tax shown on such return.
26 CFR 301.6316-1 Payment of income tax in foreign currency.
Subject to the provisions of 301.6316-3 to 301.6316-5, inclusive,
that portion of the income tax which is attributable to amounts received
by a citizen of the United States in nonconvertible foreign currency may
be paid in such currency --
(a) For any taxable year beginning on or after January 1, 1955, and
before January 1, 1964, if such amounts --
(1) Are disbursed from funds made available to a foundation or
commission established in a foreign country pursuant to an agreement
made under the authority of section 32(b) of the Surplus Property Act of
1944, as amended (50 U.S.C. App. 1641(b)(2)), or reestablished under the
authority of the Mutual Educational and Cultural Exchange Act of 1961,
as amended (22 U.S.C. 2451);
(2) Constitute either a grant made for authorized purposes of the
agreement or compensation for personal services performed in the employ
of the foundation or commission;
(3) Are at least 75 percent of the entire amount of the grant or
compensation; and
(4) Are treated as income from sources without the United States
under the provisions of sections 861 to 864, inclusive, and 1.861-1 to
1.864, inclusive, of this chapter (Income Tax Regulations); and
(b) For any taxable year beginning on or after January 1, 1964, if
such amounts --
(1) Are disbursed from funds made available either to a foundation or
commission, established pursuant to an agreement made under the
authority of section 32(b) of the Surplus Property Act of 1944, as
amended, or to a foundation or commission established or continued
pursuant to an agreement made under the authority of the Mutual
Educational and Cultural Exchange Act of 1961, as amended; or are paid
from grants made to such citizen, or to a foundation or an educational
or other institution, under the authority of the Mutual Educational and
Cultural Exchange Act of 1961, as amended, or section 104 (h), (j), (k),
(o), or (p) of the Agricultural Trade Development and Assistance Act of
1954, as amended (7 U.S.C. 1704 (h), (j), (k), (o), (p));
(2) Constitute either a grant made for a purpose authorized under any
such agreement or law, or compensation for personal services performed
in the employ of any organization engaged in administering any program
or activity pursuant to any such agreement or law;
(3) Are at least 70 percent of the entire amount of the grant or
compensation; and
(4) Are treated as income from sources without the United States
under the provisions of sections 861 to 864, inclusive, and 1.861-1 to
1.864, inclusive, of this chapter (Income Tax Regulations).
26 CFR 301.6316-2 Definitions.
For purposes of 301.6316-1 to 301.6316-9, inclusive:
(a) The term ''tax'', as used in 301.6316-1, 301.6316-3,
301.6316-4, 301.6316-5, and 301.6316-6 means the income tax imposed for
the taxable year by chapter 1 of the Internal Revenue Code of 1954, and
as used in 301.6316-7 means the Federal Insurance Contributions Act
taxes imposed by chapter 21 of the Code (or by the corresponding
provisions of the Internal Revenue Code of 1939). The term ''tax'', as
used in 301.6316-3 and 301.6316-9 shall relate to either of such
taxes, whichever is appropriate.
(b) The term ''nonconvertible foreign currency'' means currency of
the government of a foreign country which, owing to (1) monetary,
exchange, or other restrictions imposed by the foreign country, (2) an
agreement entered into with the United States of America, or (3) the
terms and conditions of the U.S. Government grant, is not convertible
into U.S. dollars or into other money which is convertible into U.S.
dollars. The term shall not, however, include currency which,
notwithstanding such restrictions, agreement, terms, or conditions, is
in fact converted into U.S. dollars or into property which is readily
disposable for U.S. dollars.
(c) If the taxpayer computes taxable income under the accrual method,
then the term ''received'' shall be construed to mean ''accrued.''
26 CFR 301.6316-3 Allocation of tax attributable to foreign currency.
(a) Adjusted gross income ratio. The portion of the tax which is
attributable to amounts received in nonconvertible foreign currency
shall, for purposes of applying 301.6316-1 to the currency of each
foreign country, be the amount by which:
(1) The amount which bears the same ratio to the entire tax for the
taxable year as (i) the taxpayer's adjusted gross income received in
that currency bears to (ii) the adjusted gross income determined under
section 62 by taking into account the entire gross income and all
deductions allowable under that section without distinction as to
amounts received in foreign currency, exceeds
(2) The total of the allowable credits against tax, and payments on
account of tax, which are properly allocable to the amount of that
currency included in gross income.
(b) Example. (1) For the calendar year 1955 Mr. Jones and his wife
filed a joint return on which the adjusted gross income is as follows,
after amounts received in foreign currency had been properly translated
into United States dollars for tax computation purposes:
(2) The following amounts are allowable as properly deductible from
adjusted gross income, no determination being made as to whether or not
any part of them is properly allocable to the Fulbright grant:
(3) For the taxable year the following amounts are allowable as
credits against the tax, or as payments on account of the tax:
(4) The portion of the tax which is attributable to amounts received
in nonconvertible foreign currency is $33.49, determined as follows:
26 CFR 301.6316-4 Return requirements.
(a) Place for filing. A return of income which includes amounts
received in foreign currency on which the tax is paid in accordance with
301.6316-1 shall be filed with the Director of International
Operations, Internal Revenue Service, Washington, D.C. 20225. For the
time for filing income tax returns, see sections 6072 and 6081 and
1.6072-1, 1.6081-1, and 1.6081-2 of this chapter (Income Tax
Regulations).
(b) Statements required. (1) A statement, prepared by the taxpayer,
and certified by the foundation, commission, or other person having
control of the payments made to the taxpayer in nonconvertible foreign
currency, shall be attached to the return showing that for the taxable
year involved the taxpayer is entitled to pay tax in foreign currency in
accordance with section 6316 and the regulations thereunder. This
statement shall disclose the total amount of grants or compensation
received by the taxpayer during the taxable year under the authority of
section 32(b) of the Surplus Property Act of 1944, as amended (50 U.S.C.
App. 1641(b)(2)), or of the Mutual Educational and Cultural Exchange Act
of 1961, as amended (22 U.S.C. 2451), or section 104 (h), (j), (k), (o),
or (p) of the Agricultural Trade Development and Assistance Act of 1954,
as amended (7 U.S.C. 1704 (h), (j), (k), (o), (p)), and the amount
thereof paid in nonconvertible foreign currency. It shall also state
that with respect to the grant or compensation the applicable percentage
requirement of 301.6316-1 is satisfied.
(2) The taxpayer shall also attach to the return a detailed statement
showing (i) the computation, in the manner prescribed by 301.6316-3, of
the portion of the tax attributable to amounts received in
nonconvertible foreign currency and (ii) the rates of exchange used in
determining the tax liability in U.S. dollars. See paragraph (c) of
301.6316-5.
26 CFR 301.6316-5 Manner of paying tax by foreign currency.
(a) Time and place to pay. The unpaid tax required to be shown on a
return filed in accordance with 301.6316-4, whether payable in whole or
in part in foreign currency, is due and payable to the Director of
International Operations, Internal Revenue Service, Washington, D.C.
20225, at the time the return is filed. However, see paragraph (d) of
this section with respect to the depositing of the foreign currency with
the disbursing officer of the Department of State.
(b) Certified statement. Every taxpayer who desires to pay tax in
foreign currency under the provisions of 301.6316-1 shall first obtain
the certified statement referred to in paragraph (b)(1) of 301.6316-4.
(c) Determination of the tax. In determining the tax payable for the
taxable year in U.S. dollars, the taxpayer, with respect to amounts
described in paragraph (a) of 301.6316-1, or amounts described in
paragraph (b) of 301.6316-1 received before November 1, 1965, shall use
the rates of exchange which most clearly reflect the correct tax
liability in dollars, whether it be the official rate, the open market
rate, or any other appropriate rate. With respect to amounts described
in paragraph (b) of 301.6316-1 received on or after November 1, 1965,
the taxpayer shall use the official rate of exchange in determining the
tax payable for the taxable year in U.S. dollars. After determining the
correct tax liability in U.S. dollars the taxpayer shall then ascertain,
in accordance with the principles of 301.6316-3, the portion of the tax
which is attributable to amounts received in nonconvertible foreign
currency.
(d) Deposit of foreign currency with disbursing officer. (1) After
the portion of the tax which is attributable to amounts received in
nonconvertible foreign currency is determined in U.S. dollars, the
amount so determined shall be deposited in the same nonconvertible
foreign currency with the disbursing officer of the Department of State
for the foreign country where the fund is located from which the
payments in nonconvertible foreign currency are made to the taxpayer.
The amount of foreign currency to be deposited shall be that amount
which, when converted at the rate of exchange used on the date of
deposit by that disbursing officer for the acquisition of such currency
for his official disbursements, equals the portion of the tax so
determined in U.S. dollars.
(2) The disbursing officer may rely upon the taxpayer for the
determination of the amount of tax payable in foreign currency but may
not accept any such currency for deposit until the taxpayer has
presented for inspection the certified statement referred to in
paragraph (b)(1) of 301.6316-4. Upon acceptance of foreign currency for
deposit the disbursing officer shall give the taxpayer a receipt in
duplicate showing the name and address of the depositor, the date of the
deposit, the amount of foreign currency deposited, and its equivalent in
U.S. dollars on the date of deposit.
(3) Every taxpayer making a deposit of foreign currency in accordance
with this paragraph shall attach to the return required to be filed in
accordance with 301.6316-4, in part or full payment of the taxes shown
thereon, the original of the receipt given by the disbursing officer and
shall pay to the Director of International Operations in U.S. dollars
the balance, if any, of the tax shown to be due. Tender of such receipt
to the Director of International Operations shall be considered as
payment of tax in an amount equal to the U.S. dollars represented by the
receipt.
(4) A taxpayer shall make the deposit required by this paragraph in
ample time to permit him to attach the receipt to his return for filing
within the time prescribed by section 6072 or 6081 and 1.6072-1,
1.6081-1, and 1.6081-2 of this chapter (Income Tax Regulations).
26 CFR 301.6316-6 Declarations of estimated tax.
(a) Filing of declaration. A declaration of estimated tax in respect
of amounts on which the tax is to be paid in foreign currency under the
provisions of 301.6316-1 shall be filed with the Director of
International Operations, Internal Revenue Service, Washington, D.C.
20225, and shall have attached thereto the statements required by
paragraph (b)(1) and (2) (i) of 301.6316-4 in respect of the tax return
except that the statement certified by the foundation, commission, or
other person having control of the payments to the taxpayer in
nonconvertible foreign currency may be based upon amounts expected to be
received by the taxpayer during the taxable year if they are not in fact
known at the time of certification. A copy of this certified statement
shall be retained by the taxpayer for the purpose of exhibiting it to
the disbursing officer when making installment deposits of foreign
currency under the provisions of paragraph (c) of this section. For the
time for filing declarations of estimated tax, see sections 6073 and
6081 and 1.6073-1 to 1.6073-4, inclusive, and 1.6081-1 and 1.6081-2
of this chapter (Income Tax Regulations).
(b) Determination of estimated tax -- (1) Allocation of tax
attributable to foreign currency. In determining the amount of
estimated tax for purposes of this section, all items of income,
deduction, and credit, whether or not attributable to amounts received
in nonconvertible foreign currency, shall be taken into account. The
portion of the estimated tax which is attributable to amounts to be
received during the taxable year in nonconvertible foreign currency
shall be determined consistently with the manner prescribed by
301.6316-3.
(2) Example. (i) For the calendar year 1955 Mr. Jones and his wife
filed a joint declaration of estimated tax in the determination of which
the adjusted gross income was estimated to be as follows, after amounts
to be received in foreign currency had been properly translated into
U.S. dollars for tax computation purposes:
(ii) The following amounts were determined to be allowable as
properly deductible from estimated adjusted gross income, no
determination being made as to whether or not any part of them was
properly allocable to the Fulbright grant:
(iii) The following estimated amounts were determined to be allowable
as credits against the tax for the taxable year:
(iv) The portion of the estimated tax which is attributable to
amounts to be received during the taxable year in nonconvertible foreign
currency is $893.88, determined as follows:
(v) The portion of the estimated tax which is payable in U.S.
dollars is $426.32, determined as follows:
(c) Payment of estimated tax. (1) The provisions of 301.6316-5
relating to the certified statement, determination of the tax, and the
depositing of the foreign currency shall apply for purposes of this
section. The full amount of estimated tax payable in foreign currency,
as determined under paragraph (b) of this section, may be deposited
before the date prescribed for the payment thereof.
(2) Every taxpayer making a deposit of foreign currency in accordance
with this paragraph shall tender to the Director of International
Operations, Internal Revenue Service, Washington, D.C. 20225, the
original of the receipt from the disbursing officer as payment, to the
extent of the amount represented thereby in U.S. dollars, of the
estimated tax. For the dates prescribed for the payment of estimated
tax, see sections 6153 and 6161 and 1.6153-1 to 1.6153-4, inclusive,
and 1.6161-1 of this chapter (Income Tax Regulations). A taxpayer
should make the deposit required by this paragraph in ample time to
permit him to tender such receipt by the date prescribed for payment of
the estimated tax.
(d) Credit on return for the taxable year. The receipt given by the
disbursing officer of the Department of State and tendered in payment of
estimated tax under this section shall, for purposes of paragraph (a)(2)
of 301.6316-3, be considered as payment on account of the tax for the
taxable year. The amount so considered to be paid shall be the amount
in U.S. dollars represented by the receipt.
26 CFR 301.6316-7 Payment of Federal Insurance Contributions Act taxes
in foreign currency.
(a) In general. The taxes imposed on employees and employers by
sections 3101 and 3111, respectively, of chapter 21 of the Code (Federal
Insurance Contributions Act) or the corresponding sections of the
Internal Revenue Code of 1939 may, with respect to wages (as defined in
section 3121(a) of chapter 21 of the Code or the corresponding section
of the Internal Revenue Code of 1939) paid in nonconvertible foreign
currency (as defined in paragraph (b) of 301.6316-2) for services
performed on or after January 1, 1951, be paid in that currency if all
such wages --
(1) Are paid from funds made available to a foundation or commission
established in a foreign country pursuant to an agreement made under the
authority of section 32(b) of the Surplus Property Act of 1944, as
amended (50 U.S.C. App. 1641(b)(2)), or established or continued
pursuant to an agreement made under authority of the Mutual Educational
and Cultural Exchange Act of 1961, as amended (22 U.S.C. 2451); and
(2) Are paid to a U.S. citizen for services performed in the employ
of such foundation or commission.
(b) Return requirements -- (1) Statements required. (i) A return on
which payment of Federal Insurance Contributions Act taxes is made in
accordance with this section shall have attached thereto a statement,
certified by the foundation or commission filing the return, stating
that the foundation or commission is an organization established
pursuant to an agreement made under authority of section 32(b) of the
Surplus Property Act of 1944, as amended, or established or continued
pursuant to an agreement made under authority of the Mutual Educational
and Cultural Exchange Act of 1961, as amended.
(ii) The taxpayer shall also attach to the return a statement showing
the rates of exchange used in determining in United States dollars the
wages reported on the return and the taxes due with respect thereto.
See paragraph (c) (1) of this section.
(2) Cross references. For the place for filing returns of the
Federal Insurance Contributions Act taxes, see 31.6091-1(c) of this
chapter (Employment Tax Regulations). For the time for filing returns
of the Federal Insurance Contributions Act taxes, see 31.6071(a)-1 of
this chapter (Employment Tax Regulations).
(c) Payment of tax -- (1) Determination of the tax. In determining
in U.S. dollars the wages required to be reported on the return and the
taxes due with respect thereto, the taxpayer shall use the rate of
exchange which most clearly reflects the correct equivalent in dollars,
whether it be the official rate, the open market rate, or any other
appropriate rate.
(2) Deposit of foreign currency with disbursing officer. (i) After
determination is made in U.S. dollars of the Federal Insurance
Contributions Act taxes with respect to wages paid in nonconvertible
foreign currency, the amount so determined shall be deposited in the
same nonconvertible foreign currency with the disbursing officer of the
Department of State for the foreign country where the fund is located
from which such wages were paid. The amount of the foreign currency to
be deposited shall be that amount which, when converted at the rate of
exchange used on the date of deposit by the disbursing officer for the
acquisition of such currency for his official disbursements, equals the
taxes determined in U.S. dollars.
(ii) The disbursing officer may rely upon the taxpayer for the
determination of the amount of tax payable in foreign currency but may
not accept any such currency for deposit until the taxpayer has
presented for inspection the certified statement referred to in
paragraph (b)(1) of this section. Upon acceptance of foreign currency
for deposit the disbursing officer shall give the taxpayer a receipt in
duplicate showing the name and address of the depositor, the date of the
deposit, the amount of foreign currency deposited and its equivalent in
U.S. dollars on the date of deposit, and the kind of tax for which the
deposit is made.
(iii) Every taxpayer making a deposit of foreign currency in
accordance with this paragraph shall attach to the return required to be
filed in accordance with paragraph (b) of this section the original of
the receipt given by the disbursing officer. Tender of such receipt to
the Director of International Operations shall be considered as payment
of tax in an amount equal to the U.S. dollars represented by the
receipt.
(iv) A taxpayer shall make the deposit required by this paragraph in
ample time to permit it to attach the receipt to its return for filing
within the time prescribed by 31.6071(a)-1 of this chapter (Employment
Tax Regulations).
26 CFR 301.6316-8 Refunds and credits in foreign currency.
(a) Refunds. The refund of any overpayment of tax which has been
paid under section 6316 in foreign currency may, in the discretion of
the Commissioner, be made in the same foreign currency by which the tax
was paid. The amount of any such refund made in foreign currency shall
be the amount of the overpayment in U.S. dollars converted, on the date
of the refund check, at the rate of exchange then used for his official
disbursements by the disbursing officer of the Department of State in
the country where the foreign currency was originally deposited.
(b) Credits. Unless otherwise in the best interest of the Internal
Revenue Service, no credit of any overpayment of tax which has been paid
under section 6316 in foreign currency shall be allowed against any
outstanding liability of the person making the overpayment except in
respect of that portion or the liability which, in accordance with
301.6316-1 or 301.6316-7, would otherwise be permitted to be paid in
the same foreign currency.
26 CFR 301.6316-9 Interest, additions to tax, etc.
Any reference in 301.6316-1 to 301.6316-8, inclusive, to ''tax''
shall be deemed also to refer to the interest, additions to the tax,
additional amounts, and penalties attributable to the tax.
26 CFR 301.6316-9 Lien for Taxes
26 CFR 301.6321-1 Lien for taxes.
If any person liable to pay any tax neglects or refuses to pay the
same after demand, the amount (including any interest, additional
amount, addition to tax, or assessable penalty, together with any costs
that may accrue in addition thereto) shall be a lien in favor of the
United States upon all property and rights to property, whether real or
personal, tangible or intangible, belonging to such person. For
purposes of section 6321 and this section, the term ''any tax'' shall
include a State individual income tax which is a ''qualified tax'', as
defined in paragraph (b) of 301.6361-4. The lien attaches to all
property and rights to property belonging to such person at any time
during the period of the lien, including any property or rights to
property acquired by such person after the lien arises. Solely for
purposes of sections 6321 and 6331, any interest in restricted land held
in trust by the United States for an individual noncompetent Indian (and
not for a tribe) shall not be deemed to be property, or a right to
property, belonging to such Indian. For the method of allocating
amounts collected pursuant to a lien between the Federal Government and
a State or States imposing a qualified tax with respect to which the
lien attached, see paragraph (f) of 301.6361-1. For the special lien
for estate and gift taxes, see section 6324 and 301.6324-1
(T.D. 7577, 43 FR 59361, Dec. 20, 1978)
26 CFR 301.6323(a)-1 Purchasers, holders of security interests,
mechanic's lienors, and judgment lien creditors.
(a) Invalidity of lien without notice. The lien imposed by section
6321 is not valid against any purchaser (as defined in paragraph (f) of
301.6323(h) -- 1), holder of a security interest (as defined in
paragraph (a) of 301.6323(h) -- 1), mechanic's lienor (as defined in
paragraph (b) of 301.6323(h)-1), or judgment lien creditor (as defined
in paragraph (g) of 301.6323(h)-1) until a notice of lien is filed in
accordance with 301.6323(f)-1). Except as provided by section 6323, if
a person becomes a purchaser, holder of a security interest, mechanic's
lienor, or judgment lien creditor after a notice of lien is filed in
accordance with 301.6323(f)-1, the interest acquired by such person is
subject to the lien imposed by section 6321.
(b) Cross references. For provisions relating to the protection
afforded a security interest arising after tax lien filing, which
interest is covered by a commercial transactions financing agreement,
real property construction or improvement financing agreement, or an
obligatory disbursement agreement, see 301.6323(c)-1, 301.6323(c)-2,
and 301.6323(c)-3, respectively. For provisions relating to the
protection afforded to a security interest coming into existence by
virtue of disbursements, made before the 46th day after the date of tax
lien filing, see 301.6323(d)-1. For provisions relating to priority
afforded to interest and certain other expenses with respect to a lien
or security interest having priority over the lien imposed by section
6321, see 301.6323(e)-1. For provisions relating to certain other
interests arising after tax lien filing, see 301.6323(b)-1.
(T.D. 7429, 41 FR 35498, Aug. 23, 1976)
26 CFR 301.6323(b)-1 Protection for certain interests even though
notice filed.
(a) Securities -- (1) In general. Even though a notice of a lien
imposed by section 6321 is filed in accordance with 301.6323(f)-1, the
lien is not valid with respect to a security (as defined in paragraph
(d) of 301.6323(h)-1) against --
(i) A purchaser (as defined in paragraph (f) of 301.6323(h)-1) of
the security who at the time of purchase did not have actual notice or
knowledge (as defined in paragraph (a) of 301.6323(i)-1) of the
existence of the lien;
(ii) A holder of a security interest (as defined in paragraph (a) of
301.6323(h)-1) in the security who did not have actual notice or
knowledge (as defined in paragraph (a) of 301.6323(i)-1) of the
existence of the lien at the time the security interest came into
existence or at the time such security interest was acquired from a
previous holder for a consideration in money or money's worth; or
(iii) A transferee of an interest protected under subdivision (i) or
(ii) of this subparagraph to the same extent the lien is invalid against
his transferor.
For purposes of subdivision (iii) of this subparagraph, no person can
improve his position with respect to the lien by reacquiring the
interest from an intervening purchaser or holder of a security interest
against whom the lien is invalid.
(2) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. On May 1, 1969, in accordance with 301.6323(f)-1, a
notice of lien is filed with respect to A's delinquent tax liability.
On May 20, 1969. A sells 100 shares of common stock in X corporation to
B, who, on the date of the sale, does not have actual notice or
knowledge of the existence of the lien. Because B purchased the stock
without actual notice or knowledge of the lien, under subdivision (i) of
subparagraph (1) of this paragraph, the stock purchased by B is not
subject to the lien.
Example 2. Assume the same facts as in example 1 except that on May
30, 1969, B sells the 100 shares of common stock in X corporation to C
who on May 5, 1969, had actual notice of the existence of the tax lien
against A. Because the X stock when purchased by B was not subject to
the lien, under subdivision (iii) of subparagraph (1) of this paragraph,
the stock purchased by C is not subject to the lien. C succeeds to B's
rights, even though C had actual notice of the lien before B's purchase.
Example 3. On June 1, 1970, in accordance with 301.6323(f)-1, a
notice of lien is filed with respect to D's delinquent tax liability. D
owns 20 $1,000 bonds issued by the Y company. On June 10, 1970, D
obtains a loan from M bank for $5,000 using the Y company bonds as
collateral. At the time the loan is made M bank does not have actual
notice or knowledge of the existence of the tax lien. Because M bank
did not have actual notice or knowledge of the lien when the security
interest came into existence, under subdivision (ii) of subparagraph (1)
of this paragraph, the tax lien is not valid against M bank to the
extent of its security interest.
Example 4. Assume the same facts as in example 3 except that on June
19, 1970, M bank assigns the chose in action and its security interest
to N, who had actual notice or knowledge of the existence of the lien on
June 1, 1970. Because the security interest was not subject to the lien
to the extent of M bank's security interest, the security interest held
by N is to the same extent entitled to priority over the tax lien
because N succeeds to M bank's rights. See subdivision (iii) of
subparagraph (1) of this paragraph.
Example 5. On July 1, 1970, in accordance with 301.6323(f)-1, a
notice of lien is filed with respect to E's delinquent tax liability. E
owns ten $1,000 bonds issued by the Y company. On July 5, 1970, E
borrows $4,000 from F and delivers the bonds to F as collateral for the
loan. At the time the loan is made, F has actual knowledge of the
existence of the tax lien and, therefore, holds the security interest
subject to the lien on the bonds. On July 10, 1970, F sells the
security interest to G for $4,000 and delivers the Y company bonds
pledged as collateral. G does not have actual notice or knowledge of
the existence of the lien on July 10, 1970. Because G did not have
actual notice or knowledge of the lien at the time he purchased the
security interest, under subdivision (ii) of subparagraph (1) of this
paragraph, the tax lien is not valid against G to the extent of his
security interest.
Example 6. Assume the same facts as in example 5 except that,
instead of purchasing the security interest from F on July 10, 1970, G
lends $4,000 to F and takes a security interest in F's security interest
in the bonds on that date. Because G became the holder of a security
interest in a security interest after notice of lien was filed and does
not directly have a security interest in a security, the security
interest held by G is not entitled to a priority over the tax lien under
the provisions of subparagraph (1) of this paragraph.
(b) Motor vehicles -- (1) In general. Even though a notice of a lien
imposed by section 6321 is filed in accordance with 301.6323(f)-1, the
lien is not valid against a purchaser (as defined in paragraph (f) of
301.6323(h)-1) of a motor vehicle (as defined in paragraph (c) of
301.6323(h)-1) if --
(i) At the time of the purchase, the purchaser did not have actual
notice or knowledge (as defined in paragraph (a) of 301.6323(i)-1) of
the existence of the lien, and
(ii) Before the purchaser obtains such notice or knowledge, he has
acquired actual possession of the motor vehicle and has not thereafter
relinquished actual possession to the seller or his agent.
(2) Examples. The application of this paragraph may be illustrated
by the following examples:
Example (1). A, a delinquent taxpayer against whom a notice of tax
lien has been filed in accordance with 301.6323(f)-1, sells his
automobile (which qualifies as a motor vehicle under paragraph (c) of
301.6323(h)-1) to B, an automobile dealer. B takes actual possession of
the automobile and does not thereafter relinquish actual possession to
the seller or his agent. Subsequent to his purchase, B learns of the
existence of the tax lien against A. Even though notice of lien was
filed before the purchase, the lien is not valid against B, because B
did not know of the existence of the lien before the purchase and before
acquiring actual possession of the vehicle.
Example (2). C is a wholesaler of used automobiles. A notice of
lien has been filed with respect to C's delinquent tax liability in
accordance with 301.6323(f)-1. Subsequent to such filing, D, a used
automobile dealer, purchases and takes actual possession of 20
automobiles (which qualify as motor vehicles under the provisions of
paragraph (c) of 301.6323(h)-1) from C at an auction and places them on
his lot for sale. C does not reacquire possession of any of the
automobiles. At the time of his purchase, D does not have actual notice
or knowledge of the existence of the lien against C. Even though notice
of lien was filed before D's purchase, the lien was not valid against D
because D did not know of the existence of the lien before the purchase
and before acquiring actual possession of the vehicles.
(3) Cross reference. For provisions relating to additional
circumstances in which the lien imposed by section 6321 may not be valid
against the purchaser of tangible personal property (including a motor
vehicle) purchased at retail, see paragraph (c) of this section.
(c) Personal property purchased at retail -- (1) In general. Even
though a notice of a lien imposed by section 6321 is filed in accordance
with 301.6323(f)-1, the lien is not valid against a purchaser (as
defined in paragraph (f) of 301.6323(h)-1) of tangible personal
property purchased at a retail sale (as defined in subparagraph (2) of
this paragraph (c)) unless at the time of purchase the purchaser intends
the purchase to (or knows that the purchase will) hinder, evade, or
defeat the collection of any tax imposed by the Internal Revenue Code of
1954.
(2) Definition of retail sale. For purposes of this paragraph, the
term ''retail sale'' means a sale, made in the ordinary course of the
seller's trade or business, of tangible personal property of which the
seller is the owner. Such term includes a sale in customary retail
quantities by a seller who is going out of business, but does not
include a bulk sale or an auction sale in which goods are offered in
quantities substantially greater than are customary in the ordinary
course of the seller's trade or business or an auction sale of goods the
owner of which is not in the business of selling such goods.
(3) Example. The application of this paragraph may be illustrated by
the following example:
Example. A purchases a refrigerator from the M company, a retail
appliance dealer. Prior to such purchase, a notice of lien was filed
with respect to M's delinquent tax liability in accordance with
301.6323(f)-1. At the time of the purchase A knows of the existence of
the lien. However, A does not intend the purchase to hinder, evade, or
defeat the collection of any internal revenue tax, and A does not have
any reason to believe that the purchase will affect the collection of
any internal revenue tax. Even though notice of lien was filed before
the purchase, the lien is not valid against A because A in good faith
purchased the refrigerator at retail in the ordinary course of the M
company's business.
(d) Personal property purchased in casual sale -- (1) In general.
Even though a notice of a lien imposed by section 6321 is filed in
accordance with 301.6323(f)-1, the lien is not valid against a
purchaser (as defined in 301.6323(h)-1(f)) of household goods, personal
effects, or other tangible personal property of a type described in
301.6334-1 (which includes wearing apparel; school books; fuel,
provisions, furniture, arms for personal use, livestock, and poultry
(whether or not the seller is the head of a family); and books and
tools of a trade, business, or profession (whether or not the trade,
business, or profession of the seller)), purchased, other than for
resale, in a casual sale for less than $250 (excluding interest and
expenses described in 301.6323(e)-1). For purposes of this paragraph, a
casual sale is a sale not made in the ordinary course of the seller's
trade or business.
(2) Limitation. This paragraph applies only if the purchaser does
not have actual notice or knowledge (as defined in paragraph (a) of
301.6323(i)-1) --
(i) Of the existence of the tax lien, or
(ii) That the sale is one of a series of sales.
For purposes of subdivision (ii) of this subparagraph, a sale is one
of a series of sales if the seller plans to dispose of, in separate
transactions, substantially all of his household goods, personal
effects, and other tangible personal property described in 301.6334-1.
(3) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A, an attorney's widow, sells a set of law books for $200
to B, for B's own use. Prior to the sale a notice of lien was filed
with respect to A's delinquent tax liability in accordance with
301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In
addition, B does not know that the sale is one of a series of sales.
Because the sale is a casual sale for less than $250 and involves books
of a profession (tangible personal property of a type described in
301.6334-1, irrespective of the fact that A has never engaged in the
legal profession), the tax lien is not valid against B even though a
notice of lien was filed prior to the time of B's purchase.
Example 2. Assume the same facts as in example 1 except that B
purchases the books for resale in his second-hand bookstore. Because B
purchased the books for resale, he purchased the books subject to the
lien.
Example 3. In an advertisement appearing in a local newspaper, G
indicates that he is offering for sale a lawn mower, a used television
set, a desk, a refrigerator, and certain used dining room furniture. In
response to the advertisement, H purchases the dining room furniture for
$200. H does not receive any information which would impart notice of a
lien, or that the sale is one of a series of sales, beyond the
information contained in the advertisement. Prior to the sale a notice
of lien was filed with respect to G's delinquent tax liability in
accordance with 301.6323(f)-1. Because H had no actual notice or
knowledge that substantially all of G's households goods were being
sold, or that the sale is one of a series of sales and because the sale
is a casual sale for less than $250, H does not purchase the dining room
furniture subject to the lien. The household goods are of a type
described in 301.6334-1(a)(2) irrespective of whether G is the head of
a family or whether all such household goods offered for sale exceed
$500 in value.
(e) Personal property subject to possessory liens. Even though a
notice of a lien imposed by section 6321 is filed in accordance with
301.6323(f)-1, the lien is not valid against a holder of a lien on
tangible personal property which under local law secures the reasonable
price of the repair or improvement of the property if the property is,
and has been, continuously in the possession of the holder of the lien
from the time the possessory lien arose. For example, if local law
gives an automobile repairman the right to retain possession of an
automobile he has repaired as security for payment of the repair bill
and the repairman retains continuous possession of the automobile until
his lien is satisfied, a tax line filed in accordance with section
6323(f)(1) which has attached to the automobile will not be valid to the
extent of the reasonable price of the repairs. It is immaterial that
the notice of tax lien was filed before the repairman undertook his work
or that he knew of the lien before undertaking the work.
(f) Real property tax and special assessment liens -- (1) In general.
Even though a notice of a lien imposed by section 6321 is filed in
accordance with 301.6323(f)-1, the lien is not valid against the holder
of another lien upon the real property (regardless of when such other
lien arises), if such other lien is entitled under local law to priority
over security interests in real property which are prior in time and if
such other lien on real property secures payment of --
(i) A tax of general application levied by any taxing authority based
upon the value of the property;
(ii) A special assessment imposed directly upon the property by any
taxing authority, if the assessment is imposed for the purpose of
defraying the cost of any public improvement; or
(iii) Charges for utilities or public services furnished to the
property by the United States, a State or political subdivision thereof,
or an instrumentality of any one or more of the foregoing.
(2) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A owns Blackacre in the city of M. A notice of lien
affecting Blackacre is filed in accordance with 301.6323(f)-1.
Subsequent to the filing of the notice of lien, the city of M acquires a
lien against Blackacre to secure payment of real estate taxes. Such
taxes are levied against all property in the city in proportion to the
value of the property. Under local law, the holder of a lien for real
property taxes is entitled to priority over a security interest in real
property even though the security interest is prior in time. Because
the real property tax lien held by the city of M secures payment of a
tax of general application and is entitled to priority over security
interests which are prior in time, the lien held by the city of M is
entitled to priority over the Federal tax lien with respect to
Blackacre.
Example 2. B owns Whiteacre in N county. A notice of lien affecting
Whiteacre is filed in accordance with 301.6323(f)-1. Subsequent to the
filing of the notice of lien, N county constructs a sidewalk, paves the
street, and installs water and sewer lines adjacent to Whiteacre. In
order to defray the cost of these improvements, N county imposes upon
Whiteacre a special assessment which under local law results in a lien
upon Whiteacre that is entitled to priority over security interests that
are prior in time. Because the special assessment lien is (i) entitled
under local law to priority over security interests which are prior in
time, and (ii) imposed directly upon real property to defray the cost of
a public improvement, the special assessment lien has priority over the
Federal tax lien with respect to Whiteacre.
Example 3. C owns Greenacre in town O. A notice of lien affecting
Greenacre is filed in accordance with 301.6323(f)-1. Town O furnishes
water and electricity to Greenacre and periodically collects a fee for
these services. Subsequent to the filing of the notice of lien, town O
supplies water and electricity to Greenacre, and C fails to pay the
charges for these services. Under local law, town O acquires a lien to
secure charges for the services, and this lien has priority over
security interests which are prior in time. Because the lien of town O
(i) is for services furnished to the real property and (ii) has priority
over earlier security interests, town O's lien has priority over the
Federal tax lien with respect to Greenacre.
(g) Residential property subject to a mechanic's lien for certain
repairs and improvements -- (1) In general. Even though a notice of a
lien imposed by section 6321 is filed in accordance with 301.6323(f)-1,
the lien is not valid against a mechanic's lienor (as defined in
301.6323(h)-(b)) who holds a lien for the repair or improvement of a
personal residence if --
(i) The residence is occupied by the owner and contains no more than
four dwelling units, and
(ii) The contract price on the prime contract with the owner for the
repair or improvement (excluding interest and expenses described in
301.6323(e)-1) is not more than $1,000.
For purposes of subdivision (ii) of this subparagraph, the amounts of
subcontracts under the prime contract with the owner are not to be taken
into consideration for purposes of computing the $1,000 prime contract
price. It is immaterial that the notice of tax lien was filed before
the contractor undertakes his work or that he knew of the lien before
undertaking the work.
(2) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A owns a building containing four apartments, one of
which he occupies as his personal residence. A notice of lien which
affects the building is filed in accordance with 301.6323(f)-1.
Thereafter, A enters into a contract with B in the amount of $800, which
includes labor and materials, to repair the roof of the building. B
purchases roofing shingles from C for $300. B completes the work and A
fails to pay B the agreed amount. In turn, B fails to pay C for the
shingles. Under local law, B and C acquire mechanic's liens on A's
building. Because the contract price on the prime contract with A is
not more than $1,000 and under local law B and C acquire mechanic's
liens on A's building, the liens of B and C have priority over the
Federal tax lien.
Example 2. Assume that same facts as in example 1, except that the
amount of the prime contract between A and B is $1,100. Because the
amount of the prime contract with the owner, A, is in excess of $1,000,
the tax lien has priority over the entire amount of each of the
mechanic's liens of B and C, even though the amount of the contract
between B and C is $300.
Example 3. Assume the same facts as in example 1, except that A and
B do not agree in advance upon the amount due under the prime contract
but agree that B will perform the work for the cost of materials and
labor plus 10 percent of such cost. When the work is completed, it is
determined that the total amount due is $850. Because the prime
contract price is not more than $1,000 and under local law B and C
acquire mechanic's liens on A's residence, the liens of B and C have
priority over the Federal tax lien.
(h) Attorney's liens -- (1) In general. Even though notice of a lien
imposed by section 6321 is filed in accordance with 301.6323(f)-1, the
lien is not valid against an attorney who, under local law, holds a lien
upon, or a contract enforceable against, a judgment or other amount in
settlement of a claim or of a cause of action. The priority afforded an
attorney's lien under this paragraph shall not exceed the amount of the
attorney's reasonable compensation for obtaining the judgment or
procuring the settlement. For purposes of this paragraph, reasonable
compensation means the amount customarily allowed under local law for an
attorney's services for litigating or settling a similar case or
administrative claim. However, reasonable compensation shall be
determined on the basis of the facts and circumstances of each
individual case. It is immaterial that the notice of tax lien is filed
before the attorney undertakes his work or that the attorney knows of
the tax lien before undertaking his work. This paragraph does not apply
to an attorney's lien which may arise from the defense of a claim or
cause of action against a taxpayer except to the extent such lien is
held upon a judgment or other amount arising from the adjudication or
settlement of a counterclaim in favor of the taxpayer. In the case of
suits against the taxpayer, see 301.6325-1(d)(2) for rules relating to
the subordination of the tax lien to facilitate tax collection.
(2) Claim or cause of action against the United States. Paragraph
(h)(1) of this section does not apply to an attorney's lien with respect
to --
(i) Any judgment or other fund resulting from the successful
litigation or settlement of an administrative claim or cause of action
against the United States to the extent that the United States, under
any legal or equitable right, offsets its liability under the judgment
or settlement against any liability of the taxpayer to the United
States, or
(ii) Any amount credited against any liability of the taxpayer in
accordance with section 6402.
(3) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. A notice of lien is filed against A in accordance with
301.6323(f)-1. Subsequently, A is struck by an automobile and retains B,
an attorney to institute suit on A's behalf against the operator of the
automobile. B knows of the tax lien before he begins his work. Under
local law, B is entitled to a lien upon any recovery in order to secure
payment of his fee. A is awarded damages of $10,000. B charges a fee
of $3,000 which is the fee customarly allowed under local law in similar
cases and which is found to be reasonable under the circumstances of
this particular case. Because, under local law, B holds a lien for the
amount of his reasonable compensation for obtaining the judgment, B's
lien has priority over the Federal tax lien.
Example 2. Assume the same facts as in example 1, except that before
suit is instituted A and the owner of the automobile settle out of court
for $7,500. B charges a reasonable and customary fee of $1,800 for
procuring the settlement and under local law holds a lien upon the
settlement in order to secure payment of the fee. Because, under local
law, B holds a lien for the amount of his reasonable compensation for
obtaining the settlement, B has priority over the Federal tax lien.
Example 3. In accordance with 301.6323(f)-1, a notice of lien in
the amount of $8,000 is filed against C, a contractor. Subsequently C
retains D, an attorney, to initiate legal proceedings to recover the
amount allegedly due him for construction work he has performed for the
United States. C and D enter into an agreement which provides that D
will receive a reasonable and customary fee of $2,500 as compensation
for his services. Under local law, the agreement will give rise to a
lien which is enforceable by D against any amount recovered in the suit.
C is successful in the suit and is awarded $10,000. D claims $2,500 of
the proceeds as his fee. The United States, however, exercises its
right of set-off and applies $8,000 of the $10,000 award to satisfy C's
tax liability. Because the $10,000 award resulted from the successful
litigation of a cause of action against the United States, B's contract
for attorney's fees is not enforceable against the amount recovered to
the extent the United States offsets its liability under the judgment
against C's tax liability. It is immaterial that D had no notice or
knowledge of the tax lien at the time he began work on the case.
(i) Certain insurance contracts -- (1) In general. Even though a
notice of a lien imposed by section 6321 is filed in accordance with
301.6323(f)-1, the lien is not valid with respect to a life insurance,
endowment, or annuity contract, against an organization which is the
insurer under the contract, at any time --
(1) Before the insuring organization has actual notice or knowledge
(as defined in paragraph (a) of 301.6323(i)-1) of the existence of the
tax lien,
(ii) After the insuring organization has actual notice or knowledge
of the lien (as defined in paragraph (a) of 301.6323(i)-1), with
respect to advances (including contractual interest thereon as provided
in paragraph (a) of 301.6323(e)-1) required to be made automatically to
maintain the contract in force under an agreement entered into before
the insuring organization had such actual notice or knowledge, or
(iii) After the satisfaction of a levy pursuant to section 6332(b),
unless and until the district director delivers to the insuring
organization a notice (for example, another notice of levy, a letter,
etc.), executed after the date of such satisfaction, that the lien
exists.
Delivery of the notice described in subdivision (iii) of this
subparagraph may be made by any means, including regular mail, and
delivery of the notice shall be effective only from the time of actual
receipt of the notification by the insuring organization. The
provisions of this paragraph are applicable to matured as well as
unmatured insurance contracts.
(2) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. On May 1, 1964, the X insurance company issues a life
insurance policy to A. On June 1, 1970, a tax assessment is made
against A, and on June 2, 1970, a notice of lien with respect to the
assessment is filed in accordance with 301.6323(f)-1. On July 1, 1970,
without actual notice or knowledge of the tax lien, the X company makes
a ''policy loan'' to A. Under subparagraph (1)(i) of this paragraph,
the loan, including interest (in accordance with the provisions of
paragraph (a) of 301.6323(e)-1), will have priority over the tax lien
because X company did not have actual notice or knowledge of the tax
lien at the time the policy loan was made.
Example 2. On May 1, 1964, B enters into a life insurance contract
with the Y insurance company. Under one of the provisions of the
contract, in the event a premium is not paid, Y is to advance out of the
cash loan value of the policy the amount of an unpaid premium in order
to maintain the contract in force. The contract also provides for
interest on any advances so made. On June 1, 1971, a tax assessment is
made against B, and on June 2, 1971, in accordance with section
6323(f)-1, a notice of lien is filed. On July 1, 1971, B fails to pay
the premium due on that date, and Y makes an automatic premium loan to
keep the policy in force. At the time the automatic premium loan is
made, Y had actual knowledge of the tax lien. Under subparagraph
(1)(ii) of this paragraph, the lien is not valid against Y with respect
to the advance (and the contractual interest thereon), because the
advance was required to be made automatically under an agreement entered
into before Y had actual notice or knowledge of the tax lien.
Example 3. On May 1, 1964, C enters into a life insurance contract
with the Z insurance company. On January 4, 1971, an assessment is made
against C for $5,000 unpaid income taxes, and on January 11, 1971, in
accordance with 301.6323(f)-1, a notice of lien is filed. On January
29, 1971, a notice of levy with respect to C's delinquent tax is served
on Z company. The amount which C could have had advanced to him from Z
company under the contract on the 90th day after service of the notice
of levy on Z company is $2,000. The Z company pays $2,000 pursuant to
the notice of levy, thereby satisfying the levy upon the contract in
accordance with 6332(b). On February 1, 1973, Z company advances $500
to C, which is the increment in policy loan value since satisfaction of
the levy of January 29, 1971. On February 5, 1973, a new notice of levy
for the unpaid balance of the delinquent taxes, executed after the first
levy was satisfied, is served upon Z company. Because the new
notification was not received by Z company until after the policy loan
was made, under paragraph (1)(iii) of this paragraph, the tax lien is
not valid against Z company with respect to the policy loan (including
interest thereon in accordance with paragraph (a) of 301.6323(e)-1).
Example 4. On June 1, 1973, a tax assessment is made against D and
on June 2, 1973, in accordance with 301.6323(f)-1, a notice of lien
with respect to the assessment is filed. On July 2, 1973, D executes an
assignment of his rights, as the insured, under an insurance contract to
M bank as security for a loan. M bank holds its security interest
subject to the lien because it is not an insurer entitled to protection
under section 6323(b)(9) and did not become a holder of the security
interest prior to the filing of the notice of lien for purposes of
section 6323(a). It is immaterial that a notice of levy had not been
served upon the insurer before the assignment to M bank was made.
(j) Passbook loans -- (1) In general. Even though a notice of a lien
imposed by section 6321 is filed in accordance with 301.6323(f)-1, the
lien is not valid against an institution described in section 581 or 591
to the extent of any loan made by the institution which is secured by a
savings deposit, share, or other account evidenced by a passbook (as
defined in subparagraph (2) of this paragraph (j)) if the institution
has been continuously in possession of the passbook from the time the
loan is made. This paragraph applies only to a loan made without actual
notice or knowledge (as defined in paragraph (a) of 301.6323(i)-1) of
the existence of the lien. Even though an original passbook loan is
made without actual notice or knowledge of the existence of the lien,
this paragraph does not apply to any additional loan made after
knowledge of the lien is acquired by the institution even if it
continues to retain the passbook from the time the original passbook
loan is made.
(2) Definition of passbook. For purposes of this paragraph, the term
''passbook'' includes --
(i) Any tangible evidence of a savings deposit, share, or other
account which, when in the possession of the bank or other savings
institution, will prevent a withdrawal from the account to the extent of
the loan balance, and
(ii) Any procedure or system, such as an automatic data processing
system, the use of which by the bank or other savings institution will
prevent a withdrawal from the account to the extent of the loan balance.
(3) Example. On June 1, 1970, a tax assessment is made against A and
on June 2, 1970, a notice of lien with respect to the assessment is
filed in accordance with 301.6323(f)-1. A owns a savings account at the
M bank with a balance of $1,000. On June 10, 1970, A borrows $300 from
the M bank using the savings account as security therefor. The M bank
is continuously in possession of the passbook from the time the loan is
made and does not have actual notice or knowledge of the lien at the
time of the loan. The tax lien is not valid against M bank with respect
to the passbook loan of $300 and accrued interest and expenses entitled
to priority under 301.6323(e)-1. Upon service of a notice of levy, the
M bank must pay over the savings account balance in excess of the amount
of its protected interest in the account as determined on the date of
levy.
(T.D. 7429, 41 FR 35501, Aug. 23, 1976)
26 CFR 301.6323(c)-1 Protection for commercial transactions financing
agreements.
(a) In general. Even though a notice of a lien imposed by section
6321 is filed in accordance with 301.6323(f)-1, the lien is not valid
with respect to a security interest which:
(1) Comes into existence after the tax lien filing,
(2) Is in qualified property covered by the terms of a commercial
transactions financing agreement entered into before the tax lien
filing, and
(3) Is protected under local law against a judgment lien arising, as
of the time of the tax lien filing, out of an unsecured obligation.
See paragraphs (a) and (e) of 301.6323(h)-1 for definitions of the
terms ''security interest'' and ''tax lien filing,'' respectively. For
purposes of this section, a judgment lien is a lien held by a judgment
lien creditor as defined in paragraph (g) of 301.6323(h)-1.
(b) Commercial transactions financing agreement. For purposes of
this section, the term ''commercial transactions financing agreement''
means a written agreement entered into by a person in the course of his
trade or business --
(1) To make loans to the taxpayer (whether or not at the option of
the person agreeing to make such loans) to be secured by commercial
financing security acquired by the taxpayer in the ordinary course of
his trade or business, or
(2) To purchase commercial financing security, other than inventory,
acquired by the taxpayer in the ordinary course of his trade or
business.
Such an agreement qualifies as a commercial transactions financing
agreement only with respect to loans or purchases made under the
agreement before (i) the 46th day after the date of tax lien filing or,
(ii) the time when the lender or purchaser has actual notice or
knowledge (as defined in paragraph (a) of 301.6323(i)-1) of the tax
lien filing, if earlier. For purposes of this paragraph, a loan or
purchase is considered to have been made in the course of the lender's
or purchaser's trade or business if such person is in the business of
financing commercial transactions (such as a bank or commercial factor)
of if the agreement is incidental to the conduct of such person's trade
or business. For example, if a manufacturer finances the accounts
receivable of one of his customers, he is considered to engage in such
financing in the course of his trade or business. The extent of the
priority of the lender or purchaser over the tax lien is the amount of
his disbursements made before the 46th day after the date the notice of
tax lien is filed, or made before the day (before such 46th day) on
which the lender or purchaser has actual notice or knowledge of the
filing of the notice of the tax lien.
(c) Commercial financing security. (1) In general. The term
''commercial financing security'' means --
(i) Paper of a kind ordinarily arising in commercial transactions.
(ii) Accounts receivable (as defined in subparagraph (2) of this
paragraph (c)),
(iii) Mortgages on real property, and
(iv) Inventory.
For purposes of this subparagraph, the term ''paper of a kind
ordinarily arising in commercial transactions'' in general includes any
written document customarily used in commercial transactions. For
example, such written documents include paper giving contract rights (as
defined in subparagraph (2) of this paragraph (c)), chattel paper,
documents of title to personal property, and negotiable instruments or
securities. The term ''commercial financing security'' does not include
general intangibles such as patents or copyrights. A mortgage on real
estate (including a deed of trust, contract for sale, and similar
instrument) may be commercial financing security if the taxpayer has an
interest in the mortgage as a mortgagee or assignee. The term
''commercial financing security'' does not include a mortgage where the
taxpayer is the mortgagor or realty owned by him. For purposes of this
subparagraph, the term ''inventory'' includes raw materials and goods in
process as well as property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business.
(2) Definitions. For purposes of 301.6323(d)-1, 301.6323(h)-1 and
this section --
(i) A contract right is any right to payment under a contract not yet
earned by performance and not evidenced by an instrument or chattel
paper, and
(ii) An account receivable is any right to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument
or chattel paper.
(d) Qualified property. For purposes of paragraph (a) of this
section, qualified property consists solely of commercial financing
security acquired by the taxpayer-debtor before the 46th day after the
date of tax lien filing: Commercial financing security acquired before
such day may be qualified property even though it is acquired by the
taxpayer after the lender received actual notice or knowledge of the
filing of the tax lien. For example, although the receipt of actual
notice or knowledge of the filing of the notice of the tax lien has the
effect of ending the period within which protected disbursements may be
made to the taxpayer, property which is acquired by the taxpayer after
the lender receives actual notice or knowledge of such filing and before
such 46th day, which otherwise qualifies as commercial financing
security, becomes commercial financing security to which the priority of
the lender extends for loans made before he received the actual notice
or knowledge. An account receivable (as defined in paragraph (c)(2)(ii)
of this section) is acquired by a taxpayer at the time, and to the
extent, a right to payment is earned by performance. Chattel paper,
documents of title, negotiable instruments, securities, and mortgages on
real estate are acquired by a taxpayer when he obtains rights in the
paper or mortgage. Inventory is acquired by the taxpayer when title
passes to him. A contract right (as defined in paragraph (c)(2)(i) of
this section) is acquired by a taxpayer when the contract is made.
Identifiable proceeds, which arise from the collection or disposition of
qualified property by the taxpayer, are considered to be acquired at the
time such qualified property is acquired if the secured party has a
continuously perfected security interest in the proceeds under local
law. The term ''proceeds'' includes whatever is received when
collateral is sold, exchanged, or collected. For purposes of this
paragraph, the term ''identifiable proceeds'' does not include money,
checks and the like which have been commingled with other cash proceeds.
Property acquired by the taxpayer after the 45th day following tax lien
filing, by the expenditure of proceeds, is not qualified property.
(e) Purchaser treated as acquiring security interest. A person who
purchases commercial financing security, other than inventory, pursuant
to a commercial transactions financing agreement is treated, for
purposes of this section, as having acquired a security interest in the
commercial financing security. In the case of a bona fide purchase at a
discount, a purchaser of commercial financing security who satisfies the
requirements of this section has priority over the tax lien to the full
extent of the security.
(f) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. (i) On June , 1970, a tax is assessed against M, a tool
manufacturer, with respect to his delinquent tax liability. On June 15,
1970, M enters into a written financing agreement with X, a bank. The
agreement provides that, in consideration of such sums as X may advance
to M, X is to have a security interest in all of M's presently owned and
subsequently acquired commercial paper, accounts receivable, and
inventory (including inventory in the manufacturing stages and raw
materials). On July 6, 1970, notice of the tax lien is filed in
accordance with 301.6323(f)-1. On August 3, 1970, without actual notice
or knowledge of the tax lien filing, X advances $10,000 to M. On August
5, 1970, M acquires additional inventory through the purchase of raw
materials. On August 20, 1970, M has accounts receivable, arising from
the sale of tools, amounting to $5,000. Under local law, X's security
interest arising by reason of the $10,000 advance on August 3, 1970, has
priority, with respect to the raw materials and accounts receivable,
over a judgment lien against M arising July 6, 1970 (the date of tax
lien filing) out of an unsecured obligation.
(ii) Because the $10,000 advance was made before the 46th day after
the tax lien filing, and the accounts receivable in the amount of $5,000
and the raw materials were acquired by M before such 46th day, X's
$10,000 security interest in the accounts receivable and the inventory
has priority over the tax lien. The priority of X's security interest
also extends to the proceeds, received on or after the 46th day after
the tax lien filing, from the liquidation of the accounts receivable and
inventory held by M on August 20, 1970, if X has a continuously
perfected security interest in identifiable proceeds under local law.
However, the priority of X's security interest will not extend to other
property acquired with such proceeds.
Example 2. Assume the same facts as in example 1 except that on July
15, 1970, X has actual knowledge of the tax lien filing. Because an
agreement does not qualify as a commercial transactions financing
agreement when a disbursement is made after tax lien filing with actual
knowledge of the filing, X's security interest will not have priority
over the tax lien with respect to the $10,000 advance made on August 3,
1970.
Example 3. Assume the same facts as in example 1 except that,
instead of additional inventory, on August 5, 1970, M acquires an
account receivable as the result of the sale of machinery which M no
longer needs in his business. Even though the account receivable was
acquired by taxpayer M before the 46th day after tax lien filing, the
tax lien will have priority over X's security interest arising in the
account receivable pursuant to the earlier written agreement because the
account receivable was not acquired by the taxpayer in the ordinary
course of his trade or business.
Example 4. Pursuant to a written agreement with the N Manufacturing
Company entered into on January 4, 1971, Y a commercial factor,
purchases the accounts receivable arising out of N's regular sales to
its customers. On November 1, 1971, in accordance with 301.6323(f)-1,
a notice of lien is filed with respect to N's delinquent tax liability.
On December 6, 1971, Y, without actual notice or knowledge of the tax
lien filing, purchases all of the accounts receivable resulting from N's
November 1971 sales. Y has taken appropriate steps under local law so
that the December 6, 1971, purchase is protected against a judgment lien
arising November 1, 1971 (the date of tax lien filing) out of an
unsecured obligation. Because the purchaser of commercial financing
security, other than inventory, is treated as having acquired a security
interest in commercial financing security, and because Y otherwise meets
the requirements of this section, the tax lien is not valid with respect
to Y's December 6, 1971, purchase of N's accounts receivable.
(T.D. 7429, 41 FR 35503, Aug. 23, 1976)
26 CFR 301.6323(c)-2 Protection for real property construction or
improvement financing agreements.
(a) In general. Even though a notice of a lien imposed by section
6321 is filed in accordance with 301.6323(f)-1, the lien is not valid
with respect to a security interest which:
(1) Comes into existence after the tax lien filing,
(2) Is in qualified property covered by the terms of a real property
construction or improvement financing agreement entered into before the
tax lien filing, and
(3) Is protected under local law against a judgment lien arising, as
of the time of tax lien filing, out of an unsecured obligation.
For purposes of this section, it is immaterial that the holder of the
security interest had actual notice or knowledge of the lien at the time
disbursements are made pursuant to such an agreement. See paragraphs
(a) and (e) of 301.6323(h)-1 for general definitions of the terms
''security interest'' and ''tax lien filing.'' For purposes of this
section, a judgment lien is a lien held by a judgment lien creditor as
defined in paragraph (g) of 301.6323(h)-1.
(b) Real property construction or improvement financing agreement.
For purposes of this section, the term ''real property construction or
improvement financing agreement'' means any written agreement to make
cash disbursements (whether or not at the option of the party agreeing
to make such disbursements):
(1) To finance the construction, improvement, or demolition of real
property if the agreement provides for a security interest in the real
property with respect to which the construction, improvement, or
demolition has been or is to be made;
(2) To finance a contract to construct or improve, or demolish real
property if the agreement provides for a security interest in the
proceeds of the contract; or
(3) To finance the raising or harvesting of a farm crop or the
raising of livestock or other animals if the agreement provides for a
security interest in any property subject to the lien imposed by section
6321 at the time of tax lien filing, in the crop raised or harvested, or
in the livestock or other animals raised.
For purposes of subparagraphs (1) and (2) of this paragraph (b),
construction or improvement may include demolition. For purposes of any
agreement described in subparagraph (3) of this paragraph (b), the
furnishing of goods and services is treated as the disbursement of cash.
(c) Qualified property. For purposes of this section, the term
''qualified property'' includes only --
(1) In the case of an agreement described in paragraph (b)(1) of this
section, the real property with respect to which the construction or
improvement has been or is to be made;
(2) In the case of an agreement described in paragraph (b)(2) of this
section, the proceeds of the contract to construct or improve real
property; or
(3) In the case of an agreement described in paragraph (b)(3) of this
section, property subject to the lien imposed by section 6321 at the
time of tax lien filing, the farm crop raised or harvested, or the
livestock or other animals raised.
(d) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. A, in order to finance the construction of a dwelling on
a lot owned by him, mortgages the property to B. The mortgage, executed
January 4, 1971, includes an agreement that B will make cash
disbursements to A as the construction progresses. On February 1, 1971,
in accordance with 301.6323(f)-1, a notice of lien is filed with
respect to A's delinquent tax liability. A continues the construction,
and B makes cash disbursements on June 10, 1971, and December 10, 1971.
Under local law B's security interest arising by virtue of the
disbursements is protected against a judgment lien arising February 1,
1971 (the date of tax lien filing) out of an unsecured obligation.
Because B is the holder of a security interest coming into existence by
reason of cash disbursements made pursuant to a written agreement,
entered into before tax lien filing, to make cash disbursements to
finance the construction of real property, and because B's security
interest is protected, under local law, against a judgment lien arising
as of the time of tax lien filing out of an unsecured obligation, B's
security interest has priority over the tax lien.
Example 2. (i) C is awarded a contract for the demolition of several
buildings. On March 3, 1969, C enters into a written agreement with D
which provides that D will make cash disbursements to finance the
demolition and also provides that repayment of the disbursements is
secured by any sums due C under the contract. On April 1, 1969, in
accordance with 301.6323(f)-1, a notice of lien is filed with respect
to C's delinquent tax liability. With actual notice of the tax lien, D
makes cash disbursements to C on August 1, September 1, and October 1,
1969. Under local law D's security interest in the proceeds of the
contract with respect to the disbursements is entitled to priority over
a judgment lien arising on April 1, 1969 (the date of tax lien filing)
out of an unsecured obligation.
(ii) Because D's security interest arose by reason of disbursements
made pursuant to a written agreement, entered into before tax lien
filing, to make cash disbursements to finance a contract to demolish
real property, and because D's security interest is valid under local
law against a judgment lien arising as of the time of tax lien filing
out of an unsecured obligation, the tax lien is not valid with respect
to D's security interest in the proceeds of the demolition contract.
Example 3. Assume the same facts as in example 2 and, in addition,
assume that, as further security for the cash disbursements, the March
3, 1969 agreement also provides for a security interest in all of C's
demolition equipment. Because the protection of the security interest
arising from the disbursements made after tax lien filing under the
agreement is limited under section 6323(c)(3) to the proceeds of the
demolition contract and because, under the circumstances, the security
interest in the equipment is not otherwise protected under section 6323,
the tax lien will have priority over D's security interest in the
equipment.
Example 4. (i) On January 2, 1969, F and G enter into a written
agreement, whereby F agrees to provide G with cash disbursements, seed,
fertilizer, and insecticides as needed by G, in order to finance the
raising and harvesting of a crop on a farm owned by G. Under the terms
of the agreement F is to have a security interest in the crop, the farm,
and all other property then owned or thereafter acquired by G. In
accordance with 301.6323(f)-1, on January 10, 1969, a notice of lien is
filed with respect to G's delinquent tax liability. On March 3, 1969,
with actual notice of the tax lien, F makes a cash disbursement of
$5,000 to G and furnishes him seed, fertilizer, and insecticides having
a value of $10,000. Under local law F's security interest, coming into
existence by reason of the cash disbursement and the furnishing of
goods, has priority over a judgment lien arising January 10, 1969 (the
date of tax lien filing) out of an unsecured obligation.
(ii) Because F's security interest arose by reason of a disbursement
(including the furnishing of goods) made under a written agreement which
was entered into before tax lien filing and which constitutes an
agreement to finance the raising or harvesting of a farm crop, and
because F's security interest is valid under local law against a
judgment lien arising as of the time of tax lien filing out of an
unsecured obligation, the tax lien is not valid with respect to F's
security interest in the crop even though a notice of lien was filed
before the security interest arose. Furthermore, because the farm is
property subject to the tax lien at the time of tax lien filing, F's
security interest with respect to the farm also has priority over the
tax lien.
Example 5. Assume the same facts as in example 4 and in addition
that on October 1, 1969, G acquires several tractors to which F's
security interest attaches under the terms of the agreement. Because
the tractors are not property subject to the tax lien at the time of tax
lien filing, the tax lien has priority over F's security interest in the
tractors.
(T.D. 7429, 41 FR 35503, Aug. 23, 1976)
26 CFR 301.6323(c)-3 Protection for obligatory disbursement agreements.
(a) In general. Even though a notice of a lien imposed by section
6321 is filed in accordance with 301.6323(f)-1, the lien is not valid
with respect to a security interest which:
(1) Comes into existence after the tax lien filing,
(2) Is in qualified property covered by the terms of an obligatory
disbursement agreement entered into before the tax lien filing, and
(3) Is protected under local law against a judgment lien arising, as
of the time of tax lien filing, out of an unsecured obligation.
See paragraphs (a) and (e) of 301.6323(h)-1 for definitions of the
terms ''security interest'' and ''tax lien filing.'' For purposes of
this section, a judgment lien is a lien held by a judgment lien creditor
as defined in paragraph (g) of 301.6323(h)-1.
(b) Obligatory disbursement agreement. For purposes of this section
the term ''obligatory disbursement agreement'' means a written
agreement, entered into by a person in the course of his trade or
business, to make disbursements. An agreement is treated as an
obligatory disbursement agreement only with respect to disbursements
which are required to be made by reason of the intervention of the
rights of a person other than the taxpayer. The obligation to pay must
be conditioned upon an event beyond the control of the obligor. For
example, the provisions of this section are applicable where an issuing
bank obligates itself to honor drafts or other demands for payment on a
letter of credit and a bank, in good faith, relies upon that letter of
credit in making advances. The provisions of this section are also
applicable, for example, where a bonding company obligates itself to
make payments to indemnify against loss or liability and, under the
terms of the bond, makes a payment with respect to a loss. The priority
described in this section is not applicable, for example, in the case of
an accommodation endorsement by an endorser who assumes his obligation
other than in the course of his trade or business.
(c) Qualified property. Except as provided under paragraph (d) of
this section, the term ''qualified property,'' for purposes of this
section, means property subject to the lien imposed by section 6321 at
the time of tax lien filing and, to the extent that the acquisition is
directly traceable to the obligatory disbursement, property acquired by
the taxpayer after tax lien filing.
(d) Special rule for surety agreements. Where the obligatory
disbursement agreement is an agreement insuring the performance of a
contract of the taxpayer and another person, the term ''qualified
property'' shall be treated as also including --
(1) The proceeds of the contract the performance of which was
insured, and
(2) If the contract the performance of which was insured is a
contract to construct or improve real property, to produce goods, or to
furnish services, any tangible personal property used by the taxpayer in
the performance of the insured contract.
For example, a surety company which holds a security interest,
arising from cash disbursements made after tax lien filing under a
payment or performance bond on a real estate construction project, has
priority over the tax lien with respect to the proceeds of the
construction contract and, in addition, with respect to any tangible
personal property used by the taxpayer in the construction project if
its security interest in the tangible personal property is protected
under local law against a judgment lien arising, as of the time the tax
lien was filed, out of an unsecured obligation.
(3) Examples. This section may be illustrated by the following
examples:
Example 1. (i) On January 2, 1969, H, an appliance dealer, in order
to finance the acquisition from O of a large inventory of appliances,
enters into a written agreement with Z, a bank. Under the terms of the
agreement, in return for a security interest in all of H's inventory,
presently owned and subsequently acquired, Z issues an irrevocable
letter of credit to allow H to make the purchase. On December 31, 1968
and January 10, 1969, in accordance with 301.6323(f)-1, separate
notices of lien are filed with respect to H's delinquent tax
liabilities. On March 31, 1969, Z honors the letter of credit. Under
local law, Z's security interest in both existing and after-acquired
inventory is protected against a judgment lien arising on or after
January 10, 1969, out of an unsecured obligation. Under local law, Z's
security interest in the inventory purchased under the letter of credit
qualifies as a purchase money security interest and is valid against
persons acquiring security interests in or liens upon such inventory at
any time.
(ii) Because Z's security interest in H's inventory did not arise
under a written agreement entered into before the filing of notice of
the first tax lien on December 31, 1968, that lien is superior to Z's
security interest except to the extent of Z's purchase money security
interest. Because Z's interest qualifies as a purchase money security
interest with respect to the inventory purchased under the letter of
credit, the tax liens attach under section 6321 only to the equity
acquired by H, and the rights of Z in the inventory so purchased as
superior even to the lien filed on December 31, 1968, without regard to
this section.
(iii) Because Z's security interest arose by reason of disbursements
made under a written agreement which was entered into before the filing
of notice of the second tax lien on January 10, 1969, and which
constitutes an agreement to make disbursements required to be made by
reason of the intervention of the rights of O, a person other than the
taxpayer, and because Z's security interest is valid under local law
against a judgment lien arising as of the time of such tax lien filing
on January 10, 1969, out of an unsecured obligation, the second tax lien
is, under this section, not valid with respect to Z's security interest
in inventory owned by H on January 10, 1969, as well as any
after-acquired inventory directly traceable to Z's disbursements (apart
from such greater protection as Z enjoys, with respect to the latter,
under its purchase money security interest). No protection against the
second tax lien is provided under this section with respect to a
security interest in any other inventory acquired by H after January 10,
1969, because such other inventory is neither subject to the tax lien at
the time of tax lien filing nor directly traceable to Z's disbursements.
Example 2. On June 1, 1971, K is awarded a contract to construct an
office building. At the same time, S, a surety company, agrees in
writing to insure the performance of the contract. The agreement
provides that in the event S must complete the job as the result of a
default by K, S will be entitled to the proceeds of the contract. In
addition, the agreement provides that S is to have a security interest
in all property belonging to K. On December 1, 1971, prior to the
completion of the building, K defaults. On the same date, under
301.6323(f)-1, a notice of lien is filed with respect to K's delinquent
tax liability. S completes the building on June 1, 1972. Under local
law S's security interest in the proceeds of the contract and S's
security interest in the property of K are entitled to priority over a
judgment lien arising December 1, 1971 (the date of tax lien filing) out
of an unsecured obligation. Because, for purposes of an obligatory
disbursement agreement which is a surety agreement, the security
interest may be in the proceeds of the insured contract, S's security
interest in the proceeds of the contract has priority over the tax lien
even though a notice of lien was filed before S's security interest
arose. Furthermore, because the insured contract was a contract to
construct real property, S's security interest in any of K's tangible
personal property used in the performance of the contract also has
priority over the tax lien.
Example 3. (i) On February 2, 1970, L enters into an agreement with
M, a contractor, to construct an apartment building on land owned by L.
Under a separate agreement, N bank agrees to furnish funds on a
short-term basis to L for the payment of amounts due to M during the
course of construction. Simultaneously, X, a financial institution,
makes a binding commitment to N bank and L to provide long-term
financing for the project after its completion. Under its commitment, X
is obligated to pay off the balance of the construction loan held by N
bank upon the execution by L of a new promissory note secured by a
mortgage deed of trust upon the improved property. On September 4,
1970, in accordance with 301.6323(f)-1, notice of lien is properly
filed with respect to L's delinquent tax liability. On September 8,
1970. X obtains actual notice of the tax lien filing. On September 14,
1970, the documents creating X's security interest are executed and
recorded, N bank's lien for its construction loan is released, and X
makes the required disbursements to N bank. Under local law, X's
security interest is protected against a judgment lien arising on
September 4, 1970 (the time of tax lien filing) out of an unsecured
obligation.
(ii) Because X's security interest arose by reason of a disbursement
made under a written agreement entered into before tax lien filing,
which constitutes an agreement to make disbursements required to be made
by reason of the intervention of the rights of N bank, a person other
than the taxpayer, and because X's security interest is valid under
local law against a judgment lien arising as of the time of the tax lien
filing out of an unsecured obligation, the tax lien is not valid with
respect to X's security interest to the extent of the disbursement to N
bank. The obligatory disbursement is protected under section 6323(c)(4)
even if X is not subrogated to N bank's rights or X's agreement is not
itself a real property construction financing agreement.
(T.D. 7429, 41 FR 35504, Aug. 23, 1976)
26 CFR 301.6323(d)-1 45-day period for making disbursements.
(a) In general. Even though a notice of a lien imposed by section
6321 is filed in accordance with 301.6323(f)-1, the lien is not valid
with respect to a security interest which comes into existence, after
tax lien filing, by reason of disbursements made before the 46th day
after the date of tax lien filing, or if earlier, before the person
making the disbursements has actual notice or knowledge of the tax lien
filing, but only if the security interest is --
(1) In property which is subject, at the time of tax lien filing, to
the lien imposed by section 6321 and which is covered by the terms of a
written agreement entered into before tax lien filing, and
(2) Protected under local law against a judgment lien arising, as of
the time of tax lien filing, out of an unsecured obligation.
For purposes of subparagraph (1) of this paragraph (a), a contract
right (as defined in paragraph (c)(2)(i) of 301.6323(c)-1) is subject,
at the time of tax lien filing, to the lien imposed by section 6321 if
the contract has been made by such time. An account receivable (as
defined in paragraph (c)(2)(ii) of 301.6323(c)-1) is subject, at the
time of tax lien filing, to the lien imposed by section 6321 if, and to
the extent, a right to payment has been earned by performance at such
time. For purposes of subparagraph (2) of this paragraph (a), a
judgment lien is a lien held by a judgment lien creditor as defined in
paragraph (g) of 301.6323(h)-1. For purposes of this section, it is
immaterial that the written agreement provides that the disbursements
are to be made at the option of the person making the disbursements.
See paragraphs (a) and (e) of 301.6323(h)-1 for definitions of the
terms ''security interest'' and ''tax lien filing,'' respectively. See
paragraph (a) of 301.6323(i)-1 for certain circumstances under which a
person is deemed to have actual notice or knowledge of a fact.
(b) Examples. The application of this section may be illustrated by
the following examples:
Example 1. On December 1, 1967, an assessment is made against A with
respect to his delinquent tax liability. On January 2, 1968, A enters
into a written agreement with B whereby B agrees to lend A $10,000 in
return for a security interest in certain property owned by A. On
January 10, 1968, in accordance with 301.6323(f)-1 notice of the tax
lien affecting the property is filed. On February 1, 1968, B, without
actual notice or knowledge of the tax lien filing, disburses the loan to
A. Under local law, the security interest arising by reason of the
disbursement is entitled to priority over a judgment lien arising
January 10, 1968 (the date of tax lien filing) out of an unsecured
obligation. Because the disbursement was made before the 46th day after
tax lien filing, because the disbursement was made pursuant to a written
agreement entered into before tax lien filing, and because the resulting
security interest is protected under local law against a judgment lien
arising as of the date of tax lien filing out of an unsecured
obligation, B's $10,000 security interest has priority over the tax
lien.
Example 2. Assume the same facts as in example 1 except that when B
disburses the $10,000 to A on February 10, 1968, B has actual knowledge
of the tax lien filing. Because the disbursement was made with actual
knowledge of tax lien filing, B's security interest does not have
priority over the tax lien even though the disbursement was made before
the 46th day after the tax lien filing. Furthermore, B is not protected
under 301.6323(a)-1(a) as a holder of a security interest because he
had not parted with money or money's worth prior to the time the notice
of tax lien was filed (January 10, 1968) even though he had made a firm
commitment to A before that time.
(T.D. 7429, 41 FR 35505, Aug. 23, 1976)
26 CFR 301.6323(e)-1 Priority of interest and expenses.
(a) In general. If the lien imposed by section 6321 is not valid as
against another lien or security interest, the priority of the other
lien or security interest also extends to each of the following items to
the extent that under local law the item has the same priority as the
lien or security interest to which it relates:
(1) Any interest or carrying charges (including finance, service, and
similar charges) upon the obligation secured,
(2) The reasonable charges and expenses of an indenture trustee
(including, for example, the trustee under a deed of trust) or agent
holding the security interest for the benefit of the holder of the
security interest,
(3) The reasonable expenses, including reasonable compensation for
attorneys, actually incurred in collecting or enforcing the obligation
secured,
(4) The reasonable costs of insuring, preserving, or repairing the
property to which the lien or security interest relates,
(5) The reasonable costs of insuring payment of the obligation
secured (including amounts paid by the holder of the security interest
for mortgage insurance, such as that issued by the Federal Housing
Administration), and
(6) Amounts paid to satisfy any lien on the property to which the
lien or security interest relates, but only if the lien so satisfied is
entitled to priority over the lien imposed by section 6321.
(b) Collection expenses. The reasonable expenses described in
paragraph (a)(3) of this section include expenditures incurred by the
protected holder of the lien or security interest to establish the
priority of his interest or to collect, by foreclosure or otherwise, the
amount due him from the property subject to his lien. Accordingly, the
amount of the encumbrance which is protected is increased by the amounts
so expended by the holder of the security interest.
(c) Costs of insuring, preserving, etc. The reasonable costs of
insuring, preserving, or repairing described in paragraph (a)(4) of this
section include expenditures by the holder of a security interest for
fire and casualty insurance on the property subject to the security
interest and amounts paid by the holder of the lien or security interest
to repair the property. Such reasonable costs also include the amounts
paid by the holder of the lien or security interest in a leasehold to
the lessor of the leasehold to preseve the leasehold subject to the lien
or security interest. Accordingly, the amount of the lien or security
interest which is protected is increased by the amounts so expended by
the holder of the lien or security interest.
(d) Satisfaction of liens. The amounts described in paragraph (a)(6)
of this section include expenditures incurred by the protected holder of
a lien or security interest to discharge a statutory lien for State
sales taxes on the property subject to his lien or security interest if
both his lien or security interest and the sales tax lien have priority
over a Federal tax lien. Accordingly, the amount of the lien or
security interest is increased by the amounts so expended by the holder
of the lien or security interest even though under local law the holder
of the lien or security interest is not subrogated to the rights of the
holder of the State sales tax lien. However, if the holder of the lien
or security interest is subrogated, within the meaning of paragraph (b)
of 301.6323(i)-1, to the rights of the holder of the sales tax lien, he
will also be entitled to any additional protection afforded by section
6323(i)(2).
(T.D. 7429, 41 FR 35506, Aug. 23, 1976)
26 CFR 301.6323(f)-1 Place for filing notice; form.
(a) Place for filing. The notice of lien referred to in
301.6323(a)-1 shall be filed as follows:
(1) Under State laws -- (i) Real property. In the case of real
property, notice shall be filed in one office within the State (or the
county or other governmental subdivision), as designated by the laws of
the State, in which the property subject to the lien is deemed situated
under the provisions of paragraph (b)(1) of this section.
(ii) Personal property. In the case of personal property, whether
tangible or intangible, the notice shall be filed in one office within
the State (or the county or other governmental subdivision), as
designated by the laws of the State, in which the property subject to
the lien is deemed situated under the provisions of paragraph (b)(2) of
this section.
(2) With the clerk of the United States district court. Whenever a
State has not by law designated one office which meets the requirements
of subparagraph (1)(i) or (1)(ii) of this paragraph (a), the notice
shall be filed in the office of the clerk of the U.S. district court
for the judicial district in which the property subject to the lien is
deemed situated under the provisions of paragraph (b) of this section.
For example, a State has not by law designated one office meeting the
requirements of subparagraph (1)(i) of this paragraph (a), if more than
one office is designated within the State, county, or other governmental
subdivision for filing notices with respect to all real property located
in such State, county, or other governmental subdivision. A State has
not by law designated one office meeting the requirements of
subparagraph (1)(ii) of this paragraph (a), if more than one office is
designated in the State, county, or other governmental subdivision for
filing notices with respect to all of the personal property of a
particular taxpayer.
(3) With the Recorder of Deeds of the District of Columbia. If the
property subject to the lien imposed by section 5321 is deemed situated,
under the provisions of paragraph (b) of this section, in the District
of Columbia, the notice shall be filed in the office of the Recorder of
Deeds of the District of Columbia.
(b) Situs of property subject to lien. For purposes of paragraph (a)
of this section, property is deemed situated as follows:
(1) Real property. Real property is deemed situated at its physical
location.
(2) Personal property. Personal property, whether tangible or
intangible, is deemed situated at the residence of the taxpayer at the
time the notice of lien is filed.
For purposes of subparagraph (2) of this paragraph (b), the residence
of a corporation or partnership is deemed to be the place at which the
principal executive office of the business is located, and the residence
of a taxpayer whose residence is not within the United States is deemed
to be in the District of Columbia.
(c) Form -- (1) In general. The notice referred to in 301.6323(a)-1
shall be filed on Form 668, ''Notice of Federal Tax Lien Under Internal
Revenue Laws''. Such notice is valid notwithstanding any other
provision of law regarding the form or content of a notice of lien. For
example, omission from the notice of lien of a description of the
property subject to the lien does not affect the validity thereof even
though State law may require that the notice contain a description of
the property subject to the lien.
(2) Form 668 defined. The term ''Form 668'' generally means a paper
form. However, if a state in which a notice referred to in
301.6323(a)-1 is filed permits a notice of Federal tax lien to be filed
by the use of an electronic or magnetic medium, the term ''Form 668''
includes a Form 668 filed by the use of any electronic or magnetic
medium permitted by that state. A Form 668 must identify the taxpayer,
the tax liability giving rise to the lien, and the date the assessment
arose regardless of the method used to file the notice of Federal tax
lien.
(d) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. The law of State X provides that notices of Federal tax
lien affecting personal property are to be filed in the Office of the
Recorder of Deeds of the county where the taxpayer resides. The laws of
State X also provide that notices of lien affecting real property are to
be filed with the recorder of deeds of the county where the real
property is located. On June 1, 1970, in accordance with
301.6323(f)-1, a notice of lien is filed in county M with respect to the
delinquent tax liability of A. At the time the notice is filed, A is a
resident of county M and owns real property in that county. One year
later A moves to county N and one year after that A moves to county O.
Because the situs of personal property is deemed to be at the residence
of the taxpayer at the time the notice of lien is filed, the notice
continues to be effectively filed with respect to A's personal property
even though A no longer resides in county M. Furthermore, because the
situs of real property is deemed to be at its physical location, the
notice of lien also continues to be effectively filed with respect to
A's real property.
Example 2. B is a resident of Canada but owns personal property in
the United States. On January 4, 1971, in accordance with
301.6323(f)-1, a notice of lien is filed with the Office of the Recorder
of Deeds of the District of Columbia. On January 2, 1973, B changes his
residence to State Y in the United States. Because the residence of a
taxpayer who is not a resident of the United States is deemed to be in
the District of Columbia and the situs of personal property is deemed to
be at the residence of the taxpayer at the time of filing, the lien
continues to be effectively filed with respect to the personal property
of B located in the United States even though B has returned to the
United States and taken up residence in State Y and even though B has at
no time been in the District of Columbia.
Example 3. The law of State Z in effect before July 1, 1967,
provides that notices of lien affecting real property are to be filed in
the office of the recorder of deeds of the county in which the real
property is located, but that if the real property is registered under
the Torrens system of title registration the notice is to be filed with
the registrar of titles rather than the recorder of deeds. The law of
State Z in effect after June 30, 1967, provides that all notices of lien
affecting real property are to be filed with the recorder of deeds of
the county in which the real property is located. Accordingly, where
the Torrens system is adopted by a county in State Z, there were before
July 1, 1967, two offices designated for filing notices of Federal tax
lien affecting real property in the county because one office was
designated for Torrens real property and another office was designated
for non-Torrens real property. Because State Z had not designated one
office within the State, county, or other governmental subdivision for
filing notices before July 1, 1967, with respect to all real property
located in the State, county, or governmental subdivision, before July
1, 1967, the place for filing notices of lien under this section,
affecting property located in counties adopting the Torrens system, was
with the clerk of the U.S. district court for the judicial district in
which the real property is located. However, after June 30, 1967, the
place for filing notices of lien under this section, affecting both
Torrens and non-Torrens real property in counties adopting the Torrens
system is with the recorder of deeds for each such county. Notices of
lien filed under this section with the clerk of the U.S. district court
before July 1, 1967, remain validly filed whether or not refiled with
the recorder of deeds after the change in State law or upon refiling
during the required refiling period.
Example 4. The law of State W provides that notices of lien
affecting personal property of corporations and partnerships are to be
filed in the office of the Secretary of State. Notices of lien
affecting personal property of any other person are to be filed in the
office of the clerk of court for the county where the person resides.
Because the State law designates only one filing office within State W
with respect to personal property of any particular taxpayer, notices of
lien filed under this section, affecting personal property, shall be
filed in the office designated under State law.
(T.D. 7429, 41 FR 35507, Aug. 23, 1976; 41 FR 41690, Sept. 23, 1976,
as amended by T.D. 8234, 53 FR 47676, Nov. 25, 1988)
26 CFR 301.6323(g)-1 Refiling of notice of tax lien.
(a) In general -- (1) Requirement to refile. In order to continue
the effect of a notice of lien, the notice must be refiled in the place
described in paragraph (b) of this section during the required refiling
period (described in paragraph (c) of this section). In the event that
two or more notices of lien are filed with respect to a particular tax
assessment, the failure to comply with the provisions of paragraphs
(b)(1)(i) and (c) of this section in respect of one of the notices of
lien does not affect the effectiveness of the refiling of any other
notice of lien. Except for the filing of a notice of lien required by
paragraph (bb)(1)(ii) of this section (relating to a change of
residence) the validity of any refiling of a notice of lien is not
affected by the refiling or nonrefiling of any other notice of lien.
(2) Effect of refiling. A timely refiled notice of lien is effective
as of the date on which the notice of lien to which it relates was
effective.
(3) Effect of failure to refile If the district director fails to
refile a notice of lien in the manner described in paragraphs (b) and
(c) of this section, the notice of lien is not effective, after the
expiration of the required refiling period, as against any person
without regard to when the interest of the person in the property
subject to the lien was acquired. However, the failure of the district
director to refile a notice of lien during the required refiling period
will not, following the expiration of the refiling period, affect the
effectiveness of the notice with respect to:
(i) Property which is the subject matter of a suit, to which the
United States is a party, commenced prior to the expiration of the
required refiling period, or
(ii) Property which has been levied upon by the United States prior
to the expiration of the refiling period.
However, if a suit or levy referred to in the preceding sentence is
dismissed or released and the property is subject to the lien at such
time, a notice of lien with respect to the property is not effective
after the suit or levy is dismissed or released unless refiled during
the required refiling period. Failure to refile a notice of lien does
not affect the existence of the lien.
(4) Filing of new notice. If a notice of lien is not refiled, and if
the lien remains in existence, the Internal Revenue Service may
nevertheless file a new notice of lien either on the form prescribed for
the filing of a notice of lien or on the form prescribed for refiling a
notice of lien. This new filing must meet the requirements of section
6323(f) and 301.6323(f)-1 and is effective from the date on which such
filing is made.
(b) Place for refiling notice of lien -- (1) In general. A notice of
lien refiled during the required refiling period (described in paragraph
(c) of this section) shall be effective only --
(i) If the notice of lien is refiled in the office in which the prior
notice of lien (including a refiled notice) was filed under the
provisions of section 6323; and
(ii) In any case in which 90 days or more prior to the date the
refiling of the notice of lien under subdivision (i) is completed, the
Internal Revenue Service receives written information (in the manner
described in subparagraph (2) of this paragraph (b)) concerning a change
in the taxpayer's residence, if a notice of such lien is also filed in
accordance with section 6323(f)(1)(A)(ii) in the State in which such new
residence is located (or, if such new residence is located without the
United States, in the District of Columbia).
A notice of lien is considered as refiled in the office in which the
prior notice or refiled notice was filed under the provisions of section
6323 if it is refiled in the office which, pursuant to a change in the
applicable local law, assumed the functions of the office in which the
prior notice or refiled notice was filed. If on or before the 90th day
referred to in subdivision (ii) more than one written notice is received
concerning a change in the taxpayer's residence, a notice of lien is
required by this subdivision to be filed only with respect to the
residence shown on the written notice received on the most recent date.
Subdivision (ii) is applicable regardless of whether the taxpayer
resides at the new residence on the date the refiling of notice of lien
under subdivision (i) of this subparagraph is completed.
(2) Notice of change of taxpayer's residence -- (i) In general.
Except as provided in subdivision (ii) or (iii) of this subparagraph,
for purposes of this section, a notice of change of a taxpayer's
residence will be effective only if it (A) is received, in writing, from
the taxpayer or his representative by the district director or the
service center director having jurisdiction where the original notice of
lien was filed, (B) relates to an unpaid tax liability of the taxpayer,
and (C) states the taxpayer's name and the address of his new residence.
Although it is not necessary that a written notice contain the
taxpayer's identifying number authorized by section 6109, it is
preferable that it include such number. For purposes of this
subdivision, a notice of change of a taxpayer's residence shown on a
return or an amended return (including a return of the same tax) will
not be effective to notify the Internal Revenue Service.
(ii) Notice received before August 23, 1976. For purposes of this
section, a notice of a change of a taxpayer's residence will also be
effective if it (A) is received, in writing, by any office of the
Internal Revenue Service before August 23, 1976, from the taxpayer or
his representative, (B) relates to an unpaid tax liability of the
taxpayer, and (C) states the taxpayer's name and the address of his new
residence.
(iii) By return or amended return. For purposes of this section, in
the case of a notice of lien which relates to an assessment of tax made
after December 31, 1966, a notice of change of a taxpayer's residence
will also be effective if it is contained in a return or amended return
of the same type of tax filed with the Internal Revenue Service by the
taxpayer or his representative which on its face indicates that there is
a change in the taxpayer's address and correctly states the taxpayer's
name, the address of his new residence, and his identifying number
required by section 6109.
(iv) Other rules applicable. Except as provided in subdivisions (i),
(ii), and (iii) of this subparagraph, no communication (either written
or oral) to the Internal Revenue Service will be considered effective as
notice of a change of a taxpayer's residence under this section, whether
or not the Service has actual notice or knowledge of the taxpayer's new
residence. For the purpose of determining the date on which a notice of
change of a taxpayer's residence is received under this section, the
notice shall be treated as received on the date it is actually received
by the Internal Revenue Service without reference to the provisions of
section 7502.
(3) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. A, a delinquent taxpayer, is a resident of State M and
owns real property in State N. In accordance with 301.6323(f)-1,
notices of lien are filed in States M and N. In order to continue the
effect of the notice of lien filed in M, the Internal Revenue Service
must refile, during the required refiling period, the notice of lien
with the appropriate office in M but is not required to refile the
notice of lien with the appropriate office in N. Similarly, in order to
continue the effect of the notice of lien filed in State N, the Internal
Revenue Service must refile, during the required refiling period, the
notice of lien with the appropriate office in N but is not required to
refile the notice of lien with the appropriate office in M.
Example 2. B, a delinquent taxpayer, is a resident of State M. In
accordance with 301.6323(f)-1, notice of lien is properly filed in that
State. One year before the beginning of the required refiling period, B
establishes his residence in State N, and B immediately notifies the
Internal Revenue Service of his change in residence in accordance with
the provisions of paragraph (b)(2) of this section. In order to
continue the effect of the notice of lien filed in M, the Internal
Revenue Service must refile, during the required refiling period,
notices of lien with (i) the appropriate office in M, and (ii) the
appropriate office in N, because B properly notified the Internal
Revenue Service of his change in residence to N more than 89 days prior
to the date refiling of the notice of lien in M is completed. Even if
the Internal Revenue Service had acquired actual notice or knowledge of
B's change in residence by other means, if B had not properly notified
the Internal Revenue Service of his change in residence, the effect of
the notice of lien in State M could have been continued without any
refiling in State N.
Example 3. C, a delinquent taxpayer, is a resident of State O. In
accordance with 301.6323(f)-1, notice of lien is properly filed in that
State. Four years before the required refiling period, C establishes
his residence in State P, and C immediately notifies the Internal
Revenue Service of his change in residence in accordance with the
provisions of paragraph (b)(2) of this section. Three years before the
required refiling period, C establishes his residence in State R, and
again C immediately notifies the Internal Revenue Service of his change
in residence in accordance with the provisions of paragraph (2) of this
section. In order to continue the effect of the notice of lien filed in
O, the Internal Revenue Service must refile, during the required
refiling period, notices of lien with (i) the appropriate office in O,
and (ii) the appropriate office in R. Refiling in R is required because
the notice received by the Service of C's change in residence to R was
the most recent notice received more than 89 days prior to the date
refiling in O is completed. The notice of lien is not required to be
filed in P, even though C properly notified the Internal Revenue Service
of his change in residence to P, because such notice is not the most
recent one received.
Example 4. Assume the same facts as in example 3, except that C does
not notify the Internal Revenue Service of his change in residence to R
in accordance with the provisions of paragraph (b)(2) of this section.
In order to continue the effect of the notice of lien filed in O, the
Internal Revenue Service must refile, during the required refiling
period, the notice of lien with (i) the appropriate office in O, and
(ii) the appropriate office in P. Refiling in P is required because C
properly notified the Internal Revenue Service of his change in
residence to P, even though C is not a resident of P on the date
refiling of the notice of lien in O is completed. The Internal Revenue
Service is not required to file a notice of lien in R because C did not
properly notify the Service of his change in residence to R.
Example 5. D, a delinquent taxpayer, is a resident of State M and
owns real property in States N and O. In accordance with
301.6323(f)-1, the Internal Revenue Service files notices of lien in M,
N, and O States. Five years and 6 months after the date of the
assessment shown on the notice of lien, D establishes his residence in
P, and at that time the Internal Revenue Service received from D a
notification of his change in residence in accordance with the
provisions of paragraph (b)(2) of this section. On a date which is 5
years and 7 months after the date of the assessment shown on the notice
of lien, the Internal Revenue Servbice properly refiles notices of lien
in M, N, and O which refilings are sufficient to continue the effect of
each of the notice of lien. The Internal Revenue Service is not
required to file a notice of lien in P because D did not notify the
Internal Revenue Service of his change of residence to P more than 89
days prior to the date each of the refilings in M, N, and O was
completed.
Example 6. Assume the same facts as in example 5 except that the
refiling of the notice of lien in O occurs 100 days after D notifies the
Internal Revenue Service of hischange in residence to P in accordance
with the provisions of paragraph (b)(2) of this section. In order to
continue the effect of the notice of lien filed in O, in addition to
refiling the notice of lien in O, the Internal Revenue Service must also
refile, during the required refiling period, a notice of lien in P
because D properly notified the Internal Revenue Service of his change
of residence to P more than 89 days prior to the date the refiling in O
was completed. However, the Internal Revenue Service is not required to
refile the notice of lien in P to maintain the effect of the notices of
lien in M and N because D did not notify the Internal Revenue Service of
his change in residence to P more than 89 days prior to the date the
refilings in M and N were completed.
Example 7. E, a delinquent taxpayer, is a resident of State T.
Because T has not designated one office in the case of personal property
for filing notices of lien in accordance with the provisions of section
6323(f)(1)(A)(ii), the Internal Revenue Service properly files a notice
of lien with the clerk of the appropriate United States district court.
However, solely as a matter of convenience for those who may have
occasion to search for notices of lien, and not as a matter of legal
effectiveness, the Internal Revenue Service also files notice of lien
with the recorder of deeds of the county in T where E resides. In
addition, the Internal Revenue Service sends a copy of the notice of
lien to the X life insurance company to give the company actual notice
of the notice of lien. In order to continue the effect of the notice of
lien, the Internal Revenue Service must refile the notice of lien with
the clerk of the appropriate United States district court during the
required refiling period. In order to continue the effect of the notice
of the lien, it is not necessary to refile the notice of lien with the
Recorder of Deeds of the county where E resides, because the refiling of
the notice of lien with the recorder of deeds does not constitute a
proper filing for the purposes of section 6323(f). In addition, to
continue the effect of the notice of lien under this section it is not
necessary to send a copy of the notice of lien to the X life insurance
company, because the sending of a notice of lien to an insurance company
does not constitute a proper filing for the purposes of section 6323(f).
(c) Required refiling period -- (1) In general. For the purpose of
this section, except as provided in subparagraph (2) of this paragraph
(c), the term ''required refiling period'' means --
(i) The 1-year period ending 30 days after the expiration of 6 years
after the date of the assessment of the tax, and
(ii) The 1-year period ending with the expiration of 6 years after
the close of the preceding required refiling period for such notice of
lien.
(2) Tax assessments made before January 1, 1962. If the assessment
of the tax is made before January 1, 1962, the first required refiling
period shall be the calendar year 1967. Thus, to maintain the
effectiveness of any notice of lien on file which relates to a lien
which arose before January 1, 1962, the Internal Revenue Service will
refile the notice of lien during the calendar year 1967.
(3) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. On March 1, 1963, an assessment of tax is made against B,
a delinquent taxpayer, and a lien for the amount of the assessment
arises on that date. On July 1, 1963, in accordance with
301.6323(f)-1, a notice of lien is filed. The notice of lien filed on
July 1, 1963, is effective through March 31, 1969. The first required
refiling period for the notice of lien begins on April 1, 1968, and ends
on March 31, 1969. A refiling of the notice of lien during that period
will extend the effectiveness of the notice of lien filed on July 1,
1963, through March 31, 1975. The second required refiling period for
the notice of lien begins on April 1, 1974, and ends of March 31, 1975.
Example 2. Assume the same facts as in example 1, except that
although the Internal Revenue Service fails to refile a notice of lien
during the first required refiling period (April 1, 1963, through March
31, 1969), a notice of lien is filed on June 2, 1971, in accordance with
301.6323(f)-1. Because of this filing, the notice of lien filed on June
2, 1971, is effective as of June 2, 1971. That notice must be refiled
during the 1-year period ending on March 31, 1975, if it is to continue
in effect after March 31, 1975.
Example 3. On April 1, 1960, an assessment of tax is made against B,
a delinquent taxpayer, and a tax lien for the amount of the assessment
arises on that date. On June 1, 1962, in accordance with
301.6323(f)-1, a notice of lien is filed. Because the assessment of tax
was made before January 1, 1962, the notice of lien filed on June 1,
1962, is effective through December 31, 1967. The first required
refiling period for the notice of lien is the calendar year 1967. A
refiling of the notice of lien during 1967 will extend the effectiveness
of the notice of lien filed on June 1, 1962, through December 31, 1973.
(T.D. 7429, 41 FR 35509, Aug. 23, 1976)
26 CFR 301.6323(h)-0 Scope of definitions.
Except as otherwise provided by 301.6323(h)-1 the definitions
provided by 301.6323(h)-1 apply for purposes of 301.6323(a)-1 through
301.6324-1.
(T.D. 7429, 41 FR 35509, Aug. 23, 1976)
26 CFR 301.6323(h)-1 Definitions.
(a) Security interest -- (1) In general. The term ''security
interest'' means any interest in property acquired by contract for the
purpose of securing payment or performance of an obligation or
indemnifying against loss or liability. A security interest exists at
any time --
(i) If, at such time, the property is in existence and the interest
has become protected under local law against a subsequent judgment lien
(as provided in subparagraph (2) of this paragraph (a)) arising out of
an unsecured obligation; and
(ii) To the extent that, at such time, the holder has parted with
money or money's worth (as defined in subparagraph (3) of this paragraph
(a)).
For purposes of this subparagraph, a contract right (as defined in
paragraph (c)(2)(i) of 301.6323(c)-1) is in existence when the contract
is made. An account receivable (as defined in paragraph (c)(2)(ii) of
301.6323(c)-1) is in existence when, and to the extent, a right to
payment is earned by performance.
A security interest must be in existence, within the meaning of this
paragraph, at the time as of which its priority against a tax lien is
determined. For example, to be afforded priority under the provisions
of paragraph (a) of 301.6323(a)-1 a security interest must be in
existence within the meaning of this paragraph before a notice of lien
is filed.
(2) Protection against a subsequent judgment lien. (i) For purposes
of this paragraph, a security interest is deemed to be protected against
a subsequent judgment lien on --
(A) The date on which all actions required under local law to
establish the priority of a security interest against a judgment lien
have been taken, or
(B) If later, the date on which all required actions are deemed
effective, under local law, to establish the priority of the security
interest against a judgment lien.
For purposes of this subdivision, the dates described in (A) and (B)
of this subdivision (i) shall be determined without regard to any rule
or principle of local law which permits the relation back of any
requisite action to a date earlier than the date on which the action is
actually performed. For purposes of this paragraph, a judgment lien is
a lien held by a judgment lien creditor as defined in paragraph (g) of
this section.
(ii) The application of this subparagraph may be illustrated by the
following example:
Example. (i) Under the law of State X, a security interest in
negotiable instruments, stocks, bonds, or other securities may be
perfected, and hence protected against a judgment lien, only by the
secured party taking possession of the instruments or securities.
However, a security interest in such intangible personal property is
considered to be temporarily perfected for a period of 21 days from the
time the security interest attaches, to the extent consideration other
than past consideration is given under a written security agreement.
Under the law of X, a security interest attaches to such collateral when
there is an agreement between the creditor and debtor that the interest
attaches, the debtor has rights in the property, and consideration is
given by the creditor. Under the law of X, in the case of temporary
perfection, the security interest in such property is protected during
the 21-day period against a judgment lien arising, after the security
interest attaches, out of an unsecured obligation. Upon expiration of
the 21-day period, the holder of the security interest must take
possession of the collateral to continue perfection.
(ii) Because the security interest is protected during the 21-day
period against a subsequent judgment lien arising out of an unsecured
obligation, and because the taking of possession before the conclusion
of the period of temporary perfection is not considered, for purposes of
subdivision (i) of this subparagraph, to be a requisite action which
relates back to the beginning of such period, the requirements of this
paragraph are satisfied. However, because taking possession is a
condition precedent to continued perfection, possession of the
collateral is a requisite action to establish such priority after
expiration of the period of temporary perfection. If there is a lapse
of perfection for failure to take possession, the determination of when
the security interest exists (for purposes of protection against the tax
lien) is made without regard to the period of temporary perfection.
(3) Money or money's worth. For purposes of this paragraph, the term
''money or money's worth'' includes money, a security (as defined in
paragraph (d) of this section), tangible or intangible property,
services, and other consideration reducible to a money value. Money or
money's worth also includes any consideration which otherwise would
constitute money or money's worth under the preceding sentence which was
parted with before the security interest would otherwise exist if, under
local law, past consideration is sufficient to support an agreement
giving rise to a security interest. A relinquishing or promised
relinquishment of dower, curtesy, or of a statutory estate created in
lieu of dower or curtesy, or of other marital rights is not a
consideration in money or money's worth. Nor is love and affection,
promise of marriage, or any other consideration not reducible to a money
value a consideration in money or money's worth.
(4) Holder of a security interest. For purposes of this paragraph,
the holder of a security interest is the person in whose favor there is
a security interest. For provisions relating to the treatment of a
purchaser of commercial financing security as a holder of a security
interest, see 301.6323(c)-1(e).
(b) Mechanic's lienor -- (1) In general. The term ''mechanic's
lienor'' means any person who under local law has a lien on real
property (or on the proceeds of a contract relating to real property)
for services, labor, or materials furnished in connection with the
construction or improvement (including demolition) of the property. A
mechanic's lienor is treated as having a lien on the later of --
(i) The date on which the mechanic's lien first becomes valid under
local law against subsequent purchasers of the real property without
actual notice, or
(ii) The date on which the mechanic's lienor begins to furnish the
services, labor, or materials.
(2) Example. The provisions of this paragraph may be illustrated by
the following example:
Example. On February 1, 1968, A lets a contract for the construction
of an office building on property owned by him. On March 1, 1968, in
accordance with 301.6323(f)-1, a notice of lien for delinquent Federal
taxes owed by A is filed. On April 1, 1968, B, a lumber dealer,
delivers lumber to A's property. On May 1, 1968, B records a mechanic's
lien against the property to secure payment of the price of the lumber.
Under local law, B's mechanic's lien is valid against subsequent
purchasers of real property without notice from February 1, 1968, which
is the date the construction contract was entered into. Because the
date on which B's mechanic's lien is valid under local law against
subsequent purchasers is February 1, and the date on which B begins to
furnish the materials is April 1, the date on which B becomes a
mechanic's lienor within the meaning of this paragraph is April 1, the
later of these two dates. Under paragraph (a) of 301.6323(a)-1, B's
mechanic's lien will not have priority over the Federal tax lien, even
though under local law the mechanic's lien relates back to the date of
the contract.
(c) Motor vehicle. (1) The term ''motor vehicle'' means a
self-propelled vehicle which is registered for highway use under the
laws of any State, the District of Columbia, or a foreign country.
(2) A motor vehicle is ''registered for highway use'' at the time of
a sale if immediately prior to the sale it is so registered under the
laws of any State, the District of Columbia, or a foreign country.
Where immediately prior to the sale of a motor vehicle by a dealer, the
dealer is permitted under local law to operate it under a dealer's tag,
license, or permit issued to him, the motor vehicle is considered to be
registered for highway use in the name of the dealer at the time of the
sale.
(d) Security. The term ''security'' means any bond, debenture, note,
or certificate or other evidence of indebtedness, issued by a
corporation or a government or political subdivision thereof, with
interest coupons or in registered form, share of stock, voting trust
certificate, or any certificate of interest or participation in,
certificate of deposit or receipt for, temporary or interim certificate
for, or warrant or right to subscribe to or purchase, any of the
foregoing; negotiable instrument; or money.
(e) Tax lien filing. The term ''tax lien filing'' means the filing
of notice of the lien imposed by section 6321 in accordance with
301.6323(f)-1.
(f) Purchaser -- (1) In general. The term ''purchaser'' means a
person who, for adequate and full consideration in money or money's
worth (as defined in subparagraph (3) of this paragraph (f)), acquires
an interest (other than a lien or security interest) in property which
is valid under local law against subsequent purchasers without actual
notice.
(2) Interest in property. For purposes of this paragraph, each of
the following interest is treated as an interest in property, if it is
not a lien or security interest:
(i) A lease of property,
(ii) A written executory contract to purchase or lease property,
(iii) An option to purchase or lease property and any interest
therein, or
(iv) An option to renew or extend a lease of property.
(3) Adequate and full consideration in money or money's worth. For
purposes of this paragraph, the term ''adequate and full consideration
in money or money's worth'' means a consideration in money or money's
worth having a reasonable relationship to the true value of the interest
in property acquired. See paragraph (a)(3) of this section for
definition of the term ''money or money's worth.'' Adequate and full
consideration in money or money's worth may include the consideration in
a bona fide bargain purchase. The term also includes the consideration
in a transaction in which the purchaser has not completed performance of
his obligation, such as the consideration in an installment purchase
contract, even though the purchaser has not completed the installment
payments.
(4) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. A enters into a contract for the purchase of a house and
lot from B. Under the terms of the contract A makes a down payment and
is to pay the balance of the purchase price in 120 monthly installments.
After payment of the last installment, A is to receive a deed to the
property. A enters into possession, which under local law protects his
interest in the property against subsequent purchasers without actual
notice. After A has paid five monthly installments, a notice of lien
for Federal taxes is filed against B in accordance with 301.6323(f)-1.
Because the contract is an executory contract to purchase property and
is valid under local law against subsequent purchasers without actual
notice, A qualifies as a purchaser under this paragraph.
Example 2. C owns a residence which he leases to his son-in-law, D,
for a period of 5 years commencing January 1, 1968. The lease provides
for payment of $100 a year, although the fair rental value of the
residence is $2,500 a year. The lease is recorded on December 31, 1967.
On March 1, 1968, a notice of tax lien for unpaid Federal taxes of C is
filed in accordance with 301.6323(f)-1. Under local law, D's interest
is protected against subsequent purchasers without actual notice.
However, because the rental paid by D has no reasonable relationship to
the value of the interest in property acquired, D does not qualify as a
purchaser under this paragraph.
(g) Judgment lien creditor. The term ''judgment lien creditor''
means a person who has obtained a valid judgment, in a court of record
and of competent jurisdiction, for the recovery of specifically
designated property or for a certain sum of money. In the case of a
judgment for the recovery of a certain sum of money, a judgment lien
creditor is a person who has perfected a lien under the judgment on the
property involved. A judgment lien is not perfected until the identity
of the lienor, the property subject to the lien, and the amount of the
lien are established. Accordingly, a judgment lien does not include an
attachment or garnishment lien until the lien has ripened into judgment,
even though under local law the lien of the judgment relates back to an
earlier date. If recording or docketing is necessary under local law
before a judgment becomes effective against third parties acquiring
liens on real property, a judgment lien under such local law is not
perfected with respect to real property until the time of such
recordation or docketing. If under local law levy or seizure is
necessary before a judgment lien becomes effective against third parties
acquiring liens on personal property, then a judgment lien under such
local law is not perfected until levy or seizure of the personal
property involved. The term ''judgment'' does not include the
determination of a quasi-judicial body or of an individual acting in a
quasi-judicial capacity such as the action of State taxing authorities.
(T.D. 7429, 41 FR 35511, Aug. 23, 1976)
26 CFR 301.6323(i)-1 Special rules.
(a) Actual notice or knowledge. For purposes of subchapter C
(section 6321 and following), chapter 64 of the Code, an organization is
deemed, in any transaction, to have actual notice or knowledge of any
fact from the time the fact is brought to the attention of the
individual conducting the transaction, and in any event from the time
the fact would have been brought to the individual's attention if the
organization had exercised due diligence. An organization exercises due
diligence if it maintains reasonable routines for communicating
significant information to the person conducting the transaction and
there is reasonable compliance with the routines. Due diligence does
not require an individual acting for the organization to communicate
information unless such communication is part of his regular duties or
unless he has reason to know of the transaction and that the transaction
would be materially affected by the information.
(b) Subrogation -- (1) In general. Where, under local law, one
person is subrogated to the rights of another with respect to a lien or
interest, such person shall be subrogated to such rights for purposes of
any lien imposed by section 6321 or 6324. Thus, if a tax lien imposed
by section 6321 or 6324 is not valid with respect to a particular
interest as against the holder of that interest, then the tax lien also
is not valid with respect to that interest as against any person who,
under local law, is a successor in interest to the holder of that
interest.
(2) Example. The application of this paragraph may be illustrated by
the following example:
Example. On February 1, 1968, an assessment is made and a tax lien
arises with respect to A's delinquent tax liability. On February 25,
1968, in accordance with 301.6323(f)-1, a notice of lien is properly
filed. On March 1, 1968, A negotiates a loan from B, the security for
which is a second mortgage on property owned by A. The first mortgage
on the property is held by C and has priority over the tax lien. Upon
default by A, C begins proceedings to foreclose upon the first mortgage.
On September 1, 1968, B pays the amount of principal and interest in
default to C in order to protect the second mortgage against the pending
foreclosure of C's senior mortgage. Under local law, B is subrogated to
C's rights to the extent of the payment to C. Therefore, the tax lien
is invalid against B to the extent he became subrogated to C's rights
even though the tax lien is valid against B's second mortgage on the
property.
(c) Disclosure of amount of outstanding lien. If a notice of lien
has been filed (see 301.6323(f)-1), the amount of the outstanding
obligation secured by the lien is authorized to be disclosed as a matter
of public record on Form 668 ''Notice of Federal Tax Lien Under Internal
Revenue Laws.'' The amount of the outstanding obligation secured by the
lien remaining unpaid at the time of an inquiry is authorized to be
disclosed to any person who has a proper interest in determining this
amount. Any person who has a right in the property or intends to obtain
a right in the property by purchase or otherwise will, upon presentation
by him of satisfactory evidence be considered to have a proper interest.
Any person desiring this information may make his request to the office
of the Internal Revenue Service named on the notice of lien with respect
to which the request is made. The request should clearly describe the
property subject to the lien, identify the applicable lien, and give the
reasons for requesting the information.
(T.D. 7429, 41 FR 35511, Aug. 23, 1976)
26 CFR 301.6324-1 Special liens for estate and gift taxes; personal
liability of transferees and others.
(a) Estate tax. (1) A lien for estate tax attaches at the date of
the decedent's death to every part of the gross estate, whether or not
the property comes into possession of the duly qualified executor or
administrator. The lien attaches to the extent of the tax shown to be
due by the return and of any deficiency in tax found to be due upon
review and audit. If the estate tax is not paid when due, then the
spouse, transferee, trustee (except the trustee of an employee's trust
which meets the requirements of section 401(a)), surviving tenant,
person in possession of the property by reason of the exercise,
nonexercise, or release of a power of appointment, or beneficiary, who
receives, or has on the date of the decedent's death, property included
in the gross estate under sections 2034 to 2042, inclusive, shall be
personally liable for the tax to the extent of the value, at the time of
the decedent's death, of the property.
(2) Unless the tax is paid in full or becomes unenforceable by reason
of lapse of time, and except as otherwise provided in paragraph (c) of
this section, the lien upon the entire property constituting the gross
estate continues for a period of 10 years after the decedent's death,
except that the lien shall be divested with respect to --
(i) The portion of the gross estate used for the payment of charges
against the estate and expenses of its administration allowed by any
court having jurisdiction thereof;
(ii) Property included in the gross estate under sections 2034 to
2042, inclusive, which is transferred by (or transferred by the
transferee of) the spouse, transferee, trustee, surviving tenant, person
in possession of the property by reason of the exercise, nonexercise, or
release of a power of appointment, or beneficiary to a purchaser or
holder of a security interest. In such case a like lien attaches to all
the property of the spouse, transferee, trustee, surviving tenant,
person in possession, beneficiary, or transferee of any such person,
except the part which is transferred to a purchaser or a holder of a
security interest. See section 6323(h) (1) and (6) and the regulations
thereunder, respectively, for the definitions of ''security interest''
and ''purchaser'';
(iii) The portion of the gross estate (or any interest therein) which
has been transferred to a purchaser or holder of a security interest if
payment is made of the full amount of tax determined by the district
director pursuant to a request of the fiduciary (executor, in the case
of the estate of a decedent dying before January 1, 1971) for discharge
from personal liability as authorized by section 2204 (relating to
discharge of fiduciary from personal liability) but there is substituted
a like lien upon the consideration received from the purchaser or holder
of a security interest; and
(iv) Property as to which the district director has issued a
certificate releasing a lien under section 6325(a) and the regulations
thereunder.
(b) Lien for gift tax. Except as provided in paragraph (c) of this
section, a lien attaches upon all gifts made during the period for which
the return was filed (see 25.6019-1 of this chapter) for the amount of
tax imposed upon the gifts made during such period. The lien extends
for a period of 10 years from the time the gifts are made, unless the
tax is sooner paid in full or becomes unenforceable by reason of lapse
of time. If the tax is not paid when due, the donee of any gift becomes
personally liable for the tax to the extent of the value of his gift.
Any part of the property comprised in the gift transferred by the donee
(or by a transferee of the donee) to a purchaser or holder of a security
interest is divested of the lien, but a like lien, to the extent of the
value of the gift, attaches to all the property (including
after-acquired property) of the donee (or the transferee) except any
part transferred to a purchaser or holder of a security interest. See
section 6323(h) (1) and (6) and the regulations thereunder,
respectively, for the definitions of ''security interest'' and
''purchaser.''
(c) Exceptions. (1) A lien described in either paragraph (a) or
paragraph (b) of this section is not valid against a mechanic's lienor
(as defined in section 6323(h) (2) and the regulations thereunder) and,
subject to the conditions set forth under section 6323(b) (relating to
protection for certain interests even though notice filed), is not valid
with respect to any lien or interest described in section 6323(b) and
the regulations thereunder.
(2) If a lien described in either paragraph (a) or paragraph (b) of
this section is not valid against a lien or security interest (as
defined in section 6323(h) (1) and the regulations thereunder), the
priority of the lien or security interest extends to any item described
in section 6323(e) (relating to priority of interest and expenses) to
the extent that, under local law, the item has the same priority as the
lien or security interest to which it relates.
(d) Application of lien imposed by section 6321. The general lien
under section 6321 and the special lien under subsection (a) or (b) of
section 6324 for the estate or gift tax are not exclusive of each other,
but are cumulative. Each lien will arise when the conditions precedent
to the creation of such lien are met and will continue in accordance
with the provisions applicable to the particular lien. Thus, the
special lien may exist without the general lien being in force, or the
general lien may exist without the special lien being in force, or the
general lien and the special lien may exist simultaneously, depending
upon the facts and pertinent statutory provisions applicable to the
respective liens.
(T.D. 7238, 37 FR 28740, Dec. 29, 1972)
26 CFR 301.6324A-1 Election of and agreement to special lien for estate
tax deferred under section 6166 or 6166A.
(a) Election of lien. If payment of a portion of the estate tax is
deferred under section 6166 or 6166A (as in effect prior to its repeal
by Economic Recovery Tax Act of 1981), an executor of a decedent's
estate who seeks to be discharged from personal liability may elect a
lien in favor of the United States in lieu of the bonds required by
sections 2204 and 6165. This election is made by applying to the
Internal Revenue Service office where the estate tax return is filed at
any time prior to payment of the full amount of estate tax and interest
due. The application is to be a notice of election requesting the
special lien provided by section 6324A and is to be accompanied by the
agreement described in paragraph (b) (1) of this section.
(b) Agreement to lien -- (1) In general. A lien under this section
will not arise unless all parties having any interest in all property
designated in the notice of election as property to which the lien is to
attach sign an agreement in which they consent to the creation of the
lien. (Property so designated need not be property included in the
decedent's estate.) The agreement is to be attached to the notice in
which the lien under section 6324A is elected. It must be in a form
that is binding on all parties having any interest on the property and
must contain the following:
(i) The decedent's name and taxpayer identification number as they
appear on the estate tax return;
(ii) The amount of the lien;
(iii) The fair market value of the property to be subject to the lien
as of the date of the decedent's death and the date of the election
under this section;
(iv) The amount, as of the date of the decedent's death and the date
of the election, of all encumbrances on the property, including
mortgages and any lien under section 6324B;
(v) A clear description of the property which is to be subject to the
lien, and in the case of property other than land, a statement of its
estimated remaining useful life; and
(vi) Designation of an agent (including the agent's address) for the
beneficiaries of the estate and the consenting parties to the lien for
all dealings with the Internal Revenue Service on matters arising under
section 6166 or 6166A (as in effect prior to its repeal by Economic
Recovery Tax Act of 1981), or under section 6324A.
(2) Persons having an interest in designated property. An interest
in property is any interest which as of the date of the election can be
asserted under applicable local law so as to affect the disposition of
any property designated in the agreement required under this section.
Any person in being at the date of the election who has any such
interest in the property, whether present or future, or vested or
contingent, must enter into the agreement. Included among such persons
are owners of remainder and executory interests, the holders of general
or special powers of appointment, beneficiaries of a gift over in
default of exercise of any such power, co-tenants, joint tenants, and
holders of other undivided interests when the decedent held a joint or
undivided interest in the property, and trustees of trusts holding any
interest in the property. An heir who has the power under local law to
caveat (challenge) a will and thereby affect disposition of the property
is not, however, considered to be a person with an interest in property
under section 6324A solely by reason of that right. Likewise, creditors
of an estate are not such persons solely by reason of their status as
creditors.
(3) Consent on behalf of interested party. If any person required to
enter into the agreement provided for by this paragraph either desires
that an agent act for him or her or cannot legally bind himself or
herself due to infancy or other incompetency, a representative
authorized under local law to bind the interested party in an agreement
of this nature is permitted to sign the agreement on his or her behalf.
(4) Duties of agent designated in agreement. The Internal Revenue
Service will contact the agent designated in the agreement under
paragraph (b)(1) on all matters relating to continued qualification of
the estate under section 6166 or 6166A (as in effect prior to its repeal
by Economic Recovery Tax Act of 1981) and on all matters relating to the
special lien arising under section 6324A. It is the duty of the agent
as attorney-in-fact for the parties with interests in the property
subject to the lien under section 6324A to furnish the Service with any
requested information and to notify the Service of any event giving rise
to acceleration of the deferred amount of tax.
(c) Partial substitution of bond for lien. If the amount of unpaid
estate tax plus interest exceeds the value (determined for purposes of
section 6324A(b)(2)) of property listed in the agreement under paragraph
(b) of this section, the Internal Revenue Service may condition the
release from personal liability upon the executor's submitting an
agreement listing additional property or furnishing an acceptable bond
in the amount of such excess.
(d) Relation of sections 6324A and 2204. The lien under section
6324A is deemed to be a bond under section 2204 for purposes of
determining an executor's release from personal liability. If an
election has been made under section 6324A, the executor may not
substitute a bond pursuant to section 2204 in lieu of that lien. If a
bond has been supplied under section 2204, however, the executor may, by
filing a proper notice of election and agreement, substitute a lien
under section 6324A for any part or all of such bond.
(e) Relation of sections 6324A and 6324. If there is a lien under
this section on any property with respect to an estate, that lien is in
lieu of the lien provided by section 6324 on such property with respect
to the same estate.
(f) Section 6324A lien to be in lieu of bond under section 6165. The
lien under section 6324A is in lieu of any bond otherwise required under
section 6165 with respect to tax to be paid in installments under
section 6166 or section 6166A (as in effect prior to its repeal by
Economic Recovery Tax Act of 1981).
(g) Special rule for estates for which elections under section 6324A
are made on or before August 30, 1980. If a lien is elected under
section 6324A on or before August 30, 1980, the original election may be
revoked. To revoke an election, the executor must file a notice of
revocation containing the decedent's name, date of death, and taxpayer
identification number with the Internal Revenue Service office where the
original estate tax return for the decedent was filed. The notice must
be filed on or before January 31, 1981 (or if earlier, the date on which
the period of limitation for assessment expires).
(Approved by the Office of Management and Budget under control number
1545-0754)
(Secs. 2032A and 7805 of the Internal Revenue Code of 1954 (90 Stat.
1856, 68A Stat. 917; 26 U.S.C. 2032A, 7805); secs. 6324A(a) and 7805
of the Internal Revenue Code of 1954 (90 Stat. 1808, 68A Stat. 917; 26
U.S.C. 6324A(a), 7805))
(T.D. 7710, 45 FR 50747, July 31, 1980, as amended by T.D. 7941, 49
FR 4469, Feb. 7, 1984)
26 CFR 301.6325-1 Release of lien or discharge of property.
(a) Release of lien -- (1) Liability satisfied or unenforceable. Any
district director may issue a certificate of release of a lien imposed
with respect to any internal revenue tax, whenever he finds that the
entire liability for the tax has been satisfied or has become
unenforceable as a matter of law (and not merely uncollectible or
unenforceable as a matter of fact). Tax liabilities frequently are
unenforceable in fact for the time being, due to the temporary
nonpossession by the taxpayer of discoverable property or property
rights. In all cases the liability for the payment of the tax continues
until satisfaction of the tax in full or until the expiration of the
statutory period for collection, including such extension of the period
for collection as may be agreed upon in writing by the taxpayer and the
district director.
(2) Bond accepted. The district director may, in his discretion,
issue a certificate of release of any tax lien if he is furnished and
accepts a bond that is conditioned upon the payment of the amount
assessed (together with all interest in respect thereof), within the
time agreed upon in the bond, but not later than 6 months before the
expiration of the statutory period for collection, including any period
for collection agreed upon in writing by the district director and the
taxpayer. For provisions relating to bonds, see sections 7101 and 7102
and 301.7101-1 and 301.7102-1.
(b) Discharge of specific property from the lien -- (1) Property
double the amount of the liability. (i) The district director may, in
his discretion, issue a certificate of discharge of any part of the
property subject to a lien imposed under chapter 64 of the Code if he
determines that the fair market value of that part of the property
remaining subject to the lien is at least double the sum of the amount
of the unsatisfied liability secured by the lien and of the amount of
all other liens upon the property which have priority over the lien. In
general, fair market value is that amount which one ready and willing
but not compelled to buy would pay to another ready and willing but not
compelled to sell the property.
(ii) The following example illustrates a case in which a certificate
of discharge may not be given under this subparagraph:
Example. The Federal tax liability secured by a lien is $1,000. The
fair market value of all property which after the discharge will
continue to be subject to the Federal tax lien is $10,000. There is a
prior mortgage on the property of $5,000, including interest, and the
property is subject to a prior lien of $100 for real estate taxes.
Accordingly, the taxpayer's equity in the property over and above the
amount of the mortgage and real estate taxes is $4,900, or nearly five
times the amount required to pay the assessed tax on which the Federal
tax lien is based. Nevertheless, a discharge under this subparagraph is
not permissible. In the illustration, the sum of the amount of the
Federal tax liability ($1,000) and of the amount of the prior mortgage
and the lien for real estate taxes ($5,000+$100=$5,100) is $6,100.
Double this sum is $12,200, but the fair market value of the remaining
property is only $10,000. Hence, a discharge of the property is not
permissible under this subparagraph, since the Code requires that the
fair market value of the remaining property be at least double the sum
of two amounts, one amount being the outstanding Federal tax liability
and the other amount being all prior liens upon such property. In order
that the discharge may be issued, it would be necessary that the
remaining property be worth not less than $12,200.
(2) Part payment; interest of United States valueless -- (i) Part
payment. The district director may, in his discretion, issue a
certificate of discharge of any part of the property subject to a lien
imposed under chapter 64 of the Code if there is paid over to him in
partial satisfaction of the liability secured by the lien an amount
determined by him to be not less than the value of the interest of the
United States in the property to be so discharged. In determining the
amount to be paid, the district director will take into consideration
all the facts and circumstances of the case, including the expenses to
which the Government has been put in the matter. In no case shall the
amount to be paid be less than the value of the interest of the United
States in the property with respect to which the certificate of
discharge is to be issued.
(ii) Interest of the United States valueless. The district director
may, in his discretion, issue a certificate of discharge of any part of
the property subject to the lien if he determines that the interest of
the United States in the property to be so discharged has no value.
(iii) Valuation of interest of United States. For purposes of this
subparagraph, in determining the value of the interest of the United
States in the property, or any part thereof, with respect to which the
certificate of discharge is to be issued, the district director shall
give consideration to the value of the property and the amount of all
liens and encumbrances thereon having priority over the Federal tax
lien. In determining the value of the property, the district director
may, in his discretion, give consideration to the forced sale value of
the property in appropriate cases.
(3) Discharge of property by substitution of proceeds of sale. A
district director may, in his discretion, issue a certificate of
discharge of any part of the property subject to a lien imposed under
chapter 64 of the Code if such part of the property is sold and,
pursuant to a written agreement with the district director, the proceeds
of the sale are held, as a fund subject to the liens and claims of the
United States, in the same manner and with the same priority as the lien
or claim had with respect to the discharged property. This subparagraph
does not apply unless the sale divests the taxpayer of all right, title,
and interest in the property sought to be discharged. Any reasonable
and necessary expenses incurred in connection with the sale of the
property and the administration of the sale proceeds shall be paid by
the applicant or from the proceeds of the sale before satisfaction of
any lien or claim of the United States.
(4) Application for certificate of discharge. Any person desiring a
certificate of discharge under this paragraph shall submit an
application in writing to the district director responsible for
collection of the tax. The application shall contain such information
as the district director may require.
(c) Estate or gift tax liability fully satisfied or provided for --
(1) Certificate of discharge. If the district director determines that
the tax liability for estate or gift tax has been fully satisfied, he
may issue a certificate of discharge of any or all property from the
lien imposed thereon. If the district director determines that the tax
liability for estate or gift tax has been adequately provided for, he
may issue a certificate discharging particular items of property from
the lien. If a lien has arisen under section 6324B (relating to special
lien for additional estate tax attributable to farm, etc., valuation)
and the district director determines that the liability for additional
estate tax has been fully secured in accordance with 20.6324B-1(c) of
this chapter, the district director may issue a certificate of discharge
of the real property from the section 6324B lien. The issuance of such
a certificate is a matter resting within the discretion of the district
director, and a certificate will be issued only in case there is actual
need therefor. The primary purpose of such discharge is not to evidence
payment or satisfaction of the tax, but to permit the transfer of
property free from the lien in case it is necessary to clear title. The
tax will be considered fully satisfied only when investigation has been
completed and payment of the tax, including any deficiency determined,
has been made.
(2) Application for certificate of discharge. An application for a
certificate of discharge of property from the lien for estate or gift
tax should be filed with the district director responsible for the
collection of the tax. It should be made in writing under penalties of
perjury and should explain the circumstances that require the discharge,
and should fully describe the particular items for which the discharge
is desired. Where realty is involved each parcel sought to be
discharged from the lien should be described on a separate page and each
such description submitted in duplicate. In the case of an estate tax
lien, the application should show the applicant's relationship to the
estate, such as executor, heir, devisee, legatee, beneficiary,
transferee, or purchaser. If the estate or gift tax return has not been
filed, a statement under penalties of perjury may be required showing
(i) the value of the property to be discharged, (ii) the basis for such
valuation, (iii) in the case of the estate tax, the approximate value of
the gross estate and the approximate value of the total real property
included in the gross estate, (iv) in the case of the gift tax, the
total amount of gifts made during the calendar year and the prior
calendar years subsequent to the enactment of the Revenue Act of 1932
and the approximate value of all real estate subject to the gift tax
lien, and (v) if the property is to be sold or otherwise transferred,
the name and address of the purchaser or transferee and the
consideration, if any, paid or to be paid by him.
(3) For provisions relating to transfer certificates in the case of
nonresident estates, see 20.6325-1 of this chapter (Estate Tax
Regulations).
(d) Subordination of lien -- (1) By payment of the amount
subordinated. A district director may, in his discretion, issue a
certificate of subordination of a lien imposed under chapter 64 of the
Code upon any part of the property subject to the lien if there is paid
over to the district director an amount equal to the amount of the lien
or interest to which the certificate subordinates the lien of the United
States. For this purpose, the tax lien may be subordinated to another
lien or interest on a dollar-for-dollar basis. For example, if a notice
of a Federal tax lien is filed and a delinquent taxpayer secures a
mortgage loan on a part of the property subject to the tax lien and pays
over the proceeds of the loan to a district director after an
application for a certificate of subordination is approved, the district
director will issue a certificate of subordination. This certificate
will have the effect of subordinating the tax lien to the mortgage.
(2) To facilitate tax collection -- (i) In general. A district
director may, in his discretion, issue a certificate of subordination of
a lien imposed under chapter 64 of the Code upon any part of the
property subject to the lien if the district director believes that the
subordination of the lien will ultimately result in an increase in the
amount realized by the United States from the property subject to the
lien and will facilitate the ultimate collection of the tax liability.
(ii) Examples. The provisions of this subparagraph may be
illustrated by the following examples:
Example 1. A, a farmer needs money in order to harvest his crop. A
Federal tax lien, notice of which has been filed, is outstanding with
respect to A's property. B, a lending institution is willing to make
the necessary loan if the loan is secured by a first mortgage on the
farm which is prior to the Federal tax lien. Upon examination, the
district director believes that ultimately the amount realizable from
A's property will be increased and the collection of the tax liability
will be facilitated by the availability of cash when the crop is
harvested and sold. In this case, the district director may, in his
discretion, subordinate the tax lien on the farm to the mortgage
securing the crop harvesting loan.
Example 2. C owns a commercial building which is deteriorating and
in unsalable condition. Because of outstanding Federal tax liens,
notices of which have been filed, C is unable to finance the repair and
rehabilitation of the building. D, a contractor, is willing to do the
work if his mechanic's lien on the property is superior to the Federal
tax liens. Upon examination, the district director believes that
ultimately the amount realizable from C's property will be increased and
the collection of the tax liability will be facilitated by arresting
deterioration of the property and restoring it to salable condition. In
this case, the district director may, in his discretion, subordinate the
tax lien on the building to the mechanic's lien.
Example 3. E, a manufacturer of electronic equipment, obtains
financing from F, a lending institution, pursuant to a security
agreement, with respect to which a financing statement was duly filed
under the Uniform Commercial Code on June 1, 1970. On April 15, 1971, F
gains actual notice or knowledge that notice of a Federal tax lien had
been filed against E on March 31, 1971, and F refuses to make further
advances unless its security interest is assured of priority over the
Federal tax lien. Upon examination, the district director believes that
ultimately the amount realizable from E's property will be increased and
the collection of the tax liability will be facilitated if the work in
process can be completed and the equipment sold. In this case, the
district director may, in his discretion, subordinate the tax lien to
F's security interest for the further advances required to complete the
work.
Example 4. Suit is brought against G by H, who claims ownership of
property the legal title to which is held by G. A Federal tax lien
against G, notice of which has previously been filed, will be
enforceable against the property if G's title is confirmed. Because
section 6323(b)(8) is inapplicable, J, an attorney, is unwilling to
defend the case for G unless he is granted a contractual lien on the
property, superior to the Federal tax lien. Upon examination, the
district director believes that the successful defense of the case by G
will increase the amount ultimately realizable from G's property and
will facilitate collection of the tax liability. In this case, the
district director may, in his discretion, subordinate the tax lien to
J's contractual lien on the disputed property to secure J's reasonable
fees and expenses.
(3) Subordination of section 6324B lien. The district director may
issue a certificate of subordination with respect to a lien imposed by
section 6324B if the district director determines that the interests of
the United States will be adequately secured after such subordination.
For example, A, a qualified heir of qualified real property, needs to
borrow money for farming purposes. If the current fair market value of
the real property is $150,000, the amount of the claim to which the
special lien is to be subordinated is $40,000, the potential liability
for additional tax (as defined in section 2032A(c)) is less than
$55,000, and there are no other facts to indicate that the interest of
the United States will not be adequately secured, the district director
may issue a certificate of subordination. The result would be the same
if the loan were for bona fide purposes other than farming.
(4) Application for certificate of subordination. Any person
desiring a certificate of subordination under this paragraph shall
submit an application therefor in writing to the district director
responsible for the collection of the tax. The application shall
contain such information as the district director may require.
(e) Nonattachment of lien. If a district director determines that,
because of confusion of names or otherwise, any person (other than the
person against whom the tax was assessed) is or may be injured by the
appearance that a notice of lien filed in accordance with 301.6323(f)-1
refers to such person, the district director may issue a certificate of
nonattachment. Such certificate shall state that the lien, notice of
which has been filed, does not attach to the property of such person.
Any person desiring a certificate of nonattachment under this paragraph
shall submit an application therefor in writing to the district director
responsible for the collection of the tax. The application shall
contain such information as the district director may require.
(f) Effect of certificate -- (1) Conclusiveness. Except as provided
in subparagraphs (2) and (3) of this paragraph, if a certificate is
issued under section 6325 by a district director and the certificate is
filed in the same office as the notice of lien to which it relates (if
the notice of lien has been filed), the certificate shall have the
following effect --
(i) In the case of a certificate of release issued under paragraph
(a) of this section, the certificate shall be conclusive that the tax
lien referred to in the certificate is extinguished;
(ii) In the case of a certificate of discharge issued under paragraph
(b) or (c) of this section, the certificate shall be conclusive that the
property covered by the certificate is discharged from the tax lien;
(iii) In the case of a certificate of subordination issued under
paragraph (d) of this section, the certificate shall be conclusive that
the lien or interest to which the Federal tax lien is subordinated is
superior to the tax lien; and
(iv) In the case of a certificate of nonattachment issued under
paragraph (e) of this section, the certificate shall be conclusive that
the lien of the United States does not attach to the property of the
person referred to in the certificate.
(2) Revocation of certificate of release or nonattachment -- (i) In
general. If a district director determines that either --
(a) A certificate of release or a certificate of nonattachment of the
general tax lien imposed by section 6321 was issued erroneously or
improvidently, or
(b) A certificate of release of such lien was issued in connection
with a compromise agreement under section 7122 which has been breached,
and if the period of limitation on collection after assessment of the
tax liability has not expired, the district director may revoke the
certificate and reinstate the tax lien. The provisions of this
subparagraph do not apply in the case of the lien imposed by section
6324 relating to estate and gift taxes.
(ii) Method of revocation and reinstatement. The revocation and
reinstatement described in subdivision (i) of this subparagraph is
accompanied by --
(a) Mailing notice of the revocation to the taxpayer at his last
known address, and
(b) Filing notice of the revocation of the certificate in the same
office in which the notice of lien to which it relates was filed (if the
notice of lien has been filed).
(iii) Effect of reinstatement -- (a) Effective date. A tax lien
reinstated in accordance with the provisions of this subparagraph is
effective on and after the date the notice of revocation is mailed to
the taxpayer in accordance with the provisions of subdivision (ii)(a) of
this subparagraph, but the reinstated lien is not effective before the
filing of notice of revocation, in accordance with the provisions of
subdivision (ii)(b) of this subparagraph, if the filing is required by
reason of the fact that a notice of the lien had been filed.
(b) Treatment of reinstated lien. As of the effective date of
reinstatement, a reinstated lien has the same force and effect as a
general tax lien imposed by section 6321 which arises upon assessment of
a tax liability. The reinstated lien continues in existence until the
expiration of the period of limitation on collection after assessment of
the tax liability to which it relates. The reinstatement of the lien
does not retroactively reinstate a previously filed notice of lien. The
reind lien became effective.
(iv) Example. The provisions of this subparagraph may be illustrated
by the following example:
Example. On March 1, 1967, an assessment of an unpaid Federal tax
liability is made against A. On March 1, 1968, notice of the Federal
tax lien, which arose at the time of assessment, is filed. On April 1,
1968, A executes a bona fide mortgage on property belonging to him to B.
On May 1, 1968, a certificate of release of the tax lien is erroneously
issued and is filed by A in the same office in which the notice of lien
was filed. On June 3, 1968, the lien is reinstated in accordance with
the provisions of this subparagraph. On July 1, 1968, A executes a bona
fide mortgage on property belonging to him to C. On August 1, 1968, a
notice of the lien which was reinstated is properly filed in accordance
with the provisions of 301.6323(f)-1. The mortgages of both B and C
will have priority over the rights of the United States with respect to
the tax liability in question. Because a reinstated lien continues in
existence only until the expiration of the period of limitation on
collection after assessment of the tax liability to which the lien
relates, in the absence of any extension or suspension of the period of
limitation on collection after assessment, the reinstated lien will
become unenforceable by reason of lapse of time after February 28, 1973.
(3) Certificates void under certain conditions. Notwithstanding any
other provisions of subtitle F of the Code, any lien for Federal taxes
attaches to any property with respect to which a certificate of
discharge has been issued if the person liable for the tax reacquires
the property after the certificate has been issued. Thus, if property
subject to a Federal tax lien is discharged therefrom and is later
reacquired by the delinquent taxpayer at a time when the lien is still
in existence, the tax lien attaches to the reacquired property and is
enforceable against it as in the case of after-acquired property
generally.
(g) Filing of certificates and notices. If a certificate or notice
described in this section may not be filed in the office designated by
State law in which the notice of lien imposed by section 6321 (to which
the certificate or notice relates) is filed, the certificate or notice
is effective if filed in the office of the clerk of the United States
district court for the judicial district in which the State office where
the notice of lien is filed is situated.
(Secs. 6324B (90 Stat. 1861, 26 U.S.C. 6324B) and 7805 (68A Stat.
917, 26 U.S.C. 7805))
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7429, 41 FR 35512,
Aug. 23, 1976; T.D. 7847, 47 FR 50857, Nov. 10, 1982)
26 CFR 301.6326-1 Administrative appeal of the erroneous filing of
notice of federal tax lien.
(a) In general. Any person may appeal to the district director of
the district in which a notice of federal tax lien was filed on the
property or rights to property of such person for a release of lien
alleging an error in the filing of notice of lien. Such appeal may be
used only for the purpose of correcting the erroneous filing of a notice
of lien, not to challenge the underlying deficiency that led to the
imposition of a lien. If the district director determines that the
Internal Revenue Service has erroneously filed the notice of any federal
tax lien, the district director shall expeditiously, and, to the extent
practicable, within 14 days after such determination, issue a
certificate of release of lien. The certificate of release of such lien
shall include a statement that the filing of notice of lien was
erroneous.
(b) Appeal alleging an error in the filing of notice of lien. For
purposes of paragraph (a) of this section, an appeal of the filing of
notice of federal tax lien must be based on any one of the following
allegations:
(1) The tax liability that gave rise to the lien, plus any interest
and additions to tax associated with said liability, was satisfied prior
to the filing of notice of lien;
(2) The tax liability that gave rise to the lien was assessed in
violation of the deficiency procedures set forth in section 6213 of the
Internal Revenue Code;
(3) The tax liability that gave rise to the lien was assessed in
violation of Title 11 of the United States Code (the Bankruptcy Code);
or
(4) The statutory period for collection of the tax liability that
gave rise to the lien expired prior to the filing of notice of federal
tax lien.
(c) Notice of federal tax lien that lists multiple liabilities. When
a notice of federal tax lien lists multiple liabilities, a person may
appeal the filing of notice of lien with respect to one or more of the
liabilities listed in the notice, if the notice was erroneously filed
with respect to such liabilities. If a notice of federal tax lien was
erroneously filed with respect to one or more liabilities listed in the
notice, the district director shall issue a certificate of release with
respect to such liabilities. For example, if a notice of federal tax
lien lists tax liabilities for years 1980, 1981 and 1982, and the entire
liabilities for 1981 and 1982 were paid prior to the filing of notice of
lien, the taxpayer may appeal the filing of notice of lien with respect
to the 1981 and 1982 liabilities and the district director must issue a
certificate of release with respect to the 1981 and 1982 liabilities.
(d) Procedures for appeal -- (1) Manner. An appeal of the filing of
notice of federal tax lien shall be made in writing to the district
director (marked for the attention of the Chief, Special Procedures
Function) of the district in which the notice of federal tax lien was
filed.
(2) Form. The appeal shall include the following information and
documents:
(i) Name, current address, and taxpayer identification number of the
person appealing the filing of notice of federal tax lien;
(ii) A copy of the notice of federal tax lien affecting the property,
if available; and
(iii) The grounds upon which the filing of notice of federal tax lien
is being appealed.
(A) If the ground upon which the filing of notice is being appealed
is that the tax liability in question was satisfied prior to the filing,
proof of full payment as defined in paragraph (e) of this section must
be provided.
(B) If the ground upon which the filing of notice is being appealed
is that the tax liability that gave rise to lien was assessed in
violation of the deficiency procedures set forth in section 6213 of the
Internal Revenue Code, the appealing party must explain how the
assessment was erroneous.
(C) If the ground upon which the filing of notice is being appealed
is that the tax liability that gave rise to the lien was assessed in
violation of Title 11 of the United States Code (the Bankruptcy Code),
the appealing party must provide the following:
(1) The identity of the court and the district in which the
bankruptcy petition was filed; and
(2) The docket number and the date of filing of the bankruptcy
petition.
(3) Time. An administrative appeal of the erroneous filing of notice
of federal tax lien shall be made within 1 year after the taxpayer
becomes aware of the erroneously filed tax lien.
(e) Proof of full payment. As used in paragraph (d)(2)(iii) of this
section, the term ''proof of full payment'' means:
(1) An internal revenue cashier's receipt reflecting full payment of
the tax liability in question prior to the date the federal tax lien
issue was filed;
(2) A canceled check to the Internal Revenue Service in an amount
which was sufficient to satisfy the tax liability for which release is
being sought; or
(3) Any other manner of proof acceptable to the district director.
(f) Exclusive remedy. The appeal established by section 6326 of the
Internal Revenue Code and by this section shall be the exclusive
administrative remedy with respect to the erroneous filing of a notice
of federal tax lien.
(g) Effective date. The provisions of this section are effective
July 7, 1989.
(T.D. 8250, 54 FR 19569, May 8, 1989. Redesignated at 56 FR 19948,
May 1, 1991)
26 CFR 301.6326-1 Seizure of Property for Collection of Taxes
26 CFR 301.6331-1 Levy and distraint.
(a) Authority to levy -- (1) In general. If any person liable to pay
any tax neglects or refuses to pay the tax within 10 days after notice
and demand, the district director to whom the assessment is charged (or,
upon his request, any other district director) may proceed to collect
the tax by levy. The district director may levy upon any property, or
rights to property, whether real or personal, tangible or intangible,
belonging to the taxpayer. The district director may also levy upon
property with respect to which there is a lien provided by section 6321
or 6324 for the payment of the tax. For exemption of certain property
from levy, see section 6334 and the regulations thereunder. As used in
section 6331 and this section, the term ''tax'' includes any interest,
additional amount, addition to tax, or assessable penalty, together with
costs and expenses. Property subject to a Federal tax lien which has
been sold or otherwise transferred by the taxpayer may be seized while
in the hands of the transferee or any subsequent transferee. However,
see provisions under sections 6323 and 6324 (a)(2) and (b) for
protection of certain transferees against a Federal tax lien. Levy may
be made by serving a notice of levy on any person in possession of, or
obligated with respect to, property or rights to property subject to
levy, including receivables, bank accounts, evidences of debt,
securities, and salaries, wages, commissions, or other compensation.
Except as provided in 301.6331-2(c) with regard to a levy on salary or
wages, a levy extends only to property possessed and obligations which
exist at the time of the levy. Obligations exist when the liability of
the obligor is fixed and determinable although the right to receive
payment thereof may be deferred until a later date. For example, if on
the first day of the month a delinquent taxpayer sold personal property
subject to an agreement that the buyer remit the purchase price on the
last day of the month, a levy made on the buyer on the 10th day of the
month would reach the amount due on the sale, although the buyer need
not satisfy the levy by paying over the amount to the district director
until the last day of the month. Similarly, a levy only reaches
property in the possession of the person levied upon at the time the
levy is made. For example, a levy made on a bank with respect to the
account of a delinquent taxpayer is satisfied if the bank surrenders the
amount of the taxpayer's balance at the time the levy is made. The levy
has no effect upon any subsequent deposit made in the bank by the
taxpayer. Subsequent deposits may be reached only by a subsequent levy
on the bank.
(2) Jeopardy cases. If the district director finds that the
collection of any tax is in jeopardy, he may make notice and demand for
immediate payment of such tax and, upon failure or refusal to pay such
tax, collection thereof by levy shall be lawful without regard to the
10-day period provided in section 6331 (a).
(3) Bankruptcy or receivership cases. During a bankruptcy proceeding
or a receivership proceeding in either a Federal or a State court, the
assets of the taxpayer are in general under the control of the court in
which such proceeding is pending. Taxes cannot be collected by levy
upon assets in the custody of a court, whether or not such custody is
incident to a bankruptcy or receivership proceeding, except where the
proceeding has progressed to such a point that the levy would not
interfere with the work of the court or where the court grants
permission to levy. Any assets which under applicable provisions of law
are not under the control of the court may be levied upon, for example,
property exempt from court custody under State law or the bankrupt's
earnings and property acquired after the date of bankruptcy. However,
levy upon such property is not mandatory and the Government may rely
upon payment of taxes in the proceeding.
(4) Certain types of compensation -- (i) Federal employees. Levy may
be made upon the salary or wages of any officer or employee (including
members of the Armed Forces), or elected or appointed official, of the
United States, the District of Columbia, or any agency or
instrumentality of either, by serving a notice of levy on the employer
of the delinquent taxpayer. As used in this subdivision, the term
''employer'' means (a) the officer or employee of the United States, the
District of Columbia, or of the agency or instrumentality of the United
States or the District of Columbia, who has control of the payment of
the wages, or (b) any other officer or employee designated by the head
of the branch, department, agency, or instrumentality of the United
States or of the District of Columbia as the party upon whom service of
the notice of levy may be made. If the head of such branch, department,
agency or instrumentality designates an officer or employee other than
one who has control of the payment of the wages, as the party upon whom
service of the notice of levy may be made, such head shall promptly
notify the Commissioner of the name and address of each officer or
employee so designated and the scope or extent of his authority as such
designee.
(ii) State and municipal employees. Salaries, wages, or other
compensation of any officer, employee, or elected or appointed official
of a State or Territory, or of any agency, instrumentality, or political
subdivision thereof, are also subject to levy to enforce collection of
any Federal tax.
(iii) Seamen. Notwithstanding the provisions of section 12 of the
Seamen's Act of 1915 (46 U.S.C. 601), wages of seamen, apprentice
seamen, or fishermen employed on fishing vessels are subject to levy.
See section 6334(c).
(5) Noncompetent Indians. Solely for purposes of sections 6321 and
6331, any interest in restricted land held in trust by the United States
for an individual noncompetent Indian (and not for a tribe) shall not be
deemed to be property, or a right to property, belonging to such Indian.
(b) Successive seizures. Whenever any property or rights to property
upon which a levy has been made are not sufficient to satisfy the claim
of the United States for which the levy is made, the district director
may thereafter, and as often as may be necessary, proceed to levy in
like manner upon any other property or rights to property subject to
levy of the person against whom such claim exists or on which there is a
lien imposed by section 6321 or 6324 (or the corresponding provision of
prior law) for the payment of such claim until the amount due from such
person, together with all costs and expenses, is fully paid.
(c) Service of notice of levy by mail. A notice of levy may be
served by mailing the notice to the person upon whom the service of a
notice of levy is authorized under paragraph (a)(1) of this section. In
such a case the date and time the notice is delivered to the person to
be served is the date and time the levy is made. If the notice is sent
by certificated mail, return receipt requested, the date of delivery on
the receipt is treated as the date the levy is made. If, after receipt
of a notice of levy, an officer or other person authorized to act on
behalf of the person served signs and notes the date and time of receipt
on the notice of levy, the date and time so noted will be presumed to
be, in the absence of proof to the contrary, the date and time of
delivery.
Any person may, upon written notice to the district director having
audit jurisdiction over such person, have all notices of levy by mail
sent to one designated office. After such a notice is received by the
district director, notices of levy by mail will be sent to the
designated office until a written notice withdrawing the request or a
written notice designating a different office is received by the
district director.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7139, 36 FR 15041,
Aug. 12, 1971; T.D. 7620, 44 FR 27987, May 14, 1979; T.D. 7874, 48 FR
10061, Mar. 10, 1983)
26 CFR 301.6331-2 Levy and distraint on salary and wages.
(a) Notice of intent to levy. Levy may be made upon the salary or
wages of a taxpayer for any unpaid tax only after the district director
or the director of the service center has notified the taxpayer in
writing of the intent to levy. The notice must be given in person, left
at the dwelling or usual place of business of the taxpayer, or be sent
by mail to the taxpayer's last known address, no less than 10 days
before the day of levy. The notice of intent to levy is in addition to,
and may be given at the same time as, the notice and demand described in
301.6331-1.
(b) Jeopardy. Paragraph (a) of this section does not apply to a levy
if the district director or director of the service center has made a
finding under 301.6331-1(a)(2) that the collection of tax is in
jeopardy.
(c) Continuing effect of levy. A levy on salary or wages is
continuous from the time of the levy until the liability out of which
the levy arose is satisfied or becomes unenforceable by reason of lapse
of time. For this purpose, the term ''salary or wages'' includes
compensation for services paid in the form of fees, commissions,
bonuses, and similar items. The levy attaches to both salary or wages
earned but not yet paid at the time of the levy, and salary or wages
earned and becoming payable (or paid in the form of an advance)
subsequent to the date of the levy, until the levy is released pursuant
to paragraph (d) of this section. In general, salaries or wages that
are the subject of a continuing levy, if not exempt from levy under
section 6334(a) (8) or (9), become payable to the district director as
the payor would otherwise be obligated to pay over the money to the
taxpayer. For example, if the wage earner is paid on the Wednesday
following the close of each workweek, a levy made upon his employer on
any Monday would reach both his wages due for the prior workweek and his
wages for succeeding workweeks as such wages become payable. In such a
case the levy would be satisfied if the employer, on the first Wednesday
after the levy and on each Wednesday thereafter, pays over to the
district director wages which would otherwise be paid to the employee on
such Wednesday, until the employer receives a notice of release from
levy described in paragraph (d) of this section. See, however,
301.6334-5(d) for rules which permit a delayed payment to the district
director in certain cases where amounts payable to the taxpayer are
exempt from levy under section 6334(a)(9) and (d).
(d) Release and notice of release from levy. The district director
will promptly release a continuing levy on salary or wages when the
liability out of which the levy arose is satisfied or becomes
unenforceable by reason of lapse of time. The district director will
also promptly notify the person upon whom the levy was made that it has
been released. levies made after March 31, 1972. Paragraphs (c) and
(d) of this section apply to levies made after February 28, 1977.
(T.D. 7620, 44 FR 27988, May 14, 1979)
26 CFR 301.6332-1 Surrender of property subject to levy.
(a) Requirement -- (1) In general. Except as otherwise provided in
301.6332-2, relating to levy in the case of life insurance and endowment
contracts, and in 301.6332-3, relating to property held by banks, any
person in possession of (or obligated with respect to) property or
rights to property subject to levy and upon which a levy has been made
shall, upon demand of the district director, surrender the property or
rights (or discharge the obligation) to the district director, except
that part of the property or rights (or obligation) which, at the time
of the demand, is actually or constructively under the jurisdiction of a
court because of an attachment or execution under any judicial process.
(2) Levy on bank deposits held in offices outside the United States.
Notwithstanding subparagraph (1) of this paragraph (a), if a levy has
been made upon property or rights to property subject to levy which a
bank engaged in the banking business in the United States or a
possession of the United States is in possession of (or obligated with
respect to), the Commissioner shall not enforce the levy with respect to
any deposits held in an office of the bank outside the United States or
a possession of the United States, unless the notice of levy specifies
that the district director intends to reach such deposits. The notice
of levy shall not specify that the district director intends to reach
such deposits unless the district director believes --
(i) That the taxpayer is within the jurisdiction of a U.S. court at
the time the levy is made and that the bank is in possession of (or
obligated with respect to) deposits of the taxpayer in an office of the
bank outside the United States or a possession of the United States; or
(ii) That the taxpayer is not within the jurisdiction of a U.S.
court at the time the levy is made, that the bank is in possession of
(or obligated with respect to) deposits of the taxpayer in an office
outside the United States or a possession of the United States, and that
such deposits consist, in whole or in part, of funds transferred from
the United States or a possession of the United States in order to
hinder or delay the collection of a tax imposed by the Code. For
purposes of this subparagraph, the term ''possession of the United
States'' includes Guam, the Midway Islands, the Panama Canal Zone, the
Commonwealth of Puerto Rico, American Samoa, the Virgin Islands, and
Wake Island.
(b) Enforcement of levy -- (1) Extent of personal liability. Any
person who, upon demand of the district director, fails or refuses to
surrender any property or right to property subject to levy is liable in
his own person and estate in a sum equal to the value of the property or
rights not so surrendered, together with costs and interest. The
liability, however, may not exceed the amount of the taxes for the
collection of which the levy was made. Interest is to be computed at
the annual rate referred to in regulations under section 6621 from the
date of the levy, or, in the case of a continuing levy on salary or
wages (see section 6331(d)(3)), from the date the person would otherwise
have been obligated to pay over the wages or salary to the taxpayer.
Any amount recovered, other than cost, will be credited against the tax
liability for the collection of which the levy was made.
(2) Penalty for violation. In addition to the personal liability
described in subparagraph (1) of this paragraph (b), any person who is
required to surrender property or rights to property and who fails or
refuses to surrender them without reasonable cause is liable for a
penalty equal to 50 percent of the amount recoverable under section
6332(d)(1). No part of the penalty described in this subparagraph shall
be credited against the tax liability for the collection of which the
levy was made. The penalty described in this subparagraph is not
applicable in cases where bona fide dispute exists concerning the amount
of the property to be surrendered pursuant to a levy or concerning the
legal effectiveness of the levy. However, if a court in a later
enforcement suit sustains the levy, then reasonable cause would usually
not exist to refuse to honor a later levy made under similar
circumstances.
(c) Effect of honoring levy -- (1) In general. Any person in
possession of, or obligated with respect to, property or rights to
property subject to levy and upon which a levy has been made who, upon
demand by the district director, surrenders the property or rights to
property, or discharges the obligation, to the district director, or who
pays a liability described in paragraph (b)(1) of this section, is
discharged from any obligation or liability to the delinquent taxpayer
and any other person with respect to the property or rights to property
arising from the surrender or payment.
(2) Exception for certain incorrectly surrendered property. Any
person who surrenders to the Internal Revenue Service property or rights
to property not properly subject to levy in which the delinquent
taxpayer has no apparent interest is not relieved of liability to a
third party who has an interest in the property. However, if the
delinquent taxpayer has an apparent interest in property or rights to
property, a person who makes a good faith determination that such
property or rights to property in his or her possession has been levied
upon by the Internal Revenue Service and who surrenders the property to
the United States in response to the levy is relived of liability to a
third party who has an interest in the property or rights to property,
even if it is subsequently determined that the property was not properly
subject to levy.
(3) Remedy. In situations described in paragraphs (c)(1) and (c)(2)
of this section, taxpayers and third parties who have an interest in
property surrendered in response to a levy may secure from the Internal
Revenue Service the administrative relief provided for in section
6343(b) or may bring suit to recover the property under section 7426.
(4) Examples. The provisions of this paragraph (c) may be
illustrated by the following examples:
Example 1. M Bank is served with a notice of levy for an unpaid tax
liability due from A in the amount of $2,000. M Bank holds $2,000 in a
checking account in the names of A or B or C. Although all of the
deposits into the account were made by B and C, A has an unrestricted
right to withdraw the funds from the account. M Bank surrenders the
entire account to the district director at the end of the holding period
provided in section 6332(c). Under paragraph (c)(1) of this section, M
Bank is not liable to B or C for any amount, even if B or C prove that
the funds in the account did not belong to A, because A's unrestricted
right to withdraw the funds is an interest which in subject to levy. B
or C may, however, seek the return of the funds from the United States
as provided in sections 6343(b) and 7426 of the Internal Revenue Code.
Example 2. A is indebted to B for $400. Unbeknownst to A, B has
assigned his right to receive payment to C. A is served with a notice
of levy for an unpaid tax liability due from B for $400. A, acting with
no knowledge of the assignment to C, surrenders $400 to the district
director. A is discharged from his obligation to pay B, the taxpayer.
Under paragraph (c)(2) of this section, because B had an apparent
interest in the funds that A owed to B, and because A determined in good
faith that those funds had been levied upon, A is also discharged from
any liability to C, even though the money is not properly subject to
levy. C may, however, seek return of the payment from the United States
as provided in sections 6343(b) and 7426 of the Internal Revenue Code.
Example 3. M Bank is served with a notice of levy for an unpaid tax
liability due from ''John H. Smith, Sr.'' in the amount of $5,000. M
Bank fails to read the notice of levy carefully. When searching its
records, M Bank finds the name of ''John H. Smith, Jr.'' and looks no
further. M Bank surrenders $5,000 from John H. Smith, Jr.'s checking
account to the district director. M Bank is not discharged from
liability under section 6332(e) of the Internal Revenue Code because the
delinquent taxpayer (John H. Smith, Sr.) had no apparent interest in the
account of John H. Smith, Jr. (Generally, John H. Smith Jr. may seek
return of the payment from the United States as provided in sections
6343 and 7426 of the Internal Revenue Code.)
Example 4. M Bank is served with a notice of levy for an unpaid tax
liability due from ''Robert A. Jones'' in the amount of $5,000. M Bank
searches its records and identifies four separate accounts of $1,000
each in the name of ''Robert A. Jones.'' All four accounts list
different addresses and social security identification numbers. M Bank
surrenders all four accounts totalling $4,000 in response to the levy.
M Bank could not in good faith have determined that all four accounts
were levied upon. Therefore, M Bank is not discharged from liability to
any person other than the taxpayer whose account was levied upon.
(5) Effective date. Paragraph (c) of this section is effective
January 11, 1993. However, persons surrendering property to the
Internal Revenue Service may rely on the regulations with respect to
levies issued after November 10, 1988.
(d) Person defined. The term ''person,'' as used in section 6332(a)
and this section, includes an officer or employee of a corporation or a
member or employee of a partnership, who is under a duty to surrender
the property or rights to property or to discharge the obligation. In
the case of a levy upon the salary or wages of an officer, employee, or
elected or appointed official of the United States, the District of
Columbia, or any agency or instrumentality of either, the term
''person'' includes the officer or employee of the United States, of the
District of Columbia, or of such agency or instrumentality who is under
a duty to discharge the obligation. As to the officer or employee who
is under such duty, see paragraph (a)(4)(i) of 301.6331-1.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7317, Apr.
13, 1972; T.D. 7620, 44 FR 27988, May 14, 1979; T. D. 8466, 58 FR 17,
Jan. 4, 1993; T. D.8467, 58 FR 3829, Jan. 12, 1993)
26 CFR 301.6332-2 Surrender of property subject to levy in the case of
life insurance and endowment contracts.
(a) In general. This section provides special rules relating to the
surrender of property subject to levy in the case of life insurance and
endowment contracts. The provisions of 301.6332-1 which relate
generally to the surrender of property subject to levy apply, to the
extent not inconsistent with the special rules set forth in this
section, to a levy in the case of life insurance and endowment
contracts.
(b) Effect of service of notice of levy -- (1) In general. A notice
of levy served by a district director on an insuring organization with
respect to a life insurance or endowment contract issued by the
organization shall constitute --
(i) A demand by the district director for the payment of the cash
loan value of the contract adjusted in accordance with paragraph (c) of
this section, and
(ii) The exercise of the right of the person against whom the tax is
assessed to the advance of such cash loan value. It is unnecessary for
the district director to surrender the contract document to the insuring
organization upon which the levy is made. However, the notice of levy
will include a certification by the district director that a copy of the
notice of levy has been mailed to the person against whom the tax is
assessed at his last known address. At the time of service of the
notice of levy, the levy is effective with respect to the cash loan
value of the insurance contract, subject to the condition that if the
levy is not satisfied or released before the 90th day after the date of
service, the levy can be satisfied only by payment of the amount
described in paragraph (c) of this section. Other than satisfaction or
release of the levy, no event during the 90-day period subsequent to the
date of service of the notice of levy shall release the cash loan value
from the effect of the levy. For example, the termination of the policy
by the taxpayer or by the death of the insured during such 90-day period
shall not release the levy. For the rules relating to the time when the
insuring organization is to pay over the required amount, see paragraph
(c) of this section.
(2) Notification of amount subject to levy -- (i) Full payment before
the 90th day. In the event that the unpaid liability to which the levy
relates is satisfied at any time during the 90-day period subsequent to
the date of service of the notice of levy, the district director will
promptly give the insuring organization written notification that the
levy is released.
(ii) Notification after the 90th day. In the event that notification
is not given under subdivision (i) of this subparagraph, the district
director will, promptly following the 90th day after service of the
notice of levy, give the insuring organization written notification of
the current status of all accounts listed on the notice of levy, and of
the total payments received since service of the notice of levy. This
notification will be given to the insuring organization whether or not
there has been any change in the status of the accounts.
(c) Satisfaction of levy -- (1) In general. The levy described in
paragraph (b) of this section with respect to a life insurance or
endowment contract shall be deemed to be satisfied if the insuring
organization pays over to the district director the amount which the
person against whom the tax is assessed could have had advanced to him
by the organization on the 90th day after service of the notice of levy
on the organization. However, this amount is increased by the amount of
any advance (including contractual interest thereon), generally called a
policy loan, made to the person on or after the date the organization
has actual notice or knowledge, within the meaning of section
6323(i)(1), of the existence of the tax lien with respect to which the
levy is made. The insuring organization may, nevertheless, make an
advance (including contractual interest thereon), generally called an
automatic premium loan, made automatically to maintain the contract in
force under an agreement entered into before the organization has such
actual notice or knowledge. In any event, the amount paid to the
district director by the insuring organization is not to exceed the
amount of the unpaid liability shown on the notification described in
paragraph (b)(2) of this section. The amount, determined in accordance
with the provisions of this section, subject to the levy shall be paid
to the district director by the insuring organization promptly after
receipt of the notification described in paragraph (b)(2) of this
section. The satisfaction of a levy with respect to a life insurance or
endowment contract will not discharge the contract from the tax lien.
However, see section 6323(b)(9)(C) and the regulations thereunder
concerning the liability of an insurance company after satisfaction of a
levy with respect to a life insurance or endowment contract. If the
person against whom the tax is assessed so directs, the insuring
organization, on a date before the 90th day after service of the notice
of levy, may satisfy the levy by paying over an amount computed in
accordance with the provisions of this subparagraph substituting such
date for the 90th day. In the event of termination of the policy by the
taxpayer or by the death of the insured on a date before the 90th day
after service of the notice of levy, the amount to be paid over to the
district director by the insuring organization in satisfaction of the
levy shall be an amount computed in accordance with the provisions of
this subparagraph substituting the date of termination of the policy or
the date of death for the 90th day.
(2) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. On March 5, 1968, a notice of levy for an unpaid income
tax assessment due from A in the amount of $3,000 is served on the X
Insurance Company with respect to A's life insurance policy. On March
5, 1968, the cash loan value of the policy is $1,500. On April 9, 1968,
A does not pay a premium due on the policy in the amount of $200. Under
an automatic premium advance provision contained in the policy
originally issued in 1960, X advances the premium out of the cash value
of the policy. As of June 3, 1968 (the 90th day after service of the
notice of levy), pursuant to the provisions of the policy, the amount of
accrued charges upon the automatic premium advance in the amount of $200
for the period April 9, 1968, through June 3, 1968, is $2. On June 5,
1968, the district director gives written notification to X indicating
that A's unpaid tax assessment is $2,500. Under this section, X is
required to pay to the district director, promptly after receipt of the
June 5, 1968, notification, the sum of $1,298 ($1,500 less $200 less
$2), which is the amount A could have had advanced to him by X on June
3, 1968.
Example 2. Assume the same facts as in example 1 except that on May
10, 1968, A requests and X grants an advance in the amount of $1,000. X
has actual notice of the existence of the lien by reason of the service
of the notice of levy on March 5, 1968. This advance is not required to
be made automatically under the policy and reduces the amount of the
cash value of the policy. For the use of the $1,000 advance during the
period May 10, 1968, through June 3, 1968, X charges A the sum of $3.
Under this section, X is required to pay to the district director,
promptly after receipt of the June 5, 1968, notification, the sum of
$1,298. This $1,298 amount is composed of the $295 amount ($1,500 less
$200 less $2 less $1,000 less $3) A could have had advanced to him by X
on June 3, 1968, plus the $1,000 advance plus the charges in the amount
of $3 with respect thereto.
Example 3. Assume the same facts as in example 1 except that the
insurance contract does not contain an automatic premium advance
provision. The contract does provide that, upon default in the payment
of premiums, the policy shall automatically be converted to paid-up term
insurance with no cash or loan value. A fails to make the premium
payment of $200 due on April 9, 1968. After expiration of a grace
period to make the premium payment, the X Insurance Company applies the
cash loan value of $1,500 to effect the conversion. Since the service
of the notice of levy constitutes the exercise of A's right to receive
the cash loan value and the amount applied to effect the conversion is
not an automatic advance to A to maintain the policy in force, the
conversion of the policy is not an event which will release the cash
loan value from the effect of the levy. Therefore, X Insurance Company
is required to pay to the district director, promptly after receipt of
the June 5, 1968 notification, the sum of $1,500.
(d) Other enforcement proceedings. The satisfaction of the levy
described in paragraph (b) of this section by an insuring organization
shall be without prejudice to any civil action for the enforcement of
any Federal tax lien with respect to a life insurance or endowment
contract. Thus, this levy procedure is not the exclusive means of
subjecting the life insurance and endowment contracts of the person
against whom a tax is assessed to the collection of his unpaid
assessment. The United States may choose to foreclose the tax lien in
any case where it is appropriate, as, for example, to reach the cash
surrender value (as distinguished from cash loan value) of a life
insurance or endowment contract.
(e) Cross references. (1) For provisions relating to priority of
certain advances with respect to a life insurance or endowment contract
after satisfaction of a levy pursuant to section 6332(b), see section
6323(b)(9) and the regulations thereunder.
(2) For provisions relating to the issuance of a certificate of
discharge of a life insurance or endowment contract subject to a tax
lien, see section 6325(b) and the regulations thereunder.
(T.D. 7180, 37 FR 7317, Apr. 13, 1972)
26 CFR 301.6332-3 The 21-day holding period applicable to property held
by banks.
(a) In general. This section provides special rules relating to the
surrender, after 21 days, of deposits subject to levy which are held by
banks. The provisions of 301.6332-1 which relate generally to the
surrender of property subject to levy apply, to the extent not
inconsistent with the special rules set forth in this section, to a levy
on property held by banks.
(b) Definition of bank. For purposes of this section, the term
''bank'' means --
(1) A bank or trust company or domestic building and loan association
incorporated and doing business under the laws of the United States
(including laws relating to the District of Columbia) or of any State, a
substantial part of the business of which consists of receiving deposits
and making loans and discounts, or of exercising fiduciary powers
similar to those permitted to national banks under authority of the
Comptroller of the Currency, and which is subject by law to supervision
and examination by State or Federal authority having supervision over
banking institutions;
(2) Any credit union the member accounts of which are insured in
accordance with the provisions of title II of the Federal Credit Union
Act, 12 U.S.C. 1781 et seq.; and
(3) A corporation which, under the laws of the State of its
incorporation, is subject to supervision and examination by the
Commissioner of Banking or other officer of such State in charge of the
administration of the banking laws of such State.
(c) 21-day holding period -- (1) In general. When a levy is made on
deposits held by a bank, the bank shall surrender such deposits (not
otherwise subject to an attachment or execution under judicial process)
only after 21 calendar days after the date the levy is made. The
district director may request an extension of the 21-day holding period
pursuant to paragraph (d)(2) of this section. During the prescribed
holding period, or any extension thereof, the levy shall be released
only upon notification to the bank by the district director of a
decision by the Internal Revenue Service to release the levy. If the
bank does not receive such notification from the district director
within the prescribed holding period, or any extension thereof, the bank
must surrender the deposits, including any interest thereon as
determined in accordance with paragraph (c)(2) of this section (up to
the amount of the levy), on the first business day after the holding
period, or any extension thereof, expires. See 301.6331-1(c) to
determine when a levy served by mail is made.
(2) Payment of interest on deposits. When a bank surrenders levied
deposits at the end of the 21-day holding period (or at the end of any
longer period that has been requested by the district director), the
bank must include any interest that has accrued on the deposits prior to
and during the holding period, and any extension thereof, under the
terms of the bank's agreement with its depositor, but the bank must not
surrender an amount greater than the amount of the levy. If the
deposits are held in a noninterest bearing account at the time the levy
is made, the bank need not include any interest on the deposits at the
end of the holding period, or any extension thereof, under this
paragraph. Interest that accrues on deposits and is surrendered to the
district director at the end of the holding period, or any extension
thereof, is treated as a payment to the bank's customer.
(3) Transactions affecting accounts. A levy on deposits held by a
bank applies to those funds on deposit at the time the levy is made, up
to the amount of the levy, and is effective as of the time the levy is
made. No withdrawals may be made on levied upon deposits during the
21-day holding period, or any extension thereof.
(4) Waiver of 21-day holding period. A depositor may waive the
21-day holding period by notifying the bank of the depositor's intention
to do so. Where more than one depositor is listed as the owner of a
levied account, all depositors listed as owners of the account must
agree to a waiver of the 21-day holding period. If the 21-day holding
period is waived, the bank must include with the surrendered deposits a
notification to the district director of the waiver.
(5) Examples. The provisions of this paragraph (c) may be
illustrated by the following examples:
Example 1. On April 2, 1992, a notice of levy for an unpaid income
tax assessment due from A in the amount of $10,000 is served on X Bank
with respect to A's savings account. At the time the notice of levy is
served, X Bank holds $5,000 in A's interest-bearing savings account. On
April 24, 1992, (the first business day after the 21-day holding period)
X Bank must surrender $5,000 plus any interest that accrued on the
account under the terms of A's contract with X Bank up through April 23,
1992, (the last day of the holding period).
Example 2. The facts are the same as in Example 1 except that on
April 3, 1992, A deposits an additional $5,000 into the account. On
April 24, 1992, X Bank must still surrender only $5,000 plus the
interest which accrued thereon until the end of the holding period,
because the notice of levy served on April 2, 1992, attached only to
those funds on deposit at the time the notice was served and not to any
subsequent deposits.
Example 3. The facts are the same as in Example 1 except that at the
time the notice of levy is served on X Bank, A's savings account
contains $50,000. On April 24, 1992, X Bank must surrender $10,000,
which is the amount of the levy. The levy will not apply to any
interest that accrues on the deposit during the 21-day holding period,
because the entire amount of the levy is satisfied by the deposits
existing at the time the levy is served.
Example 4. The facts are the same as in Example 1 except that the
amount of the levy is $5,002. Under the terms of A's contract with the
bank, the account will earn more than $2 of interest during the 21-day
holding period. On April 24, 1992, X Bank must surrender $5,002 to the
district director. The remaining interest which accrued during the
21-day holding period is not subject to the levy.
Example 5. On September 3, 1992, A opens a $5,000 six-month
certificate of deposit account with X Bank. Under the terms of the
account, the depositor must forfeit up to 30 days of interest on the
account in the event of early withdrawal. On January 4, 1993, a notice
of levy for an unpaid income tax assessment due from A in the amount of
$10,000 is served with respect to A's certificate of deposit account.
On January 26, 1993, the bank must surrender $5,000 plus the interest
which accrued on the account through January 25, 1993, minus the penalty
of 30 days of interest as provided in the deposit agreement.
Example 6. Same facts as in Example 5 except that the notice of levy
is served on X Bank on February 15, 1993. The certificate matures on
March 2, 1993. On March 8, X Bank must surrender $5,000 plus the
interest that accrued on the certificate without any reduction for
penalties.
(d) Notification to the district director of errors with respect to
levied upon bank accounts -- (1) In general. If a depositor believes
that there is an error with respect to the levied upon account which the
depositor wishes to have corrected, the depositor shall notify the
district director to whom the assessment is charged by telephone to the
telephone number listed on the face of the notice of levy in order to
enable the district director to conduct an expeditious review of the
alleged error. The district director may require any supporting
documentation necessary to the review of the alleged error. The
notification by telephone provided for in this section does not
constitute or substitute for the filing by a third party of a written
request under 301.6343-1(b)(2) for the return of property wrongfully
levied upon.
(2) Disputes regarding the merits of the underlying assessment. This
section does not constitute an additional procedure for an appeal
regarding the merits of an underlying assessment. However, if in the
judgment of the district director a genuine dispute regarding the merits
of an underlying assessment appears to exist, the district director may
request an extension of the 21-day holding period.
(3) Notification of errors from sources other than the depositor.
The district director may take action to release the levy on the bank
account based on information obtained from a source other than the
depositor, including the bank in which the account is maintained.
(e) Effective date. These provisions are effective with respect to
levies issued on or after January 4, 1993.
(T. D. 8466, 58 FR 18, Jan. 4, 1993)
26 CFR 301.6333-1 Production of books.
If a levy has been made or is about to be made on any property or
rights to property, any person, having custody or control of any books
or records containing evidence or statements relating to the property or
rights to property subject to levy, shall, upon demand of the internal
revenue officer who has made or is about to make the levy, exhibit such
books or records to such officer.
26 CFR 301.6334-1 Property exempt from levy.
(a) Enumeration. In addition to exemptions allowed as a matter of
Internal Revenue Service policy, there shall be exempt from levy --
(1) Wearing apparel and school books. Such items of wearing apparel
and such school books as are necessary for the taxpayer or for members
of his family. Expensive items of wearing apparel, such as furs, which
are luxuries and are not necessary for the taxpayer or for members of
his family, are not exempt from levy.
(2) Fuel, provisions, furniture, and personal effects. If the
taxpayer is the head of a family, so much of the fuel, provisions,
furniture, and personal effects in his household, and of the arms for
personal use, livestock, and poultry of the taxpayer, as does not exceed
$500 in value. For purposes of this provision, an individual who is the
only remaining member of a family and who lives alone is not the head of
a family.
(3) Books and tools of a trade, business or profession. So many of
the books and tools necessary for the trade, business, or profession of
an individual taxpayer as do not exceed in the aggregate $250 in value.
(4) Unemployment benefits. Any amount payable to an individual with
respect to his unemployment (including any portion thereof payable with
respect to dependents) under an unemployment compensation law of the
United States, of any State, or of the District of Columbia or of the
Commonwealth of Puerto Rico.
(5) Undelivered mail. Mail, addressed to any person, which has not
been delivered to the addressee.
(6) Certain annuity and pension payments. Annuity or pension
payments under the Railroad Retirement Act (45 U.S.C. chapter 9),
benefits under the Railroad Unemployment Insurance Act (45 U.S.C.
chapter 11), special pension payments received by a person whose name
has been entered on the Army, Navy, Air Force, and Coast Guard Medal of
Honor roll (38 U.S.C. 562), and annuities based on retired or retainer
pay under chapter 73 of title 10 of the United States Code.
(7) Workmen's compensation. Any amount payable to an individual as
workmen's compensation (including any portion thereof payable with
respect to dependents) under a workmen's compensation law of the United
States, any State, the District of Columbia, or the Commonwealth of
Puerto Rico.
(8) Judgments for support of minor children. If the taxpayer is
required under any type of order or decree (including an interlocutory
decree or a decree of support pendente lite) of a court of competent
jurisdiction, entered prior to the date of levy, to contribute to the
support of his minor children, so much of his salary, wages, or other
income as is necessary to comply with such order or decree. The
taxpayer must establish the amount necessary to comply with the order or
decree. The district director is not required to release a levy until
such time as he is satisfied that the amount to be released from levy
will actually be applied in satisfaction of the support obligation. The
district director may make arrangements with a delinquent taxpayer to
establish a specific amount of such taxpayer's salary, wage, or other
income for each pay period which shall be exempt from levy. Any request
for such an arrangement shall be directed to the Chief, Special
Procedures Staff, for the internal revenue district in which the
taxpayer resides. Where the taxpayer has more than one source of income
sufficient to satisfy the support obligation imposed by the order or
decree, the amount exempt from levy may at the discretion of the
district director be allocated entirely to one salary, wage, or source
of other income or be apportioned between the several salaries, wages,
or other sources of income. This subparagraph applies with respect to
levies made on or after January 30, 1970.
(9) Minimum exemption for wages, salary, and other income. Amounts
payable to or received by the taxpayer as wages or salary for personal
services, or as other income, to the extent provided in 301.6334-2
through 301.6334-6.
(b) Appraisal. The internal revenue officer seizing property of the
type described in section 6334(a) shall appraise and set aside to the
owner the amount of such property declared to be exempt. If the
taxpayer objects at the time of the seizure to the valuation fixed by
the officer making the seizure, such officer shall summon three
disinterested individuals who shall make the valuation.
(c) Other property. No other property or rights to property are
exempt from levy except the property specifically exempted by section
6334(a). No provision of a State law may exempt property or rights to
property from levy for the collection of any Federal tax. Thus,
property exempt from execution under State personal or homestead
exemption laws is, nevertheless, subject to levy by the United States
for collection of its taxes.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr.
13, 1972; T.D. 7182, 37 FR 7887, Apr. 21, 1972; T.D. 7620, 44 FR
27988, May 14, 1979)
26 CFR 301.6334-2 Wages, salary, and other income.
(a) In general. Under section 6334 (a)(9) and (d) certain amounts
payable to or received by a taxpayer as wages, salary or other income
are exempt from levy. This section describes the income of a taxpayer
that is eligible for the exemption from levy (paragraph (b) of this
section) and how exempt amounts are to be paid to the taxpayer
(paragraph (c) of this section). Section 301.6334-3 describes the sum
which will be exempt from levy for each of the taxpayer's payroll
periods. Payroll periods are described in 301.6334-4. Amounts exempt
from levy are determined in part by the number of persons claimed by the
taxpayer as dependents. Section 301.6334-5 defines the term
''dependent'' for purposes of determining amounts exempt from levy, and
describes the manner in which the taxpayer is to claim any dependent
exemptions.
(b) Eligible taxpayer income. Only wages, salary or other income
payable to the taxpayer after the levy is made on the payor may be
exempt from levy under section 6334(a)(9). No amount of wages, salary
or other income which is paid to the taxpayer before levy is made on the
payor will be so exempt from levy. The provisions of this paragraph may
be illustrated by the following example:
Example. Delinquent taxpayer A, an individual, is employed by the M
Corp. and is paid wages on the 1st and 15th day of each month.
Accordingly, A is paid wages on Monday, August 15, 1977. On Wednesday,
August 17, A deposits these wages in his personal checking account at
Bank X. On Friday, August 19, levy is made on the M Corp. and also on
Bank X. Amounts payable to A as wages on September 1, 1977, and any
payday thereafter may be exempt from levy under section 6334(a)(9). No
amount of the wages A deposited in his account at Bank X on August 17,
1977, are exempt from levy under section 6334(a)(9).
(c) Payment of exempt amounts to taxpayer -- (1) From wages, salary
or other income not subject to levy. In the case of a taxpayer who has
more than one source of wages, salary or other income, the district
director may elect to levy on only one or more such sources while
leaving other sources of income free from levy. If these wages, salary
or other income which the district director leaves free from levy equal
or exceed the amount to which the taxpayer is entitled as an exemption
from levy under section 6334(a)(9) and (d) and 301.6334-3 (and are not
otherwise exempt), then no amount of the taxpayer's wages, salary or
other income on which the district director elects to levy is exempt
from levy. The district director shall notify the employer or other
person subject to levy that no amount of the taxpayer's wages, salary or
other income is exempt from levy. The provisions of this subparagraph
may be illustrated by the following example:
Example. Delinquent taxpayer C is a full-time employee of the X
corporation and is paid wages totaling $450 on the 1st and 15th day of
each month (semimonthly). C also performs services for the Y
corporation and is paid a salary of $290 each month. C has one
dependent as defined in 301.6334-5. Levy is served on the X corporation
with respect to wages payable to C. Levy is not served on the Y
corporation. Under 301.6334-3(d). C is entitled to an exemption from
levy totaling $140.83 for each semimonthly pay period (or $281.66 per
month). However, because levy has not been made on C's salary paid by
the Y corporation ($290 per month) and that salary exceeds the amount to
which C is entitled monthly as an exemption ($281.66), no amount of C's
wages paid by the X corporation is exempt from levy.
(2) From wages, salary, or other income subject to levy. If the
taxpayer's income upon which the district director does not levy is less
than that amount to which the taxpayer is entitled as an exemption, then
an amount determined pursuant to 301.6334-3 is to be paid to the
taxpayer from those wages, salary or other income which are subject to
levy. The district director will designate those wages, salary or other
income subject to levy from which such amount will be paid to the
taxpayer. The district director will generally make this designation by
delivering to the employer or other person levied upon the form upon
which the taxpayer is to claim any dependent exemption. The form will
accompany the notice of levy. The person receiving the form from the
district director must promptly deliver it to the taxpayer. In the case
of some employers having a large number of employees, however, the
district director will send the form upon which an employee is to claim
any dependent exemption directly to the employee. In such a case, the
notice of levy will indicate that the form for claiming dependent
exemptions has been sent to the taxpayer. If a notice of levy is not
accompanied by the form for claiming dependent exemptions and does not
indicate that the form was sent directly to the taxpayer, then the
person levied upon must make payment to the district director without
regard to amounts prescribed by 301.6334-3 as exempt from levy. If a
notice of levy is accompanied by the form for claiming dependent
exemptions or indicates that the form was sent directly to the taxpayer,
then the person levied upon is to pay over to the taxpayer amounts
determined to be exempt from levy pursuant to 301.6334-3 and
301.6334-5 (b) and (c) (relating to the requirement that the taxpayer
submit a claim for any dependent exemption). Amounts not exempt from
levy are to be paid to the district director in accordance with the
terms of the levy.
(T.D. 7620, 44 FR 27988, May 14, 1979)
26 CFR 301.6334-3 Determination of exempt amount.
Amounts payable to the taxpayer as wages, salary, or other income for
each payroll period described in 301.6334-4 are exempt from levy as
follows:
(a) If the payroll period is daily: $10, plus $3 for each person who
is claimed as a dependent pursuant to 301.6334-5.
(b) If the payroll period is weekly: $50, plus $15 for each person
who is claimed as a dependent pursuant to 301.6334-5.
(c) If the payroll period is biweekly: $100, plus $30 for each
person who is claimed as a dependent pursuant to 301.6334-5.
(d) If the payroll period is semi-monthly: $108.33 plus $32.50 for
each person who is claimed as a dependent pursuant to 301.6334-5.
(e) If the payroll period is monthly: $216.67, plus $65 for each
person who is claimed as a dependent pursuant to 301.6334-5.
(f) If the payroll period is not daily, weekly, biweekly,
semimonthly, or monthly: A proportionate amount based upon the sum of
an annual exemption of $2,600 plus $780 for each person who is claimed
as a dependent pursuant to 301.6334-5.
(T.D. 7620, 44 FR 27989, May 14, 1979)
26 CFR 301.6334-4 Determination of payroll period.
For purposes of determining the amount of wages, salary or other
income exempt from levy under section 6334(a)(9) --
(a) Regularly used calendar periods. In the case of wages, salary or
other income paid to the taxpayer on the basis of an established
calendar period regularly used by the employer or other person levied
upon for payroll or payment purposes (e.g., daily, weekly, biweekly,
semimonthly, or monthly), that period is the taxpayer's payroll period.
(b) Amounts paid on recurrent but irregular basis. In the case of
wages, salary, or other income paid to the taxpayer on a recurrent but
irregular basis, the first day of the taxpayer's payroll period is that
day following the day upon which the wages, salary, or other income were
last paid to the taxpayer. The last day of the payroll period is that
day upon which the current payment becomes payable to him or her.
However, in any case in which:
(1) Amounts are paid to the taxpayer on a recurrent but irregular
basis, and (2) the last payment was paid to the taxpayer more than 60
days before the current payment becomes payable, the current payment
will be deemed a one-time payment (see paragraph (c) of this section).
(c) Nonrecurrent payments. In the case of wages, salary or other
income paid to the taxpayer on a one-time basis, the taxpayer's payroll
period is deemed to be weekly (i.e., the 1-week period ending on the day
of payment).
(T.D. 7620, 44 FR 27989, May 14, 1979)
26 CFR 301.6334-5 Dependent exemption.
(a) Dependent defined. For purposes of 301.6334-2 through
301.6334-4, a person is a dependent of the taxpayer for any payroll
period of the taxpayer, if --
(1) Over half of that person's support for the payroll period was
received from the taxpayer, and
(2) The person is the taxpayer's spouse, or bears a relationship to
the taxpayer specified in section 152(a) (1) through (9) (relating to
definition of dependent) on the last day of the payroll period, and
(3) The person is not the taxpayer's minor child with respect to whom
amounts are exempt from levy under section 6334(a)(8) (relating to
exemption from levy for judgments for support of minor children) at any
time during the payroll period.
For purposes of paragraph (2) of this paragraph (a) ''payroll
period'' should be substituted for ''taxable year'' each place it
appears in section 152(a)(9).
(b) Claim for dependent exemption. No amount prescribed as being
exempt from levy for each person who is claimed as a dependent will be
so exempt unless a claim for dependent exemption is submitted to the
employer or other person levied upon. A claim for dependent exemption
shall be made by either --
(1) Completion of the form provided for this purpose by the Internal
Revenue Service, or
(2) A written statement that: (i) Identifies by name and by
relationship to the taxpayer each person for whom a dependent exemption
is claimed, (ii) is signed by the taxpayer, and (iii) contains a
declaration that it is made under the penalties of perjury.
(c) Submission of claim for dependent exemption. The taxpayer must
submit the claim for dependent exemption to the employer or other person
levied upon no later than the latter of --
(1) The third day before the last day of the payroll period for which
the exemption is claimed (that is, the third day before payday), or
(2) If the district director delivers the forms for claiming a
dependent exemption to the employer or other person levied upon (see
301.6334-2(c)(2)), the second day after the date the taxpayer receives
the form.
For purposes of paragraphs (1) and (2) of this paragraph (c), the
term ''day'' does not include Saturdays, Sundays or a legal holiday
within the meaning of section 7503. Failure on the part of the taxpayer
to submit a timely claim for dependent exemption will result in the loss
of the dependent exemption for the applicable pay period, except that
the employer or other person levied upon may accept a claim for
dependent exemption not timely submitted in accordance with this
paragraph, and may prepare a disbursement to the taxpayer based upon a
dependent exemption claimed therein, if payment to the district director
in accordance with the levy is not thereby delayed.
(d) Payment of amounts not exempt from levy to district director --
(1) Delayed payment in certain cases. In general, wages, salary, or
other income the subject of a levy are payable to the district director
on the date the payor is otherwise obligated to pay the taxpayer (see
301.6331-2(c)). If, however, as described in paragraph (c)(2) of this
section, the taxpayer may submit a claim for dependent exemption after
the third day before payday, amounts payable to the taxpayer on that
payday, to the extent not exempt from levy, are payable to the district
director on the third day following the date on which the taxpayer may
timely submit the claim for dependent exemption under such paragraph
(c)(2) of this section. For purposes of this rule, the term ''day''
does not include Saturday, Sunday or a legal holiday within the meaning
of section 7503.
(2) Example. The provisions of this paragraph may be illustrated by
the following example:
The taxpayer is paid wages on the Wednesday following the close of
each work week. Levy is made on his employer on Monday. The form for
claiming a dependent exemption, which accompanied the notice of levy
(see 301.6334-2(c)), is delivered to the taxpayer by the employer on
the following day, Tuesday. Under paragraph (c)(2) of this section, the
taxpayer may timely submit a claim for dependent exemption as late as
Thursday, the day after the first payday to which the levy applies.
Under this paragraph, wages payable to the taxpayer on that first
Wednesday payday, to the extent not exempt from levy, are payable to the
district director on the following Tuesday. Thereafter, wages payable
to the employee on each Wednesday, to the extent not exempt from levy,
are payable to the district director on such Wednesday (see
301.6331-2(c)).
(T.D. 7620, 44 FR 27989, May 14, 1979)
26 CFR 301.6334-6 Effective dates.
Sections 301.6334-2 through 301.6334-5 apply with respect to levies
on wages, salary, and other income made after February 28, 1977.
(T.D. 7620, 44 FR 27990, May 14, 1979)
26 CFR 301.6334-7 Supersession of temporary regulations.
Sections 301.6334-2 through 301.6334-5 supersede 404.6334(d)-1 of
the temporary regulations on procedure and administration under the Tax
Reform Act of 1976.
(T.D. 7620, 44 FR 27990, May 14, 1979)
26 CFR 301.6335-1 Sale of seized property.
(a) Notice of seizure. As soon as practicable after seizure of
property, the internal revenue officer seizing the property shall give
notice in writing to the owner of the property (or, in the case of
personal property, to the possessor thereof). The written notice shall
be delivered to the owner (or to the possessor, in the case of personal
property) or left at his usual place of abode or business if he has such
within the internal revenue district where the seizure is made. If the
owner cannot be readily located, or has no dwelling or place of business
within such district, the notice may be mailed to his last known
address. Such notice shall specify the sum demanded and shall contain,
in the case of personal property, a list sufficient to identify the
property seized and, in the case of real property, a description with
reasonable certainty of the property seized.
(b) Notice of sale. (1) As soon as practicable after seizure of the
property, the district director shall give notice of sale in writing to
the owner. Such notice shall be delivered to the owner or left at his
usual place of abode or business if located within the internal revenue
district where the seizure is made. If the owner cannot be readily
located, or has no dwelling or place of business within such district,
the notice may be mailed to his last known address. The notice shall
specify the property to be sold, and the time, place, manner, and
conditions of the sale thereof, and shall expressly state that only the
right, title, and interest of the delinquent taxpayer in and to such
property is to be offered for sale. The notice shall also be published
in some newspaper published in the county wherein the seizure is made or
in a newspaper generally circulated in that county. For example, if a
newspaper of general circulation in a county but not published in that
county will reach more potential bidders for the property to be sold
than a newspaper published within the county, or if there is a newspaper
of general circulation within the county but no newspaper published
within the county, the district director may cause public notice of the
sale to be given in the newspaper of general circulation within the
county. If there is no newspaper published or generally circulated in
the county, the notice shall be posted at the post office nearest the
place where the seizure is made, and in not less than two other public
places.
(2) The district director may use other methods of giving notice of
sale and of advertising seized property in addition to those referred to
in subparagraph (1) of this paragraph (b), when he believes that the
nature of the property to be sold is such that a wider or more
specialized advertising coverage will enhance the possibility of
obtaining a higher price for the property.
(3) Whenever levy is made without regard to the 10-day period
provided in section 6331(a) (relating to cases in which collection is in
jeopardy), a public notice of sale of the property seized shall not be
made within such 10-day period unless section 6336 (relating to
perishable goods) is applicable.
(c) Time, place, manner, and conditions of sale. The time, place,
manner, and conditions of the sale of property seized by levy shall be
as follows:
(1) Time and place of sale. The time of sale shall not be less than
10 days nor more than 40 days from the time of giving public notice
under section 6335(b) (see paragraph (b) of this section). The place of
sale shall be within the county in which the property is seized, except
that if it appears to the district director under whose supervision the
seizure was made that substantially higher bids may be obtained for the
property if the sale is held at a place outside such county, he may
order that the sale be held in such other place. The sale shall be held
at the time and place stated in the notice of sale.
(2) Adjournment of sale. When it appears to the district director
that an adjournment of the sale will best serve the interest of the
United States or that of the taxpayer, the district director may
adjourn, or cause the internal revenue officer conducting the sale to
adjourn, the sale from time to time, but the date of the sale shall not
be later than one month after the date fixed in the original notice of
sale.
(3) Minimum price. The district director shall determine a minimum
price, taking into account the expenses of levy and sale, for which the
property shall be sold. If no person offers for such property at the
sale the amount of the minimum price, the property shall be declared
purchased at such price for the United States; otherwise, the property
shall be declared to be sold to the highest bidder. The internal
revenue officer conducting the sale shall either announce the minimum
price before the sale begins or defer announcement of the minimum price
until after the receipt of the highest bid, and, if the highest bid is
greater than the minimum price, no announcement of the minimum price
shall be made.
(4) Offering of property -- (i) Sale of indivisible property. If any
property levied upon is not divisible, so as to enable the district
director by sale of a part thereof to raise the whole amount of the tax
and expenses of levy and sale, the whole of such property shall be sold.
For application of surplus proceeds of sale, see section 6342(b).
(ii) Separately, in groups, or in the aggregate. The seized property
may be offered for sale --
(a) As separate items, or
(b) As groups of items, or
(c) In the aggregate, or
(d) Both as separate items (or in groups) and in the aggregate. In
such cases, the property shall be sold under the method which produces
the highest aggregate amount.
The district director shall select whichever of the foregoing methods
of offering the property for sale as, in his opinion, is most feasible
under all the facts and circumstances of the case, except that if the
property to be sold includes both real and personal property, only the
personal property may be grouped for the purpose of offering such
property for sale. However, real and personal property may be offered
for sale in the aggregate, provided the real property, as separate
items, and the personal property as a group, or as groups, or as
separate items, are first offered separately.
(iii) Condition of title and of property. Only the right, title, and
interest of the delinquent taxpayer in and to the property seized shall
be offered for sale, and such interest shall be offered subject to any
prior outstanding mortgages, encumbrances, or other liens in favor of
third parties which are valid as against the delinquent taxpayer and are
superior to the lien of the United States. All seized property shall be
offered for sale ''as is'' and ''where is'' and without recourse against
the United States. No guaranty or warranty, express or implied, shall
be made by the internal revenue officer offering the property for sale,
as to the validity of the title, quality, quantity, weight, size, or
condition of any of the property, or its fitness for any use or purpose.
No claim shall be considered for allowance or adjustment or for
rescission of the sale based upon failure of the property to conform
with any representation, express or implied.
(iv) Terms of payment. The property shall be offered for sale upon
whichever of the following terms is fixed by the district director in
the public notice of sale:
(a) Payment in full upon acceptance of the highest bid, without
regard to the amount of such bid, or
(b) If the aggregate price of all property purchased by a successful
bidder at the sale is more than $200, an initial payment of $200 or 20
percent of the purchase price, whichever is the greater, and payment of
the balance (including all costs incurred for the protection or
preservation of the property subsequent to the sale and prior to final
payment) within a specified period, not to exceed 1 month from the date
of the sale.
(5) Method of sale. The district director shall sell the property
either --
(i) At public auction, at which open competitive bids shall be
received, or
(ii) At public sale under sealed bids. The following rules, in
addition to the other rules provided in this paragraph, shall be
applicable to public sale under sealed bids:
(a) Invitation to bidders. Bids shall be solicited through a public
notice of sale.
(b) Form for use by bidders. A bid shall be submitted on a form
which will be furnished by the district director upon request. The form
shall be completed in accordance with the instructions thereon.
(c) Remittance with bid. If the total bid is $200 or less, the full
amount of the bid shall be submitted therewith. If the total bid is
more than $200, 20 percent of such bid or $200, whichever is greater,
shall be submitted therewith. (In the case of alternative bids
submitted by the same bidder for items of property offered separately,
or in groups, or in the aggregate, the bidder shall remit the full
amount of the highest alternative bid submitted, if that bid is $200 or
less. If the highest alternative bid submitted is more than $200, the
bidder shall remit 20 percent of the highest alternative bid or $200,
whichever is greater.) Such remittance shall be by a certified,
cashier's, or treasurer's check drawn on any bank or trust company
incorporated under the laws of the United States or under the laws of
any State, Territory, or possession of the United States, or by a U.S.
postal, bank, express, or telegraph money order.
(d) Time for receiving and opening bids. Each bid shall be submitted
in a securely sealed envelope. The bidder shall indicate in the upper
left hand corner of the envelope his name and address and the time and
place of sale as announced in the public notice of sale. A bid will not
be considered unless it is received by the internal revenue officer
conducting the sale prior to the opening of the bids. The bids will be
opened at the time and place stated in the notice of sale, or at the
time fixed in the announcement of the adjournment of the sale.
(e) Consideration of bids. The public notice of sale shall specify
whether the property is to be sold separately, by groups, or in the
aggregate or by a combination of these methods, as provided in
subparagraph (4)(ii) of this paragraph. If the notice specifies an
alternative method, bidders may submit bids under one or more of the
alternatives. In case of error in the extension of prices in any bid,
the unit price will govern. The internal revenue officer conducting the
sale shall have the right to waive any technical defects in a bid. In
the event two or more highest bids are equal in amount, the internal
revenue officer conducting the sale shall determine the successful
bidder by drawing lots. After the opening, examination, and
consideration of all bids, the internal revenue officer conducting the
sale shall announce the amount of the highest bid or bids and the name
of the successful bidder or bidders. Any remittance submitted in
connection with an unsuccessful bid shall be returned at the conclusion
of the sale.
(f) Withdrawal of bids. A bid may be withdrawn on written or
telegraphic request received from the bidder prior to the time fixed for
opening the bids. A technical defect in a bid confers no right on the
bidder for the withdrawal of his bid after it has been opened.
(6) Payment of bid price. All payments for property sold under this
section shall be made by cash or by a certified, cashier's, or
treasurer's check drawn on any bank or trust company incorporated under
the laws of the United States or under the laws of any State, Territory,
or possession of the United States, or by a U.S. postal, bank, express,
or telegraph money order. If payment in full is required upon
acceptance of the highest bid, the payment shall be made at such time.
If deferred payment is permitted, the initial payment shall be made upon
acceptance of the bid, and the balance shall be paid on or before the
date fixed for payment thereof. Any remittance submitted with a
successful sealed bid shall be applied toward the purchase price.
(7) Delivery and removal of personal property. Responsibility of the
United States for the protection or preservation of seized personal
property shall cease immediately upon acceptance of the highest bid.
The risk of loss is on the purchaser of personal property upon
acceptance of his bid. Possession of any personal property shall not be
delivered to the purchaser until the purchase price has been paid in
full. If payment of part of the purchase price for personal property is
deferred, the United States will retain possession of such property as
security for the payment of the balance of the purchase price and, as
agent for the purchaser, will cause the property to be cared for until
the purchase price has been paid in full or the sale is declared null
and void for failure to make full payment of the purchase price. In
such case, all charges and expenses incurred in caring for the property
after the acceptance of the bid shall be borne by the purchaser.
(8) Default in payment. If payment in full is required upon
acceptance of the bid and is not then and there paid, the internal
revenue officer conducting the sale shall forthwith proceed again to
sell the property in the manner provided in section 6335(e) and this
section. If the conditions of the sale permit part of the payment to be
deferred, and if such part is not paid within the prescribed period,
suit may be instituted against the purchaser for the purchase price or
such part thereof as has not been paid, together with interest at the
rate of 6 percent per annum from the date of the sale; or, in the
discretion of the district director, the sale may be declared by the
district director to be null and void for failure to make full payment
of the purchase price and the property may again be advertised and sold
as provided in subsections (b), (c), and (e) of section 6335 and this
section. In the event of such readvertisement and sale, any new
purchaser shall receive such property or rights to property free and
clear of any claim or right of the former defaulting purchaser, of any
nature whatsoever, and the amount paid upon the bid price by such
defaulting purchaser shall be forfeited to the United States.
(9) Stay of sale of seized property pending Tax Court decision. For
restrictions on sale of seized property pending Tax Court decision, see
section 6863(b)(3) and 301.6863-2.
(d) Right to request the sale of seized property -- (1) In general.
The owner of any property seized by levy may request that the district
director sell such property within 60 days after such request, or within
any longer period specified by the owner. The district director must
comply with such a request unless the district director determines that
compliance with the request is not in the best interests of the Internal
Revenue Service and notifies the owner of such determination within the
60 day period, or any longer period specified by the owner.
(2) Procedures to request the sale of seized property -- (i) Manner.
A request for the sale of seized property shall be made in writing to
the group manager of the revenue officer whose signature is on Levy Form
668-B. If the owner does not know the group manager's name or address,
the owner may send the request to the revenue officer, marked for the
attention of his or her group manager.
(ii) Form. The request for sale of seized property within 60 days,
or such longer period specified by the owner, shall include:
(A) The name, current address, current home and work telephone
numbers and any convenient times to be contacted, and taxpayer
identification number of the owner making the request;
(B) A description of the seized property that is the subject of the
request;
(C) A copy of the notice of seizure, if available;
(D) The period within which the owner is requesting that the property
be sold; and
(E) The signature of the owner or duly authorized representative.
For purposes of these regulations, a duly authorized representative is
any attorney, certified public accountant, enrolled actuary, or any
other person permitted to represent the owner before the Internal
Revenue Service who is not disbarred or suspended from practice before
the Internal Revenue Service and who has written power of attorney
executed by the owner.
(3) Notification to owner. The group manager shall respond in
writing to a request for sale of seized property as soon as practicable
after receipt of such request and in no event later than 60 days after
receipt of the request, or, if later, the date specified by the owner
for the sale.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr.
13, 1972; T.D. 8398, 57 FR 7546, Mar. 3, 1992)
Effective Date Note: At 57 FR 7545, Mar. 3, 1992, 301.6335-1(d)
was added, effective April 2, 1992.
26 CFR 301.6336-1 Sale of perishable goods.
(a) Appraisal of certain seized property. If the district director
determines that any property seized by levy is liable to perish or
become greatly reduced in price or value by keeping, or that such
property cannot be kept without great expense, he shall appraise the
value of such property and return it to the owner if the owner complies
with the conditions prescribed in paragraph (b) of this section or, if
the owner does not comply with such conditions, dispose of the property
in accordance with paragraph (c) of this section.
(b) Return to owner. If the owner of the property can be readily
found, the district director shall give him written notice of his
determination of the appraised value of the property. However, if the
district director determines that the circumstances require immediate
action, he may give the owner an oral notice of his determination of the
appraised value of the property, which notice shall be confirmed in
writing prior to sale. The property shall be returned to the owner if,
within the time specified in the notice, the owner --
(1) Pays to the district director an amount equal to the appraised
value, or
(2) Gives an acceptable bond as prescribed by section 7101 and
301.7101-1. Such bond shall be in an amount not less than the appraised
value of the property and shall be conditioned upon the payment of such
amount at such time as the district director determines to be
appropriate in the circumstances.
(c) Immediate sale. If the owner does not pay the amount of the
appraised value of the seized property within the time specified in the
notice, or furnish bond as provided in paragraph (b) of this section
within such time, the district director shall as soon as practicable
make public sale of the property in accordance with the following terms
and conditions --
(1) Notice of sale. If the owner can readily be found, a notice
shall be given to him. A notice of sale also shall be posted in two
public places in the county in which the property is to be sold. The
notice shall specify the time and place of sale, the property to be
sold, and the manner and conditions of sale. The district director may
give such other notice and in such other manner as he deems advisable
under the circumstances.
(2) Sale. The property shall be sold at public auction to the
highest bidder.
(3) Terms. The purchase price shall be paid in full upon acceptance
of the highest bid. The payment shall be made in cash, or by a
certified, cashier's or treasurer's check drawn on any bank or trust
company incorporated under the laws of the United States or under the
laws of any State, Territory, or possession of the United States, or by
a U.S. postal, bank, express, or telegraph money order.
26 CFR 301.6337-1 Redemption of property.
(a) Before sale. Any person whose property has been levied upon
shall have the right to pay the amount due, together with costs and
expenses of the proceeding, if any, to the district director at any time
prior to the sale of the property. Upon such payment the district
director shall restore such property to the owner and all further
proceedings in connection with the levy on such property shall cease
from the time of such payment.
(b) Redemption of real estate after sale -- (1) Period. The owner of
any real estate sold as provided in section 6335, his heirs, executors,
or administrators, or any person having any interest therein, or a lien
thereon, or any person in their behalf, shall be permitted to redeem the
property sold, or any particular tract of such property, at any time
within 120 days after the sale thereof.
(2) Price. Such property or tract of property may be redeemed upon
payment to the purchaser, or in case he cannot be found in the county in
which the property to be redeemed is situated, then to the district
director for the internal revenue district in which the property is
situated, for the use of the purchaser, his heirs, or assigns, the
amount paid by such purchaser and interest thereon at the rate of 20
percent per annum. In case real and personal property (or several
tracts of real property) are purchased in the aggregate, the redemption
price of the real property (or of each of the several tracts) shall be
determined on the basis of the ratio, as of the time of sale, of the
value of the real property (or tract) to the value of the total property
purchased. For this purpose the minimum price or the highest bid price,
whichever is higher, offered for the property separately or in groups
shall be treated as the value.
(c) Record. When any real property is redeemed, the district
director shall cause entry of the fact to be made upon the record of
sale kept in accordance with section 6340, and such entry shall be
evidence of such redemption. The party who redeems the property shall
notify the district director of the internal revenue district in which
the property is situated of the date of such redemption and of the
transfer of the certificate of sale, the amount of the redemption price,
and the name of the party to whom such redemption price was paid.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr.
13, 1972)
26 CFR 301.6338-1 Certificate of sale; deed of real property.
(a) Certificate of sale. In the case of property sold as provided in
section 6335 (relating to sale of seized property), the district
director shall give to the purchaser a certificate of sale upon payment
in full of the purchase price. A certificate of sale of real property
shall set forth the real property purchased, for whose taxes the same
was sold, the name of the purchaser, and the price paid therefor.
(b) Deed to real property. In the case of any real property sold as
provided in section 6335 and not redeemed in the manner and within the
time prescribed in section 6337, the district director shall execute (in
accordance with the laws of the State in which the real property is
situated pertaining to sales of real property under execution) to the
purchaser of such real property at the sale or his assigns, upon
surrender of the certificate of sale, a deed of the real property so
purchased, reciting the facts set forth in the certificate.
(c) Deed to real property purchased by the United States. If real
property is declared purchased by the United States at a sale pursuant
to section 6335, the district director shall at the proper time execute
a deed therefor and shall, without delay, cause the deed to be duly
recorded in the proper registry of deeds.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7319, Apr.
13, 1972)
26 CFR 301.6339-1 Legal effect of certificate of sale of personal
property and deed of real property.
(a) Certificate of sale of property other than real property. In all
cases of sale pursuant to section 6335 of property (other than real
property), the certificate of such sale --
(1) As evidence. Shall be prima facie evidence of the right of the
officer to make such sale, and conclusive evidence of the regularity of
his proceedings in making the sale; and
(2) As conveyance. Shall transfer to the purchaser all right, title,
and interest of the party delinquent in and to the property sold; and
(3) As authority for transfer of corporate stock. If such property
consists of corporate stocks, shall be notice, when received, to any
corporation, company, or association of such transfer, and shall be
authority to such corporation, company, or association to record the
transfer on its books and records in the same manner as if the stocks
were transferred or assigned by the party holding the stock certificate,
in lieu of any original or prior certificate, which shall be void,
whether canceled or not; and
(4) As receipts. If the subject of sale is securities or other
evidences of debt, shall be a good and valid receipt to the person
holding the certificate of sale as against any person holding or
claiming to hold possession of such securities or other evidences of
debt; and
(5) As authority for transfer of title to motor vehicle. If such
property consists of a motor vehicle, shall be notice, when received, to
any public official charged with the registration of title to motor
vehicles, of such transfer and shall be authority to such official to
record the transfer on his books and records in the same manner as if
the certificate of title to such motor vehicle were transferred or
assigned by the party holding the certificate of title, in lieu of any
original or prior certificate, which shall be null and void, whether
canceled or not.
(b) Deed to real property. In the case of the sale of real property
pursuant to section 6335 --
(1) Deed as evidence. The deed of sale given pursuant to section
6338 shall be prima facie evidence of the facts therein stated; and
(2) Deed as conveyance of title. If the proceedings of the district
director as set forth have been substantially in accordance with the
provisions of law, such deed shall be considered and operate as a
conveyance of all the right, title, and interest the party delinquent
had in and to the real property thus sold at the time the lien of the
United States attached thereto.
(c) Effect of junior encumbrances. A certificate of sale of personal
property given or a deed to real property executed pursuant to section
6338 discharges the property from all liens, encumbrances, and titles
over which the lien of the United States, with respect to which the levy
was made, has priority. For example, a mortgage on real property
executed after a notice of a Federal tax lien has been filed is
extinguished when the district director executes a deed to the real
property to a purchaser thereof at a sale pursuant to section 6335
following the seizure of the property by the United States. The
proceeds of such a sale are distributed in accordance with priority of
the liens, encumbrances, or titles. See section 6342(b) and the
regulations thereunder for provisions relating to the distribution of
surplus proceeds. See section 7426(a)(2) and the regulations thereunder
for judicial procedures with respect to surplus proceeds.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr.
13, 1972)
26 CFR 301.6340-1 Records of sale.
(a) Requirement. Each district director shall keep a record of all
sales under section 6335 of real property situated within his district
and of redemptions of such property. The records shall set forth (1)
the tax for which any such sale was made, the dates of seizure and sale,
the name of the party assessed and all proceedings in making such sale,
the amount of expenses, the names of the purchasers, the date of the
deed, and, in the case of redemption of the property, (2) the date of
such redemption and of the transfer of the certificate of sale, the
amount of the redemption price, and the name of the party to whom such
redemption price was paid.
(b) Copy as evidence. A copy of such record, or any part thereof,
certified by the district director shall be evidence in any court of the
truth of the facts therein stated.
26 CFR 301.6341-1 Expense of levy and sale.
The district director shall determine the expenses to be allowed in
all cases of levy and sale. Such expenses shall include the expenses of
protection and preservation of the property during the period subsequent
to the levy, as well as the actual expenses incurred in connection with
the sale thereof. In case real and personal property (or several tracts
of real property) are sold in the aggregate, the district director shall
properly apportion the expenses to the real property (or to each tract).
26 CFR 301.6342-1 Application of proceeds of levy.
(a) Collection of liability. Any money realized by proceedings under
subchapter D, chapter 64, of the Code or by sale of property redeemed by
the United States (if the interest of the United States in the property
was a lien arising under the provisions of the Internal Revenue Code),
is applied in the manner specified in subparagraphs (1), (2), and (3) of
this paragraph (a). Money realized by proceedings under subchapter D,
chapter 64, of the Code includes money realized by seizure, by sale of
seized property, or by surrender under section 6332 (except money
realized by the imposition of a 50 percent penalty pursuant to section
6332(c)(2)).
(1) Expense of levy and sale. First, against the expenses of the
proceedings or sale, including expenses allowable under section 6341 and
amounts paid by the United States to redeem property.
(2) Specific tax liability on seized property. If the property
seized and sold is subject to a tax imposed by any internal revenue law
which has not been paid, the amount remaining after applying
subparagraph (1) of this paragraph (a), shall then be applied against
such tax liability (and, if such tax was not previously assessed, it
shall then be assessed);
(3) Liability of delinquent taxpayer. The amount, if any, remaining
after applying subparagraphs (1) and (2) of this paragraph (a), shall
then be applied against the liability in respect of which the levy was
made or the sale of redeemed property was conducted.
(b) Surplus proceeds. Any surplus proceeds remaining after the
application of paragraph (a) of this section shall, upon application and
satisfactory proof in support thereof, be credited or refunded by the
district director to the person or persons legally entitled thereto.
The delinquent taxpayer is the person entitled to the surplus proceeds
unless another person establishes a superior claim thereto.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7180, 37 FR 7320, Apr.
13, 1972)
26 CFR 301.6343-1 Authority to release levy and return property.
(a) Release of levy -- (1) Authority. The district director may
release the levy upon all or part of the property or rights to property
levied upon as provided in subparagraphs (2) and (3) of this paragraph
(a). A levy may be released under subparagraph (2) of this paragraph
(a) only if the delinquent taxpayer complies with such of the conditions
thereunder as the district director may require and if the district
director determines that such action will facilitate the collection of
the liability. A release pursuant to subparagraph (3) of this paragraph
(a) is considered to facilitate the collection of the liability. The
release under this section shall not operate to prevent any subsequent
levy.
(2) Conditions for release. The district director may release the
levy as authorized under subparagraph (1) of this paragraph (a), if --
(i) Escrow arrangement. The delinquent taxpayer offers a
satisfactory arrangement, which is accepted by the district director,
for placing property in escrow to secure the payment of the liability
(including the expenses of levy) which is the basis of the levy.
(ii) Bond. The delinquent taxpayer delivers an acceptable bond to
the district director conditioned upon the payment of the liability
(including the expenses of levy) which is the basis of the levy. Such
bond shall be in the form provided in section 7101 and 301.7101-1.
(iii) Payment of amount of U.S. interest in the property. There is
paid to the district director an amount determined by him to be equal to
the interest of the United States in the seized property or the part of
the seized property to be released.
(iv) Assignment of salaries and wages. The delinquent taxpayer
executes an agreement directing his employer to pay to the district
director amounts deducted from the employee's wages on a regular,
continuing, or periodic basis, in such manner and in such amount as is
agreed upon with the district director, until the full amount of the
liability is satisfied, and such agreement is accepted by the employer.
(v) Installment payment arrangement. The delinquent taxpayer makes
satisfactory arrangements with the district director to pay the amount
of the liability in installments.
(vi) Extension of statute of limitations. The delinquent taxpayer
executes an agreement to extend the statute of limitations in accordance
with section 6502(a)(2) and 301.6502-1.
(3) Release where value of interest of United States is insufficient
to meet expenses of sale. The district director may release the levy as
authorized under subparagraph (1) of this paragraph (a) if he determines
that the value of the interest of the United States in the seized
property, or in the part of the seized property to be released, is
insufficient to cover the expenses of the sale of such property.
(b) Return of property -- (1) General rule. If the district director
determines that property has been wrongfully levied upon, the district
director may return --
(i) The specific property levied upon,
(ii) An amount of money equal to the amount of money levied upon
(without interest), or
(iii) An amount of money equal to the amount of money received by the
United States from a sale of the property (without interest).
If the United States is in possession of specific property, the
property may be returned at any time. An amount equal to the amount of
money levied upon or received from a sale of the property may be
returned at any time before the expiration of 9 months from the date of
the levy. When a request described in subparagraph (2) of this
paragraph is filed for the return of property before the expiration of 9
months from the date of levy, an amount of money may be returned after a
reasonable period of time subsequent to the expiration of the 9- month
period if necessary for the investigation and processing of such
request. In cases where money is specifically identifiable, as in the
case of a coin collection which may be worth substantially more than its
face value, the money will be treated as specific property and, whenever
possible, this specific property will be returned. For purposes of
subparagraph (1)(iii) of this paragraph (b), if property is declared
purchased by the United States at a sale pursuant to section 6335(e),
the United States is treated as having received an amount of money equal
to the minimum price determined by the district director before the sale
or, if larger, the amount received by the United States from the resale
of the property.
(2) Request for return of property. A written request for the return
of property wrongfully levied upon shall be addressed to the district
director (marked for the attention of the chief, special procedures
staff) for the internal revenue district in which the levy was made.
The written request shall contain the following information:
(i) The name and address of the person submitting the request,
(ii) A detailed description of the property levied upon,
(iii) A description of the claimant's basis for claiming an interest
in the property levied upon, and
(iv) The name and address of the taxpayer, the originating internal
revenue district, and the date of lien or levy as shown on the Notice of
Tax Lien (Form 668), Notice of Levy (Form 668-A), or Levy (Form 668-B),
or, in lieu thereof, a statement of the reasons why such information
cannot be furnished.
(3) Inadequate request. Any request made prior to June 1, 1972,
which apprises the Internal Revenue Service of the claimant's demand for
the return of property wrongfully levied upon shall be considered
adequate. A request made after May 31, 1972, shall not be considered
adequate unless it is a written request containing the information
required by subparagraph (2) of this paragraph (b). However, unless a
notification is mailed by the district director to the claimant within
30 days of receipt of the request to inform the claimant of the
inadequacies, any written request shall be considered adequate. If the
district director timely notifies the claimant of the inadequacies of
his request, the claimant shall have 30 days from the receipt of the
notification of inadequacy to supply in writing any omitted information.
Where the omitted information is so supplied within the 30 day period,
the request shall be considered to be adequate from the time the
original request was made for purposes of determining the applicable
period of limitation upon suit under section 6532(c).
(T.D. 7180, 37 FR 7320, Apr. 13, 1972)
26 CFR 301.6361-1 Collection and administration of qualified taxes.
(a) In general. In the case of any State which has in effect a State
agreement (as defined in paragraph (a) of 301.6361-4), the Commissioner
of Internal Revenue shall collect and administer each qualified tax (as
defined in paragraph (b) of 301.6361-4) of such State. No fee or other
charge shall be imposed upon any State for the collection or
administration of any qualified tax of such State or any other State.
In any such case of collection and administration of qualified taxes,
the provisions of subtitle F (relating to procedure and administration),
subtitle G (relating to the Joint Committee on Taxation), and chapter 24
(relating to the collection of income tax at source on wages), and the
provisions of regulations thereunder, insofar as such provisions relate
to the collection and administration of the taxes imposed on the income
of individuals by chapter 1 (and the civil and criminal sanctions
provided by subtitle F, or by title 18 of the United States Code
(relating to crimes and criminal procedure), with respect to such
collection and administration) shall apply to the collection and
administration of qualified taxes as if such taxes were imposed by
chapter 1, except to the extent that the application of such provisions
(and sanctions) are modified by regulations issued under subchapter E
(as defined in paragraph (d) of 301.6361-4). Any extension of time
which is granted for the making of a payment, or for the filing of any
return, which relates to any Federal tax imposed by subtitle A (or by
subtitle C with respect to filing a return) shall constitute
automatically an extension of the same amount of time for the making of
the corresponding payment or for the filing of the corresponding return
relating to any qualified tax.
(b) Returns of qualified taxes. Every individual, estate, or trust
which has liability for one or more qualified taxes for a taxable year
--
(1) Shall file a Federal income tax return at the time prescribed
pursuant to section 6072(a) (whether or not such return is required by
section 6012), and shall file therewith on the prescribed form a return
under penalties of perjury for each tax which is --
(i) A qualified resident tax imposed by a State of which the taxpayer
was a resident, as defined in 301.6362-6, for any part of the taxable
year;
(ii) A qualified nonresident tax imposed by a State within which was
located the source or sources from which the taxpayer derived, while not
a resident of such State and while not exempt from liability for the tax
by reason of a reciprocal agreement between such State and the State of
which he is a resident, 25 percent or more of his aggregate wage and
other business income, as defined in paragraph (c) of 301.6362-5, for
the taxable year; or
(iii) A qualified resident or nonresident tax with respect to which
any amount was currently collected from the taxpayer's income (including
collection by withholding on wages or by payment of estimated income
tax), as provided in paragraph (f) of 301.6362-6, for any part of the
taxable year; and
(2) Shall declare (in addition to the declaration required with
respect to the return of the Federal income tax and in the place and
manner prescribed by form or instructions thereto) under penalties of
perjury that, to the best of the knowledge and belief of the taxpayer
(or, in the case of an estate or trust, of the fiduciary who executes
the Federal income tax return), he has no liability for any qualified
tax for the taxable year other than any such liabilities returned with
the Federal income tax return (pursuant to subparagraph (1) of this
paragraph (b)). Such declaration shall constitute a return indicating
no liability with respect to each qualified tax other than any such tax
for which liability is so returned. A Federal income tax return form
which is filed but which does not contain such declaration shall
constitute a Federal income tax return only if the taxpayer in fact has
no liability for any qualified State tax for the taxable year.
(c) Credits -- (1) Credit for tax of another State or political
subdivision -- (i) In general. A credit allowable under a qualified tax
law against the tax imposed by such law for a taxpayer's tax liability
to another State or a political subdivision of another State shall be
allowed if the requirements of subdivision (ii) of this subparagraph are
met, and if the credit meets the requirements of paragraph (c) of
301.6362-4. Such credit shall be allowed without regard to whether the
tax imposed by the other State or subdivision thereof is a qualified
tax, and without regard to whether such tax has been paid.
(ii) Substantiation of tax liability for which a credit is allowed.
If the liability which gives rise to a credit of the type described in
subdivision (i) of this subparagraph is with respect to a qualified tax,
then the fact of such liability shall be substantiated by filing the
return on which such liability is reported. If such liability is not
with respect to a qualified tax, then the Commissioner may require a
taxpayer who claims entitlement to such a credit to complete a form to
be submitted with his return of the qualified tax against which the
credit is claimed. On such form the taxpayer shall identify each of the
other States (the liabilities to which were not substantiated as
provided in the first sentence of this subdivision) or political
subdivisions to which the taxpayer reported a liability for a tax giving
rise to the credit, furnish the name or description of each such tax,
state the amount of the liability so reported with respect to each such
tax and the beginning and ending dates of the taxable period for which
such liability was reported, and provide such other information as is
requested in the form or in the instructions thereto. In addition, the
taxpayer shall agree on such form to notify the Commissioner in the
event that the amount of any tax liability (or portion thereof) which is
claimed as giving rise to a credit of the type described in subdivision
(i) of this subparagraph is changed or adjusted, whether as a result of
an amended return filed by the taxpayer, a determination by the
jurisdiction imposing the tax, or in any other manner.
(2) Credit or withheld qualified tax. An individual from whose wages
an amount is withheld on account of a qualified tax shall receive a
credit for such amount against his aggregate liability for all such
qualified taxes and the Federal income tax for the taxable year, whether
or not such tax has been paid over to the Federal Government by the
employer. The credit shall operate in the manner provided by section
31(a) of the Code and the regulations thereunder with respect to Federal
income tax withholding.
(d) Collection of qualified taxes at source on wages -- (1) In
general. Except as otherwise provided in subparagraph (2) of this
paragraph, every employer making payment of wages to an employee
described in such subparagraph shall deduct and withhold upon such wages
the amount prescribed with respect to the qualified tax designated in
such subparagraph. The amounts prescribed for withholding with respect
to each such qualified tax shall be published in Circular E (Employer's
Tax Guide) or other appropriate Internal Revenue Service publications.
See paragraph (f)(1) of 301.6362-7 with respect to civil and criminal
penalties to which an employer shall be subject with respect to his
responsibilities relating to qualified taxes.
(2) Specific withholding requirements. An employer shall deduct and
withhold upon an employee's wages the amount prescribed with respect to
a qualified tax with respect to which such employee is subject to the
current collection provisions pursuant to paragraph (f) of 301.6362-6,
unless:
(i) In the case of a qualified resident tax, the employee's services
giving rise to the wages are performed in another State, and such other
State or a political subdivision thereof imposes a nonresident tax on
such employee with respect to which the withholding amount exceeds the
prescribed withholding amount with respect to such qualified resident
tax, and the State imposing such qualified resident tax grants a credit
against it for such nonresident tax.
(ii) In the case of a qualified nonresident tax, either:
(A) Residents of the State in which the employee resides are exempt
from liability for the qualified nonresident tax imposed by the State
from sources within which his wage income is derived, by reason of an
interstate compact or agreement to which the two States are parties, or
(B) The State in which the employee resides imposes a qualified
resident tax on such employee with respect to which the prescribed
withholding amounts exceed the prescribed withholding amounts with
respect to the qualified nonresident tax imposed by the State from
sources within which his wage income is derived, and the State in which
he resides grants a credit against its qualifed resident tax for such
qualified nonresident tax.
If the nonresident tax described in subdivision (i) of this
subparagraph is a qualified nonresident tax imposed by a State, then the
reference in such subdivision to the State in which the services are
performed shall be construed as a reference to the State from sources
within which the wage income is derived, within the meaning of paragraph
(d)(1) of 301.6362-5.
(3) Forms, procedures, and returns relating to withholding with
respect to qualified taxes -- (i) Forms W-4 and W-4P. Forms W-4
(Employee's Withholding Allowance Certificate) and W-4P (Annuitant's
Request for Income Tax Withholding), shall include information as to the
State in which the employee resides, and shall be used for purposes of
withholding with respect to both Federal and qualified taxes. An
employee shall show on his Form W-4 the State in which he resides for
purposes of this paragraph, and shall file a new Form W-4 within 10 days
after he changes his State of residence. An employee who fails to meet
either of the requirements set forth in the preceding sentence, with the
intent to evade the withholding tax imposed with respect to a qualifed
tax, shall be subject to the penalty provided in section 7205 of the
Code. An employer shall be responsible for determining the State within
which are located the sources from which the employee's wage income is
derived for purposes of this paragraph; and, if the employee does not
file a Form W-4, the employer shall assume for such purposes that the
employee resides in that State. When an employer and an employee enter
into a voluntary withholding agreement pursuant to 31.3402(p)-1, the
employer shall withhold the amount prescribed with respect to the
qualified resident tax imposed by the State in which the employee
resides, as indicated on Form W-4. Similarly, if an annuitant requests
withholding with respect to his annuity payments pursuant to section
3402 (o)(1)(B) of the Code, the payer shall withhold the whole dollar
amount specified by the annuitant with respect to a qualified resident
tax, provided that the combined withholding with respect to Federal and
qualified taxes on each annuity payment shall be a whole dollar amount
not less than $5, and that the net amount of any annuity payment
received by the payee shall not be reduced to less than $10.
(ii) Forms W-2 and W-2P. Forms W-2 (Wage and Tax Statement) and W-2P
(the corresponding form for annuities) shall show:
(A) The total amount withheld with respect to the Federal income tax;
(B) The total amount withheld with respect to qualified taxes;
(C) The name of each State imposing a qualified tax in which the
employee (or annuitant) resided during the taxable year, as shown on
Form W-4 (or W-4P);
(D) The name of each State imposing a qualified nonresident tax
within which were located sources from which the employee's wage income
was derived during a period of the taxable year in which he was not
shown as a resident of such State on Form W-4, and the amount of the
employee's wage income so derived; and
(E) The name of each State or locality that imposes an income tax
which is not a qualified tax and with respect to which the employer
withheld on the employee's wage income for the taxable year, and the
amount of wage income with respect to which the employer so withheld.
(iii) Requirements relating to deposit and payment of withheld tax.
Rules relating to the deposit and remittance of withheld Federal income
and FICA taxes, including those prescribed in section 6302 of the Code
and the regulations thereunder, shall apply also to amounts withheld
with respect to qualified taxes. Thus, an employer's liability with
respect to the deposit and payment of withheld taxes shall be for the
combined amount of withholding with respect to Federal and qualified
taxes. The Federal Tax Deposit form shall separately indicate:
(A) The combined total amount of Federal income, FICA, and qualified
taxes withheld;
(B) The combined total amount of qualified taxes withheld; and
(C) The total amount of qualified taxes withheld with respect to each
electing State.
Data indicating the total amount of tax deposits processed by the
Internal Revenue Service with respect to the qualified taxes of an
electing State will be available to that State upon request on as
frequent as a weekly basis. These data will be available no later than
10 working days after the end of the calendar week in which the deposits
were processed by the Service.
(iv) Employment tax returns. Forms 941 (Employer's Quarterly Federal
Tax Return), 941-E (Quarterly Return of Withheld Income Tax), 941-M
(Employer's Monthly Federal Tax Return), 942 (Employer's Quarterly Tax
Return for Household Employees), and 943 (Employer's Annual Tax Return
for Agricultural Employees), shall indicate the total amount withheld
with respect to each qualified tax, as directed by such forms or their
instructions.
(e) Criminal penalties. A criminal offense committed with respect to
a qualified tax shall be treated as a separate offense from a similar
offense committed with respect to the Federal tax. Thus, for example,
if a taxpayer willfully attempts to evade both the Federal tax and a
qualified tax by failing to report a portion of his income, he shall be
considered as having committed two criminal offenses, each subject to a
separate penalty under section 7201. See also 301.6362-7(f) with
respect to criminal penalties.
(f) Allocation of amounts collected with respect to tax and criminal
fines -- (1) In general. The aggregate amount that has been collected
from a taxpayer (including amounts collected by withholding) in respect
of liability for both one or more qualified taxes and the Federal income
tax for a taxable year shall be allocated among the Federal Government
and the States imposing qualified taxes for which the taxpayer is liable
in the proportion which the taxpayer's liability for each such tax bears
to his aggregate liability for such year to all of such taxing
jurisdictions with respect to such taxes. A reallocation shall be made
either when an amount is collected from the taxpayer or his employer or
is credited or refunded to the taxpayer, subsequent to the making of the
initial allocation, or when a determination is made by the Commissioner
that an error was made with respect to a previous allocation. However,
any such allocation or reallocation shall not affect the amount of a
taxpayer's or employer's liability to either jurisdiction, or the amount
of the assessment and collection which may be made with respect to a
taxpayer or employer. Accordingly, such allocations and reallocations
shall not be taken into consideration for purposes of the application of
statutes of limitation or provisions relating to interest, additions to
tax, penalties, and criminal sanctions. See example 4 in subparagraph
(4) of this paragraph (e). In addition, any such allocation or
reallocation shall not affect the amount of the deduction to which a
taxpayer is entitled under section 164 for a year in which he made
payment (including payments made by withholding) of an amount which was
designated as being in respect of his liability for a qualified tax.
However, to the extent that an amount which was paid by a taxpayer and
designated as being in respect of his liability for a qualified tax is
allocated or reallocated in such a manner as to apply it toward the
taxpayer's liability for the Federal income tax, such allocation or
reallocation shall be treated as a refund to the taxpayer of an amount
paid in respect of a State income tax, and shall be included in the
gross income of the taxpayer to the extent appropriate under section 111
and the regulations thereunder in the year in which the allocation or
reallocation is made. See section 451 and the regulations thereunder.
Similarly, to the extent that an amount which was paid by a taxpayer and
designated as being in respect of his Federal income tax liability is
allocated or reallocated in such a manner as to apply it toward his
liability for a qualified tax, such allocation or reallocation shall be
treated as a payment made by the taxpayer in respect of a State income
tax, and shall be deductible under section 164 in the year in which the
allocation or reallocation is made. The Internal Revenue Service shall
notify the taxpayer in writing of any allocation or reallocation of tax
liabilities in a proportion other than that of the respective tax
liabilities shown on the taxpayer's returns.
(2) Amounts of collections and liabilities. For purposes of this
paragraph the aggregate amount that has been collected from a taxpayer
or his employer in respect of tax liability shall include the amounts of
interest provided in chapter 67, and additions to tax and assessable
penalties provided in chapter 68, which are collected with respect to
such tax; but shall not include criminal fines provided in chapter 75,
or in title 18 of the United States Code, which are collected with
respect to offenses relating to such tax. (See subparagraph (3) of this
paragraph (e) with respect to the treatment of such criminal fines.)
However, for purposes of this paragraph, the amount of the taxpayer's
liability for each tax shall exclude his liability for such interest
additions to tax, and assessable penalties with respect to such tax, and
his liability for criminal fines imposed with respect to offenses
relating to such tax. For purposes of this paragraph, the amount of the
taxpayer's liability for each tax shall be computed by taking credits
into account, except that there shall be no reduction for any amounts
paid on account of such liability, whether by means of withholding,
estimated tax payment, or otherwise.
(3) Special rules relating to criminal fines. (i) Except as
otherwise provided in subdivision (ii) of this subparagraph, when a
criminal charge is brought against a taxpayer with respect to a taxable
year pursuant to chapter 75, or to title 18 of the United States Code,
or to a corresponding provision of a qualified tax law, alleging that an
offense was committed against the United States with respect to the
Federal income tax or against a State with respect to a qualified tax,
and an amount of money is collected by the Federal Government as a fine
as a result of such charge, then the Federal Government shall remit an
amount to each State, if any, which is an affected jurisdiction. The
amount remitted to each such State shall bear the same proportion to the
total amount collected as a fine as the taxpayer's liability with
respect to the qualified taxes of that State bears to the aggregate of
the taxpayer's income tax liabilities to all affected jurisdictions for
the taxable year, as determined under subparagraphs (1) and (2) of this
paragraph (e). For purposes of this subparagraph, an affected
jurisdiction is (A) a jurisdiction with respect to the tax of which a
criminal charge described in the preceding sentence was brought for the
taxable year, or (B) a jurisdiction with respect to the Federal income
tax or the qualified tax of which the acts or omissions alleged in such
a criminal charge would constitute the basis for the bringing of a
criminal charge for the same taxable year. However, in no case shall
the amount received by an affected State, or the amount of the excess of
the amount received by the Federal Government over the amount of its
remissions to States, with respect to a fine exceed the maximum fine
prescribed by statute for the offense against that jurisdiction with
respect to which a criminal charge was brought, or with respect to which
the bringing of a criminal charge could have been supported on the basis
of the acts or omissions alleged in a criminal charge brought. For
purposes of this subparagraph, the amount collected as a fine as a
result of a criminal charge shall include amounts paid in settlement of
an actual or potential liability for a fine, amounts paid pursuant to a
conviction and amounts paid pursuant to a plea of guilty or nolo
contendere.
(ii) If a criminal charge described in the first sentence of
subdivision (i) of this subparagraph is actually brought with respect to
the income tax of every affected jurisdiction with respect to the
taxable year, and if a Court adjudicates on the merits the taxpayer's
liability for a fine to each such jurisdiction, and includes in its
decree a direction of the amount, if any, to be paid as a fine to each
such jurisdiction, then that decree shall govern the allocation of the
amount of money collected by the Federal Government as a fine with
respect to the taxable year.
(4) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. The total combined amount of State X qualified tax and
Federal income tax collected from A, a resident of State X, for the
taxable year is $5,100. The amounts of A's liabilities for such taxes
for that year are $800 to State X and $4,000 to the Federal Government.
Since A's tax liability to State X is one-sixth of the combined tax
liability ($4,800), one-sixth ($50) of the amount to be refunded to A
($300) is chargeable against State X's account, and five-sixths ($250)
is chargeable against the Federal Government's account.
Example 2. Assume the same facts as in example 1 except that the
total amount collected from A is $4,500. Since A's liabilities for the
State X tax and the Federal tax are one-sixth and five-sixths,
respectively, of the combined tax liability, the Federal Government
shall pay over to State X one-sixth ($750) of the amount actually
collected from A, and the Federal Government shall retain five-sixths
($3,750).
Example 3. The total amount of State X qualified tax, State Y
qualified tax, and Federal income tax collected from B, a resident of
State X who is employed in State Y, for the taxable year is $5,500. The
amounts of B's liabilities for such taxes for that year are: $250 for
the State X tax (after allowance of a credit for State Y's qualified
tax), $750 for the State Y tax, and $4,000 for the Federal tax. Since
B's liability for the State X tax ($250) is 5 percent of the combined
tax liability ($5,000), his liability for the State Y tax ($750) is 15
percent of such combined liability, and his liability for the Federal
tax ($4,000) is 80 percent of such combined liability, the total amount
to be refunded to B ($500) shall be chargeable in the following manner:
5 percent ($25) against State X's account, 15 percent ($75) against
State Y's account, and 80 percent ($400) against the Federal
Government's account.
Example 4. C is liable for $2,000 in Federal income tax and $500 in
State X qualified tax (a resident tax) for the taxable year. However,
on his Federal income tax return for such year, C erroneously described
himself as a resident of State Y (which does not have a qualified tax),
and he filed with such return his declaration to the effect that he had
no qualified tax liability for the year. Accordingly, C paid only
$2,000 for his Federal tax liability, and such amount was retained in
the account of the Federal Government. Subsequently, C's error is
discovered. The amount collected by the Federal Government from C for
such year must be allocated between the Federal Government and State X
in proportion to C's tax liability to both. Accordingly, the Federal
Government must pay over to State X the amount of $400 (which is 1/5
($500/$2,500) of the $2,000 collected). If the Federal Government
collects from C the additional $500 owed, it will retain $400 of such
amount and pay the remaining $100 to State X. Similarly, if the Federal
Government collects from C any interest, or any additions to tax or
assessable penalties under chapter 68, 4/5 of the amount of such
collections shall be retained by the Federal Government and 1/5 of such
amount shall be paid over to State X. However, notwithstanding the
allocation of the funds between the taxing jurisdictions, C's liability
for the $500 retains its character as a liability for State X tax.
Therefore, any interest, additions to tax, or assessable penalities
imposed with respect to the State X tax shall be imposed with respect to
C's full $500 liability for such tax, notwithstanding the fact that
amounts collected with respect to such items shall be allocated 4/5 to
the Federal Government.
Example 5. A criminal charge is brought against D pursuant to
chapter 75, alleging that he willfully evaded the payment of Federal
income tax by failing to report interest income derived from obligations
of the United States. D enters a plea of non contendere to the charge
and pays $2,500 as a fine to the Federal Government. The act alleged in
the criminal charge would not support the bringing of a criminal charge
under a State law corresponding to chapter 75, or to title 18 of the
United States Code, with respect to the qualified tax of any State;
accordingly, the United States is the only affected jurisdiction, and no
remittances shall be made to any State with respect to the amount
collected by the Federal Government as a fine.
Example 6. A criminal charge is brought against E pursuant to
chapter 75, alleging that he willfully attempted to evade the assessment
of liability for both Federal income tax and the qualified tax of State
X by filing false and fraudulent income tax returns. E's case is
settled upon the condition that he pay a fine in the amount of $5,000.
As determined pursuant to subparagraph (2) of this paragraph, E's
liabilities for the taxable year are in the amounts of $7,200 to the
Federal Government and $800 to State X. Accordingly, after the Federal
Government collects the fine, $500 ($5,000+$800 $8,000) is remitted to
State X.
Example 7. Assume the same facts as in example 6, except that E is
tried and convicted on both charges, and pursuant to court decree he
pays to the United States a fine of $6,000 with respect to each charge,
or a total of $12,000. Because a criminal charge was brought with
respect to each affected jurisdiction, and the allocation of the total
amount paid as a fine was specifically imposed by a court decree, the
direction of the Court shall govern the allocation. Accordingly, after
the Federal Government collects the fines it pays over $6,000 to the
account of State X.
(T.D. 7577, 43 FR 59361, Dec. 20, 1978)
26 CFR 301.6361-2 Judicial and administrative proceedings; Federal
representation of State interests.
(a) Civil proceedings -- (1) General rule. Any person shall have the
same right to bring or contest a civil action, and to obtain a review
thereof, with respect to a qualified tax (including the current
collection thereof) in the same court or courts which would be available
to him, and pursuant to the same requirements and procedures to which he
would be subject, under chapter 76 (relating to judicial proceedings),
and under title 28 of the United States Code (relating to the judiciary
and judicial procedure), if the tax were imposed by section 1 or chapter
24 of the Internal Revenue Code. For purposes of this section, the term
''person'' includes the Federal Government. Except as provided in
subparagraph (2) of this paragraph (a), to the extent that the preceding
sentence provides judicial procedures (including review procedures) with
respect to any matter, such procedures shall replace civil judicial
procedures under State law.
(2) Exception. The right or power of the courts of any State to pass
on matters involving the constitution of such State is unaffected by any
provision of this paragraph; however, the jurisdiction of a State court
in such matters shall not extend beyond the issue of constitutionality.
Thus, if in a case involving the validity of a qualified tax statute
under the State constitution, the State court holds such statute
constitutional, such court shall not proceed to decide the amount of the
tax liability.
(b) Criminal proceedings. Only the Federal Government shall have the
right to bring a criminal action with respect to a qualified tax
(including the current collection thereof). Such an action shall be
brought in the same court or courts which would be available to the
Federal Government, and pursuant to the same requirements and procedures
to which the Federal Government would be subject, if the tax were
imposed by section 1 or chapter 24 of the Internal Revenue Code.
(c) Administrative proceedings. Any person shall have the same
rights in administrative proceedings of the Internal Revenue Service
with respect to a qualified tax (including the current collection
thereof) which would be available to him, and shall be subject to the
same administrative requirements and procedures to which he would be
subject, if the tax were imposed by section 1 or chapter 24 of the
Internal Revenue Code.
(d) United States representation of State interests -- (1) General
rule. Except as provided in subparagraphs (2) and (3) of this paragraph
(d), the Federal Government shall appear on behalf of any State the
qualified tax of which it collects (or did collect for the year in
issue), and shall represent such State's interests in any administrative
or judicial proceeding, either civil or criminal in nature, which
relates to the administration and collection of such qualified tax, in
the same manner as it represents the interests of the United States in
corresponding proceedings involving Federal income tax matters.
(2) Exceptions. The Federal Government shall not so represent a
State's interests either --
(i) In proceedings in a State court involving the constitution of
such State, to the extent of such constitutional issue, or
(ii) In proceedings in any court involving the relationship between
the United States and the State, to the extent of the issue pertaining
to such relationship, if either:
(A) The proceeding is one which is initiated by the United States
against the State, or by the State against the United States, and no
individual (except in his official capacity as a governmental official)
is an original party to the proceeding, or
(B) The proceeding is not one described in (A), but the State elects
to represent its own interests to the extent permissible under this
subdivision.
(3) Finality of Federal administrative determinations. State and
local government officials and employees may not review Federal
administrative determinations concerning tax liabilities of, refunds
owed to, or criminal prosecutions of, individuals with respect to
qualified taxes. See, however, 301.6363-3 relating to State
administration of a qualified tax with respect to transition years. If
requested by an electing State, the Commissioner or his delegate may,
under terms and conditions set forth in an agreement with such State,
permit such State to carry on operations supplementary to the Federal
administration of the State's qualified tax (including supplemental
audits or examinations of tax returns by State audit personnel), but all
administrative determinations shall be made by the Federal Government
without review by the State. An agreement which permits supplemental
audits or examinations of tax returns by State audit personnel shall
provide that the audits and examinations shall be conducted under the
supervision and control of the Commissioner or his delegate, who shall
have the authority to determine which returns shall be audited and when
the audits shall occur. Also, such agreements shall provide that the
results of any such supplemental audit shall be referred to the
Commissioner or his delegate for final administrative determination.
The Commissioner or his delegate shall, to the extent permitted by law,
allow an electing State reasonable access to tax returns and other
appropriate records and information relating to its qualified tax for
the purpose of conducting any such supplemental operations. In
addition, the Secretary or his delegate shall permit an electing State
to inspect the workpapers which are compiled in the course of
verification by the Treasury Department of the correctness of the
accounting by which the amounts of the actual net collections
attributable to the electing State's qualified taxes are determined.
(T.D. 7577, 43 FR 59364, Dec. 20, 1978)
26 CFR 301.6361-3 Transfers to States.
(a) Periodic transfers. In general, amounts collected by the Federal
Government which are allocable to qualified taxes (including criminal
fines which are required to be paid to a State, as determined under
paragraph (f)(3) of 301.6361-1) shall be promptly transferred to each
State imposing such a tax. Transfers of such amounts, based on
percentages of estimated Federal collections, shall be made not less
frequently than every third business day unless the State agrees to
accept transfers at less frequent intervals.
(b) Determination of amounts of transfers. The amounts allocable to
the qualified taxes of each State for purposes of periodic transfer
shall be determined as a percentage of the estimated aggregate net
individual income tax collections made by the Federal Government. For
purposes of this paragraph, the ''aggregate net individual income tax
collections'' shall include amounts collected on account of the Federal
individual income tax and all qualified taxes by all means (including
withholding, tax returns, and declarations of estimated tax), and shall
be reduced to the extent of any liability to taxpayers for credits or
refunds by reason of overpayments of such taxes. The percentage of the
estimated amount of such collections which is allocated to each State
shall be based on an estimate which is to be made by the Office of Tax
Analysis prior to the beginning of each calendar year as to what portion
of the estimated aggregate net individual income tax collections for the
forthcoming year will be attributable to the qualified taxes of that
State. Each State will be notified prior to the beginning of each
calendar year of the amount which it is estimated that the State will
receive by application of that percentage for the year. However, the
Office of Tax Analysis shall, from time to time throughout the calendar
year, revise the percentage estimates when such a revision is, in the
opinion of that office necessary to conform such estimates to the actual
receipts. When such a revision is made, the payments to the State will
be adjusted accordingly.
(c) Adjustment of difference between actual collections and periodic
transfers. At least once annually the Secretary or his delegate shall
determine the difference between the aggregate amount of the actual net
collections made (taking into account credits, refunds, and amounts
received by withholding with respect to which a tax return is not filed)
which is attributable to each State's qualified taxes during the
preceding year and the aggregate amount actually transferred to such
State based on estimates during such year. The amount of such
difference, as so determined, shall be a charge against, or an addition
to, the amounts otherwise determined to be payable to the State.
(d) Recipient of transferred funds. All funds transferred pursuant
to section 6361(c) and paragraph (a) of this section shall be
transferred by the Federal Government to the State official designated
by the Governor to receive such funds in the State agreement pursuant to
paragraph (d)(5) of 301.6363-1, unless the Governor notifies the
Secretary or his delegate in writing of the designation of a different
State official to receive the funds.
(T.D. 7577, 43 FR 59365, Dec. 20, 1978)
26 CFR 301.6361-4 Definitions.
For purposes of the regulations in this part under subchapter E of
chapter 64 of the Internal Revenue Code of 1954, relating to collection
and administration of State individual income taxes --
(a) State agreement. The term ''State agreement'' means an agreement
between a State and the Federal Government which was entered into
pursuant to section 6363 and the regulations thereunder, and which
provides for the Federal collection and administration of the qualified
tax or taxes of that State.
(b) Qualified tax. The term ''qualified tax'' means a tax which is a
''qualified State individual income tax'', as defined in section 6362
(including subsection (f)(1) thereof, which requires that a State
agreement be in effect) and the regulations thereunder.
(c) Chapters and subtitles. References in regulations in this part
under subchapter E to chapters and subtitles are to chapters and
subtitles of the Internal Revenue Code of 1954, unless otherwise
indicated.
(d) Subchapter E. The term ''subchapter E'' means subchapter E of
chapter 64 of the Internal Revenue Code of 1954, relating to collection
and administration of State individual income taxes, as amended from
time to time.
(T.D. 7577, 43 FR 59365, Dec. 20, 1978)
26 CFR 301.6361-5 Effective date of section 6361.
Section 6361 shall take effect on the first January 1 which is more
than 1 year after the first date on which at least one State has filed a
notice of election with the Secretary or his delegate to enter into a
State agreement. For purposes of this section, a notice of election
shall be deemed to have been filed by a State only if there is no defect
in either the State's notice of election or the State's tax law of which
the Secretary notified the Governor pursuant to paragraph (c) of
301.6363-1, and which has not been retroactively cured under the
provisions of such paragraph.
(T.D. 7577, 43 FR 59365, Dec. 20, 1978)
26 CFR 301.6362-1 Types of qualified tax.
(a) In general. A qualified tax may be either a ''qualified resident
tax'' within the meaning of paragraph (b) of this section, or a
''qualified nonresident tax'' within the meaning of paragraph (c) of
this section.
(b) Qualified resident tax. A tax imposed by a State on the income
of individuals, estates, and trusts which are residents of such State
within the meaning of section 6362(e) and 301.6362-6 shall be a
''qualified resident tax'' if it is either:
(1) A tax based on Federal taxable income which meets the
requirements of section 6362 (b), (e), and (f), and of 301.6362-2,
301.6362-6, and 301.6362-7; or
(2) A tax which is a percentage of the Federal tax and which meets
the requirements of section 6362 (c), (e), and (f), and of 301.6362-3,
301.6362-6, and 301.6362-7.
(c) Qualified nonresident tax. A tax imposed by a State on the wage
and other business income of individuals who are not residents of such
State within the meaning of section 6362(e)(1) and paragraph (b) of
301.6362-6 shall be a ''qualified nonresident tax'' if it meets the
requirements of section 6362 (d), (e), and (f), and of 301.6362-5,
301.6362-6, and 301.6362-7.
(T.D. 7577, 43 FR 59366, Dec. 20, 1978)
26 CFR 301.6362-2 Qualified resident tax based on taxable income.
(a) In general. A tax meets the requirements of section 6362(b) and
this section only if it is imposed on the amount of the taxable income,
as defined in section 63, of the individual, estate, or trust, adjusted
--
(1) By subtracting an amount equal to the amount of the taxpayer's
interest on obligations of the United States which was included in his
gross income for the taxable year;
(2) By adding an amount equal to the amount of the taxpayer's net
State income tax deduction, as defined in paragraph (a) of 301.6362-4,
for the taxable year;
(3) By adding an amount equal to the amount of the taxpayer's net
tax-exempt income, as defined in paragraph (b) of 301.6362-4, for the
taxable year; and
(4) If a credit is allowed against the tax in accordance with
paragraph (b)(3) of this section for sales tax imposed by the State or a
political subdivision thereof, by adding an amount equal to the amount
of the taxpayer's deduction under section 164(a)(4) for such sales tax.
The tax may provide for either a single rate or multiple rates which
vary with the amount of taxable income, as adjusted.
(b) Permitted adjustments. A tax which otherwise meets the
requirements of paragraph (a) of this section shall not be deemed to
fail to meet such requirements solely because it provides for one or
more of the following adjustments:
(1) A credit meeting the requirements of paragraph (c) of 301.6362-4
is allowed against the tax for the taxpayer's income tax liability to
another State or a political subdivision thereof.
(2) A tax is imposed on the amount taxed under section 56 (relating
to the minimum tax for tax preferences).
(3) A credit is allowed against the tax for all or a portion of any
general sales tax imposed by the State or a political subdivision
thereof with respect to sales either to the taxpayer or to one or more
of his dependents.
(c) Method of making mandatory adjustments. The mandatory
adjustments provided in paragraph (a) of this section shall be made
directly to taxable income. Except as provided in paragraph (c)(2) of
301.6362-4, no account shall be taken of any reduction or increase in
the Federal adjusted gross income which would result from the exclusion
from, or inclusion in, gross income of the items which are the subject
of the adjustments. Thus, for example, when for purposes of the
calculation the taxpayer's Federal taxable income is adjusted to reflect
the exclusion from gross income of interest on obligations of the United
States, no change shall be made in the amount of the taxpayer's
deduction for medical expenses, or in the amount of his charitable
contribution base, even though such amounts would ordinarily depend upon
the amount of adjusted gross income.
(T.D. 7577, 43 FR 59366, Dec. 20, 1978)
26 CFR 301.6362-3 Qualified resident tax which is a percentage of
Federal tax.
(a) In general. A tax meets the requirements of section 6362(c) and
this section only if:
(1) The tax is imposed as a single specified percentage of the excess
of the taxes imposed by chapter 1 over the sum of the credits allowable
under part IV of subchapter A of chapter 1 (other than the credits
allowable under sections 31 and 39), and
(2) The amount of the tax is decreased by the amount of the decrease
in such liability which would result from excluding from the taxpayer's
gross income an amount equal to the amount of interest on obligations of
the United States which was included in his gross income for the taxable
year.
(b) Permitted adjustments. A tax which otherwise meets the
requirements of paragraph (a) of this section shall not be deemed to
fail to meet such requirements solely because it provides for one or
more of the following three adjustments:
(1) The amount of a taxpayer's liability for tax is increased by the
amount of the increase in such liability which would result from
including in such taxpayer's gross income all of the following:
(i) An amount equal to the amount of his net State income tax
deduction, as defined in paragraph (a) of 301.6362-4, for the taxable
year,
(ii) An amount equal to the amount of his net tax-exempt income, as
defined in paragraph (b) of 301.6362-4, for the taxable year, and
(iii) If a credit is allowed against the tax under paragraph (b)(3)
of this section for sales tax imposed by the State or a political
subdivision thereof, an amount equal to the amount of his deduction
under section 164(a)(4) for such sales tax.
(2) A credit meeting the requirements of paragraph (c) of 301.6362-4
is allowed against the tax for the income tax of another State or a
political subdivision thereof.
(3) A credit is allowed against the tax for all or a portion of any
general sales tax imposed by the State or a political subdivision
thereof with respect to sales either to the taxpayer or to one or more
of his dependents.
(c) Method of making adjustments. Except as specifically provided in
paragraphs (a)(2) and (b)(1) of this section and in paragraph (c)(2) of
301.6362-4, no account shall be taken of any reduction or increase in
the Federal adjusted gross income which would result from the exclusion
from, or inclusion in, gross income of the items which are the subject
of the adjustments provided in those paragraphs. Thus, for example,
when for purposes of the calculation the taxpayer's Federal income tax
liability is adjusted to reflect the exclusion from gross income of
interest on obligations of the United States, no change shall be made in
the amount of the taxpayer's deduction for medical expenses, or in the
amount of his charitable contribution base, even though such amounts
would ordinarily depend upon the amount of adjusted gross income. Also,
when calculating the adjusted Federal tax liability to which the rate of
the State tax is to be applied, no adjustment shall be made in the
amount of any credit against Federal tax to which a taxpayer is
entitled.
(T.D. 7577, 43 FR 59366, Dec. 20, 1978)
26 CFR 301.6362-4 Rules for adjustments relating to qualified resident
taxes.
(a) Net State income tax deduction. For purposes of section 6362
(b)(1)(B) and (c)(3)(B), and 301.6362-2 and 301.6362-3, the ''net
State income tax deduction'' shall be the excess (if any) of (1) the
amount deducted from income under section 164(a)(3) as taxes paid to a
State or to a political subdivision thereof, over (2) the amounts
included in income as recoveries of prior income taxes which were paid
to a State or to a political subdivision thereof and which had been
deducted under section 164(a)(3).
(b) Net tax-exempt income. For purposes of section 6362 (b)(1)(C)
and (c)(3)(A) and 301.6362-2 and 301.6362-3, the ''net tax-exempt
income'' shall be the excess (if any) of:
(1) The sum of (i) the interest on obligations described in section
103 (a)(1) other than obligations of the State imposing the tax and the
political subdivisions thereof, and (ii) the interest on obligations
described in such section of such State and the political subdivisions
thereof which under the law of the State is subject to the tax; over
(2) The sum of (i) the amount of deductions allocable to the interest
described in subparagraph (1) (i) or (ii) of this paragraph (b), which
is disallowed pursuant to section 265 and the regulations thereunder,
and (ii) the amount of the adjustment to basis allocable to such
obligations which is required to be made for the taxable year under
section 1016(a) (5) or (6).
For purposes of subparagraph (1)(ii) of this paragraph (b), a State
may, at its option, subject to the tax the interest from all, none, or
some of its section 103(a)(1) obligations and those of its political
subdivisions. For example, a State may subject to tax all of such
obligations other than those which it or its political subdivisions
issued prior to a specified date, which may be the date that subchapter
E became applicable to the State.
(c) Credits for taxes of other jurisdictions -- (1) In general. A
State tax law that provides for a credit, pursuant to section 6362(b)(2)
(B) or (C) or section 6362(c)(4), and paragraph (b)(1) of 301.6362-2 or
paragraph (b)(2) of 301.6362-3, for income tax of another State or a
political subdivision thereof shall provide that, in the case of each
taxpayer, the amount of the credit shall equal the amount of his
liability with respect to such other jurisdiction's tax for the taxable
year which runs concurrently with, or which ends in, the taxable year
used by the taxpayer for purposes of the State tax which provides for
the credit. Such a credit may be allowed with respect to every income
tax (whether or not qualified) imposed on the taxpayer by another State
or a political subdivision thereof, or only with respect to certain of
such taxes. However, for purposes of this paragraph, the amount which
is treated as being the amount of the taxpayer's liability with respect
to any such tax imposed by another jurisdiction shall not exceed the
amount of liability for such tax which is both --
(A) Reported to the taxing authorities responsible for collecting
such other jurisdiction's tax, and
(B) Substantiated pursuant to the requirements of paragraph
(c)(1)(ii) of 301.6361-1.
(2) Limitation. The amount of any credit allowed for the taxable
year pursuant to this paragraph shall not exceed the product of the
amount of the resident tax against which the credit is allowed, as
computed without subtracting any such credit, multiplied by a fraction
the numerator of which is the amount of income subject to tax by both
the State imposing the resident tax against which the credit is allowed
and the other jurisdiction whose tax is being credited, and the
denominator of which is the amount of income subject to tax by the State
imposing the resident tax against which the credit is allowed. For
purposes of the preceding sentence, ''income subject to tax'' means the
amount of the taxpayer's adjusted gross income which is taken into
account for purposes of computing tax liability; in the case of a
qualified resident tax, an appropriate modification shall be made to
take into account any adjustments which are made pursuant to paragraph
(a)(1) and (3) of 301.6362-2, or pursuant to paragraph (a)(2) or
(b)(1)(ii) of 301.6362-3.
(3) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. (i) A, a calendar-year, cash-basis taxpayer, is a
resident of State X throughout the taxable year. For such year, his
adjusted gross income for Federal income tax purposes consists of
$24,000, consisting of $3,000 derived from employment in State X, $5,000
derived from employment in State Y. $15,000 derived from employment in
State Z, and $1,000 in interest income from United States savings bonds.
In addition, he received net tax-exempt income in the amount of $2,000.
For the taxable year, he incurs liabilities of $200 for the State Y
nonresident income tax, and $1,400 for the State Z nonresident income
tax. State X, which has in effect a State agreement for the taxable
year, imposes a resident tax against which credits are allowed for the
nonresident taxes imposed by States Y and Z. Without taking any such
credits into account, however, the amount of A's liability for such
resident tax would be $1,500. A properly reports his nonresident income
tax liabilities to States Y and Z at the same time that he files his
return with respect to the State X tax, and he substantiates on such
return his liabilities to States Y and Z.
(ii) The amount of A's income subject to tax in State X is $25,000
(his adjusted gross income of $24,000, minus the United States savings
bond income of $1,000, plus the net tax-exempt income of $2,000). The
amount of the credit allowable against the State X resident tax for the
amount of A's liability with respect to the State Y nonresident tax is
calculated as follows: The maximum amount of credit is the actual
amount of his liability to Y, or $200. Under subparagraph (2) of this
paragraph, the amount of the credit is limited to $300 ($1,500
$5,000/$25,000). Thus, such limit has no effect, and the full $200 is
allowable as a credit against A's liability for the resident tax of
State X. The amount of the credit allowable against the State X
resident tax for the amount of A's liability with respect to the State Z
nonresident tax is calculated as follows: The maximum amount of the
credit is the actual amount of his liability to Z, or $1,400. Under
subparagraph (2) of this paragraph, the amount of the credit is limited
to $900 (1,500 $15,000/$25,000). Thus, such limit has the effect of
reducing to $900 the amount of the credit allowable for tax of State Z
against A's liability for the resident tax of State X.
Example 2. (i) B, a calendar-year, cash-basis taxpayer, is a
resident of State X employed in State Y through March 14, 1977. On
March 15, 1977, B becomes a resident of State Z and remains a resident
of such State through the remainder of 1977. For 1977, the amount of
B's adjusted gross income for Federal income tax purposes is $20,000,
consisting of $6,000 derived from employment in State Y which B held
during the period of his residence in State X, $12,000 derived from
employment in State Z which B held during the period of his residence in
State Z, and $2,000 in interest income from various bank accounts.
During 1977, B has no interest income from United States obligations,
and no tax-exempt income. For 1977, B incurs a liability of $200 to
State Y on account of its nonresident income tax imposed with respect to
his $6,000 of income derived from sources within that State. State Z,
which has in effect a State agreement for 1977, imposes a resident
income tax on B which, if B had been a resident of State Z for all 1977,
would amount to $1,200 prior to the allowance of any credits under this
paragraph. However, by reason of paragraph (e)(1) of 301.6362-6, B's
liability for the resident tax of State Z, before taking into accout
credits allowed under this paragraph, is reduced to $960 ($1,200
292/365, or 4/5). Furthermore, State Z allows a credit for the
nonresident tax imposed by State Y.
(ii) The amount of the credit allowable against the State Z resident
tax for the amount of B's liability with respect to the State Y
nonresident tax is calculated as follows: The maximum amount of the
credit is the amount of his actual liability to State Y, or $200. Under
subparagraph (2) of this paragraph, the amount of the credit is limited
to $288 ($960 $6,000/$20,000). Thus, such limit has no effect, and
the full $200 is allowable as a credit for tax of State Y against B's
liability for the resident tax of State Z.
(T.D. 7577, 43 FR 59367, Dec. 20, 1978)
26 CFR 301.6362-5 Qualified nonresident tax.
(a) In general. A tax meets the requirements of section 6362(d) and
this section only if:
(1) The tax is imposed by a State which simultaneously imposes a
resident tax meeting the requirements of section 6362(b) and 301.6362-2
or of section 6362(c) and 301.6362-3;
(2) The tax is required to be computed in accordance with either the
method prescribed in paragraph (b) of this section or another method of
which the Secretary or his delegate approves upon submission by the
State of the laws pertaining to the tax;
(3) The tax is imposed only on the wage and other business income
derived from sources within such State (as defined in paragraph (d) of
this section), of all individuals each of whom derives 25 percent or
more of his aggregate wage and other business income for the taxable
year from sources within such State while he is neither (i) a resident
of such State within the meaning of section 6362(e) and 301.6362-6, nor
(ii) exempt from liability for the tax by reason of a reciprocal
agreement between such State and the State of which he is a resident
within the meaning of those provisions;
(4) The amount of the tax imposed with respect to any individual does
not exceed the amount of tax for which such individual would be liable
under the qualified resident tax imposed by such State if he were a
resident of the State for the period during which he earned wage or
other business income from sources within the State, and if his taxable
income for such period were an amount equal to the sum of the zero
bracket amount (within the meaning of section 63(d) and determined as if
he had been a resident of the State for such period) and the excess of:
(i) The amount of his wage and other business income derived from
sources within the State, over
(ii) That portion of the sum of the zero bracket amount and the
nonbusiness deductions (i.e., all deductions from adjusted gross income
allowable in computing taxable income) taken into account for purposes
of the State's qualified resident tax which bears the same ratio to such
sum as the amount described in subdivision (i) of this subparagraph
bears to his total adjusted gross income for the year; and
(5) For purposes of the tax, wage or other business income is
considered as being the income of the individual whose income it is for
purposes of section 61.
(b) Approved method of computing liability for qualified nonresident
tax. A tax satisfies the requirement of paragraph (a)(2) of this
section if the amount of the tax is computed either as a percentage of
the excess of the amount described in paragraph (a)(4)(i) of this
section over the amount described in paragraph (a)(4)(ii) of this
section, or by application of progressive rates to such excess.
(c) Definition of wage and other business income. For purposes of
section 6362(d) and this section, the term ''wage and other business
income'' means the following types of income:
(1) Wages, as defined in section 3401(a) and the regulations
thereunder, but for these purposes:
(i) The amount of wages shall exclude amounts which are treated as
wages under section 3402 (o) or (p) (relating to supplemental
unemployment compensation benefits, annuity payments, and voluntary
withholding agreements), and amounts which are treated as disability
payments to the extent that they are excluded from gross income for
Federal income tax purposes, pursuant to section 105(d), and
(ii) The amount of wages shall be reduced by those expenses which are
directly related to the earning of such wages and with respect to which
deductions are properly claimed from gross income in computing adjusted
gross income;
(2) Net earnings from self-employment, as defined in section 1402(a);
and
(3) The distributive share of income of any trade or business carried
on by a trust, estate, or electing small business corporation (as
defined in section 1371(a) and the regulations thereunder), to the
extent that such share:
(i) Is includible in the gross income of the taxpayer for the taxable
year, and
(ii) Would constitute net earnings from self-employment if the trade
or business were carried on by a partnership.
For purposes of this subparagraph, ''distributive share'' includes
the income of a trust or estate which is taxable to the taxpayer as a
beneficiary under applicable Federal income tax rules, and the
undistributed taxable income of an electing small business corporation
which is taxable to the taxpayer as a shareholder under section 1373.
(d) Income derived from sources within a State -- (1) Income
attributable primarily to services. Except as otherwise provided by
Federal statute (see paragraphs (h), (i), and (j) of 301.6362-7), wage
income and other business income (net earnings from self-employment or
distributive shares) which is attributable more to services performed by
the taxpayer than to a capital investment of the taxpayer shall be
considered to have been derived from sources within a State only if the
services of the taxpayer which give rise to the income are performed in
such State. If for a taxable year only a portion of the taxpayer's
services giving rise to the income from one employment, trade, or
business is performed within a State, then it shall be presumed that the
amount of income from such employment, trade, or business which is
derived from sources within that State equals that portion of the total
income derived from such employment, trade, or business for the year
which the amount of time spent by the taxpayer for such year performing
services with respect to that employment, trade, or business in that
State bears to the aggregate amount of time spent by the taxpayer for
such year performing all of such services. However, the presumption
stated in the preceding sentence may be rebutted in the event that the
taxpayer proves, by use of detailed records, that the correct allocation
of his income is otherwise.
(2) Income attributable primarily to investment. Except as otherwise
provided by Federal statute (see paragraph (j) of 301.6362-7), business
income (net earnings from self-employment or distributive shares) which
is attributable more to a capital investment of the taxpayer than to
services performed by the taxpayer shall be considered to have been
derived from sources within the State, if any, in which the significant
activities of the trade or business are conducted. If for the taxable
year only a portion of the significant activities conducted with respect
to one trade or business is conducted within a certain State, then the
portion of the taxpayer's total income for the year from such trade or
business which is considered to be derived from sources within that
State shall be computed as follows:
(i) Allocation by records. The portion of the taxpayer's total
income from the trade or business which is considered to be derived from
sources within the State shall be the portion which is allocable to such
sources according to the records of the taxpayer or of the partnership,
trust, estate, or electing small business corporation from which his
income is derived, provided that the taxpayer establishes to the
satisfaction of the district director, when requested to do so, that
those records fairly and equitably reflect the income which is allocable
to sources within the State. An allocation made pursuant to this
subdivision shall be based on the location of the significant activities
of the trade or business, and not on the location at which the
taxpayer's personal services are performed.
(ii) Allocation by formula. If the taxpayer (or the trade or
business) does not keep records meeting the requirements of subdivision
(i) of this subparagraph, or if the taxpayer fails to meet the burden of
proof set forth therein, then the amount of the taxpayer's income from
the trade or business which is considered to be derived from sources
within the State shall be determined by multiplying the total of his
income (as defined in paragraphs (c) (2) and (3) of this section) from
the trade or business for the taxable year by the percentage which is
the average of these three percentages:
(A) Property percentage. The percentage computed by dividing the
average of the value, at the beginning and end of the taxable year, of
real and tangible personal property connected with the taxpayer's trade
or business and located within the State, by the average of the value,
at the beginning and end of the taxable year, of all such property
located both within and without the State. For this purpose, real
property shall include real property rented to the taxpayer in
connection with the trade or business, or rented to the trade or
business.
(B) Payroll percentage. The percentage computed by dividing the
total wages, salaries, and other compensation for personal services
which is paid or incurred during the taxable year to employees in
connection with the taxpayer's trade or business, and which would be
treated as derived by such employees from sources within the State
pursuant to subparagraph (1) of this paragraph (d), by the total of all
such wages, salaries, and other compensation for personal services which
is so paid or incurred without regard to whether such payments would be
treated as derived by the employees from sources within the State. For
purposes of this subdivision (ii), no amount paid as deferred
compensation pursuant to a retirement plan to a former employee shall be
taken into consideration.
(C) Gross income percentage. The percentage computed by dividing the
gross sales or charges for services performed by or through an agency
located within the State by the total of all gross sales or charges for
services performed both within and without the State. The sales or
charges to be allocated to the State shall include all sales which are
negotiated, and charges which are for services performed, by an
employee, agent, agency, or independent contractor chiefly situated at,
or working principally out of an office located within, the State.
(3) Income attributable to real estate investment. Notwithstanding
subparagraph (2) of this paragraph (d), income and deductions from the
rental of real property, and gain and loss from the sale, exchange, or
other disposition of real property, shall not be subject to allocation
under subparagraph (2), but shall be considered as entirely derived from
sources located within the State in which such property is located.
(4) Treatment of losses. A loss attributable to the taxpayer's
employment, or to his conduct of, participation in, or investment in a
trade or business, shall be allocated in the same manner as the income
attributable to such employment or trade or business would be allocated
pursuant to this paragraph.
(5) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A, an employee who earns $10,000 in wage income
attributable to services, and who has no other wage or other business
income, spends 60 percent of his working time performing services for
his employer in State X, 30 percent in State Y, and 10 percent in State
Z. In the absence of the requisite proof to the contrary, A's wage
income is considered to have been derived 60 percent from sources
located within State X, 30 percent within State Y, and 10 percent within
State Z. Assuming that A is a nonresident with respect to all three
States, and that they all impose qualified nonresident taxes, then the
qualified nonresident tax of State X is imposed on $6,000, the qualified
nonresident tax of State Y is imposed on $3,000, and the qualified
nonresident tax of State Z is not imposed on any of the income because A
did not derive at least 25 percent of his wage and other business income
from sources located within State Z.
Example 2. B, who earns no wage income but who has a total of
$10,000 of other business income for the taxable year, all of which is
net income from self-employment attributable primarily to services,
spends 45 percent of his working time performing services in State X, 30
percent in State Y, and 25 percent in State Z. However, the rates that
B is able to charge for his services and the business expenses which he
incurs vary in the different States, and he is able to prove by detailed
records that his net income from self-employment was in fact derived 50
percent from sources located within State X, 35 percent from sources
located within State Y, and 15 percent from sources located within State
Z. Assuming that B is a nonresident with respect to all three States,
and that they all impose qualified nonresident taxes, then the qualified
nonresident tax of State X is imposed on $5,000, the qualified
nonresident tax of State Y is imposed on $3,500, and the qualified
nonresident tax of State Z is not imposed on any of the income because B
did not derive at least 25 percent of his wage and other business income
from sources located within State Z.
Example 3. C is a partner in a profitable business concern, in which
he has a substantial capital investment. His net earnings from
self-employment attributable to his partnership interest are $75,000 for
the taxable year. The fair market value of the services which C
performs for the partnership during the taxable year is $30,000. C's
income is therefore attributable primarily to his capital investment.
The partnership business is carried on partially within and partially
without State X. Neither C nor the partnership maintains records from
which the portion of C's $75,000 income which is considered to be
derived from sources within State X can be satisfactorily proven. As
determined under subparagraph (2) of this paragraph, the partnership's
''property percentage'' in State X is 70, its ''payroll percentage''
therein is 60, and its ''gross income percentage'' therein is 56. The
amount of C's partnership income considered to be derived from sources
within State X is $46,500 ($75,000 62 percent). This result would
obtain even if C's services for the partnership are performed entirely
within State X.
Example 4. Assume the same facts as in (3), except that the records
of the partnership of which C is a member indicate that the net profits
of the partnership are derived 40 percent from business activities
conducted in State X, and 60 percent from business activities conducted
in State Y. C is requested to prove that those records fairly and
equitably reflect the income which is allocable to sources within State
X. The documentary evidence which he adduces in support of the
allocation made by the records shows how such allocation results from a
careful step-by-step tracing of the profitability of each phase and
aspect of the partnership's operations, and shows the State in which
each such phase and aspect of the operations is conducted. C's proof is
satisfactory to show that the percentage allocation, and the amount of
his partnership income considered to be derived from sources within
State X is $30,000, or $75,000 multiplied by 40 percent. This result
would obtain even if B's services for the partnership are performed
entirely within State X.
(T.D. 7577, 43 FR 59367, Dec. 20, 1978)
26 CFR 301.6362-6 Requirements relating to residence.
(a) In general. A tax imposed by a State meets the requirements of
section 6362(e) and this section if in effect it provides that:
(1) The State of residence of an individual, estate, or trust is
determined according to paragraph (1), (2), or (3) respectively, of
section 6362(e), and according to paragraph (b), (c), or (d),
respectively, of this section.
(2) The liability for a resident tax imposed by such State upon an
individual or trust which changes residence to another State in the
taxable year is determined according to section 6362(e)(4) and paragraph
(e) of this section.
(3) The rules relating to current collection of tax apply as provided
in section 6362(e)(5) and paragraph (f) of this section.
(b) Residence of an individual -- (1) In general. Except as
otherwise provided in subparagraph (5) of this paragraph (b), an
individual is treated as a resident of a State with respect to a taxable
year only if:
(i) His principal place of residence (as defined in subparagraph (2)
of this paragraph (b)) is within such State for a period of at least 135
consecutive days, at least 30 days of which are in such taxable year;
or
(ii) In the case of a citizen or resident of the United States who is
not a resident of any State (determined as provided in subdivision (i)
of this subparagraph) with respect to such taxable year, his domicile
(as defined in subparagraph (3) of this paragraph (b)) is in such State
for at least 30 days during such taxable year.
With respect to an individual who is a resident (determined as
provided in subdivision (i) of this subparagraph) of more than one State
during a taxable year, see paragraph (e) of this section.
(2) Principal place of residence -- (i) Definition. For purposes of
subparagraph (1)(i) of this paragraph (b), and paragraph (d)(4) of this
section, the term ''principal place of residence'' shall mean the place
which is an individual's primary home. An individual's temporary
absence from his primary home shall not effect a change with respect
thereto. On the other hand, if an individual moves to another State,
other than as a mere transient or sojourner, he shall be treated as
having changed the location of his primary home.
(ii) Examples. The application of this subparagraph may be
illustrated by the following examples:
Example 1. A has a city home and a country home. He resides in the
city home for 7 months of the year and uses the address of that home as
his legal residence for purposes of driver's license, automobile
registration, and voter registration. He resides in the country home 5
months of the year. His city home is considered his principal place of
residence.
Example 2. During the taxable year, B, a construction worker, is
employed at several different locations in different States. The
duration of each job on which he is employed ranges from a few weeks to
several months, and he knows when he accepts a job what its approximate
duration will be. He owns a house in State X which he uses as his legal
residence for purposes of driver's license, automobile registration, and
voter registration. In addition, his family lives there during the
entire year, and B lives there during periods between jobs. However,
the duration of the jobs and the distance between the job-sites and his
house require him to live in the localities of the respective job-sites
during the period of his employment, although occasionally he returns to
his house in State X on weekends. B's house in State X is his principal
place of residence during all of the taxable year.
Example 3. C, a dependent of his parents who are residents of State
X, is a full-time student in a 4-year degree program at a college in
State Y. During the 9-month academic year, C lives on the college
campus, but he returns to his parents' home in State X for the summer
recess. C gives the State Y as his residence for purposes of his
driver's license and voter registration, but lists the address of his
parents' home in State X as his ''permanent address'' on the records of
the college which he attends. Although C's domicile remains at his
parents' home in State X, his presence in State Y cannot be regarded as
that of a mere transient or sojourner; accordingly, C's principal place
of residence is in State Y for that portion of the taxable year during
which he attends college.
Example 4. D loses his job in State X, where he lived and worked for
many years. After a series of unsuccessful attempts to find other
employment in State X, he accepts a job in State Y. D gives up his
apartment in State X and moves to State Y upon commencing his new job;
however, he intends to continue to explore available employment
opportunities in State X so that he may return there as soon as an
opportunity to do so arises. D changes his principal place of residence
when he moves to State Y.
(3) Domicile defined. For purposes of subparagraph (1)(ii) of this
paragraph (b), and paragraph (d)(4) of this section, the term
''domicile'' shall mean an individual's fixed or permanent home. An
individual acquires a domicile in a place by living there; even for a
brief period of time, with no definite present intention of later
removing therefrom. Residence without the requisite intention to remain
indefinitely will not suffice to change domicile, nor will intention to
change domicile effect such a change until accompanied by actual
removal. A domicile, once acquired, is maintained until a new domicile
is acquired.
(4) Period of residence -- (i) General rule. An individual who
becomes a resident of a State pursuant to subparagraph (1) of this
paragraph (b), or who is at the beginning of a taxable year a resident
of a State pursuant to such provision, shall be treated as continuing to
be a resident of such State through the end of the taxable year, unless,
prior thereto, such individual becomes a resident, under the principles
of subparagraph (1), of another State or a possession or foreign
country. In the event that the individual becomes a resident of such
another jurisdiction prior to the end of the taxable year, his residence
in such State shall be treated as ending on the day prior to the day on
which he becomes a resident of such other jurisdiction pursuant to
subparagraph (1).
(ii) Examples. The application of this subparagraph may be
illustrated by the following examples:
Example 1. A, a calendar-year taxpayer, has his principal place of
residence in State X from the beginning of 1976 through August 1, 1976,
when he gives up pemanently such principal place of residence. He
spends the remainder of 1976 traveling outside of the United States, but
does not become a resident of any other country. A is considered to be
a resident of State X for the entire year 1976.
Example 2. Assume the same facts as in example 1, except that A
ceases his traveling and establishes his principal place of residence in
State Y on November 15, 1976. Assume, also, that A maintains that
principal place of residence for more than 135 consecutive days. Under
these circumstances, for his taxable year 1976, A is considered to be a
resident of State X from January 1 through November 14, and a resident
of State Y from November 15 through December 31.
(5) Special rules. (i) No provision of subchapter E or the
regulations thereunder shall be construed to require or authorize the
treatment of a Senator, Representative, Delegate, or Resident
Commissioner as a resident of a State other than the State which he
represents in Congress.
(ii) For special rules relating to members of the Armed Forces, see
paragraph (h) of 301.6362-7.
(6) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A, a calendar-year taxpayer, maintains his principal
place of residence in State X from December 1, 1976, through April 15,
1977. Assuming that A was not a resident of any other jurisdiction at
any time during 1976, A is treated as a resident of State X for the
entire year 1976. Such result would obtain even if A was absent from
State X on vacation for some portion of December 1976. Moreover, such
result would obtain even if it is assumed that A was a domiciliary of
State Y from January 1, 1976, through April 15, 1977, because an
individual's domicile does not determine his residence so long as
residence in one State for the taxable year can be determined from the
general rule stated in the first sentence of paragraph (b)(1) of this
section.
Example 2. Assume the same facts as in example 1 (including the fact
of A's domicile in State Y), except that A maintained his principal
place of residence in State Z from September 15, 1975, through January
31, 1976, inclusive. With respect to the year 1976, A is treated as a
resident of State Z from January 1 through November 30, and as a
resident of State X from December 1 through December 31. A's liability
for the qualified taxes of the respective States for 1976 shall be
determined pursuant to the provisions in paragraph (e) of this section.
(c) Residence of an estate. An estate of an individual is treated as
a resident of the last State of which such individual was a resident, as
determined under the rules of paragraph (b) of this section, prior to
his death. However, the estate of an individual who was not a resident
of any State (as determined without regard to the 30-day requirement in
paragraph (b)(1) of this section) immediately prior to his death, and
who was not a resident of any State at any time during the 3-year period
ending on the date of his death, is not treated as a resident of any
State. For purposes of determining the decedent's last State of
residence, the rules of paragraph (b) shall be applied irrespective of
whether subchapter E was in effect at the time the period of 135
consecutive days of residence began, or whether the decedent's last
State of residence is a State electing to enter into an agreement
pursuant to subchapter E. The determination of the State of residence
of an estate pursuant to this paragraph shall not be governed by any
determination under State law as to which State is treated as the
residence or domicile of the decedent for purposes other than its
individual income tax (such as liability for State inheritance tax or
jurisdiction of probate proceedings).
(d) Residence of a trust -- (1) In general. (i) The State of
residence of a trust shall be determined by reference to the
circumstances of the individual who, by either an inter-vivos transfer
or a testamentary transfer, is deemed to be the ''principal
contributor'' to the trust under the provisions of subdivision (ii) of
this subparagraph.
(ii) If only one individual has ever contributed assets to the trust,
including the assets which were transferred to the trust at its
inception, then such individual is the principal contributor to the
trust. However, if on any day subsequent to the initial creation of the
trust, such trust receives assets having a value greater than the
aggregate value of all assets theretofore contributed to it, then the
trust shall be deemed (for the limited purpose of determining the State
of residence) to have been ''created'' anew, and the individual who on
the day of such creation contributed more (in value) than any other
individual contributed on that day shall become the principal
contributor to the trust. When a trust is created anew, all references
in this paragraph to the creation of the trust shall be construed as
referring to the most recent creation. For purposes of this paragraph,
the value of any asset shall be its fair market value on the day that it
was contributed to the trust; any subsequent appreciation or
depreciation in the value of the asset shall be disregarded.
(2) Testamentary trust. A trust with respect to which a deceased
individual is the principal contributor by reason of property passing on
his death is treated as a resident of the last State of which such
individual was a resident, as determined under the rules of paragraph
(b) of this section, before his death. However, if such deceased
individual was not a resident of any State (as determined without regard
to the 30-day requirement in paragraph (b)(1) of this section)
immediately prior to his death, and was not a resident of any State at
any time during the 3-year period ending on the date of his death, then
a testamentary trust of which he is the principal contributor by reason
of property passing on his death is not treated as a resident of any
State. All property passing on the transferor's death is treated for
this purpose as a contribution made to the trust on the date of death,
regardless of when the property is actually paid over to the trust.
(3) Nontestamentary trust. A trust which is not a trust described in
subparagraph (2) of this paragraph (d), is treated as a resident of the
State in which the principal contributor to the trust, during the 3-year
period ending on the date of the creation of the trust, had his
principal place of residence for an aggregate number of days longer than
the aggregate number of days he had his principal place of residence in
any other State. However, if the principal contributor to such a trust
was not a resident of any State at any time during such 3-year period,
then the trust is not treated as a resident of any State.
(4) Special rules. If the application of the provisions of the
foregoing subparagraphs of this paragraph results in a determination of
more than one State of residence for a trust, or does not provide a rule
by which the residence or nonresidence of the trust can be determined,
then the determination of the State of residence of such trust shall be
made according to the rules of the applicable subdivision of this
subparagraph.
(i) If, at the time of creation of the trust, 50 percent or more in
value of the trust corpus consists of real property, then the trust
shall be treated as a resident of the State in which more of the real
property (in value) which was in the trust at such time was located than
any other State.
(ii) If, at the time of creation of the trust, less than 50 percent
in value of the trust corpus consists of real property, then the trust
shall be treated as a resident of the State in which, at such time, the
trustee, if an individual, had his principal place of residence, or, if
a corporation, had its principal place of business. If there were two
or more trustees, then the foregoing sentence shall be applied by
reference to the principal places of residence, or of business, of the
majority of trustees who had authority to make investment and other
management decisions for the trust.
(iii) If, after application of the provisions of subdivisions (i) and
(ii) of this subparagraph, the State of residence of the trust still
cannot be ascertained, then the Commissioner of Internal Revenue shall
determine the State of residence of such trust for purposes of qualified
taxes. Such determination shall be made by reference to the number of
significant contacts each State had with the trust at the time of its
creation. Significant contacts shall include the principal place of
residence of the principal contributor or contributors to the trust, the
principal place of residence or business of the trustee (or trustees),
the situs of the assets of which the trust corpus was composed, and the
location from which management decisions emanated with respect to the
business and investment interests of the trusts.
(5) Examples. The application of this paragraph may be illustrated
by the following examples:
Example 1. A created a trust in 1950 by transferring to it certain
stock in a corporation. At the time of such transfer, the stock had a
fair market value of $1,000. A at all relevant times had his principal
place of residence in State X, and accordingly the trust is treated as a
resident of such State for qualified tax purposes. As of January 1,
1977, the stock originally contributed by A, which was at all times the
only property in the trust, has a fair market value of $3,000. On such
date, B, who has had his principal place of residence in State Y for
more than 3 years, contributes to the trust property having a fair
market value of $1,200. For purposes of determining the identity of the
principal contributor to the trust and the State of residence of the
trust, the stock contributed by A in 1950 continues to be valued for
such purposes at $1,000. Thus, the trust is treated as being created
anew on January 1, 1977, with B as the principal contributor, and with
State Y as its State of residence.
Example 2. C has his principal place of residence in State X
continuously for many years, until August 1, 1978, when he establishes
his principal place of residence in State Y. The change of residence is
intended to be permanent, and C has no further contact with State X
after such change. On January 1, 1980, C creates a nontestamentary
trust. During the 3-year period ending on such date C had his principal
place of residence in State X for 576 days, and in State Y for 519 days.
Therefore, the trust is treated as a resident of State X.
(e) Liability for tax on change of residence during taxable year --
(1) In general. If, under the principles contained in paragraph (b) or
(d) of this section, an individual or trust becomes a resident, or
ceases to be a resident, of a State, and is also a resident of another
jurisdiction outside of such State during the same taxable year, the
liability of such individual or trust for the resident tax of such State
shall be determined by multiplying the amount which would be his or its
liability for tax (computed after allowing the nonrefundable credits
(i.e., credits not corresponding to the credits referred to in section
6401(b) available against the tax)) if he or it had been a resident of
such State for the entire taxable year by a fraction, the numerator of
which is the number of days he or it was a resident of such State during
the taxable year, and the denominator of which is the total number of
days in the taxable year. The preceding sentence shall not apply by
reason of the fact that an individual is born or dies during the taxable
year, or by reason of the fact that a trust comes into existence or
ceases to exist during the taxable year.
(2) Residence determined by domicile. When an individual is treated
as a resident of a State by reason of being domiciled in such State,
pursuant to paragraph (b)(1)(ii) of this section, then the numerator of
the fraction provided in subparagraph (1) of this paragraph (e), shall
be the number of days the individual was domiciled in the State during
the taxable year.
(3) Example. The application of this paragraph may be illustrated by
the following example:
Example. A, a calendar-year taxpayer, is a resident of State X
continuously for many years prior to March 15, 1977. On such date, A
retires and establishes a new principal place of residence in State Y.
A earns $6,000 in 1977 prior to March 15, but receives no taxable income
for the remainder of such year. If A had been a resident of State X for
the entire taxable year 1977, his liability with respect to the
qualified tax of such State (computed after allowing the nonrefundable
credits available against the tax) would be $600. If he had been a
resident of State Y for the entire taxable year 1977, his liability with
respect to the qualified tax on that State (computed similarly) would be
$400. Pursuant to the provisions in paragraph (e) of this section, A's
liabilities for State qualified taxes for 1977 are as follows:
Liability for State X tax=$600 73/365=$120
Liability for State Y Tax=$400 292/365=$320.
(f) Current collection of tax. The State tax laws shall contain
provisions for methods of current collection with respect to individuals
which correspond to the provisions of the Internal Revenue Code of 1954
with respect to such current collection, including chapter 24 (relating
to the collecton of income tax at source on wages) and sections 6015,
6073, 6153, and other provisions of the Code relating to declarations
(and amendments thereto) and payments of estimated income tax. Except
as otherwise provided by Federal statute (see paragraphs (h), (i), and
(j) of 301.6362-7), in applying such provisions of the State tax laws:
(1) In the case of a resident tax, an individual shall be subject to
the current collection provisions if either --
(i) He is a resident of the State within the meaning of paragraph (b)
of this section, or
(ii) He has his principal place of residence (as defined in paragraph
(b)(2) of this section) within the State,
And it is reasonable to expect him to have it within the State for 30
days or more during the taxable year.
(2) In the case of a nonresident tax, an individual shall be subject
to the current collection provisions if he does not meet either
description relating to an individual in subparagraph (1) of this
paragraph (f), if he is not exempt from liability for the tax by reason
for a reciprocal agreement between the State of which he is a resident
and the State imposing the tax, and if it is reasonable to expect him to
receive wage or other business income derived from sources within the
State imposing the tax (as defined in paragraph (d) of 301.6362-5) for
services performed on 30 days or more of the taxable year.
For additional rules relating to withholding see paragraph (d) of
301.6361-1.
(T.D. 7577, 43 FR 59369, Dec. 20, 1978)
26 CFR 301.6362-7 Additional requirements.
A State tax meets the additional requirements of section 6362(f) and
this section only if:
(a) State agreement must be in effect for period concerned. A State
agreement, as defined in paragraph (a) of 301.6361-4, is in effect with
respect to such tax for the taxable period in question.
(b) State laws must contain certain provisions. Under the laws of
such State, the provisions of subchapter E and the regulations
thereunder, as in effect from time to time, are applicable for the
entire period for which the State agreement is in effect. Any change
made by the State in such tax (other than an adjustment in the State law
which is made solely in order to comply with a change in the Federal Law
or regulations) shall not apply to taxable years beginning in any
calendar year for which the State agreement is in effect unless the
change is enacted before November 1 of such year.
(c) State individual income tax laws can be only of certain kinds.
Such State does not impose any tax on the income of individuals other
than (1) a qualified resident tax, and (2) either or both a qualified
nonresident tax and a separate tax on income which is not wage and other
business income as defined in paragraph (c) of 301.6362-5 and which is
received or accrued by individuals who are domiciled in the State, but
who are not residents of the State (as defined in paragraph (b) of
301.6362-6). For purposes of this paragraph, a tax imposed on the amount
taxed under section 56 (as permitted under 301.6362-2(b)(2)) shall be
treated as an adjustment to and a part of the qualified resident tax.
Also, tax laws which were in effect prior to the effective date of a
State agreement and which are not repealed, but which are made
inapplicable for the period during which the State agreement is in
effect, shall be disregarded.
(d) Taxable years must coincide. The taxable years of all
individuals, estates, and trusts under such tax are required to coincide
with their taxable years used for purposes of the taxes imposed by
chapter 1. Accordingly, when subchapter E begins to apply to a State, a
taxpayer whose taxable year for purposes of the Federal income tax is
different from his taxable year for purposes of the State income tax
which precedes the qualified tax may have one short taxable year for
purposes of such State income tax, so that thereafter his taxable years
for purposes of the qualifed tax will coincide with the Federal taxable
year.
(e) Married individuals. Individuals who are married within the
meaning of section 143 of the Code are prohibited from filing (1) a
joint return for purposes of such State tax if they file separate
Federal income tax returns, or (2) separate returns for purposes for
such State tax if they file a joint Federal income tax return.
(f) Penalties; no double jeopardy. Under the laws of such State:
(1) Civil and criminal sanctions identical to those provided by
subtitle F, and by title 18 of the United States Code (relating to
crimes and criminal procedures), with respect to the taxes imposed on
the income of individuals by chapter 1 and on the wages of individuals
by chapter 24, apply to individuals and their employers who are subject
to such State tax (and the collection and administration thereof,
including the corresponding withholding tax imposed to implement the
current collection of such State tax) as if such tax were imposed by
chapter 1 or chapter 24, in the case of the withholding tax), except to
the extent that the application of such sanctions is modified by
regulations issued under subchapter E; and
(2) No other sanctions or penalties apply with respect to any act or
omission to act in respect of such State tax.
See also paragraph (e) of 301.6361-1 with respect to criminal
penalties.
(g) Partnerships, trusts, subchapter S corporations, and other
conduit entities. Under the laws of such State, the State tax treatment
of --
(1) Partnerships and partners,
(2) Trusts and their beneficiaries,
(3) Estate and their beneficiaries,
(4) Electing small business corporations (within the meaning of
section 1371(a) and their shareholders, and
(5) Any other entity and the individuals having beneficial interests
therein (such as a cooperative corporation and its shareholders), to the
extent that such entity is treated as a conduit for purposes of the
taxes imposed by chapter 1, corresponds to the tax treatment provided
therefor with respect to the taxes imposed by chapter 1. For example, a
subchapter S corporation shall not be subject to the State's corporate
income tax on amounts which are includible in shareholders incomes which
are subject to that State's individual income tax, except to the extent
that the subchapter S corporation is subject to tax under Federal law.
Similarly, a partnership shall not be subject to the State's
unincorporated business income tax on amounts which are includible in
partners' incomes which are subject to that State's individual income
tax. However, the laws of the State which set forth the provisions of
such State individual income tax shall authorize the Commissioner of
Internal Revenue to require that the conduit entities described in this
paragraph (or some of them) supply information to the Federal Government
with respect to the source of income, the State of residence, or the
amount of income of a particular type, of an individual, estate, or
trust holding a beneficial interest in such conduit entity.
(h) Members of armed forces. The relief provided to any member of
the Armed Forces by section 514 of the Soldiers' and Sailors' Civil
Relief Act (50 U.S.C. App. section 574) is in no way diminished.
Accordingly, for purposes of such State tax, an individual shall not be
considered to have become a resident of a State solely because of his
absence from his original State of residence under military order.
Moreover, compensation for military service shall not be considered as
income derived from a source within a State of which the individual
earning such compensation is not a resident, within the meaning of
paragraph (d) of 301.6362-5. The preceding sentence shall not apply to
nonmilitary compensation. Thus, for example, if an individual who is
serving in State X as a member of the Armed Forces, and who is regarded
as a resident of State Y under the Soldiers' and Sailors' Civil Relief
Act, earns nonmilitary income in State X from a part-time job, such
nonmilitary income may be subject to a qualified nonresident tax imposed
by State X.
(i) Withholding on compensation of employees of railroads, motor
carriers, airlines, and water carriers. There is no contravention of
the provisions of section 26, 226A, or 324 of the Interstate Commerce
Act, or of section 1112 of the Federal Aviation Act of 1958, with
respect to the withholding of compensation to which such sections apply
for purposes of the nonresident tax.
(j) Income derived from interstate commerce. There is no
contravention of the provisions of the Act of September 14, 1959 (73
Stat. 555), with respect to the taxation of income derived from
interstate commerce to which such statute applies.
(T.D. 7577, 43 FR 59372, Dec. 20, 1978)
26 CFR 301.6363-1 State agreements.
(a) Notice of election. If a State elects to enter into a State
agreement it shall file notice of such election with the Secretary or
his delegate. The notice of election shall include the following:
(1) Statement by the Governor. A written statement by the Governor
of the electing State:
(i) Requesting that the Secretary enter into a State agreement, and
(ii) Binding the Governor and his successors in office to notify the
Secretary or his delegate immediately of the enactment, between the time
of the filing of the notice of election and the time of the execution of
the State agreement, of any law of that State which meets the
description given in any of the subdivisions of subparagraph (2) of this
paragraph (a), whether or not such law is intended to be administered by
the United States pursuant to subchapter E.
(2) Copy of State laws. Certified copies of all laws of that State
described in any of the following subdivisions of this subparagraph, and
a specification of laws described in subdivision (i) of this
subparagraph as ''subchapter E laws'', of laws described in subdivision
(ii) as ''other tax laws'', of laws described in subdivision (iii) as
''non-tax laws'', and of laws described in subdivision (iv) as
''interstate cooperation laws'':
(i) All of the State individual income tax laws (including laws
relating to the collection or administration of such taxes or to the
prosecution of alleged civil or criminal violations with respect to such
taxes) which the State would expect the United States to administer
pursuant to subchapter E if the State agreement is executed as
requested. In order to have a valid notice, the State must have a tax
which would meet the requirements for qualification specified in section
6362 and the regulations thereunder if a State agreement were in effect
with respect thereto, with no conditions attached to the effectiveness
of such tax other than the execution of a State agreement. Such tax
must be effective no later than the January 1 specified in the State's
notice of election as the date as of which subchapter E is desired to
become applicable to the electing State, except that such effective date
shall be deferred to the date provided in the State agreement for the
beginning of applicability of subchapter E to the State, if the latter
date is different from the date specified in the notice of election.
(ii) All of the State income tax laws applicable to individuals
(including laws relating to the collection or administration of such
taxes or to the prosecution of alleged civil or criminal violations with
respect to such taxes) which the State would not expect the United
States to administer but which may be in effect simultaneously (for any
period of time) with the State agreement.
(iii) All of the State laws other than individual income tax laws
which provide for the making of any payments by the State based on one
or more criteria which the State may desire to verify by reference to
information contained in returns of qualified taxes.
(iv) All of the State laws which may be in effect simultaneously (for
any period of time) with the State agreement and which provide for
cooperation or reciprocal agreement between the electing State and
another State with respect to income taxes applicable to individuals.
(3) Approval by legislature or authorization by constitutional
amendment. A certified copy of an Act or Resolution of the legislature
of the electing State in which the legislature affirmatively expresses
its approval of the State's entry into a State agreement, or a certified
copy of an amendment to the constitution of such State by which the
voters of the State affirmatively authorize such entry.
(4) Opinion by State Attorney General or judgment of highest court.
A written statement by the State Attorney General to the effect that, in
his opinion, no provision of the State's Constitution would be violated
by the State law's incorporation by reference of the Federal individual
income tax laws and regulations, as amended from time to time, by the
Federal prosecution and trial of individuals who are alleged to have
committed crimes with respect to the State's qualified tax (when it goes
into effect as such), or by any other provision relating to such tax,
considered as of the time it is being collected and administered by the
Federal Government pursuant to subchapter E. However, if such a
statement is not included in the notice of election, a judgment of the
highest court of the State to the same effect may be submitted in its
place.
(5) Effective date. A written specification of the January as of
which subchapter E is desired to become applicable to the electing
State.
(b) Rules relating to time for filing notice of election. An
electing State must file its notice of election more than 6 months prior
to the January 1 as of which the notice specifies that the provisions of
subchapter E are desired to become applicable to such State. Thus, for
example, if the date specified in the notice is January 1, 1979, the
notice must be filed no later than June 30, 1978. However, because
under the provisions of section 204(b) of the Federal-State Tax
Collection Act of 1972 (86 Stat. 945), as amended by section 2116(a) of
the Tax Reform Act of 1976 (90 Stat. 1910), the provisions of subchapter
E will initially take effect on the first January 1 which is more than 1
year after the first date on which at least one State has filed a notice
of its election (see 301.6361-5), the notice of an election which
causes subchapter E to initially take effect must be filed with the
Secretary or his delegate more than 1 year prior to the January 1 as of
which such notice specifies that the provisions of subchapter E are
desired to become applicable to such State. Thus, for example, if such
an initially electing State desires to elect subchapter E as of January
1, 1979, its notice must be filed no later than December 31, 1977. For
purposes of this section, if the notice of election is sent by either
registered or certified mail to the Secretary of the Treasury,
Washington, D.C. 20220, then it shall be deemed to be filed on the date
of mailing; otherwise, the notice of election shall be deemed to be
filed when it is received by the Secretary or his delegate.
(c) Procedures relating to defects in notice or tax laws. If a State
has filed a notice of election, then the Secretary shall, within 90 days
after the notice is filed, notify the Governor of such State in writing
of any defect in the notice of election which prevents it from being
valid, and of any defect in the State's tax laws which causes the tax
submitted to fail to meet the requirements for qualification specified
in section 6362 and the regulations thereunder, other than the fact that
no State agreement is in effect with respect thereto. Any such defect
of which the Secretary does not notify the Governor within such 90-day
period is waived. The Secretary or his delegate may, in his discretion,
permit any of such defects of which the Governor is timely notified to
be cured retroactively to the date of the filing of the notice of
election, by amendment of the notice or the State law. Judicial review
of the Secretary's determination that the notice of election or the tax
laws, or both, contain defects, may be obtained as set forth in section
6363(d) and 301.6363-4.
(d) Execution and contents of State agreement. If the Secretary does
not timely notify the Governor of a defect in the notice of election or
in the State's tax laws, as provided in paragraph (c) of this section,
or if, as provided in such paragraph, all such defects have been cured
retroactively, then the Secretary shall enter into a State agreement.
The agreement shall include the following elements:
(1) Effective date. The agreement shall specify the January 1 as of
which subchapter E will commence to be applicable to the State. Such
date shall be the same as that specified in the notice of election
pursuant to paragraph (a)(5) of this section, unless the parties agree
to a different January 1, except that in no event shall a State
agreement executed after November 1 specify the next January 1.
(2) Obligation of Governor to notify the United States of changes in
pertinent State laws. The agreement shall require the Governor of the
State, and his successors in office, to notify the Secretary or his
delegate within 30 days of the enactment of any law of the State, after
the execution of the agreement, of a type described in paragraph (a)(2)
of this section.
(3) Obligation of Governor to furnish to the United States
information needed to administer State tax laws. The agreement shall
require the Governor and his successors to furnish to the Secretary or
his delegate any information needed by the Federal Government to
administer the State tax laws. Such information shall include, for
example, a list (which shall be maintained on a current basis) of those
obligations of the State or its political subdivisions described in
section 103(a)(1) from which the interest is not subject to the
qualified taxes of the State.
(4) Identification of State official to act as liaison with Federal
Government. The agreement shall include a designation by the Governor
of the State official or officials with whom the Secretary or his
delegate should coordinate in connection with any questions or problems
which may arise during the period for which the State agreement is
effective, including those which may result from changes or contemplated
changes in pertinent State laws.
(5) Identification of State official to receive transferred funds.
The agreement shall include a designation by the Governor of the State
official who shall initially receive the funds on behalf of the State
when they are transferred pursuant to section 6361(c) and 301.6361-3.
(6) Other obligations. If the Secretary and the Governor both so
agree, the agreement shall provide for additional obligations.
(e) State agreement superseding certain other agreements. For the
period of its effectiveness, a State agreement shall supersede an
otherwise effective agreement entered into by the State and the
Secretary for the withholding of State income taxes from the
compensation of Federal employees pursuant to 5 U.S.C. 5517 (or pursuant
to 5 U.S.C. 5516, in the case of the District of Columbia).
(T.D. 7577, 43 FR 59373, Dec. 20, 1978)
26 CFR 301.6363-2 Withdrawal from State agreements.
(a) By notification. If a State which has entered into a State
agreement desires to withdraw from the agreement, its Governor shall
file a notice of withdrawal with the Secretary or his delegate. A
notice of withdrawal shall include the following documents:
(1) Request by the Governor. A request by the Governor of the State
that the State agreement cease to be effective with respect to taxable
years beginning on or after a specified January 1, except as provided in
paragraph (b)(2) of 301.6365-2 with respect to withholding in the case
of fiscal year taxpayers.
(2) Legislative approval of withdrawal. A certified copy of an act
or Resolution of the legislature of the State in which the legislature
affirmatively expresses its approval of the State's withdrawal from the
State agreement.
(3) Identification of State official. A written identification of
the State official or officials with whom the Secretary or his delegate
should coordinate in connection with the State's withdrawal from the
State agreement.
(b) By change in State law. If any law of a State which has entered
into a State agreement is enacted pertaining to individual income taxes
(including the collection or administration of such taxes, and the
prosecution of alleged civil or criminal violations with respect to such
taxes), and if the Secretary or his delegate determines that as a result
of such law the State no longer has a qualified tax, then such change in
the State law shall be treated as a notification of withdrawal from the
agreement. The Secretary shall notify the Governor in writing when a
change is to be so treated. Such notification shall have the same
effect as if, on the effective date of the disqualifying change in the
law, the Governor had filed with the Secretary or his delegate a valid
and sufficient notice of withdrawal requesting that the State agreement
cease to be effective with respect to taxable years beginning on or
after the first January 1 which is more than 6 months thereafter,
subject to the exception with respect to withholding in the case of
fiscal-year taxpayers. However, the cessation of effectiveness may be
deferred to a subsequent January 1 if the Governor so requests and if
the Secretary or his delegate in his discretion determines that the date
of cessation provided in the preceding sentence would subject the State
or its taxpayers to undue hardship. In addition, the Governor may
request the Secretary or his delegate to permit the State's early
withdrawal from the agreement, pursuant to paragraph (c)(2) of this
section. Until the date of cessation of effectiveness of the State
agreement, the change in State law which was treated as a notification
of withdrawal, and any other such subsequent change that would be
similarly treated, shall not be given effect for purposes of the Federal
collection and administration of the State taxes. Similarly, such
changes shall not be given effect for such purposes during the period of
litigation if the State seeks judicial review of the action of the
Secretary or his delegate pursuant to section 6363(d) or 301.6363-4,
even if such changes are ultimately found by the court not to disqualify
the State's qualified tax. However, a change in State law which would
be treated as a notice of withdrawal in the absence of this sentence
shall not be so treated if, prior to the last November 1 preceding the
January 1 on which the cessation of effectiveness of the State agreement
is to occur, either such change in State law is retroactively repealed,
or the State law is retroactively modified and the Secretary or his
delegate determines that with such modification the State has a
qualified tax.
(c) Rules relating to time of withdrawal -- (1) General rule. Except
as provided in subparagraph (2) of this paragraph (c), a notice of
withdrawal shall not be valid unless the January 1 specified therein is
not earlier than the first January 1 which is more than 6 months
subsequent to the date on which the notice is received by the Secretary
or his delegate. Thus, for example, if the notice specifies January 1,
1980, for withdrawal, the notice must be received no later than June 30,
1979.
(2) Early withdrawal. The Secretary or his delegate may, in his
discretion and upon written request by a Governor of a State who has
filed a notice of withdrawal, waive the 6-months requirement of section
6363(b)(1) and subparagraph (1) of this paragraph (c), if the Secretary
determines that:
(i) The State will suffer a hardship if required to meet such
requirement, and
(ii) The early withdrawal requested by the Governor would be
practicable from the standpoint of orderly collection of the qualified
tax and administration of the State law by the Federal Government.
(T.D. 7577, 43 FR 59374, Dec. 20, 1978)
26 CFR 301.6363-3 Transition years.
The State may by law provide for the transition to or from a
qualified tax to the extent necessary to prevent double taxation or
other unintended hardships, or to prevent unintended benefits, under
State law. Generally, such provisions shall be administered by the
State; but, if requested to do so by the Governor of the State, the
Secretary or his delegate may in his discretion, agree to administer
such provisions either solely or jointly with the State.
(T.D. 7577, 43 FR 59375, Dec. 20, 1978)
26 CFR 301.6363-4 Judicial review.
(a) General rule. If the Secretary or his delegate determines
pursuant to paragraph (c) of 301.6363-1 that a State did not file a
valid notice of election or does not have a tax which would meet the
requirements for qualification specified in section 6362 and the
regulations thereunder if a State agreement were in effect with respect
thereto, or if he determines pursuant to paragraph (b) of 301.6363-2
that a participating State has enacted a law as a result of which the
State no longer has a qualified tax, such State may, within 60 days
after its Governor has received notification of such determination, file
a petition for the review of such determination with either the United
States Court of Appeals for the circuit in which the State is located or
the United States Court of Appeals for the District of Columbia. If a
State files such a petition, the clerk of the court shall forthwith
transmit a copy of the petition to the Secretary or his delegate, who in
turn shall thereupon file in the court the record of proceedings on
which the determination adverse to the State was based, as provided in
section 2112 of title 28, United States Code.
(b) Court of Appeals' jurisdiction. The court of Appeals may affirm
or set aside, in whole or in part, the action of the Secretary or his
delegate; and (subject to the rules delaying the effectiveness of the
change in State law provided in paragraph (b) of 301.6363-2) the court
may issue such other orders as may be appropriate with respect to
taxable years which include any part of the period of litigation.
(c) Review of Court of Appeals' judgment. The judgment of the Court
of Appeals shall be subject to review by the Supreme Court of the United
States upon certiorari or certification sought by either party as
provided in section 1254 of title 28, United States Code.
(d) Effect of final judgment. If a final judgment, rendered with
respect to litigation involving a State's petition to review a
determination of the Secretary or his delegate to the effect that the
State's individual income tax laws included in its notice of election
would not meet the requirements for qualification specified in section
6362 and the regulations thereunder if a State agreement were in effect
with respect thereto, includes a determination that the State's tax
would in fact meet such requirements, then the provisions of subchapter
E shall apply to the State with respect to taxable years beginning on or
after the first January 1 which is more than 6 months after the date of
such final judgment. If a final judgment, rendered with respect to
litigation involving a State's petition to review a determination of the
Secretary or his delegate to the effect that the State's
previously-qualified tax ceases to qualify because of a change in the
State's law, includes a determination that the State's tax does in fact
cease to qualify, then the provisions of subchapter E (other than
section 6363) shall cease to apply to the State with respect to taxable
years beginning on or after the first January 1 which is more than 6
months after the date of such final judgment. See paragraph (b) of
301.6365-2 for special rules with respect to withholding in the case of
fiscal-year taxpayers.
(e) Expeditious treatment of judicial proceedings. Under section
6363(d)(4), any judicial proceedings to which a State and the United
States are parties, and which are brought pursuant to section 6363, are
entitled to receive a preference, and to be heard and determined as
expeditiously as possible, upon request of the Secretary or the State.
(T.D. 7577, 43 FR 59375, Dec. 20, 1978)
26 CFR 301.6365-1 Definitions.
(a) State. For purposes of subchapter E and the regulations
thereunder, the term ''State'' shall include the District of Columbia,
but shall not include the Commonwealth of Puerto Rico or any possession
of the United States.
(b) Governor. For purposes of subchapter E and the regulations
thereunder, the term ''Governor'' shall include the Mayor of the
District of Columbia.
(T.D. 7577, 43 FR 59375, Dec. 20, 1978)
26 CFR 301.6365-2 Commencement and cessation of applicability of
subchapter E to individual taxpayers.
(a) General rule. Except for purposes of chapter 24 (relating to the
collection of income tax at source on wages), whenever subchapter E
begins or ceases to apply to any State (i.e., a State agreement begins
or ceases to be effective) as of any January 1, such commencement or
cessation of applicability shall apply to taxable years of individuals
beginning on or after such date. For example, if subchapter E begins to
apply to a particular State on January 1, 1980, it would become
applicable for calendar year 1980 for calendar-year taxpayers in that
State; but if a taxpayer in the State is using a fiscal year running
from July 1 to June 30, the subchapter would begin to apply (except for
purposes of chapter 24) to that taxpayer on July 1, 1980, for his
taxable year ending June 30, 1981. Similarly, if the subchapter ceases
to apply to such State on January 1, 1982, it would cease to apply to
calendar-year taxpayers after the end of calendar year 1981; but it
would cease to apply (except for purposes of chapter 24) to fiscal-year
taxpayers at the end of their fiscal years which are in progress on
January 1, 1982. The cessation of applicability of subchapter E to a
State does not affect rights, duties, and liabilities with respect to
any taxable year for which subchapter E does apply with respect to any
taxpayer (or his employer).
(b) Special rules pertaining to withholding -- (1) Subchapter E
beginning to apply. The Federal withholding system provided in chapter
24 shall go into effect for State individual income tax purposes with
respect to wages paid on or after the January 1 as of which subchapter E
begins to apply to a State. If an employee is subject to a qualified
tax imposed by the State, such withholding system shall apply to his
wages paid on or after that January 1, without regard to whether he is a
calendar-year or fiscal-year taxpayer. See 301.6363-3 with respect to
transition-year rules.
(2) Subchapter E ceasing to apply. The Federal withholding system
provided in chapter 24 shall cease to be effective for State tax
purposes with respect to wages paid on or after the January 1 as of
which subchapter E ceases to apply to the State, although fiscal-year
taxpayers of that State continue to be subject to the other provisions
of subchapter E for the remainder of their fiscal years then in
progress. See 301.6363-3 with respect to transition-year rules.
(T.D. 7577, 43 FR 59375, Dec. 20, 1978)
26 CFR 301.6365-2 Abatements, Credits, and Refunds
26 CFR 301.6365-2 Procedure in General
26 CFR 301.6401-1 Amounts treated as overpayments.
(a) The term ''overpayment'' includes:
(1) Any payment of any internal revenue tax which is assessed or
collected after the expiration of the period of limitation applicable
thereto.
(2) Any amount allowable for a taxable year as credits under sections
31 (relating to tax withheld on wages), 39 (relating to certain uses of
gasoline, special fuels, and, lubricating oil), 43 (relating to earned
income credit), and 667(b) (relating to taxes paid by certain trusts)
which exceeds the tax imposed by subtitle A of the Code (reduced by the
credits allowable under subpart A of part IV of subchapter A of chapter
1 of the Code, other than the credits allowable under sections 31, 39,
and 43) for such year.
(b) An amount paid as tax shall not be considered not to constitute
an overpayment solely by reason of the fact that there was no tax
liability in respect of which such amount was paid.
(T.D. 7204, 37 FR 17158, Aug. 25, 1972, as amended by T.D. 7537, 43
FR 13878, Apr. 3, 1978)
26 CFR 301.6402-1 Authority to make credits or refunds.
The Commissioner, within the applicable period of limitations, may
credit any overpayment of tax, including interest thereon, against any
outstanding liability for any tax (or for any interest, additional
amount, addition to the tax, or assessable penalty) owed by the person
making the overpayment and the balance, if any, shall be refunded,
subject to sections 6402 (c) and (d) and the regulations thereunder, to
that person by the Commissioner.
(T.D. 8053, 50 FR 39662, Sept. 30, 1985)
26 CFR 301.6402-2 Claims for credit or refund.
(a) Requirement that claim be filed. (1) Credits or refunds of
overpayments may not be allowed or made after the expiration of the
statutory period of limitation properly applicable unless, before the
expiration of such period, a claim therefor has been filed by the
taxpayer. Furthermore, under section 7422, a civil action for refund
may not be instituted unless a claim has been filed within the properly
applicable period of limitation.
(2) In the case of a claim filed prior to April 15, 1968, the claim
together with appropriate supporting evidence shall be filed in the
office of the internal revenue officer to whom the tax was paid or with
the assistant regional Commissioner (alcohol, tobacco, and firearms)
where the regulations respecting the particular tax to which the claim
relates specifically require the claim to be filed with that officer.
Except as provided in paragraph (b) of 301.6091-1 (relating to
hand-carried documents), in the case of a claim filed after April 14,
1968, the claim, together with appropriate supporting evidence, shall be
filed (i) with the Director of International Operations if the tax was
paid to him or (ii) with the assistant regional Commissioner (alcohol,
tobacco, and firearms) where the regulations respecting the particular
tax to which the claim relates specifically require the claim to be
filed with that officer; otherwise, the claim with appropriate
supporting evidence must be filed with the service center serving the
internal revenue district in which the tax was paid. As to interest in
the case of credits or refunds, see section 6611. See section 7502 for
provisions treating timely mailing as timely filing and section 7503 for
time for filing claim when the last day falls on Saturday, Sunday, or
legal holiday.
(b) Grounds set forth in claim. (1) No refund or credit will be
allowed after the expiration of the statutory period of limitation
applicable to the filing of a claim therefor except upon one or more of
the grounds set forth in a claim filed before the expiration of such
period. The claim must set forth in detail each ground upon which a
credit or refund is claimed and facts sufficient to apprise the
Commissioner of the exact basis thereof. The statement of the grounds
and facts must be verified by a written declaration that it is made
under the penalties of perjury. A claim which does not comply with this
paragraph will not be considered for any purpose as a claim for refund
or credit.
(2) Neither the district director nor the director of the regional
service center has authority to refund on equitable grounds penalties or
other amounts legally collected.
(c) Form for filing claim. Except for claims filed after June 30,
1976 for the refunding of overpayment of income taxes, all claims by
taxpayers for the refunding of taxes, interest, penalties, and additions
to tax shall be made on Form 843. For special rules applicable to
income tax, see 301.6402-3. For other provisions relating to credits
and refunds of taxes other than income tax, see the regulations relating
to the particular tax.
(d) Separate claims for separate taxable periods. In the case of
income, gift, and Federal unemployment taxes, a separate claim shall be
made for each type of tax for each taxable year or period.
(e) Proof of representative capacity. If a return is filed by an
individual and, after his death, a refund claim is filed by his legal
representative, certified copies of the letters testamentary, letters of
administration, or other similar evidence must be annexed to the claim,
to show the authority of the legal representative to file the claim. If
an executor, administrator, guardian, trustee, receiver, or other
fiduciary files a return and thereafter a refund claim is filed by the
same fiduciary, documentary evidence to establish the legal authority of
the fiduciary need not accompany the claim, provided a statement is made
in the claim showing that the return was filed by the fiduciary and that
the latter is still acting. In such cases, if a refund is to be paid,
letters testamentary, letters of administration, or other evidence may
be required, but should be submitted only upon the receipt of a specific
request therefor. If a claim is filed by a fiduciary other than the one
by whom the return was filed, the necessary documentary evidence should
accompany the claim. A claim may be executed by an agent of the person
assessed, but in such case a power of attorney must accompany the claim.
(f) Mailing of refund check. (1) Checks in payment of claims allowed
will be drawn in the names of the persons entitled to the money and,
except as provided in subparagraph (2) of this paragraph (f), the checks
may be sent direct to the claimant or to such person in care of an
attorney or agent who has filed a power of attorney specifically
authorizing him to receive such checks.
(2) Checks in payment of claims which have either been reduced to
judgment or settled in the course or as a result of litigation will be
drawn in the name of the person or persons entitled to the money and
will be sent to the Assistant Attorney General, Tax Division, Department
of Justice, for delivery to the taxpayer or the counsel of record in the
court proceeding.
(3) For restrictions on the assignment of claims, see section 3477 of
the Revised Statutes (31 U.S.C. 203).
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar.
1, 1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. 7410, 41 FR
11020, Mar. 16, 1976; T.D. ATF-33, 41 FR 44038, Oct. 6, 1976; T.D.
7484, 42 FR 22143, May 2, 1977)
26 CFR 301.6402-3 Special rules applicable to income tax.
(a) In the case of a claim for credit or refund filed after June 30,
1976 --
(1) In general, in the case of an overpayment of income taxes, a
claim for credit or refund of such overpayment shall be made on the
appropriate income tax return.
(2) In the case of an overpayment of income taxes for a taxable year
of an individual for which a Form 1040 or 1040A has been filed, a claim
for refund shall be made on Form 1040X (''Amended U.S. Individual
Income Tax Return'').
(3) In the case of an overpayment of income taxes for a taxable year
of a corporation for which a Form 1120 has been filed, a claim for
refund shall be made on Form 1120X (''Amended U.S. Corporation Income
Tax Return'').
(4) In the case of an overpayment of income taxes for a taxable year
for which a form other than Form 1040, 1040A, or 1120 was filed (such as
Form 1041 (U.S. Fiduciary Income Tax Return) or Form 990T (Exempt
Organization Business Income Tax Return)), a claim for credit or refund
shall be made on the appropriate amended income tax return.
(5) A properly executed individual, fiduciary, or corporation
original income tax return or an amended return (on 1040X or 1120X if
applicable) shall constitute a claim for refund or credit within the
meaning of section 6402 and section 6511 for the amount of the
overpayment disclosed by such return (or amended return). For purposes
of section 6511, such claim shall be considered as filed on the date on
which such return (or amended return) is considered as filed, except
that if the requirements of 301.7502-1, relating to timely mailing
treated as timely filing are met, the claim shall be considered to be
filed on the date of the postmark stamped on the cover in which the
return (or amended return) was mailed. A return or amended return shall
constitute a claim for refund or credit if it contains a statement
setting forth the amount determined as an overpayment and advising
whether such amount shall be refunded to the taxpayer or shall be
applied as a credit against the taxpayer's estimated income tax for the
taxable year immediately succeeding the taxable year for which such
return (or amended return) is filed. If the taxpayer indicates on its
return (or amended return) that all or part of the overpayment shown by
its return (or amended return) is to be applied to its estimated income
tax for its succeeding taxable year, such indication shall constitute an
election to so apply such overpayment, and no interest shall be allowed
on such portion of the overpayment credited and such amount shall be
applied as a payment on account of the estimated income tax for such
year or the installments thereof.
(6) Notwithstanding paragraph (a)(5) of this section, the Internal
Revenue Service, within the applicable period of limitations, may credit
any overpayment of individual, fiduciary, or corporation income tax,
including interest thereon, against --
(i) First, any outstanding liability for any tax (or for any
interest, additional amount, additions to the tax, or assessable
penalty) owed by the taxpayer making the overpayment;
(ii) Second, in the case of an individual taxpayer, amounts of
past-due support assigned to a State under section 402(a)(26) or
471(a)(17) of the Social Security Act under procedures set forth in the
regulations under section 6402(c);
(iii) Third, past-due and legally enforceable debt under procedures
set forth in the regulations under section 6402(d); and
(iv) Fourth, qualifying amounts of past-due support not assigned to a
State under procedures set forth in the regulations under section 6402
(c).
Only the balance, if any, of the overpayment remaining after credits
described in this paragraph (a)(6) shall be treated in the manner so
elected.
(b) In the case of a claim for credit or refund filed before July 1,
1976 -- (1) In the case of income tax, claims for refund may not only be
made on Form 843 but may also be made on any individual, fiduciary, or
corporation income tax return, or on any amended income tax return.
(2) In the case of an overpayment for a taxable year of an individual
for which a Form 1040 or Form 1040A has been filed, claim for refund may
be made on Form 1040X (''Amended U.S. Individual Income Tax Return'').
In cases to which this subparagraph applies, the taxpayer is encouraged
to use Form 1040X.
(3) In the case of an overpayment for a taxable year of a corporation
for which a corporation tax return has been filed, claim for refund may
be made on Form 1120X (''Amended U.S. Corporation Income Tax Return'').
In cases to which this subparagraph applies, the taxpayer is encouraged
to use Form 1120X.
(4) A properly executed individual, fiduciary, or corporation income
tax return shall, at the election of the taxpayer, constitute a claim
for refund or credit within the meaning of section 6402 and section 6511
for the amount of the overpayment disclosed by such return. For
purposes of section 6511, such claim shall be considered as filed on the
date on which such return is considered as filed, except that if the
requirements of 301.7502-1, relating to timely mailing treated as
timely filing, are met the claim shall be considered to be filed on the
date of the postmark stamped on the cover in which the return was
mailed.
(5) An election to treat the return as a claim for refund or credit
shall be evidenced by a statement on the return setting forth the amount
determined as an overpayment and advising whether such amount shall be
refunded to the taxpayer or shall be applied as a credit against the
taxpayer's estimated income tax for the taxable year immediately
succeeding the taxable year for which such return is filed. If the
taxpayer elects to have all or part of the overpayment shown by his
return applied to his estimated income tax for his succeeding taxable
year, no interest shall be allowed on such portion of the overpayment
credited and such amount shall be applied as a payment on account of the
estimated income tax for such year or the installments thereof.
(6) Notwithstanding elections made under paragraph (b)(5) of this
section for taxable years ending after December 20, 1972, the
Commissioner, within the applicable period of limitations, may credit
any overpayment of individual, fiduciary, or corporation income tax,
against any outstanding liability for any tax (or for any interest,
additional amount, addition to the tax, or assessable penalty) owed by
the taxpayer making the overpayment, and only the balance, if any, shall
be treated in the manner so elected.
(c) The filing of a properly executed income tax return shall, in any
case in which the taxpayer is not required to show his tax on such form
(see section 6014 and the regulations thereunder), be treated as a claim
for refund (or for claims filed before July 1, 1976, constitute an
election by the taxpayer to have the return treated as a claim for
refund), and such return shall constitute a claim for refund within the
meaning of section 6402 and section 6511 for the amount of the
overpayment shown by the computation of the tax made by the district
director or the director of the regional service center on the basis of
the return. For purposes of section 6511, such claim shall be
considered as filed on the date on which such return is considered as
filed, except that if the requirements of 301.7502-1, relating to
timely mailing treated as timely filing, are met the claim shall be
considered to be filed on the date of the postmark stamped on the cover
in which the return was mailed.
(d) In any case in which a taxpayer elects to have an overpayment
refunded to him he may not thereafter change his election to have the
overpayment applied as a payment on account of his estimated income tax.
(e) In the case of a nonresident alien individual or a foreign
corporation the claim for refund must show the taxpayer's entire income
subject to tax, whether or not the tax has been fully satisfied at the
source upon a portion of such income. If the overpayment has resulted
from the withholding of tax at source under chapter 3 of the Code, a
statement shall be attached to the claim for refund declaring that the
person making the claim is the beneficial owner of the income and
showing (1) the amounts of tax withheld, with the names and post office
addresses of withholding agents, (2) the name in which the tax was
withheld if other than that of the taxpayer, and, if applicable, (3)
facts sufficient to show that, at the time the income was derived, the
taxpayer was entitled to the benefit of a reduced rate of, or exemption
from, tax with respect to that income under the provisions of an income
tax convention to which the United States is a party. Upon request of
the Director of International Operations the taxpayer shall also submit
such evidence as may be required to show that the taxpayer is the
beneficial owner of the income. In no case may a claim for refund of
overwithheld tax be made by a nonresident alien individual or foreign
corporation if the taxpayer has received a repayment or reimbursement of
such tax in accordance with paragraph (a) of 1.1461-4 of this chapter
(Income Tax Regulations). See also 1.1464-1 of this chapter.
(Sec. 7805, Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C.
7805); sec. 2332(a) of the Omnibus Budget Reconciliation Act of 1981
(95 Stat. 357), amending sec. 464(a) of the Social Security Act (88
Stat. 2351))
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7102, 36 FR 5498, Mar.
24, 1971; T.D. 7234, 37 FR 28163, Dec. 21, 1972; T.D. 7293, 38 FR
32804, Nov. 28, 1973; T.D. 7298, 38 FR 35234, Dec. 26, 1973; T.D.
7410, 41 FR 11020, Mar. 16, 1976; T.D. 7808, 47 FR 5714, Feb. 8, 1982;
T.D. 8053, 50 FR 39662, Sept. 30, 1985)
26 CFR 301.6402-4 Payments in excess of amounts shown on return.
In certain cases, the taxpayer's payments in respect of his tax
liability, made before the filing of his return, may exceed the amount
of tax shown on the return. For example, such payments may arise in the
case of the income tax when the estimated tax or the credit for income
tax withheld at the source on wages exceeds the amount of tax shown on
the return, or where a corporation obtains an extension of time for
filing its return and makes installment payments based on its estimate
of its tax liability which exceed the tax liability shown on the return
subsequently filed. In any case in which the district director or the
director of the regional service center determines that the payments by
the taxpayer (made within the period prescribed for payment and before
the filing of the return) are in excess of the amount of tax shown on
the return, he may make credit or refund of such overpayment without
awaiting examination of the completed return and without awaiting filing
of a claim for refund. However, the provisions of 301.6402-2 and
301.6402-3 are applicable to such overpayment, and taxpayers should
submit claims for refund (if the income tax return is not itself a claim
for refund, as provided in 301.6402-3) to protect themselves in the
event the district director or the director of the regional service
center fails to make such determination and credit or refund. The
provisions of section 6405 (relating to reports of refunds of more than
$100,000 to the Joint Committee on Internal Revenue Taxation) are not
applicable to the overpayments described in this section caused by
timely payments of tax which exceed the amount of tax shown on a timely
return.
26 CFR 301.6402-5 Offset of past-due support against overpayment.
(a) Introduction -- (1) Scope. Section 6402(c) requires the
Secretary of the Treasury or his delegate to reduce the amount of any
overpayment to be refunded to a person making an overpayment by the
amount of past-due support owed by that person of which the Secretary
has been notified in accordance with section 464 of the Social Security
Act. Past-due support shall be collected by offset under section
6402(c) and this section in the same manner as if it were a liability
for tax imposed by the Internal Revenue Code of 1954 (except that a
liability for tax shall be given priority with respect to offset arising
under section 6402(a)). Collection by offset under section 6402(c) of
this section is a collection procedure separate from the collection
procedures provided by section 6305 and 301.6305-1, relating to
assessment and collection of certain child and spousal support
liabilities. The sole collection procedure provided by section 6402(c)
and this section is that of offset against overpayment. Section 6305
and 301.6305-1, by contrast, provide for other collection procedures in
addition to collection by offset against overpayment. Sections 6305 and
6402(c) have differing procedural requirements and may be used
separately or in conjunction with each other.
(2) General rule. An amount of past-due support qualifies for offset
under this section if it satisfies the requirements of paragraph (b) of
this section. A State shall submit to the Department of Health and
Human Services a notification of liability for qualifying past-due
support containing the information described in paragraph (c) of this
section. A qualifying amount of past-due support owed by a taxpayer who
has made an overpayment shall be collected in accordance with the
procedures set forth in paragraph (d) of this section. Under paragraph
(d), the balance of any overpayment remaining after crediting of the
overpayment under section 6402(a) to any liability for an internal
revenue tax on the part of the taxpayer shall be offset by the amount of
past-due support of which the Internal Revenue Service has been
notified. The amount of the overpayment not subject to offset for any
liability for an internal revenue tax or for past-due support shall be
promptly refunded to the taxpayer. Paragraph (e) of this section
requires that the Internal Revenue Service notify the taxpayer of the
amount of the offset and of the State to which it has been paid. Under
procedures set forth in paragraph (f) of this section, amounts collected
by offset shall be transferred to a special account maintained by the
Bureau of Government Financial Operations for distribution to the
States. The Internal Revenue Service shall make monthly collection
reports to the Secretary of Health and Human Services or his delegate.
The States shall reimburse the Secretary of the Treasury for the full
cost of the refund offset under paragraph (g) of this section.
(b) Past-due support -- (1) Definition. For purposes of this
section, the term ''past-due support'' means the amount of a delinquent
obligation, which amount was determined under a court order, or an order
pursuant to an administrative process established under State law, for
support and maintenance of a child or of a child and the parent with
whom the child is living.
(2) Past-due support qualifying for offset. Past-due support
qualifies for offset under section 6402(c) and this section if --
(i) There has been as assignment of the support obligation to a State
pursuant to section 402(a)(26) of the Social Security Act (relating to
aid and service to needy families with children) and that State has made
reasonable efforts to collect the amount of the obligation;
(ii) The amount of past-due support is not less than $150.00;
(iii) The past-due support has been delinquent for three months or
longer; and
(iv) A notificaton of liability for past-due support has been
received by the Secretary of the Treasury as prescribed by paragraph (c)
of this section.
(c) Notification of liability for past-due support -- (1) Form. A
State shall, by October 1 of each year, submit a notification (or
notifications) of liability for past-due support on magnetic tape to the
Special Collection Activities Unit.
Office of Child Support Enforcement, Department of Health and Human
Services, 6110 Executive Boulevard, Suite 900, Rockville, Maryland
20852, Attention: Tax Refund Offset -- Tape Processing.
(2) Content. The notification of liability for past-due support
shall contain with respect to each taxpayer --
(i) The name of the taxpayer who owes the past-due support;
(ii) The social security number of that taxpayer;
(iii) The amount of past-due support owed; and
(iv) The alphabetical designation of the State submitting the
notification of liability for past-due support.
The Secretary of Health and Human Services may also require such
other information from the State submitting the notification as is
necessary for his orderly consolidation of data for transmittal to the
Internal Revenue Service.
(3) Transmittal of notification to Internal Revenue Service. The
Secretary of Health and Human Services shall, by December 1 of each
year, consolidate and transmit to the Internal Revenue Service on
magnetic tape the data contained in the notifications of liability for
past-due support submitted by the participating States.
(4) Correction of notification. If, after submitting a notification
of liability for past-due support, a State determines that an error has
been made with respect to the information contained in the notification,
or if a State receives a payment or credits a payment to the account of
a taxpayer named in this notification, the State shall promptly notify
the Office of Child Support Enforcement of the Department of Health and
Human Services of these corrections in accordance with any time
limitations specified by the Office of Child Support Enforcement. That
Office shall promptly transmit these corrections to the Internal Revenue
Service and the Internal Revenue Service shall make the appropriate
correction of the notification of liability for past-due support.
However, in no case shall a State notify the Internal Revenue Service
under this paragraph (c)(4) of an increased amount of past-due support
owed by a taxpayer named in its notification of liability for past-due
support. The correction notification described in this paragraph (c)(4)
is to be submitted only for the purpose of completing or correcting the
information contained in the notification of liability for past-due
support.
(d) Collection -- (1) Priority of offset for outstanding tax
liability. Under section 6402(a) and 301.6402-1, the Commissoner may
credit any overpayment of tax against any outstanding liability for any
tax owed by the person making the overpayment. Only the balance
remaining after such crediting is available for offset under section
6402(c) of this section. Thus, if a taxpayer making an overpayment has
both an outstanding tax liability and a liability for past-due support
subject to this section, then the entire amount of the overpayment shall
be credited first against the outstanding tax liability under section
6402(a) and 301.6402-1 and only the remainder, if any, of the
overpayment will be offset by the amount of past-due support. However,
an overpayment shall be offset by an amount of past-due support under
section 6402(c) before any crediting of the overpayment to any future
liability for an internal revenue tax. Thus, for example, if no
outstanding tax liability is owed and the amount of an overpayment is
equal to or less than the amount of past-due support, the Internal
Revenue Service shall offset the overpayment by the amount of past-due
support before crediting the overpayment against the taxpayer's
estimated income tax for the succeeding taxable year under section
6402(b).
(2) Amounts subject to offset. The balance of any overpayment
remaining after a crediting of the overpayment under section 6402(a) to
any outstanding liability for tax on the part of the taxpayer shall be
offset by the amount of past-due support of which the Internal Revenue
Service has been notified under this section
(3) Amounts not subject to offset. The amount of an overpayment not
subject to offset for any liability for tax or for past-due support
shall be promptly refunded to the taxpayer.
(e) Notice of offset. The Internal Revenue Service shall notify the
taxpayer in writing of the amount and date of the offset for past-due
support and of the State to which this amount of past-due support has
been paid.
(f) Disposition of amounts collected. Amounts collected under this
section shall be transferred to a special account maintained by the
Bureau of Government Financial Operations. The Internal Revenue Service
shall advise the Secretary of Health and Human Services or his delegate
on a monthly basis of the names and social security numbers of the
taxpayers from whom the amounts of past-due support were collected, of
the amounts collected from each taxpayer, and of the State on whose
behalf each collection was made. After authorization by the Division of
Finance of the Social Security Administration, the Bureau of Government
Financial Operations of the Department of the Treasury shall pay to the
participating States amounts equal to the amounts collected under this
section.
(g) Fee. A refund offset fee in the amount of $17.00 per offset for
taxable year 1981, or such greater or smaller amount as the Secretary of
the Treasury and the Secretary of Health and Human Services have agreed
to be sufficient to reimburse the Internal Revenue Service for the full
cost of the offset procedure, shall be billed and collected from the
participating States by the Secretary of Health and Human Services or
his delegate and deposited in the United States Treasury and credited to
the appropriation accounts of the Internal Revenue Service which bore
all or part of the costs involved in making the collection.
(T.D. 7895, 48 FR 22709, May 20, 1983)
26 CFR 301.6402-6 Offset of past-due, legally enforceable debt against
overpayment.
(a) General rule. (1) A Federal agency (as defined in section
6402(f)) that has entered into an agreement with the Internal Revenue
Service with regard to its participation in the tax refund offset
program and that is owed a past-due, legally enforceable debt may refer
the past-due, legally enforceable debt to the Internal Revenue Service
to be collected by Federal tax refund offset. The Service shall, after
making appropriate credits as provided by 301.6402-3(a)(6) (i) and
(ii), reduce the amount of any overpayment payable to a taxpayer by the
amount of any past-due, legally enforceable debt owed to the agency and
properly referred to the Service. This section does not apply to any
debt subject to section 464 of the Social Security Act (past-due
support).
(2)(i) This section applies to OASDI overpayments provided the
requirements of 31 U.S.C. 3720A(f)(1) and (2) are met with respect to
such overpayments.
(ii) For purposes of this section, ''OASDI overpayment'' means any
overpayment of benefits made to an individual under title II of the
Social Security Act.
(b) Eligible Federal agencies. (1) A Federal agency is eligible to
participate in the tax refund offset program if the agency --
(i) Has promulgated temporary of final regulations under 31 U.S.C.
3720A, governing the operation of the Federal tax refund offset program
in the agency;
(ii) Has promulgated temporary or final regulations under 31 U.S.C.
3716, governing the operation of the administrative offset program in
the agency; and
(iii) Has promulgated temporary or final regulations under 5 U.S.C.
5514(a), governing the operation of the salary offset program in the
agency (unless the agency has certified that, relying on the most
current information reasonably available, it will not refer to the
Service any names of present or former Federal employees or other
persons whose debts are subject to offset under the provisions of 5
U.S.C. 5514(a)(1)).
(2) An agency prohibited by Federal law from meeting any of the
requirements of paragraph (b)(1) or (c) of this section shall notify the
Service in writing of the specific legal impediment to meeting these
requirements. This notification shall be made prior to entering into an
agreement with the Service to participate in the tax refund offset
program. The Service will determine in writing whether the agency is
prohibited by Federal law from meeting any of the requirements of
paragraph (b)(1) or (c) of this section. The Service will waive in
writing any requirement that it determines the agency is prohibited by
Federal law from meeting.
(c) Past-due, legally enforceable debt eligible for refund offset.
For purposes of this section, a Federal agency may refer a past-due,
legally enforceable debt to the Service for offset if --
(1) Except in the case of a judgment debt or any debts specifically
exempt from this requirement (for example, debts referred by the
Department of Education that were pending on or after April 9, 1991, and
referred to the Service for offset before November 15, 1992), the debt
is referred for offset within ten years after the agency's right of
action accrues;
(2) The debt cannot be currently collected pursuant to the salary
offset provisions of 5 U.S.C. 5514(a)(1);
(3) The debt is ineligible for administrative offset under 31 U.S.C.
3716(a) by reason of 31 U.S.C. 3716(c)(2), or cannot be currently
collected by administrative offset under 31 U.S.C. 3716(a) by the
referring agency against amounts payable to the taxpayer by the
referring agency;
(4) The agency has notified, or has made a reasonable attempt to
notify, the taxpayer that the debt is past-due, and unless repaid within
60 days thereafter, will be referred to the Service for offset against
an overpayment of tax;
(5) The agency has given the taxpayer at least 60 days to present
evidence that all or part of the debt is not past-due or legally
enforceable, has considered any evidence presented by the taxpayer, and
has determined that the debt is past-due and legally enforceable;
(6) The debt has been disclosed by the agency to a consumer reporting
agency as authorized by 31 U.S.C. 3711(f), unless the consumer reporting
agency would be prohibited from reporting information concerning the
debt by reason of 15 U.S.C. 1681c, or unless the amount of the debt does
not exceed $100;
(7) The debt is at least $25; and
(8) In the case of an OASDI overpayment --
(i) The individual is not currently entitled to monthly insurance
benefits under title II of the Social Security Act;
(ii) The notice describes conditions under which the Department of
Health and Human Services is required to waive recovery of the
overpayment, as provided under section 204(b) of the Social Security
Act; and
(iii) If the taxpayer files for a waiver under section 204(b) of the
Social Security Act within the 60-day notice period, the agency has
considered the taxpayer's request.
(d) Pre-offset notice and consideration of evidence. (1) For
purposes of paragraph (c)(4) of this section, an agency has made a
reasonable attempt to notify the taxpayer if the agency uses the most
recent address information obtained from the Service pursuant to section
6103(m) (2), (4), or (5) of the Code, unless the agency receives clear
and concise notification from the taxpayer that notices from the agency
are to be sent to an address different from the address obtained from
the Service. Clear and concise notification means that the taxpayer has
provided the agency with written notification including the taxpayer's
name and identifying number (as defined in section 6109), the taxpayer's
new address, and the taxpayer's intent to have agency notices sent to
the new address.
(2) For purposes of paragraph (c)(5) of this section, if the evidence
presented by the taxpayer is considered by an agent of the agency, or
other entities or persons acting on the agency's behalf, the taxpayer
must be accorded at least 30 days from the date the agent or other
entity or person determines that all or part of the debt is past-due and
legally enforceable to request review by an officer or employee of the
agency of any unresolved dispute. The agency must then notify the
taxpayer of its decision.
(e) Referral of past-due, legally enforceable debt. A Federal agency
must refer a past-due, legally enforceable debt to the Service in the
time and manner prescribed by the Service. The referral must contain --
(1) The name and identifying number (as defined in section 6109) of
the taxpayer who is responsible for the debt;
(2) The amount of such past-due and legally enforceable debt;
(3) The date on which the debt became past-due;
(4) The designation of the Federal agency or subagency referring the
debt; and
(5) In the case of an OASDI overpayment, a certification by the
Secretary of Health and Human Services designating whether the amount
payable to the agency is to be deposited in either the Federal Old-Age
and Survivors Insurance Trust Fund or the Federal Disability Insurance
Trust Fund, but not both.
(f) Correction of referral. If, after referring a past-due, legally
enforceable debt to the Service as provided by paragraph (e) of this
section, an agency determines that an error has been made with respect
to the information transmitted to the Service, or if an agency receives
a payment or credits a payment to the account of a taxpayer referred to
the Service for offset, the agency shall promptly notify the Service.
The Service shall make the appropriate correction of its records.
However, this paragraph (f) does not permit an agency to increase the
amount of a past-due, legally enforceable debt or refer additional
debtors to the Service for offset after an agency makes its original
referral of debts for tax refund offset. The agency may refer
additional debts to the Service for refund offset in subsequent tax
refund offset years.
(g) Priorities for offset. (1) An overpayment shall be reduced first
by the amount of an outstanding liability for any tax under section
6402(a); second, by the amount of any past-due support assigned to a
State under section 402(a)(26) or section 471(a)(17) of the Social
Security Act which is to be offset under section 6402(c) and the
regulations thereunder; third, by the amount of any past-due, legally
enforceable debt owed to a Federal agency under section 6402(d) and this
section; and fourth, by the amount of any qualifying past-due support
not assigned to a State which is to be offset under section 6402(c) and
the regulations thereunder.
(2) If a taxpayer owes more than one past-due, legally enforceable
debt to a Federal agency or agencies, the overpayment shall be credited
against the debts in the order in which the debts accrued. A debt shall
be considered to have accrued at the time at which the agency determines
that the debt became past due.
(3) Reduction of the overpayment pursuant to section 6402 (a), (c),
and (d) shall occur prior to crediting the overpayment to any future
liability for an internal revenue tax. Any amount remaining after
offset under section 6402 (a), (c), and (d) shall be refunded to the
taxpayer, or applied to estimated tax, if elected by the taxpayer.
(h) Post-offset notice to the taxpayer and the agency. (1) The
Service shall notify the taxpayer in writing of the amount and date of
the offset for a past-due, legally enforceable debt and of the Federal
agency to which this amount has been paid or credited. For joint
returns, see paragraph (i) of this section.
(2) The Service shall advise each agency of the names, mailing
addresses, and identifying numbers of the taxpayers from whom amounts of
past-due, legally enforceable debt were collected and of the amounts
collected from each taxpayer. If the refund from which an amount of
past-due, legally enforceable debt is to be withheld is based upon a
joint return, the Service shall notify the agency and furnish the names
and addresses of each taxpayer filing the joint return.
(i) Offset made with regard to refund based upon joint return. (1)
In the case of an offset from a refund based on a joint return, the
Service shall issue a notice in writing to any person who may have filed
a joint return with the taxpayer, including the amount and date of any
offset and the steps which the non-debtor spouse may take in order to
secure his or her proper share of the refund (unless the non-debtor
spouse has already taken these steps prior to offset).
(2) If the person filing the joint return with the taxpayer owing the
past-due, legally enforceable debt takes appropriate action to secure
his or her proper share of a refund from which an offset was made, the
Service shall pay the person his or her share of the refund and shall
deduct that amount from amounts payable to the agency.
(j) Disposition of amounts collected. Amounts collected under this
section shall be transferred to a special account maintained by the
Financial Management Service (FMS) for each Federal agency. If an
erroneous payment is made to any agency, the Service shall deduct the
amount of such payment from amounts payable to the agency.
(k) Fees. The agency shall enter into a separate agreement with the
Service and FMS to reimburse the Service and FMS for the full cost of
administering the tax refund offset program. The fees shall be deducted
from amounts collected prior to disposition. The fees shall be
deposited in the United States Treasury and credited to the
appropriation accounts which bore all or part of the costs involved in
administering the refund offset procedures.
(l) Review of offset of refunds. Any reduction of a taxpayer's
refund made pursuant to section 6402(c) or (d) shall not be subject to
review by any court of the United States or by the Service in an
administrative proceeding. No action brought against the United States
to recover the amount of this reduction shall be considered to be a suit
for refund of tax. Any legal, equitable, or administrative action by
any person seeking to recover the amount of the reduction of the
overpayment must be taken against the Federal agency to which the amount
of the reduction was paid. Any action which is otherwise available with
respect to recoveries of overpayments of benefits under section 204 of
the Social Security Act must be taken against the Secretary of Health
and Human Services.
(m) Access to and use of confidential tax information. Access to and
use of confidential tax information in connection with the tax refund
offset program are restricted by section 6103 of the Code. However,
section 6103(l)(10) permits Federal officers and employees of agencies
participating in the tax refund offset program to have access to and use
of confidential tax information. Agencies receiving such information
are subject to the safeguard, recordkeeping, and reporting requirements
of section 6103(p)(4) and the regulations thereunder. The agency shall
inform its officers and employees who access or use confidential tax
information of the restrictions and penalties under the Internal Revenue
Code for misuse of confidential tax information.
(n) Effective date. This section applies to refunds payable under
section 6402 of the Internal Revenue Code after April 15, 1992.
(T.D.8413, 57 FR 13038, Apr. 15, 1992; 57 FR 36691, Aug. 14, 1992)
26 CFR 301.6402-7 Claims for refund and applications for tentative
carryback adjustments involving consolidated groups that include
insolvent financial institutions.
(a) In general -- (1) Overview. Section 6402(i) authorizes the
Secretary to issue regulations providing for the payment of a refund
directly to the statutory or court-appointed fiduciary of an insolvent
corporation that was a subsidiary in a consolidated group, to the extent
the Secretary determines that the refund is attributable to losses or
credits of the insolvent corporation. This section provides rules for
the payment of refunds and tentative carryback adjustments to the
fiduciary of an insolvent financial institution that was a subsidiary in
a consolidated group.
(2) Notice. This section provides notice to the common parent of a
consolidated group of which an insolvent financial institution is or was
a member that --
(i) The fiduciary for the institution may, in addition to the common
parent, act as agent for the group in certain matters relating to the
tax liability of the group in the year in which a loss arose and for the
year to which a claim for refund or application for tentative carryback
adjustment relates; and
(ii) The Internal Revenue Service may deal directly with the common
parent or the fiduciary (or both) as agent for the group to the extent
provided in this section.
(b) Definitions. For purposes of this section, the following terms
have the meanings set forth below:
(1) Carryback year group. A carryback year group is a consolidated
group of which a corporation that is or becomes an insolvent financial
institution is a member during a consolidated carryback year.
(2) Consolidated carryback year. A consolidated carryback year is a
consolidated return year to which a loss arising in a loss year is
carried back.
(3) Fiduciary. A fiduciary is --
(i) The Federal Deposit Insurance Corporation;
(ii) The Resolution Trust Corporation; or
(iii) Any other entity established by federal law, or a federal
agency, that is identified by the Commissioner in a revenue ruling or
revenue procedure as a fiduciary for purposes of this section;
in its capacity as an authorized receiver or conservator of an
insolvent financial institution.
(4) Insolvent financial institution. An insolvent financial
institution (an institution) is a bank or domestic building and loan
association for which the fiduciary is authorized to act as a receiver
or conservator --
(i) On the ground that the institution is insolvent within the
meaning of 12 U.S.C. 191, 12 U.S.C. 1821(c)(5)(A), 12 U.S.C.
1464(d)(2)(A)(i), or 12 U.S.C. 1464(d)(2)(C)(i) or any applicable state
law (or any successor statute which adopts a substantially similar
standard); or
(ii) On grounds other than insolvency, provided that the institution
is insolvent within the meaning of paragraph (b)(4)(i) of this section
at any time after commencement of the conservatorship or receivership.
A reference to an institution under these regulations includes, as
the context requires, a reference to predecessors and successors of the
institution.
(5) Loss year. A loss year is a taxable year for which any member or
former member of the carryback year group claims a loss that may be
carried back.
(6) Loss year group. A loss year group is a consolidated group of
which a corporation that is or becomes an insolvent financial
institution is a member during a loss year.
(7) Procedure effective date. The procedure effective date is the
day on which the Internal Revenue Service has processed the notice
described in paragraph (d)(1) of this section to the extent necessary
for all Internal Revenue Service Centers to have access to information
indicating that --
(i) Appropriate notice to the Internal Revenue Service has been
filed; and
(ii) Payments with respect to losses of an institution are to be paid
in accordance with the procedures set forth in this section.
(8) Definitions in 1.1502-1. Unless otherwise provided, the
definitions contained in 1.1502-1 of this chapter apply in this
section.
(c) Deemed agency status of fiduciary -- (1) In general.
Notwithstanding the general treatment of a common parent as the agent of
a group under 1.1502-77 and 1.1502-78 of this chapter, if the
fiduciary satisfies the notice requirements of paragraph (d)(1) of this
section, the fiduciary may also be deemed to be an agent under
1.1502-77 and 1.1502-78 of this chapter --
(i) Of the loss year group (if any) for purposes of filing a
consolidated return for the loss year;
(ii) Of the carryback year group for purposes of filing a claim for
refund or an application for a tentative carryback adjustment for the
consolidated carryback year under paragraph (e) of this section and
receiving payments of any refund or tentative carryback adjustment under
paragraph (g) of this section; and
(iii) Of the carryback year group, the loss year group or any other
group of which the institution is a member for any matter pertaining to
the determination of the refund or tentative carryback adjustment, but
only to the extent provided in paragraph (c)(2) of this section.
(2) Limitation. The fiduciary may act as an agent for matters
described in paragraph (c)(1)(iii) of this section only to the extent --
(i) Authorized by the district director, in his/her sole discretion,
after receiving a written request from the fiduciary; or
(ii) Requested by the Internal Revenue Service under paragraph (f)(3)
of this section.
(d) Notice requirements -- (1) Notice to the Internal Revenue
Service. To satisfy the notice requirement of this paragraph (d)(1),
the fiduciary must file Form 56-F, Notice Concerning Fiduciary
Relationship of Financial Institution, with the Internal Revenue Service
Center indicated on the form. However, in its sole discretion, the
Internal Revenue Service may treat notice to it in any other manner as
satisfying the notice requirement under this paragraph (d)(1).
(2) Notice to the common parent -- (i)
(i) Form 56-F. The fiduciary must send a copy of the form 56-F filed
with the Internal Revenue Service Center or any other notice provided to
the Service under paragraph (d) (1) of this section to the common parent
of the loss year group (if any) and the common parent of all carryback
year groups (if different from the loss year group).
(ii) Claim for refund and loss year return. If a claim for refund is
filed by the fiduciary in accordance with paragraph (e)(1) of this
section, the fiduciary must provide a copy of the claim for refund to
the common parent of the carryback year group. If a loss year return is
filed by the fiduciary in accordance with paragraph (e)(3) of this
section, the fiduciary must provide a copy of the loss year return to
the common parent of the loss year group (if any).
(iii) Additional information. The fiduciary must provide to the
affected common parent a copy of the request for agency status referred
to in paragraphs (c)(2) (i) and (ii) of this section, and a copy of any
additional information submitted to the Internal Revenue Service as
agent under paragraph (c)(1)(iii) of this section.
(e) Filing requirements of the fiduciary -- (1)
(1) Claim for refund by the fiduciary. If the fiduciary accepts a
claim for refund filed by the common parent, the fiduciary may claim a
refund under this section by filing a copy of the common parent's claim
for refund. If no claim for refund is filed by the common parent for
the consolidated carryback year or the fiduciary does not accept a claim
for refund filed by the common parent, the fiduciary may claim a refund
under this section by filing its own claim for refund under section
6402, based on all information pertaining to the institution and all
information pertaining to other members of the carryback year group and
the loss year group to which the fiduciary has reasonable access. Any
claim for refund filed by the fiduciary under this paragraph (e)(1) must
contain the title ''Claim for refund under section 6402(i) of the Code''
at the top of the first page of the claim, and the following must be
attached to the claim:
(i) The name and employer identification number of the institution
that was a member of the carryback year group;
(ii) The name of the fiduciary;
(iii) A schedule demonstrating that the amount of the refund claimed
by the fiduciary is determined in accordance with paragraph (g) of this
section;
(iv) A representation that the institution is an insolvent financial
institution as defined in paragraph (b)(4) of this section;
(v) A representation that the fiduciary has satisfied the
requirements set forth in paragraphs (d)(2)(i) and (ii) of this section;
and
(vi) A statement executed by an authorized representative of the
fiduciary and any paid preparer utilized by the fiduciary that provides
''Under penalties of perjury, I declare that I have examined the items
listed in 301.6402-7T(e)(1)(i) through (v), including accompanying
schedules and statements, and to the best of my knowledge and belief,
they are true, correct, and complete. Declaration of preparer (other
than fiduciary) is based on all information of which the preparer has
any knowledge.''
(2) Application for tentative carryback adjustment pursuant to
section 6411. Notwithstanding section 6411 and 1.1502-78 of this
chapter, an application for a tentative carryback adjustment must be
signed by both the common parent of the carryback year group and the
fiduciary if the payment with respect to the tentative carryback
adjustment is not made before the procedure effective date (whether or
not the application was filed before the procedure effective date). Any
application for a tentative carryback adjustment filed under this
paragraph (e)(2) must contain the title ''Application for tentative
carryback adjustment under section 6402(i) of the Code'' at the top of
the first page of the application. In addition, the following must be
attached to the application:
(i) The name and employer identification number of the institution
that was a member of the carryback year group;
(ii) The name of the fiduciary;
(iii) A schedule demonstrating that the amount claimed by the
fiduciary is determined in accordance with paragraph (g) of this
section;
(iv) A representation that the institution is an insolvent financial
institution as defined in paragraph (b)(4) of this section; and
(v) A representation that the fiduciary has satisfied the
requirements set forth in paragraph (d)(2)(i) of this section.
(3) Loss year return by the fiduciary. If the institution is a
member of a loss year group, and either the common parent does not file
a loss year return or the fiduciary does not accept the loss year return
filed by the common parent, the fiduciary may file a loss year return
with respect to the loss year group. A loss year return can only be
filed by the fiduciary in conjunction with the filing of a claim for
refund under paragraph (e)(1).The return must be based on all
information pertaining to the institution and all information pertaining
to other members to which the fiduciary has reasonable access. Any
return filed by the fiduciary under this paragraph (e)(3) must contain
the title ''Loss year return under section 6402(i) of the Code'' at the
top of the first page of the return, and the following must be attached
to the return:
(i) The name and employer identification number of the institution
that is a member of the loss year group;
(ii) The name of the fiduciary;
(iii) A representation that the institution is an insolvent financial
institution as defined in paragraph (b)(4) of this section; and
(iv) A representation that the fiduciary has satisfied the
requirements set forth in paragraphs (d)(2)(i) and (ii) of this section.
(4) Additional information. If the fiduciary files additional
information under paragraph (c)(1)(iii) of this section, the fiduciary
must attach a representation that it has satisfied the requirements set
forth in paragraph (d)(2)(iii) of this section.
(5) Election to waiver carryback. Any election filed after December
30, 1991, by the common parent of a loss year group under section
172(b)(3) to relinquish the entire carryback period with respect to a
consolidated net operating loss arising in a loss year is not effective
with respect to the portion of the consolidated net operating loss
attributable to a subsidiary that is an institution. Instead, the
fiduciary may make the election under section 172(b)(3) with respect to
the portion attributable to the institution after the notice described
in paragraph (d)(1) of this section is filed. For purposes of this
paragraph (e)(5), the portion attributable to an institution is
determined under the principles of paragraph (g)(2)(ii) of this section.
(f) Processing and reconciliation of information by the Internal
Revenue Service -- (1) Loss year return if the insolvent financial
institution is a member of a loss year group. The Internal Revenue
Service may, in its sole discretion, adjust a loss year return filed by
the common parent of a loss year group to take into account information
filed by the fiduciary in accordance with paragraph (e) of this section,
or accept or adjust a loss year return for the loss year group filed by
the fiduciary. Nothing in this section relieves the common parent of a
loss year group of its duty to file a consolidated return taking into
account an institution's items of income, gain, loss, deduction, and
credit for any taxable year, or obligates the Internal Revenue Service
to accept a return filed by the fiduciary as the return of the loss year
group.
(2) Claim for refund with respect to consolidated carryback year.
The Internal Revenue Service may, in its sole discretion, adjust a claim
for refund filed by the common parent of a carryback year group to take
into account information filed by the fiduciary in accordance with
paragraph (e) of this section, or accept or adjust a claim for refund
for the carryback year group filed by the fiduciary. Nothing in this
section obligates the Internal Revenue Service to pay a claim for
refund, or to accept a claim for refund, filed by the fiduciary as a
claim for refund for the carryback year group.
(3) Additional information. In determining the amount of any refund
that may be paid to the fiduciary under paragraph (g) of this section,
the Internal Revenue Service may, in its sole discretion, take into
account any information that the Internal Revenue Service deems relevant
and may require the fiduciary to file any additional information the
Internal Revenue Service deems appropriate.
(g) Payment of a refund or a tentative carryback adjustment to
fiduciary -- (1) In general. If a claim for refund or an application
for a tentative carryback adjustment is filed for the consolidated
carryback year in accordance with paragraph (e) of this section, the
Internal Revenue Service may, in its sole discretion, pay to the
fiduciary all or any portion of the refund or tentative carryback
adjustment that the Internal Revenue Service determines under this
section to be attributable to the net operating losses of the
institution. Nothing in this section obligates the Internal Revenue
Service to pay to the fiduciary all or any portion of a claim for refund
or application for tentative carryback adjustment.
(2) Portion of refund or tentative carryback adjustment attributable
to the net operating loss of an insolvent financial institution -- (i)
In general. The portion of a refund or tentative carryback adjustment
attributable to a net operating loss of an institution that is carried
to a consolidated carryback year is determined based on the absorption,
as described in paragraph (g)(2)(iii) of this section, of the
institution's net operating loss carried to the consolidated carryback
year.
(ii) Member's net operating loss. If the loss year is a consolidated
return year, references in this section to the net operating loss of a
member of the loss year group is a reference to the portion of the loss
year group's consolidated net operating loss attributable to the member.
The consolidated net operating loss for a taxable year that is
attributable to a member is determined by a fraction, the numerator of
which is the separate net operating loss of the member for the year of
the loss and the denominator of which is the sum of the separate net
operating losses for that year of all members having such losses. For
this purpose, the separate net operating loss of a member is determined
by computing the consolidated net operating loss by taking into account
only the member's items of income, gain, deduction, and loss, including
the member's losses and deductions actually absorbed by the group in the
taxable year (whether or not absorbed by the member).
(iii) Absorption of net operating losses. The absorption of net
operating losses generally is determined under applicable principles of
the Code and regulations, including the principles of section 172 and
1.1502-21 (b) of this chapter. Notwithstanding any contrary rule or
principle of the Code or regulations, if an institution and another
member of the carryback year group have net operating losses that arise
in taxable years ending on the same date and are carried to the same
consolidated carryback year, the carryback year group's consolidated
taxable income for that year is treated as offset first by the loss
attributable to the institution to the extent thereof.
(3) Examples. For purposes of the examples in this section, all
groups file consolidated returns, all corporations have calendar taxable
years, the facts set forth the only corporate activity, the fiduciary
has met the notice and filing requirements of this section, and the
common parent has filed a return for the loss year and a claim for
refund. The principles of this paragraph (g) are illustrated by the
following examples.
Example 1. Absorption of net operating losses. (a) P owns all the
stock of S1, an insolvent financial institution, and S2, a corporation
that is not a financial institution. For Year 1, P, S1, and S2 each
have $50 of income, and the P group's consolidated taxable income is
$150. On May 31 of Year 2, S1 becomes insolvent and is placed in
receivership under the supervision of a fiduciary. For Year 2, the P
group has a consolidated net operating loss of $200, of which $100 is
attributable to S1 and $100 is attributable to S2.
(b) Under paragraph (g)(2)(iii) of this section, the $150 of
consolidated taxable income for Year 1 is offset first by the $100
portion of the consolidated net operating loss for Year 2 attributable
to S1. The remaining $50 is treated as offset by $50 of the $100 of
consolidated net operating loss attributable to S2. Thus, the refund
attributable to $100 of the loss may be payable to the fiduciary and the
refund attributable to $50 of the loss may be payable to P. The
remaining $50 consolidated net operating loss, available to be carried
forward, is entirely attributable to S2.
Example 2. Separate return net operating loss. The facts are the
same as in Example 1, except that S1 left the P group at the end of Year
1 and its $100 of loss in Year 2 is incurred in a separate return
limitation year. Under paragraph (g)(2)(iii) of this section, the
generally applicable absorption principles of section 172 and 1.1502-21
of this chapter apply. Although S1 and S2 are carrying back losses to
Year 1 from taxable years ending on the same date (Year 2), S1's loss is
subject to a $50 limitation under 1.1502-21 (c) of this chapter and
only $50 of S1's loss is absorbed before S2's net operating loss.
Therefore, the refund attributable to $50 of the net operating loss of
S1 may be payable to the fiduciary, and the refund attributable to $100
of the net operating loss of S2 may be payable to P. The remaining $50
net operating loss of S1 is available to be carried forward.
(4) Refund or tentative carryback adjustment allocation agreement.
The determination of the portion of any refund or tentative carryback
adjustment payable to the fiduciary under this paragraph (g) shall be
made without regard to --
(i) Any agreement among the members of the consolidated group; or
(ii) Whether the fiduciary is otherwise entitled to any portion of
the refund or tentative carryback adjustment under applicable law.
(h) Credits, net capital losses, and subgroups -- (1) Credits and net
capital losses -- (i) In general. The principles of this section also
apply to credits and net capital losses, with appropriate adjustments to
reflect differences between the rules applicable to net operating losses
and those applicable to credits and net capital losses.
(ii) Example. The principles of this paragraph (h)(1) are
illustrated by the following example.
Example. Net capital loss. (a) P owns all the stock of S1, an
insolvent financial institution, and S2, a corporation that is not a
financial institution. For Year 1, P, S1, and S2 each have $50 of
capital gain, and the P group's consolidated capital gain net income is
$150. On May 31 of Year 2, S1 becomes insolvent and is placed in
receivership under the supervision of a fiduciary. For Year 2, the P
group has a consolidated net operating loss of $100 that is attributable
to S1, and a consolidated net capital loss of $100 that is attributable
to S2.
(b) Under paragraphs (g)(2)(iii) and (h)(1) of this section, the
generally applicable absorption principles of sections 172 and 1212 and
1.1502-21(b) and 1.1502-22(b) of this chapter apply. Consequently,
S2's capital loss is absorbed before S1's net operating loss.
Therefore, the $150 of consolidated capital gain net income is offset
first by S2's $100 capital loss and the remaining $50 by S1's net
operating loss. The refund attributable to $50 of the net operating
loss may be payable to the fiduciary, and the refund attributable to the
$100 of capital loss may be payable to P. The remaining $50
consolidated net operating loss available to be carried forward is
entirely attributable to S1.
(2) Insolvent financial institution subgroup -- (i) In general. The
principles of this section apply to all members included in an insolvent
financial institution subgroup with appropriate adjustments to reflect
differences resulting from the application to more than one corporation
in a group. Unless otherwise determined by the Internal Revenue Service
in its sole discretion, an insolvent financial institution subgroup is
composed of an insolvent financial institution and those other members
of a loss year group that, at any time during the conservatorship or
receivership of the institution, bear the same relationship to the
institution that the members of a group bear to their common parent
under section 1504(a)(1).
(ii) Examples. The principles of this paragraph (h)(2) are
illustrated by the following examples.
Example 1. Loss of other subgroup members. (a) S1 is a financial
institution, and P, S2, and S3 are not financial institutions. P owns
all the stock of S1, S1 owns all the stock of S2, and the stock of S3 is
owned 20 percent by S2 and 80 percent by P. For Year 1, P, S1, and S2
each have $100 of income, S3 has no income or loss, and the P group's
consolidated taxable income is $300. On May 31 of Year 2, S1 becomes
insolvent and is placed in receivership under the supervision of a
fiduciary. For Year 2, the P group has a consolidated net operating
loss of $300, of which $200 is attributable to S1 and $100 is
attributable to S2.
(b) S1 and S2 compose a subgroup because S2 bears the same
relationship to S1 that the member of a group bears to its common parent
under section 1504(a). S3 is not included in the subgroup because it is
not connected to S1 through 80 percent stock ownership as described in
section 1504(a).
(c) Because S1 and S2 are members of a subgroup, a claim for refund
under paragraph (e) of this section must be based on the aggregate
consolidated net operating loss of both S1 and S2. Under paragraph
(e)(5) of this section, P may not elect under section 172(b)(3) to
relinquish the entire carryback period with respect to the $300 of
consolidated net operating loss arising in Year 2 that is attributable
to S1 and S2. Any refund payable under paragraph (g)(1) of this section
with respect to the $300 loss of S1 and S2 may be paid by the Internal
Revenue Service directly to the fiduciary.
Example 2. Income of other subgroup members. (a) The facts are the
same as in Example 1, except that S2 has $100 of income in Year 2 rather
than $100 of loss. Any refund payable under paragraph (g) of this
section with respect to the loss of S1 in Year 2 must take into account
the income of S2, and therefore the refund will be based on a $100 loss
of the subgroup.
(b) Although P and S3 are not members included in the subgroup, the
loss year return and the claim for refund filed by the fiduciary under
paragraph (e) of this section must be completed based on all information
to which the fiduciary has reasonable access. Under paragraph (e)(3) of
this section, if P does not file a loss year return that is accepted by
S1, and S1 has reasonable access to information indicating that P and S3
have income in Year 2, S1 must take that income into account in filing
the P group's return for Year 2 and reduce the amount of S1's loss that
may be carried to Year 1 accordingly. However, if P or S3 has a loss in
Year 2, any refund attributable to that loss will not be paid to the
fiduciary.
(i) (Reserved)
(j) Determination of ownership. This section determines the party to
whom a refund or tentative carryback adjustment will be paid but is not
determinative of ownership of any such amount among current or former
members of a consolidated group (including the institution).
(k) Liability of the Government. Any refund or tentative carryback
adjustment paid to the fiduciary discharges any liability of the
Government to the same extent as payment to the common parent under
1.1502-77 or 1.1502-78 of this chapter. Furthermore, any refund or
tentative carryback adjustment paid to the fiduciary is considered a
payment to all members of the carryback year group. Any determination
made by the Internal Revenue Service under this section to pay a refund
or tentative carryback adjustment to a fiduciary or the common parent
may not be challenged by the common parent, any member of the group, or
the fiduciary.
(l) Effective dates. This section applies to refunds and tentative
carryback adjustments paid after December 30, 1991.
(T.D. 8387, 56 FR 67487, Dec. 31, 1991; 57 FR 6073, Feb. 20, 1992.
Redesignated and amended by T.D. 8446, 57 FR 53034, Nov. 6, 1992)
26 CFR 301.6403-1 Overpayment of installment.
If any installment of tax is overpaid, the overpayment shall first be
applied against any outstanding installments of such tax. If the
overpayment exceeds the correct amount of tax due, the overpayment shall
be credited or refunded as provided in section 6402 and 301.6402-1 to
301.6402-4, inclusive.
26 CFR 301.6404-0 Table of contents.
This section lists the paragraphs contained in 301.6404-1 --
301.6404-3.
301.6404-1 Abatements.
301.6404-2T Definition of ministerial act (temporary).
(a) In general.
(b) Ministerial act.
(1) Definition.
(2) Examples.
(c) Effective date.
301.6404-3 Abatement of penalty or addition to tax attributable to
erroneous written advice of the Internal Revenue Service.
(a) General rule.
(b) Requirements.
(1) In general.
(2) Advice was reasonably relied upon.
(i) In general.
(ii) Advice relating to a tax return.
(iii) Amended returns.
(iv) Advice not related to a tax return.
(v) Period of reliance.
(3) Advice was in response to written request.
(4) Taxpayer's information must be adequate and accurate.
(c) Definitions.
(1) Advice.
(2) Penalty and addition to tax.
(d) Procedures for abatement.
(e) Period for requesting abatement.
(f) Examples.
(g) Effective date.
(T.D. 8299, 55 FR 14245, Apr. 17, 1990)
26 CFR 301.6404-1 Abatements.
(a) The district director or the director of the regional service
center may abate any assessment, or unpaid portion thereof, if the
assessment is in excess of the correct tax liability, if the assessment
is made subsequent to the expiration of the period of limitations
applicable thereto, or if the assessment has been erroneously or
illegally made.
(b) No claim for abatement may be filed with respect to income,
estate, or gift tax.
(c) Except in case of income, estate, or gift tax, if more than the
correct amount of tax, interest, additional amount, addition to the tax,
or assessable penalty is assessed but not paid to the district director,
the person against whom the assessment is made may file a claim for
abatement of such overassessment. Each claim for abatement under this
section shall be made on Form 843. In the case of a claim filed prior
to April 15, 1968, the claim shall be filed in the office of the
internal revenue officer by whom the tax was assessed or with the
assistant regional Commissioner (alcohol, tobacco, and firearms) where
the regulations respecting the particular tax to which the claim relates
specifically require the claim to be filed with that officer. Except as
provided in paragraph (b) of 301.6091-1 (relating to hand-carried
documents), in the case of a claim filed after April 14, 1968, the claim
shall be filed (1) with the Director of International Operations if the
tax was assessed by him, or (2) with the assistant regional Commissioner
(alcohol, tobacco, and firearms) where the regulations respecting the
particular tax to which the claim relates specifically require the claim
to be filed with that officer; otherwise, the claim shall be filed with
the service center serving the internal revenue district in which the
tax was assessed. Form 843 shall be made in accordance with the
instructions relating to such form.
(d) The Commissioner may issue uniform instructions to district
directors authorizing them, to the extent permitted in such
instructions, to abate amounts the collection of which is not warranted
because of the administration and collection costs.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7008, 34 FR 3673, Mar.
1, 1969; T.D. 7188, 37 FR 12794, June 29, 1972; T.D. ATF-33, 41 FR
44038, Oct. 6, 1976)
26 CFR 301.6404-2T Definition of ministerial act (temporary).
(a) In general. Section 6404(e)(1) provides that the Commissioner
may (in his or her discretion) abate the assessment of all or any part
of interest on --
(1) Any deficiency (as defined in section 6211(a), relating to
income, estate, gift, generation-skipping, and certain excise taxes)
attributable in whole or in part to any error or delay by an officer or
employee of the Internal Revenue Service (acting in an official
capacity) in performing a ministerial act, or
(2) Any payment of any tax described in section 6212(a) (relating to
income, estate, gift, generation-skipping, and certain excise taxes) to
the extent that any delay in such payment is attributable to such an
officer or employee being dilatory in performing a ministerial act. An
error or delay in performing a ministerial act shall be taken into
account only if no significant aspect of such error or delay can be
attributed to the taxpayer involved or to a person related to the
taxpayer within the meaning of section 267(b) or section 707(b)(1).
Moreover, an error or delay in performing a ministerial act shall be
taken into account only if it occurs after the Service has contacted the
taxpayer in writing with respect to the deficiency or payment.
(b) Ministerial act -- (1) Definition. The term ''ministerial act''
means a procedural or mechanical act that does not involve the exercise
of judgment or discretion, and that occurs during the processing of a
taxpayer's case after all prerequisites to the act, such as conferences
and review by supervisors, have taken place. A decision concerning the
proper application of federal tax law (or other federal or state law) is
not a ministerial act.
(2) Examples. The definition of ministerial act may be illustrated
by the following examples.
Example 1. A taxpayer moves from one state to another before the
Internal Revenue Service selects the taxpayer's income tax return for
examination. A letter explaining that the return has been selected for
examination is sent to the taxpayer's old address and then forwarded to
the new address. The taxpayer timely responds, asking that the audit be
transferred to the Service's district office that is nearest the new
address. The group manager approves the request. After the request for
transfer has been approved, the transfer of the case is a ministerial
act. The Commissioner may (in his or her discretion) abate interest
attributable to a delay in transferring the case.
Example 2. An examination of a taxpayer's income tax return reveals
a deficiency with respect to which a notice of deficiency will be
issued. After the taxpayer and the Internal Revenue Service have
identified all agreed and unagreed issues, the notice has been prepared
and reviewed (including review by District Counsel, if necessary) and
any other relevant prerequisites have been completed, the issuance of
the notice of deficiency is a ministerial act. The Commissioner may (in
his or her discretion) abate interest attributable to a delay in issuing
the notice.
Example 3. A taxpayer invested in a tax shelter and reported a loss
from the tax shelter on the taxpayer's income tax return. Internal
Revenue Service personnel conducted an extensive examination of the tax
shelter, and the processing of the taxpayer's case was delayed during
such examination. Because the period of limitations on assessment was
about to expire, the taxpayer executed a consent to extend the period of
limitations. The time required to process the taxpayer's case was not a
result of a delay in performing a ministerial act; consequently,
interest attributable to this period cannot be abated under paragraph
(a) of this section.
Example 4. A revenue agent is sent to a training course, and the
agent's supervisor decides not to reassign the agent's cases. During
the training course, no work is done on the cases assigned to the agent.
Neither the decision to send the agent to the training course nor the
decision not to reassign the agent's cases is, under the circumstances,
a ministerial act. Thus, interest attributable to the delay cannot be
abated.
Example 5. A taxpayer who claimed a loss from a tax shelter on the
taxpayer's income tax return is notified that the Internal Revenue
Service intends to examine the return. However, because of other work
priorities and resource limitations, a decision is made not to commence
the examination for an extended period thereafter. The decision not to
commence the examination involves the exercise of judgment and
discretion and is not a ministerial act; consequently, interest
attributable to the period of delay cannot be abated.
(c) Effective date. The provisions of this section apply to interest
accruing with respect to deficiencies or payments of tax described in
section 6212(a) for taxable years beginning after December 31, 1978. If
a refund or credit of interest attributable to the application of
paragraph (a) of this section to a tax liability arising with respect to
any such taxable year is prevented at any time on or before October 22,
1987, by the operation of any law or rule of law (including res
judicata), refund or credit of such interest (to the extent attributable
to the application of paragraph (a) of this section) may, nevertheless,
be made or allowed if a claim for such interest is filed on or before
October 22, 1987.
(T.D. 8150, 52 FR 30163, Aug. 13, 1987)
26 CFR 301.6404-3 Abatement of penalty or addition to tax attributable
to erroneous written advice of the Internal Revenue Service.
(a) General rule. Any portion of any penalty or addition to tax that
is attributable to erroneous advice furnished to the taxpayer in writing
by an officer or employee of the Internal Revenue Service (Service),
acting in his or her official capacity, shall be abated, provided the
requirements of paragraph (b) of this section are met.
(b) Requirements -- (1) In general. Paragraph (a) of this section
shall apply only if --
(i) The written advice was reasonably relied upon by the taxpayer;
(ii) The advice was issued in response to a specific written request
for advice by the taxpayer; and
(iii) The taxpayer requesting advice provided adequate and accurate
information.
(2) Advice was reasonably relied upon -- (i) In general. The written
advice from the Service must have been reasonably relied upon by the
taxpayer in order for any penalty to be abated under paragraph (a) of
this section.
(ii) Advice relating to a tax return. In the case of written advice
from the Service that relates to an item included on a federal tax
return of a taxpayer, if such advice is received by the taxpayer
subsequent to the date on which the taxpayer filed such return, the
taxpayer shall not be considered to have reasonably relied upon such
written advice for purposes of this section, except as provided in
paragraph (b)(2)(iii) of this section.
(iii) Amended returns. If a taxpayer files an amended federal tax
return that conforms with written advice received by the taxpayer from
the Service, the taxpayer will be considered to have reasonably relied
upon the advice for purposes of the position set forth in the amended
return.
(iv) Advice not related to a tax return. In the case of written
advice that does not relate to an item included on a federal tax return
(for example, the payment of estimated taxes), if such written advice is
received by the taxpayer subsequent to the act or omission of the
taxpayer that is the basis for the penalty or addition of tax, then the
taxpayer shall not be considered to have reasonably relied upon such
written advice for purposes of this section.
(v) Period of reliance. If the written advice received by the
taxpayer relates to a continuing action or series of actions, the
taxpayer may rely on that advice until the taxpayer is put on notice
that the advice is no longer consistent with Service position and, thus,
no longer valid. For purposes of this section, the taxpayer will be put
on notice that written advice is no longer valid if the taxpayer
receives correspondence from the Service stating that the advice no
longer represents Service position. Further, any of the following
events, occurring subsequent to the issuance of the advice, that set
forth a position that is inconsistent with the written advice received
from the Service shall be deemed to put the taxpayer on notice that the
advice is no longer valid --
(A) Enactment of legislation or ratification of a tax treaty;
(B) A decision of the United States Supreme Court;
(C) The issuance of temporary or final regulations; or
(D) The issuance of a revenue ruling, a revenue procedure, or other
statement published in the Internal Revenue Bulletin.
(3) Advice was in response to written request. No abatement under
paragraph (a) of this section shall be allowed unless the penalty or
addition to tax is attributable to advice issued in response to a
specific written request for advice by the taxpayer. For purposes of
the preceding sentence, a written request from a representative of the
taxpayer shall be considered a written request by the taxpayer only if
--
(i) The taxpayer's representative is an attorney, a certified public
accountant, an enrolled agent, an enrolled actuary, or any other person
permitted to represent the taxpayer before the Service and who is not
disbarred or suspended from practice before the Service; and
(ii) The written request for advice either is accompanied by a power
of attorney that is signed by the taxpayer and that authorizes the
representative to represent the taxpayer for purposes of the request, or
such a power of attorney is currently on file with the Service.
(4) Taxpayer's information must be adequate and accurate. No
abatement under paragraph (a) of this section shall be allowed with
respect to any portion of any penalty or addition to tax that resulted
because the taxpayer requesting the advice did not provide the Service
with adequate and accurate information. The Service has no obligation
to verify or correct the taxpayer's submitted information.
(c) Definitions -- (1) Advice. For purposes of section 6404(f) and
the regulations thereunder, a written response issued to a taxpayer by
an officer or employee of the Service shall constitute ''advice'' if,
and only if, the response applies the tax laws to the specific facts
submitted in writing by the taxpayer and provides a conclusion regarding
the tax treatment to be accorded the taxpayer upon the application of
the tax law to those facts.
(2) Penalty and addition to tax. For purposes of section 6404(f) and
the regulations thereunder, the terms ''penalty'' and ''addition to
tax'' refer to any liability of a particular taxpayer imposed under
SubtitIe F, Chapter 68, Subchapter A and Subchapter B of the Internal
Revenue Code, and the liabilities imposed by sections 6038(b), 6038(c),
6038A(d), 6038B(b), 6039E(c), and 6332(d)(2). In addition, the terms
''penalty'' and ''addition to tax'' shall include any liability
resulting from the application of other provisions of the Code where the
Commissioner of Internal Revenue has designated by regulation, revenue
ruling, or other guidance published in the Internal Revenue Bulletin
that such provision shall be considered a penalty or addition to tax for
purposes of section 6404(f). The terms ''penalty'' and ''addition to
tax'' shall also include interest imposed with respect to any penalty or
addition to tax.
(d) Procedures for abatement. Taxpayers entitled to an abatement of
a penalty or addition to tax pursuant to section 6404(f) and this
section should complete and file Form 843. If the erroneous advice
received relates to an item on a federal tax return, taxpayers should
submit Form 843 to the Internal Revenue Service Center where the return
was filed. If the advice does not relate to an item on a federal tax
return, the taxpayer should submit Form 843 to the Service Center where
the taxpayer's return was filed for the taxable year in which the
taxpayer relied on the erroneous advice. At the top of Form 843
taxpayers should write, ''Abatement of penalty or addition to tax
pursuant to section 6404(f).'' Further, taxpayers must state on Form 843
whether the penalty or addition to tax has been paid. Taxpayers must
submit, with Form 843, copies of the following --
(1) The taxpayer's written request for advice;
(2) The erroneous written advice furnished by the Service to the
taxpayer and relied on by the taxpayer; and
(3) The report (if any) of tax adjustments that identifies the
penalty or addition to tax and the item relating to the erroneous
written advice.
(e) Period for requesting abatement. An abatement of any penalty or
addition to tax pursuant to section 6404(f) and this section shall be
allowed only if the request for abatement described in paragraph (d) of
this section is submitted within the period allowed for collection of
such penalty or addition to tax, or, if the penalty or addition to tax
has been paid, the period allowed for claiming a credit or refund of
such penalty or addition to tax.
(f) Examples. The following examples illustrate the application of
section 6404(f) of the Code and the regulations thereunder:
Example 1. In February 1989, an individual submitted a written
request for advice to an Internal Revenue Service Center and included
adequate and accurate information to consider the request. The question
posed by the taxpayer concerned whether a certain amount was includible
in income on the taxpayer's 1989 federal income tax return. An employee
of the Service Center issued the taxpayer a written response that
concluded that based on the specific facts submitted by the taxpayer,
the amount was not includible in income on the taxpayer's 1989 return.
Since the response provided a conclusion regarding the tax treatment
accorded the taxpayer on the basis of the facts submitted, the response
constitutes ''advice'' for purposes of section 6404(f). The taxpayer
filed his 1989 return and, relying on the Service's advice, did not
include the item in income. Upon examination, it was determined that
the item should have been included in income on the taxpayer's 1989
return. Because the taxpayer reasonably relied upon erroneous written
advice from the Service, any penalty or addition to tax attributable to
the erroneous advice will be abated by the Service. However, the
erroneous advice will not affect the amount of any taxes and interest
owed by the taxpayer (except to the extent interest relates to a penalty
or addition to tax attributable to the erroneous advice) due to the fact
that the item was not included in income.
Example 2. In March 1989, an individual submitted a written request
to the National Office of the Internal Revenue Service regarding whether
a certain activity constitutes a passive activity within the meaning of
section 469 of the Code. The request did not meet the procedural
requirements set forth by the National Office for consideration of the
submission as a private letter ruling request and, thus, was not treated
as such by the Service. The Service furnished the taxpayer with a
written response that transmitted various published provisions of
section 469 and the regulations thereunder relevant to the determination
of whether an activity is passive within the meaning of those
provisions. The Service also included a Publication regarding the tax
treatment of passive activities. However, the Service's response
contained no opinion or determination regarding whether the taxpayer's
described activity was or was not passive under section 469. The
Service's response is not advice within the meaning of section 6404(f),
and cannot be relied upon for purposes of an abatement of a portion of a
penalty or addition to tax under that section.
Example 3. On April 1, 1989, an individual submitted a written
request for advice to an Internal Revenue Service Center. The advice
related to an item included on a federal tax return. The individual
filed a federal income tax return with the appropriate Service Center on
April 15, 1989. Subsequently, on May 1, 1989, the individual received
advice from the Service Center concerning the written request made on
April 1. Because the individual filed his tax return prior to the date
on which written advice from the Service was received, the individual
did not rely on the Service's written advice for purposes of section
6404(f). If, however, the individual amends his tax return to conform
with the written advice received from the Service, the individual will
be considered to have reasonably relied upon the Service's advice.
Example 4. Individual A, on May 1, 1989, received advice from the
Service that concluded that interest paid by the taxpayer with respect
to a specific loan was interest paid or accrued in connection with a
trade or business, within the meaning of section 163(h)(2)(A) of the
Code. The advice relates to a continuing action. Therefore, provided
the facts submitted by the taxpayer to obtain the advice remain adequate
and accurate (that is, the circumstances relating to the indebtedness do
not change), Individual A may rely on the Service's advice for
subsequent taxable years until the individual is put on notice that the
advice no longer represents Service position and, thus, is no longer
valid.
Example 5. An individual, on June 1, 1989, received advice from the
Service that concluded that no gain or loss would be recognized with
respect to a transfer of property to his spouse under section 1041. The
advice does not relate to a continuing action. Therefore, the taxpayer
may not rely on the advice of the Service for transfers other than the
transfer discussed in the taxpayer's written request for advice.
(g) Effective date. Section 6404(f) shall apply with respect to
advice requested on or after January 1, 1989.
(T.D. 8254, 54 FR 21057, May 16, 1989. Redesignated at 55 FR 14245,
Apr. 17, 1990)
26 CFR 301.6405-1 Reports of refunds and credits.
Section 6405 requires that a report be made to the Joint Committee on
Taxation of proposed refunds or credits in excess of $100,000 of any
income tax (including any qualified State individual income tax
collected by the Federal Government), war profits tax, excess profits
tax, estate tax, or gift tax. An exception is provided under which
refunds and credits made after July 1, 1972, and attributable to an
election under section 165(h) to deduct a disaster loss for the taxable
year in which the disaster occurred, may be made prior to the submission
of such report to the Joint Committee on Taxation.
(T.D. 7577, 43 FR 59376, Dec. 20, 1978)
26 CFR 301.6407-1 Date of allowance of refund or credit.
The date on which the district director or the director of the
regional service center, or an authorized certifying officer designated
by either of them, first certifies the allowance of an overassessment in
respect of any internal revenue tax shall be considered as the date of
allowance of refund or credit in respect of such tax.
26 CFR 301.6407-1 Rules of Special Application
26 CFR 301.6411-1 Tentative carryback adjustments.
For regulations under section 6411, see 1.6411-1 to 1.6411-4,
inclusive, of this chapter (Income Tax Regulations).
26 CFR 301.6413-1 Special rules applicable to certain employment taxes.
For regulations under section 6413, see 31.6413(a)-1 to
31.6413(c)-1, inclusive, of this chapter (Employment Tax Regulations).
26 CFR 301.6414-1 Income tax withheld.
(a) For rules relating to the refund or credit of income tax withheld
under chapter 3 of the Code on nonresident aliens and foreign
corporations and tax-free covenant bonds, see 1.6414-1 of this chapter
(Income Tax Regulations).
(b) For rules relating to the refund or credit of income tax withheld
under chapter 24 of the Code from wages, see 31.6414-1 of this chapter
(Employment Tax Regulations).
26 CFR 301.6415-1 Credits or refunds to persons who collected certain
taxes.
For regulations under section 6415, see Part 49 of this chapter
(Facilities and Services Excise Tax Regulations).
26 CFR 301.6416-1 Certain taxes on sales and services.
For regulations under section 6416, see Part 48 of this chapter
(Manufacturers and Retailers Excise Tax Regulations) and Part 49 of this
chapter (Facilities and Services Excise Tax Regulations).
26 CFR 301.6417-1 Coconut and palm oil.
For regulations under section 6417, see 46.6417-1 and 46.6417-2 of
this chapter (Regulations Relating to Miscellaneous Excise Taxes Payable
by Return).
26 CFR 301.6418-1 Sugar.
For regulations under section 6418, see 46.6418-1 and 46.6418-2 of
this chapter (Regulations Relating to Miscellaneous Excise Taxes Payable
by Return).
26 CFR 301.6419-1 Excise tax on wagering.
For regulations under sections 6419, see 44.6419-1 and 44.6419-2 of
this chapter (Wagering Tax Regulations).
26 CFR 301.6420-1 Gasoline used on farms.
For regulations under section 6420, see 48.6420(a)-1 to
48.6420(h)-1, inclusive, of this chapter (Manufacturers and Retailers
Excise Tax Regulations).
26 CFR 301.6421-1 Gasoline used for certain nonhighway purposes or by
local transit systems.
For regulations under section 6421, see 48.6421(a)-1 to
48.6421(g)-1, inclusive, of this chapter (Manufacturers and Retailers
Excise Tax Regulations).
26 CFR 301.6423-1 Conditions to allowance in the case of alcohol and
tobacco taxes.
For regulations under section 6423, see Part 170 of this chapter,
relating to distilled spirits, wine, and beer; and Part 296 of this
chapter, relating to cigars, cigarettes, and cigarette papers and tubes.
(T.D. 7188, 37 FR 12795, June 29, 1972)
26 CFR 301.6425-1 Adjustment of overpayment of estimated income tax by
corporation.
For regulations under section 6425, see 1.6425-1 to 1.6425-3,
inclusive, of this chapter (Income Tax Regulations).
(T.D. 7059, 35 FR 14548, Sept. 17, 1970)
26 CFR 301.6425-1 Limitations
26 CFR 301.6425-1 Limitations on Assessment and Collection
26 CFR 301.6501(a)-1 Period of limitations upon assessment and
collection.
(a) The amount of any tax imposed by the Code (other than a tax
collected by means of stamps) shall be assessed within 3 years after the
return was filed. For rules applicable in cases where the return is
filed prior to the due date thereof, see section 6501(b). In the case
of taxes payable by stamp, assessment shall be made at any time after
the tax became due and before the expiration of 3 years after the date
on which any part of the tax was paid. For exceptions and additional
rules, see subsections (b) to (g) of section 6501, and for cross
references to other provisions relating to limitations on assessment and
collection, see sections 6501(h) and 6504.
(b) No proceeding in court without assessment for the collection of
any tax shall be begun after the expiration of the applicable period for
the assessment of such tax.
26 CFR 301.6501(b)-1 Time return deemed filed for purposes of
determining limitations.
(a) Early return. Any return, other than a return of tax referred to
in paragraph (b) of this section, filed before the last day prescribed
by law or regulations for the filing thereof (determined without regard
to any extension of time for filing) shall be considered as filed on
such last day.
(b) Returns of social security tax and of income tax withholding. If
a return on or after November 13, 1966, of tax imposed by chapter 3 of
the Code (relating to withholding of tax on nonresident aliens and
foreign corporations and tax-free covenant bonds), or if a return of tax
imposed by chapter 21 of the Code (relating to the Federal Insurance
Contributions Act) or by chapter 24 of the Code (relating to collection
of income tax at source on wages), for any period ending with or within
a calendar year is filed before April 15 of the succeeding calendar
year, such return shall be deemed filed on April 15 of such succeeding
calendar year. For example, if quarterly returns of the tax imposed by
chapter 24 of the Code are filed for the four quarters of 1955 on April
30, July 31, and October 31, 1955, and on January 31, 1956, the period
of limitation for assessment with respect to the tax required to be
reported on such return is measured from April 15, 1956. However, if
any of such returns is filed after April 15, 1956, the period of
limitation for assessment of the tax required to be reported on that
return is measured from the date it is in fact filed.
(c) Returns executed by district directors or other internal revenue
officers. The execution of a return by a district director or other
authorized internal revenue officer or employee under the authority of
section 6020(b) shall not start the running of the statutory period of
limitations on assessment and collection.
26 CFR 301.6501(c)-1 Exceptions to general period of limitations on
assessment and collection.
(a) False return. In the case of a false or fraudulent return with
intent to evade any tax, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at
any time after such false or fraudulent return is filed.
(b) Willful attempt to evade tax. In the case of a willful attempt
in any manner to defeat or evade any tax imposed by the Code (other than
a tax imposed by subtitle A or B, relating to income, estate, or gift
taxes), the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time.
(c) No return. In the case of a failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time after the date prescribed
for filing the return. For special rules relating to filing a return
for chapter 42 and similar taxes, see 301.6501(n)-1, 301.6501(n)-2,
and 301.6501(n)-3.
(d) Extension by agreement. The time prescribed by section 6501 for
the assessment of any tax (other than the estate tax imposed by chapter
11 of the Code) may, prior to the expiration of such time, be extended
for any period of time agreed upon in writing by the taxpayer and the
district director or an assistant regional commissioner. The extension
shall become effective when the agreement has been executed by both
parties. The period agreed upon may be extended by subsequent
agreements in writing made before the expiration of the period
previously agreed upon.
(e) Certain gifts not shown on return -- (1) In general. If any
transfer of property subject to the special valuation rules of section
2701 or section 2702, or if the occurrence of any taxable event
described in section 25.2701-4 of this chapter, is not adequately shown
on a return of tax imposed by chapter 12 of subtitle B of the Internal
Revenue Code (without regard to section 2503(b)), any tax imposed by
chapter 12 of subtitle B of the Code on the transfer or resulting from
the taxable event may be assessed, or a proceeding in court for the
collection of the appropriate tax may be begun without assessment, at
any time.
(2) Adequately shown. A transfer of property valued under the rules
of section 2701 or section 2702 or any taxable event described in
25.2701-4 of this chapter will be considered adequately shown on a
return of tax imposed by chapter 12 of subtitle B of the Internal
Revenue Code only if, with respect to the entire transaction or series
of transactions (including any transaction that affected the transferred
interest) of which the transfer (or taxable event) was a part, the
return provides:
(i) A description of the transactions, including a description of
transferred and retained interests and the method (or methods) used to
value each;
(ii) The identity of, and relationship between, the transferor,
transferee, all other persons participating in the transactions, and all
parties related to the transferor holding an equity interest in any
entity involved in the transaction; and
(iii) A detailed description (including all actuarial factors and
discount rates used) of the method used to determine the amount of the
gift arising from the transfer (or taxable event), including, in the
case of an equity interest that is not actively traded, the financial
and other data used in determining value. Financial data should
generally include balance sheets and statements of net earnings,
operating results, and dividends paid for each of the 5 years
immediately before the valuation date.
(3) Effective date. The provisions of this paragraph (e) are
effective as of January 28, 1992. In determining whether a transfer or
taxable event is adequately shown on a gift tax return filed prior to
that date, taxpayers may rely on any reasonable interpretation of the
statutory provisions. For these purposes, the provisions of the
proposed regulations and the final regulations are considered a
reasonable interpretation of the statutory provisions.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44250,
Oct. 7, 1982; T.D. 8395, 57 FR 4277, Feb. 4, 1992)
26 CFR 301.6501(d)-1 Request for prompt assessment.
(a) Except as otherwise provided in section 6501 (c), (e), or (f),
any tax for which a return is required and for which:
(1) A decedent or an estate of a decedent may be liable, other than
the estate tax imposed by chapter 11 of the Code, or
(2) A corporation which is contemplating dissolution, is in the
process of dissolution, or has been dissolved, may be liable,
shall be assessed, or a proceeding in court without assessment for
the collection of such tax shall be begun, within 18 months after the
receipt of a written request for prompt assessment thereof.
(b) The executor, administrator, or other fiduciary representing the
estate of the decedent, or the corporation, or the fiduciary
representing the dissolved corporation, as the case may be, shall, after
the return in question has been filed, file the request for prompt
assessment in writing with the district director for the internal
revenue district in which such return was filed. The request, in order
to be effective, must be transmitted separately from any other document,
must set forth the classes of tax and the taxable periods for which the
prompt assessment is requested, and must clearly indicate that it is a
request for prompt assessment under the provisions of section 6501(d).
The effect of such a request is to limit the time in which an assessment
of tax may be made, or a proceeding in court without assessment for
collection of tax may be begun, to a period of 18 months from the date
the request is filed with the proper district director. The request
does not extend the time within which an assessment may be made, or a
proceeding in court without assessment years from the date the return
was filed. This special period of limitations will not apply to any
return filed after a request for prompt assessment has been made unless
an additional request is filed in the manner provided herein.
(c) In the case of a corporation the 18-month period shall not apply
unless:
(1) The written request notifies the district director that the
corporation contemplates dissolution at or before the expiration of such
18-month period; the dissolution is in good faith begun before the
expiration of such 18-month period; and the dissolution so begun is
completed either before or after the expiration of such 18-month period;
or
(2) The written request notifies the district director that a
dissolution has in good faith been begun, and the dissolution is
completed either before or after the expiration of such 18-month period;
or
(3) A dissolution has been completed at the time the written request
is made.
26 CFR 301.6501(e)-1 Omission from return.
(a) Income taxes -- (1) General rule. (i) If the taxpayer omits from
the gross income stated in the return of a tax imposed by subtitle A of
the Code an amount properly includible therein which is in excess of 25
percent of the gross income so stated, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within 6 years after the return was filed.
(ii) For purposes of this subparagraph, the term ''gross income'', as
it relates to a trade or business, means the total of the amounts
received or accrued from the sale of goods or services, to the extent
required to be shown on the return, without reduction for the cost of
such sales or services. An item shall not be considered as omitted from
gross income if information, sufficient to apprise the district director
of the nature and amount of such item, is disclosed in the return or in
any schedule or statement attached to the return.
(2) Constructive dividends. If a taxpayer omits from gross income an
amount properly includible therein under section 551(b) as his
distributive share of the undistributed foreign personal holding company
income, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time
within 6 years after the return was filed.
(b) Estate and gift taxes. (1) If the taxpayer omits from the gross
estate as stated in the estate tax return, or from the total amount of
the gifts made during the period for which the gift tax return was filed
(see 25.6019-1 of this chapter) as stated in such return, an item or
items properly includible therein the amount of which is in excess of 25
percent of the gross estate as stated in the return, or 25 percent of
the total amount of the gifts as stated in the return, the tax may be
assessed, or a proceeding in court for the collection thereof may be
begun without assessment, at any time within 6 years after the return
was filed.
(2) For purposes of this paragraph, an item disclosed in the return
or in any schedule or statement attached to the return in a manner
sufficient to apprise the district director of the nature and amount
thereof shall not be taken into account in determining items omitted
from the gross estate or total gifts, as the case may be. Further,
there shall not be taken into account in computing the 25 percent
omission from the gross estate stated in the estate tax return or from
the total gifts stated in the gift tax return, any increases in the
valuation of assets disclosed on the return.
(c) Excise taxes -- (1) In general. If the taxpayer omits from a
return of a tax imposed under a provision of subtitle D an amount
properly includable thereon, which amount is in excess of 25 percent of
the amount of tax reported thereon, the tax may be assessed or a
proceeding in court for the collection thereof may be begun without
assessment, at any time within 6 years after the return was filed. For
special rules relating to chapter 41, 42, 43, and 44 taxes, see
subparagraphs (2), (3), (4), and (5) of this paragraph.
(2) Chapter 41 excise taxes. If an organization discloses an
expenditure in its return (or in a schedule or statement attached
thereto) in a manner sufficient to apprise the district director or
director of a service center of the existing and nature of such
expenditure, the three year limitation on assessment and collection
described in section 6501(a) shall apply with respect to any tax under
chapter 41 arising from such expenditure. If a taxpayer fails to so
disclose an expenditure in its return (or in a schedule or statement
attached thereto), the tax arising from the expenditure not so disclosed
may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within 6 years after the
return was filed.
(3) Chapter 42 excise taxes. (i) If a private foundation omits from
its annual return with respect to the tax imposed by section 4940 an
amount of tax properly includible therein which is in excess of 25
percent of the amount of tax imposed by section 4940 which is reported
on the return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time
within 6 years after the return was filed. If a private foundation
discloses in its return (or in a schedule or statement attached thereto)
the nature, source, and amount of any income giving rise to any omitted
tax, the tax arising from such income shall be counted as reported on
the return in computing whether the foundation has omitted more than 25
percent of the tax reported on its return.
(ii) If a private foundation or trust (as the case may be) discloses
an item in its return (or in a schedule or statement attached thereto)
in a manner sufficient to apprise the district director or director of a
service center of the existence and nature of such item, the three year
limitation on assessment and collection described in section 6501(a)
shall apply with respect to any tax imposed under sections 4941(a),
4942(a), 4943(a), 4944(a), 4945(a), 4951(a), 4952(a), and 4953 arising
from any transaction disclosed by such item. If a private foundation or
trust (as the case may be) fails to so disclose an item in its return
(or in a schedule or statement attached thereto), the tax arising from
any transaction not so disclosed may be assessed or a proceeding in
court for the collection of such tax may be begun without assessment, at
any time within 6 years after the return was filed.
(4) Chapter 43 excise taxes. If a taxpayer discloses an item in its
return (or in a schedule or statement attached thereto) in a manner
sufficient to apprise the district director or director of a service
center of the existence and nature of such item, the three year
limitation on assessment and collection described in section 6501(a)
shall apply with respect to any tax imposed under sections 4971(a),
4972, 4973, 4974, and 4975(a) arising from any transaction disclosed by
such item. If a taxpayer fails to so disclose an item in its return (or
in a schedule or statement attached thereto), the tax arising from any
transaction not so disclosed may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any
time within 6 years after the return was filed. The applicable return
for the tax under sections 4971, 4972, 4973 and 4974 is the return
designated by the Commissioner for reporting the respective tax. The
applicable return for the tax under section 4975 is the return filed by
the plan used to report the act giving rise to the tax.
(5) Chapter 44 excise taxes. If a real estate investment trust omits
from its annual return with respect to the tax imposed by section 4981
an amount of tax properly includible therein which is in excess of 25
percent of the amount of tax imposed by section 4981 which is reported
on the return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time
within 6 years after the return was filed. If a real estate investment
trust discloses in its return (or in a schedule or statement attached
thereto) the nature, source, and amount of any income giving rise to any
omitted tax, the tax arising from such income shall be counted as
reported on the return in computing whether the trust has omitted more
than 25 percent of the tax reported on its return.
(d) Exception. The provisions of this section do not limit the
application of section 6501(c).
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28741,
Dec. 29, 1972; T.D. 7838, 47 FR 44250, Oct. 7, 1982)
26 CFR 301.6501(f)-1 Personal holding company tax.
If a corporation which is a personal holding company for any taxable
year fails to file with its income tax return for such year a schedule
setting forth the items of gross income described in section 543(a)
received by the corporation during such year, and the names and
addresses of the individuals who owned, within the meaning of section
544, at any time during the last half of such taxable year, more than 50
percent in value of the outstanding capital stock of the corporation,
the personal holding company tax for such year may be assessed, or a
proceeding in court for the collection thereof may be begun without
assessment, at any time within 6 years after the return for such year
was filed.
26 CFR 301.6501(g)-1 Certain income tax returns of corporations.
(a) Trusts or partnerships. If a taxpayer determines in good faith
that it is a trust or partnership and files a return as such under
subtitle A of the Code, and if the taxpayer is later held to be a
corporation for the taxable year for which the return was filed, such
return shall be deemed to be the return of the corporation for the
purpose of section 6501.
(b) Exempt organizations. If a taxpayer determines in good faith
that it is an exempt organization and files a return as such under
section 6033, and if the taxpayer is later held to be a taxable
organization for the taxable year for which the return was filed, such
return shall be deemed to be the return of the organization for the
purpose of section 6501.
(c) DISC. If a corporation determines in good faith that it is a
DISC (as defined in section 992(a)(1)) for a taxable year and files a
return as such pursuant to section 6011(c)(2), and if the corporation is
thereafter held to be a corporation which is not a DISC for the taxable
year for which the return was filed, then --
(1) Such return shall be deemed to be the return of the corporation
for the purpose of section 6501.
(2) Such return if filed within the time required by section 6072(b)
for filing a DISC return shall be deemed to be filed within the time
required by section 6072(b) for filing of a return by a corporation
which is not a DISC, and
(3) Interest on underpayment and overpayments allowed by chapter 67
of the Code and additions to the tax, additional amounts and assessable
penalties allowed by Chapter 68 of the Code, when determined by
reference to the time for filing of a return, shall be determined by
reference to the time required by section 6072(b) for filing of a return
by a DISC.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7533, 43 FR 6604, Feb.
15, 1978)
26 CFR 301.6501(h)-1 Net operating loss or capital loss carrybacks.
In the case of a deficiency attributable to the application to the
taxpayer of a net operating loss or capital loss carryback (including
deficiencies which may be assessed pursuant to the provisions of section
6213(b)(2)), such deficiency may be assessed at any time before the
expiration of the period within which a deficiency for the taxable year
of the net operating loss or net capital loss which results in such
carryback may be assessed. In the case of a deficiency attributable to
the application of a net operating loss carryback, such deficiency may
be assessed within 18 months after the date on which the taxpayer files
in accordance with section 172(b)(3) a copy of the certification (with
respect to such taxable year) issued under section 317 of the Trade
Expansion Act of 1962, if later than the date prescribed by the
preceding sentence.
(T.D. 7301, 39 FR 974, Jan. 4, 1974)
26 CFR 301.6501(i)-1 Foreign tax carrybacks; taxable years beginning
after December 31, 1957.
With respect to taxable years beginning after December 31, 1957, a
deficiency attributable to the application to the taxpayer of a
carryback under section 904(d) (relating to carryback and carryover of
excess foreign taxes), may be assessed at any time before the expiration
of 1 year after the expiration of the period within which a deficiency
may be assessed for the taxable year of the excess taxes described in
section 904(d) which result in such carryback.
26 CFR 301.6501(j)-1 Investment credit carryback; taxable years ending
after December 31, 1961.
With respect to taxable years ending after December 31, 1961, a
deficiency attributable to the application to the taxpayer of an
investment credit carryback may be assessed at any time before the
expiration of the period within which a deficiency for the taxable year
of the unused investment credit which results in such carryback may be
assessed, or, with respect to any portion of an investment credit
carryback from a taxable year attributable to a net operating loss or
capital loss carryback from a subsequent taxable year, at any time
before the expiration of the period within which a deficiency for such
subsequent taxable year may be assessed. For purposes of this section a
deficiency shall include a deficiency which may be assessed pursuant to
the provisions of section 6213(b)(2), but only those arising with
respect to applications for tentative carryback adjustments filed after
November 2, 1966.
(T.D. 7301, 39 FR 975, Jan. 4, 1974)
26 CFR 301.6501(m)-1 Tentative carryback adjustment assessment period.
(a) Period of limitation after tentative carryback adjustment. (1)
Under section 6501(m), in a case where an amount has been applied,
credited, or refunded under section 6411, by reason of a net operating
loss carryback, a capital loss carryback, an investment credit
carryback, or a work incentive program credit carryback to a prior
taxable year, the period described in section 6501(a) of the Code for
assessing a deficiency for such prior taxable year is extended to
include the period described in section 6501 (h), (j), or (o), whichever
is applicable; except that the amount which may be assessed solely by
reason of section 6501(m) may not exceed the amount so applied,
credited, or refunded under section 6411, reduced by any amount which
may be assessed solely by reason of section 6501 (h), (j), or (o), as
the case may be.
(2) The application of this paragraph may be illustrated by the
following example:
Example. Assume that M Corporation, which claims an unused investment
credit of $50,000 for the calendar year 1968, files an application under
section 6411 of the Code for an adjustment of its tax for 1965, and
receives a refund of $50,000 in 1969. In 1971, it is determined that
the amount of the unused investment credit for 1968 is $30,000 rather
than $50,000. Moreover, it is determined that M Corporation would have
owed $40,000 of additional tax for 1965 if it had properly reported
certain income which it failed to include in its 1965 return. Assuming
that M Corporation filed its 1968 return on March 15, 1969, and that the
3-year period described in section 6501(a) has not been extended, the
period prescribed in section 6501(j) for assessing the excessive amount
refunded, $20,000 (i.e., $50,000, original amount refunded less $30,000,
correct amount of unused investment credit), does not expire until March
15, 1972, and $20,000 may be assessed on or before such date under
section 6501(j). Under section 6501(m), M Corporation may be assessed
on or before March 15, 1972, an amount not in excess of $30,000
($50,000, the amount refunded under section 6411, minus $20,000, the
amount which may be assessed solely by reason of section 6501 (j)).
(b) Effective date. The provisions of paragraph (a) of this section
apply only with respect to applications under section 6411 filed after
November 2, 1966.
(T.D. 7301, 39 FR 975, Jan. 4, 1974)
26 CFR 301.6501(n)-1 Special rules for chapter 42 and similar taxes.
(a) Return filed by private foundation, plan, or trust. (1) A return
filed by a private foundation, plan, or trust (as the case may be) with
respect to any act giving rise to a tax imposed by chapter 42 (other
than a tax imposed by section 4940), or by section 4975 shall be
considered, for purposes of section 6501, to be the return of all
persons required to file a return with respect to any such tax arising
from such act, notwithstanding that all such persons have not signed the
return. In the case of a private foundation that files a Form 990-PF
(or a Form 5227 in the case of a nonexempt foundation described in
section 4947(a)(2)), which contains questions with respect to such
taxes, the filing of such form by such foundation shall constitute the
filing of a return with respect to any such act, even though the
foundation incorrectly answered such questions.
(2) For purposes of section 4940, the return referred to in this
section is the return filed by the private foundation for the taxable
year for which the tax is imposed.
(b) Failure of private foundation plan, or trust to file. The period
of limitations on assessment and collection described in section 6501
does not begin with respect to any person liable for tax under chapter
42 (other than section 4940) or section 4975 arising from a given act,
where the private foundation, plan, or trust (as the case may be) has
not filed its required return that reports such act for the year in
which the act (or failure to act) giving rise to liability for such tax
occurred.
(c) Example. The provision of this section may be illustrated by the
following example:
Example. In 1973, D, an individual taxpayer who was a disqualified
person under the provisions of section 4946(a)(1), participated in an
act of self-dealing with a private foundation and incurred a tax under
section 4941(a)(1). On May 15, 1974, the private foundation files a
Form 990-PF and answers all the questions thereon with regard to any
acts of self-dealing (as defined in section 4941(d)) in which it may
have engaged in 1973. Assuming that the foundation's return was not a
false or fraudulent return nor made with the willful attempt to defeat
tax, the period of limitations on assessment and collection under
section 6501(a) shall start with respect to any tax under section
4941(a) or section 4941(b) imposed on D arising out of that transaction
with such foundation.
(T.D. 7838, 47 FR 44251, Oct. 7, 1982)
26 CFR 301.6501(n)-2 Certain contributions to section 501(c)(3)
organizations.
If a private foundation makes a contribution to a section 501(c)(3)
organization as provided in section 4942(g)(3), and a deficiency of tax
of such foundation occurs due to the failure of the section 501(c)(3)
organization to make the distribution prescribed by section 4942(g)(3),
then such deficiency may be assessed within one year after the
expiration of the period within which a deficiency may be assessed for
the taxable year with respect to which the contribution was made.
(T.D. 7838, 47 FR 44251, Oct. 7, 1982)
26 CFR 301.6501(n)-3 Certain set-asides described in section
4942(g)(2).
Where a deficiency of tax of a private foundation results from the
failure of an amount set aside by such foundation for a specific project
to be treated as a qualifying distribution under section
4942(g)(2)(B)(ii)(II), such deficiency may be assessed within two years
after the expiration of the period within which a deficiency may be
assessed for the taxable year to which the amount set aside relates.
(T.D. 7838, 47 FR 44251, Oct. 7, 1982)
26 CFR 301.6501(o)-1 Work incentive program credit carrybacks, taxable
years beginning after December 31, 1971.
With respect to taxable years beginning after December 31, 1971, a
deficiency attributable to the application to the taxpayer of a work
incentive program credit carryback (including deficiencies which may be
assessed pursuant to the provisions of section 6213(b)(2)) may be
assessed at any time before the expiration of the period within which a
deficiency for the taxable year of the unused work incentive program
credit which results in such carryback may be assessed, or, with respect
to any portion of a work incentive program credit carryback from a
taxable year attributable to a net operating loss or capital loss
carryback from a subsequent taxable year, at any time before the
expiration of the period within which a deficiency for such subsequent
taxable year may be assessed.
(T.D. 7301, 39 FR 975, Jan. 4, 1974)
26 CFR 301.6501(o)-2 Special rules for partnership items of federally
registered partnerships.
(a) In general. In the case of any tax imposed by subtitle A with
respect to any person, the period for assessing a deficiency
attributable to any partnership item of a federally registered
partnership shall not expire before the later of --
(1) The date which is 4 years after the date on which the return of
the federally registered partnership for the partnership taxable year in
which the item arose is filed (or, if later, the date prescribed for
filing the return), or
(2) If the name or address of the person against whom the assessment
is sought does not appear on the return of the federally registered
partnership, the date which is 1 year after the date on which a
satisfactory identifying statement is furnished in writing to the
director of the service center with which the partnership return is
filed. A satisfactory identifying statement is a written statement
providing the name, address, and taxpayer identification number of both
the partner and the partnership. The statement shall note the
partnership taxable year for which the statement is furnished.
(b) ''Pass through'' entity as partner. In the case of a partnership
having a ''pass through'' entity (i.e., partnership, electing small
business corporation (as defined in section 1371(b)), trust, estate, or
nominee) as a partner, the 1 year period described in paragraph (a)(2)
of this section shall not begin with respect to the person to be
assessed until the chain of ownership linking the taxpayer with the
federally registered partnership in which the item originally arose is
fully disclosed.
Example. Partnership U, a federally registered partnership, has two
partners, Partnerships W and X. The partners of W are A and B, who are
individuals, and T, a trust whose beneficiaries are individuals C and D.
The partners of X are E, an individual, and Partnership Y whose
partners are individuals F, G, and H. U and X properly disclose the
identity of their partners. W, however, discloses the identity of only
A and B, and Y discloses the identity of only F and G. The period of
limitation described in paragraph (a) of this section for items
attributable to U does not expire with respect to T, C, D, and H until
one year after the chain of ownership linking these taxpayers with U is
fully disclosed.
(c) Federally registered partnership -- (1) In general. With respect
to any partnership taxable year, a federally registered partnership is
any partnership --
(i) Interests in which have been offered for sale at any time during
the taxable year or a prior taxable year in an offering required to be
registered with the Securities and Exchange Commission, or
(ii) Which, at any time during the taxable year or a prior taxable
year, was subject to the annual reporting requirements of the Securities
and Exchange Commission which relate to the protection of investors in
the partnership.
For purposes of the preceding sentence an interest is ''offered for
sale'' when it is the subject of an ''offer for sale'' as that term is
used in section 2 of the Securities Act of 1933 (15 U.S.C. 77b).
(2) Certain reporting requirements not taken into account. A
requirement to file reports with the Securities and Exchange Commission
for any purpose other than to protect investors does not cause the
partnership to be treated as a federally registered partnership. For
example, a brokerage firm organized as a partnership is not a federally
registered partnership merely because it files reports required by the
Commission for regulatory purposes.
(d) Extension by agreement -- (1) In general. Any general partner of
a federally registered partnership (or any other person authorized by
the partnership) may, prior to the expiration of the limitation period
described in paragraph (a) of this section, extend the period for
assessing a deficiency attributable to a partnership item for
any period of time agreed upon in writing. The extension shall
become effective when the agreement has been executed by the district
director or the service center director and shall be binding on all
persons whose liability for tax imposed by subtitle A is affected in
whole or in part by partnership items flowing from the partnership.
(2) Authorization of other persons. The partnership may authorize
persons other than the general partners to extend the period of
limitation for assessing a deficiency attributable to a partnership
item. This authorization shall be in writing, shall clearly identify
the person being authorized and the action being authorized, and shall
be signed by all the general partners. The authorization shall become
effective when filed with the district director and shall remain in
effect until a written revocation signed as provided in the preceding
sentence is filed.
(3) Removing authority of general partners. A partnership wishing to
deny to some or all of the general partners the authority to execute an
agreement extending the period of limitation for assessment may do so by
submitting a written statement to that effect. The statement shall
either identify the partners exclusively authorized to execute such an
agreement or declare that one or more named partners or all partners
lack the authority to execute such an agreement. The statement shall be
signed by all the general partners. The statement shall become
effective when filed with the district director and shall remain in
effect until a statement revoking or superseding it and signed as
provided in the preceding sentence is filed.
(e) Special period of limitation with respect to carryback of net
operating loss, capital, loss, etc. The provisions of section 6501(o)
must also be taken into account in applying the various special periods
of limitation prescribed in sections 6501 (h), (i) and (j). Thus, to
the extent that a carryback is attributable to a partnership item of a
federally registered partnership, the period for assessing a deficiency
attributable to that carryback shall not expire before the date
determined under paragraph (a) of this section with respect to the
partnership taxable year in which the item arose.
(f) Otherwise applicable limitation period. The special provisions
of section 6501(o) and this section do not terminate any otherwise
applicable period for assessing a deficiency. Thus, the fact that more
than 4 years have elapsed since the filing of the partnership return for
the year in issue does not prevent assessment against a partner based on
partnership items if an otherwise applicable period of limitation for
the partner has not yet expired
Example. Partnership V files its return for the taxable year ending
December 31, 1980, on April 15, 1981. A, a partner in Partnership V,
agrees to extend the assessment period for A's taxable year ending
December 31, 1980, until September 30, 1985. The partnership does not
agree to any extension under section 6501(o)(3) so that the period for
assessing a deficiency attributable to partnership items could expire on
April 15, 1985. A deficiency may be assessed against A for 1980 at any
time prior to October 1, 1985, even if that deficiency is based on
partnership items.
(g) Effective date. This section and 301.6501(o)-3 are effective
generally for partnership items arising in partnership taxable years
beginning after December 31, 1978 and before September 4, 1982. This
section shall not apply, however, to any partnership taxable year with
respect to which the amendments made to Code section 6501(o) by section
402 of the Tax Equity and Fiscal Responsibility Act of 1982 are
effective. See section 407(a)(3) of that Act.
(Sec. 6501(o) (as it read before the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982) and 7805 of the Internal Revenue Code
of 1954 (92 Stat. 2818, 26 U.S.C. 6501(o); 68A Stat. 917, 26 U.S.C.
7805))
(T.D. 7884, 48 FR 16242, Apr. 15, 1983)
26 CFR 301.6501(o)-3 Partnership items.
(a) Partnership item defined. For purposes of section 6501(o) (as it
read before the enactment of the Tax Equity and Fiscal Responsibility
Act of 1982), 301.6501(o)-2, and 301.6511(g)-1, the term ''partnership
item'' means --
(1) Any item required to be taken into account for the partnership
taxable year under any provision of subchapter K of chapter 1 of the
Code, to the extent that the item is designated in paragraph (b) of this
section as more appropriately determined at the partnership level than
at the partner level, and
(2) Any other item to the extent affected by an item described in
paragraph (b) of this section.
The items described in paragraph (a)(2) of this section include items
related to the partnership (for example, a partner's basis in the
partnership interest) as well as more general items whose computation
may be affected by changes to items described in paragraph (b) of this
section (for example, adjusted gross income, self-employment tax, income
averaging, medical deduction, and charitable contribution deduction).
(b) Items more appropriately determined at the partnership level.
The following items which are required to be taken into account for the
taxable year of a partnership under subchapter K of chapter 1 of the
Code are more appropriately determined at the partnership level than at
the partner level:
(1) The partnership aggregate and each partner's share of each of the
following:
(i) Items of income, gain, loss, deduction, or credit of the
partnership;
(ii) Expenditures by the partnership not deductible in computing its
taxable income (for example, foreign taxes and charitable
contributions);
(iii) Items of the partnership which may be tax preference items
under section 57(a) for any partner;
(iv) Income of the partnership exempt from tax;
(v) Partnership liabilities (including determinations with respect to
the amount of the liabilities, whether the liabilities are nonrecourse,
and changes from the preceding taxable year); and
(vi) Other amounts with respect to partnership investments,
transactions, and operations necessary to enable partners to compute --
(A) The credit provided by section 38;
(B) Recapture under section 47 of the credit provided by section 38,
(C) Their amounts at risk in any activity to which section 465
applies, and
(D) The depletion allowance under section 613A with respect to oil
and gas wells;
(2) Guaranteed payments;
(3) Optional adjustments to the basis of partnership property
pursuant to an election under section 754 (including necessary
preliminary determinations, such as the determination of a transferee
partner's basis in a partnership interest); and
(4) To the extent that the determination can be made from
determinations that are necessary at the partnership level with respect
to an amount, the character of an amount, or the percentage interest of
a partner in the partnership for purposes of the partnership books and
records or for purposes of furnishing information to a partner --
(i) Contributions to the partnership;
(ii) Distributions from the partnership;
(iii) Amounts to be taken into account by a partner dealing with the
partnership in a transaction to which section 707(a) applies (including
the application of section 707(b));
(iv) The application to the distributee partner of section 751(b);
and
(v) The application to the transferor partner of section 751(a).
(c) Illustrations. This paragraph (c) illustrates the provisions of
paragraph (b)(4) of this section. The factors enumerated are not
exhaustive; there may be additional partnership-level determinations
with respect to a determination listed in paragraph (b)(4) of this
section.
(1) Contributions. For purposes of its books and records, or for
purposes of furnishing information to a partner, the partnership needs
to determine:
(i) The character of an amount received from a partner (for example,
whether it is a contribution, a loan, or a repayment of a loan);
(ii) The amount of money contributed by a partner;
(iii) The applicability of the investment company rules of section
721(b) with respect to a contribution; and
(iv) The basis to the partnership of contributed property. To the
extent that a determination with respect to a contribution can be made
from these and similar partnership-level determinations, therefore, the
determination is more appropriately made at the partnership level. To
the extent that that determination requires other information, however,
that determination is more appropriately made at the partner level. For
example, it may be necessary to determine whether the contribution of
the property causes recapture from the contributing partner of the
credit provided under section 38 in certain circumstances in which that
determination is irrelevant to the partnership.
(2) Distribution. For purposes of its books and records, or for
purposes of furnishing information to a partner, the partnership needs
to determine:
(1) The charter of an amount transferred to a partner (for example,
whether it is a distribution, a loan, or a repayment of a loan);
(ii) The amount of money distributed to a partner;
(iii) The adjusted basis to the partnership of distributed property;
and
(iv) The character of partnership property (for example, whether an
item is inventory or a capital asset). To the extent that a
determination with respect to a distribution can be made from these and
similar partnership-level determinations, therefore, the determination
is more appropriately made at the partnership level. To the extent that
that determination requires other information, however, that
determination is more appropriately made at the partnership level. Such
other information would include certain factors used in determining the
partner's basis for the partnership interest, such as the amount that
the partner paid to acquire the partnership interest from a transferor
partner if that transfer was not covered by an election under section
754.
(3) Transactions to which section 707(a) applies. For purposes of
its books and records, the partnership needs to determine:
(i) The amount transferred from the partnership to a partner or from
a partner to the partnership in any transaction to which section 707(a)
applies;
(ii) The character of such an amount (for example, whether or not it
is a loan; in the case of amounts paid over time for the purchase of an
asset, what portion is interest); and
(iii) The percentage of the capital interests and profits interests
in the partnership owned by each partner.
To the extent that a determination with respect to a transaction to
which section 707(a) applies can be made from these and similar
partnership-level determinations, therefore, that determination is more
appropriately made at the partnership level. To the extent that the
determination requires other information, however, that determination is
more appropriately made at the partner level. Examples of such other
information are the cost to the partner of goods sold to the partnership
and the extent to which the partner may be treated under section 267(c)
as the constructive owner of a capital or profits interest actually
owned by another.
(4) Application of section 751. For purposes of its books and
records, or for purposes of furnishing information to a partner for use
in applying section 751, the partnership needs to determine:
(i) The fair market value and adjusted basis of the partnership's --
(A) Unrealized receivables (within the meaning of section 751(c)),
(B) Substantially appreciated inventory (within the meaning of
section 751(d)), and
(C) Other property;
(ii) A partner's share of each of the classes of assets described in
paragraph (c)(3)(i) of this section; and
(iii) Whether a distribution to a partner is a disproportionate
distribution subject to section 751(b).
To the extent that a determination with respect to the application of
section 751 can be made from these and similar partnership-level
determinations, therefore, that determination is more appropriately made
at the partnership level. To the extent that the determination requires
other information, however, that determination is more appropriately
made at the partner level. An example of such other information is the
amount realized by a partner on the sale of a partnership interest.
(Sec. 6501(o) (as it read before the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982) and 7805 of the Internal Revenue Code
of 1954 (92 Stat. 2818, 26 U.S.C. 6501(o); 68A Stat. 917, 26 U.S.C.
7805))
(T.D. 7884, 48 FR 16243, Apr. 15, 1983)
26 CFR 301.6502-1 Collection after assessment.
(a) Length of period -- (1) General rule. In any case in which a tax
has been assessed within the statutory period of limitation properly
applicable thereto, a proceeding in court to collect such tax may be
begun, or levy for the collection of such tax may be made, within 10
years after the assessment thereof.
(2) Extension by agreement. (i) The 10-year period of limitation on
collection after assessment of any tax may, prior to the expiration
thereof, be extended for any period of time agreed upon in writing by
the taxpayer and the district director. The extension shall become
effective upon execution of the agreement by both the taxpayer and the
district director.
(ii) The period of limitation on collection after assessment of any
tax (including any extension of such period) may be extended after the
expiration thereof if there has been a levy on any part of the
taxpayer's property prior to such expiration and if the extension is
agreed upon in writing prior to a release of the levy under the
provisions of section 6343. An extension under this subdivision has the
same effect as an agreement made prior to the expiration of the period
of limitation on collection after assessment, and during the period of
the extension collection may be enforced as to all property or rights to
property owned by the taxpayer whether or not seized under the levy
which was released.
(iii) Any period agreed upon under the provisions of this
subparagraph may be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
(3) If a proceeding in court for the collection of a tax is begun
within the period provided in paragraph (a)(1) of this section (or
within any extended period as provided in paragraph (a)(2) of this
section), the period during which the tax may be collected by levy is
extended until the liability for the tax or a judgment against the
taxpayer arising from the liability is satisfied or becomes
unenforceable.
(b) Date when levy is considered made. The date on which a levy on
property or rights to property is made is the date on which the notice
of seizure provided in section 6335(a) is given.
(c) Effective dates. (1) Paragraph (a)(1) of this section shall
apply to --
(i) Taxes assessed after November 5, 1990; and
(ii) Taxes assessed on or before November 5, 1990, if the period
prescribed in section 6502 of the Internal Revenue Code of 1986
(determined without regard to the amendments made by the Omnibus Budget
Reconciliation Act of 1990) for the collection of such taxes has not
expired as of such date.
(2) Paragraph (a)(3) of this section shall apply to levies issued
after November 10, 1988.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 8391, 57 FR 4938, Feb.
11, 1992; 57 FR 10290, Mar. 25, 1992)
26 CFR 301.6503(a)-1 Suspension of running of period of limitation;
issuance of statutory notice of deficiency.
(a) General rule. (1) Upon the mailing of a notice of deficiency for
income, estate, gift, chapter 41, 42, 43, or 44 tax under the provisions
of section 6212, the period of limitation on assessment and collection
of any deficiency is suspended for 90 days after the mailing of a notice
of such deficiency if the notice of deficiency is addressed to a person
within the States of the Union and the District of Columbia, or 150 days
if such notice of deficiency is addressed to a person outside the States
of the Union and the District of Columbia (not counting Saturday,
Sunday, or a legal holiday in the District of Columbia as the 90th or
150th day), plus an additional 60 days thereafter in either case. If a
proceeding in respect of the deficiency is placed on the docket of the
Tax Court, the period of limitation is suspended until the decision of
the Tax Court becomes final, and for an additional 60 days thereafter.
If a notice of deficiency is mailed to a taxpayer within the period of
limitation and the taxpayer does not appeal therefrom to the Tax Court,
the notice of deficiency so given does not suspend the running of the
period of limitation with respect to any additional deficiency shown to
be due in a subsequent deficiency notice.
(2) This paragraph may be illustrated by the following example:
Example. A taxpayer filed a return for the calendar year 1973 on
April 15, 1974; the notice of deficiency was mailed to him (at an
address within the United States) on April 15, 1977; and he filed a
petition with the Tax Court on July 14, 1977. The decision of the Tax
Court became final on November 6, 1978. The running of the period of
limitation for assessment is suspended from April 15, 1977, to January
5, 1979, which date is 60 days after the date (November 6, 1978), on
which the decision became final. If in this example the taxpayer had
failed to file a petition with the Tax Court, the running of the period
of limitation for assessment would then be suspended from April 15, 1977
(the date of notice), to September 12, 1977 (that is, for the 90-day
period in which he could file a petition with the Tax Court, and for 60
days thereafter).
(3) For provisions relating to suspension of the running of the
period of limitation with respect to collection of ''second tier''
excise taxes (as defined in section 4963) until final resolution of a
refund proceeding described in sections 4961 and 7422 for the
determination of the taxpayer's liability for the second tier taxes, see
53.4961-2 (e) (4).
(b) Corporations joining in consolidated return. If a notice under
section 6212(a) with respect to a deficiency in tax imposed by subtitle
A of the Code for any taxable year is mailed to a corporation, the
suspension of the running of the period of limitation provided in
section 6503(a)(1) shall apply in the case of corporations with which
such corporation made a consolidated income tax return for such taxable
year. Under 1.1502-77(a) of this chapter (Income Tax Regulations),
relating to consolidated returns, notices of deficiency are mailed only
to the common parent.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7244, 37 FR 28898,
Dec. 30, 1972; T.D. 7838, 47 FR 44251, Oct. 7, 1982; T.D. 8084, 51 FR
16305, May 2, 1986)
26 CFR 301.6503(b)-1 Suspension of running of period of limitation;
assets of taxpayer in control or custody of court.
Where all or substantially all of the assets of a taxpayer are in the
control or custody of the court in any proceeding before any court of
the United States, or of any State of the United States, or of the
District of Columbia, the period of limitations on collection after
assessment prescribed in section 6502 is suspended with respect to the
outstanding amount due on the assessment for the period such assets are
in the control or custody of the court, and for 6 months thereafter. In
the case of an estate of a decedent or an incompetent, the period of
limitations on collection is suspended only for periods beginning after
November 2, 1966, during which assets are in the control or custody of a
court, and for 6 months thereafter.
(T.D. 7121, 36 FR 10782, June 3, 1971)
26 CFR 301.6503(c)-1 Suspension of running of period of limitation;
location of property outside the United States or removal of property
from the United States; taxpayer outside of United States.
(a) Property located outside, or removed from, the United States
prior to November 3, 1966. The running of the period of limitations on
collection after assessment prescribed in section 6502 is suspended for
the period of time, prior to November 3, 1966, that collection is
hindered or delayed because property of the taxpayer is situated or held
outside the United States or is removed from the United States. The
total suspension of time under this provision shall not in the aggregate
exceed 6 years. In any case in which the district director determines
that collection is so hindered or delayed, he shall make and retain in
the files of his office a written report which shall identify the
taxpayer and the tax liability, shall show what steps were taken to
collect the tax liability, shall state the grounds for his determination
that property of the taxpayer is situated or held outside, or is removed
from, the United States, and shall show the date on which it was first
determined that collection was so hindered or delayed. The term
''property'' includes all property or rights to property, real or
personal, tangible or intangible, belonging to the taxpayer. The
suspension of the running of the period of limitations on collection
shall be considered to begin on the date so determined by the district
director. A copy of the report shall be mailed to the taxpayer at his
last known address.
(b) Taxpayer outside United States after November 2, 1966. The
running of the period of limitations on collection after assessment
prescribed in section 6502 (relating to collection after assessment) is
suspended for the period after November 2, 1966, during which the
taxpayer is absent from the United States if such period is a continuous
period of absence from the United States extending for 6 months or more.
In a case where the running of the period of limitations has been
suspended under the first sentence of this paragraph and at the time of
the taxpayer's return to the United States the period of limitations
would expire before the expiration of 6 months from the date of his
return, the period of limitations shall not expire until after 6 months
from the date of the taxpayer's return. The taxpayer will be deemed to
be absent from the United States for purposes of this section if he is
generally and substantially absent from the United States, even though
he makes casual temporary visits during the period.
(T.D. 7121, 36 FR 10782, June 3, 1971)
26 CFR 301.6503(d)-1 Suspension of running of period of limitation;
extension of time for payment of estate tax.
Where an estate is granted an extension of time as provided in
section 6161 (a)(2) or (b)(2), or under the provisions of section 6166,
for payment of any estate tax, the running of the period of limitations
for collection of such tax is suspended for the period of time for which
the extension is granted.
26 CFR 301.6503(e)-1 Suspension of running of period of limitation;
certain powers of appointment.
Where the estate of a decedent is allowed an estate tax charitable
deduction under the provisions of section 2055(b)(2) (with respect to
property over which the decedent's surviving spouse was given a power of
appointment exercisable in favor of charitable organizations) subject to
the later disallowance of the deduction if all conditions set forth in
section 2055(b)(2) are not complied with, the running of the period of
limitation for assessment or collection of any estate tax imposed on the
decedent's estate is suspended until 30 days after the expiration of the
period for assessment or collection of the estate tax imposed on the
estate of the decedent's surviving spouse.
26 CFR 301.6503(f)-1 Suspension of running of period of limitation;
wrongful seizure of property of third party.
The running of the period of limitations on collection after
assessment prescribed in section 6502 (relating to collection after
assessment) shall be suspended for a period equal to a period beginning
on the date property (including money) is wrongfully seized or received
by a district director and ending on the date 30 days after the date on
which the district director returns the property pursuant to section
6343(b) (relating to authority to return property) or the date 30 days
after the date on which a judgment secured pursuant to section 7426
(relating to civil actions by persons other than taxpayers) with respect
to such property becomes final. The running of the period of
limitations on collection after assessment shall be suspended under this
section only with respect to the amount of such assessment which is
equal to the amount of money or the value of specific property returned.
This section applies in the case of property wrongfully seized or
received after November 2, 1966.
Example. On June 1, 1968 (at which time 10 months remain before the
period of limitations on collection after assessment will expire), the
district director wrongfully seizes $1,000 in B's account in Bank X and
properly seizes $500 in taxpayer A's account in Bank Y in an attempt to
satisfy A's assessed tax liability of $1,500. The district director
determines that the $1,000 seized in Bank X was not the property of
taxpayer A and, on March 1, 1969, he returns the $1,000 to B. As a
result of the wrongful seizure, the running of the period of limitations
on collection after assessment of the amount owed by taxpayer A is
suspended for the 9-month period (beginning June 1, 1968, when the money
was wrongfully seized and ending March 1, 1969, when the money was
returned to B), plus 30 days. Therefore, the period of limitations on
collection after assessment prescribed in section 6502 will not expire
until February 1, 1970, which is 10 months plus 30 days after the money
was returned.
(T.D. 7121, 36 FR 10783, June 3, 1971. Redesignated by T.D. 7838, 47
FR 44252, Oct. 7, 1982)
26 CFR 301.6503(g)-1 Suspension pending correction.
The running of the periods of limitations provided in sections 6501
and 6502 on the making of assessments, the collection by levy, or a
proceeding in court in respect of any tax imposed by chapter 42 or
section 507, 4971, or 4975 shall be suspended for any period described
in section 507(g)(2) or during which the Commissioner has extended the
time for making correction under section 4963(e)(1)(B).
(T.D. 7838, 47 FR 44252, Oct. 7, 1982, as amended by T.D. 8084, 51 FR
16305, May 2, 1986)
26 CFR 301.6503(g)-1 Limitations on Credit or Refund
26 CFR 301.6511(a)-1 Period of limitation on filing claim.
(a) In the case of any tax (other than a tax payable by stamp):
(1) If a return is filed, a claim for credit or refund of an
overpayment must be filed by the taxpayer within 3 years from the time
the return was filed or within 2 years from the time the tax was paid,
whichever of such periods expires the later.
(2) If no return is filed, the claim for credit or refund of an
overpayment must be filed by the taxpayer within 2 years from the time
the tax was paid.
(b) In the case of any tax payable by means of a stamp, a claim for
credit or refund of an overpayment of such tax must be filed by the
taxpayer within 3 years from the time the tax was paid. For provisions
relating to redemption of unsued stamps, see section 6805.
(c) For limitations on allowance of credit or refund, special rules,
and exceptions, see subsections (b) through (e) of section 6511. For
limitations in the case of a petition to the Tax Court, see section
6512. For rules as to time return is deemed filed and tax considered
paid, see section 6513.
26 CFR 301.6511(b)-1 Limitations on allowance of credits and refunds.
(a) Effect of filing claim. Unless a claim for credit or refund of
an overpayment is filed within the period of limitation prescribed in
section 6511(a), no credit or refund shall be allowed or made after the
expiration of such period.
(b) Limit on amount to be credited or refunded. (1) In the case of
any tax (other than a tax payable by stamp):
(i) If a return was filed, and a claim is filed within 3 years from
the time the return was filed, the amount of the credit or refund shall
not exceed the portion of the tax paid within the period, immediately
preceding the filing of the claim, equal to 3 years plus the period of
any extension of time for filing the return.
(ii) If a return was filed, and a claim is filed after the 3-year
period described in subdivision (i) of this subparagraph but within 2
years from the time the tax was paid, the amount of the credit or refund
shall not exceed the portion of the tax paid within the 2 years
immediately preceding the filing of the claim.
(iii) If no return was filed, but a claim is filed, the amount of the
credit or refund shall not exceed the portion of the tax paid within the
2 years immediately preceding the filing of the claim.
(iv) If no claim is filed, the amount of the credit or refund allowed
or made by the district director or the director of the regional service
center shall not exceed the amount that would have been allowable under
the preceding subdivisions of this subparagraph if a claim had been
filed on the date the credit or refund is allowed.
(2) In the case of a tax payable by stamp:
(i) If a claim is filed, the amount of the credit or refund shall not
exceed the portion of the tax paid within the 3 years immediately
preceding the filing of the claim.
(ii) If no claim is filed, the amount of the credit or refund allowed
or made by the district director or the director of the regional service
center shall not exceed the portion of the tax paid within the 3 years
immediately preceding the allowance of the credit or refund.
For provisions relating to redemption of unused stamps, see section
6805.
26 CFR 301.6511(c)-1 Special rules applicable in case of extension of
time by agreement.
(a) Scope. If, within the period prescribed in section 6511(a) for
the filing of a claim for credit or refund, an agreement extending the
period for assessment of a tax has been made in accordance with the
provisions of section 6501(c)(4), the special rules provided in this
section become applicable. This section shall not apply to any claim
filed, or credit or refund allowed if no claim is filed, either (1)
prior to the execution of an agreement extending the period in which
assessment may be made, or (2) more than 6 months after the expiration
of the period within which an assessment may be made pursuant to the
agreement or any extension thereof.
(b) Period in which claim may be filed. Claim for credit or refund
of an overpayment may be filed, or credit or refund may be allowed if no
claim is filed, at any time within which an assessment may be made
pursuant to an agreement, or any extension thereof, under section
6501(c)(4), and for 6 months thereafter.
(c) Limit on amount to be credited or refunded. (1) If a claim is
filed within the time prescribed in paragraph (b) of this section, the
amount of the credit or refund allowed or made shall not exceed the
portion of the tax paid after the execution of the agreement and before
the filing of the claim, plus the amount that could have been properly
credited or refunded under the provisions of section 6511(b)(2) if a
claim had been filed on the date of the execution of the agreement.
(2) If no claim is filed, the amount of credit or refund allowed or
made within the time prescribed in paragraph (b) of this section shall
not exceed the portion of the tax paid after the execution of the
agreement and before the making of the credit or refund, plus the amount
that could have been properly credited or refunded under the provisions
of section 6511(b)(2) if a claim had been filed on the date of the
execution of the agreement.
(d) Effective date of agreement. The agreement referred to in this
section shall become effective when signed by the taxpayer and the
district director or an assistant regional commissioner.
26 CFR 301.6511(d)-1 Overpayment of income tax on account of bad debts,
worthless securities, etc.
(a)(1) If the claim for credit or refund relates to an overpayment of
income tax on account of --
(i) The deductibility by the taxpayer, under section 166 or section
832(c), of a debt as a debt which became worthless, or, under section
165(g), of a loss from the worthlessness of a security, or
(ii) The effect that the deductibility of a debt or loss described in
subdivision (i) of this subparagraph has on the application to the
taxpayer of a carryover, then in lieu of the 3-year period from the time
the return was filed in which claim may be filed or credit or refund
allowed, as prescribed in section 6511 (a) or (b), the period shall be 7
years from the date prescribed by law for filing the return (determined
without regard to any extension of time for filing such return) for the
taxable year for which the claim is made or the credit or refund allowed
or made.
(2) If the claim for credit or refund relates to an overpayment on
account of the effect that the deductibility of a debt or loss,
described in subparagraph (1) of this paragraph (a), has on the
application to the taxpayer of a net operating loss carryback provided
in section 172(b), the period in which claim for credit or refund may be
filed shall be whichever of the following two periods expires later:
(i) Seven years from the last date prescribed for filing the return
(determined without regard to any extension of time for filing such
return) for the taxable year of the net operating loss which results in
such carryback, or
(ii) The period which ends with the expiration of the period
prescribed in section 6511(c) within which a claim for credit or refund
may be filed with respect to the taxable year of the net operating loss
which resulted in the carryback.
(3) In the case of a claim for credit or refund involving items
described in this section, the amount of the credit or refund may exceed
the portion of the tax paid within the period provided in section 6511
(b)(2) or (c), whichever is applicable, to the extent of the amount of
the overpayment attributable to the deductibility of items described in
subparagraph (1) of this paragraph (a). If the claim involves an
overpayment based not only on the deductibility of items described in
subparagraph (1) of this paragraph (a), but based also on other items,
the credit or refund cannot exceed the sum of the following:
(i) The amount of the overpayment which is attributable to the
deductibility of items described in subparagraph (1) of this paragraph
(a), and
(ii) The balance of such overpayment up to a limit of the portion, if
any, of the tax paid within the period provided in section 6511 (b)(2)
or (c), or within the period provided in any other applicable provision
of law.
(4) If the claim involves an overpayment based not only on the
deductibility of items described in subparagraph (1) of this paragraph
(a), but based also on other items, and if the claim with respect to any
items is barred by the expiration of any applicable period of
limitation, the portion of the overpayment attributable to the items not
so barred shall be determined by treating the allowance of such items as
the first adjustment to be made in computing such overpayment.
(b) If a claim for credit or refund is not filed within the
applicable period described in paragraph (a) of this section, then
credit or refund may be allowed or made only if claim therefor is filed
or if such credit or refund is allowed within any period prescribed in
section 6511 (a), (b), or (c), whichever is applicable, subject to the
provisions thereof limiting the amount of credit or refund in the case
of a claim filed, or, if no claim was filed, in the case of credit or
refund allowed within such applicable period as prescribed in section
6511 (b) or (c).
(c) The provisions of this section and section 6511(d)(1) do not
apply to an overpayment resulting from the deductibility of a debt that
became partially worthless during the taxable year, but only to an
overpayment resulting from the deductibility of a debt which became
entirely worthless during such year.
(d) The provisions of paragraph (a) of this section with regard to an
overpayment caused by the deductibility of a bad debt under section 166
or section 832(c), or of a loss from the worthlessness of a security
under section 165(g), are likewise applicable to an overpayment caused
by the effect that the deductibility of such bad debt or loss has on the
application to the taxpayer of a carryover or of a carryback.
26 CFR 301.6511(d)-2 Overpayment of income tax on account of net
operating loss or capital loss carrybacks.
(a) Special period of limitation. (1) If the claim for credit or
refund relates to an overpayment of income tax attributable to a net
operating loss carryback (provided in section 172(b)), or a capital loss
carryback (provided in section 1212(a)), then in lieu of the 3-year
period from the time the return was filed in which the claim may be
filed or credit or refund allowed, as prescribed in section 6511 (a) or
(b), the period shall be whichever of the following two periods expires
later:
(i) The period which ends with the expiration of the 15th day of the
40th month (or 39th month, in the case of a corporation) following the
end of the taxable year of the net operating loss or net capital loss
which resulted in the carryback; or
(ii) The period which ends with the expiration of the period
prescribed in section 6511(c) within which a claim for credit or refund
may be filed with respect to the taxable year of the net operating loss
or net capital loss which resulted in the carryback except that --
(a) With respect to an overpayment attributable to a net operating
loss carryback to any year on account of a certification issued to the
taxpayer under section 317 of the Trade Expansion Act of 1962, the
period shall not expire before the expiration of the sixth month
following the month in which such certification is issued to the
taxpayer, and
(b) With respect to an overpayment attributable to the creation of,
or an increase in, a net operating loss as a result of the elimination
of excessive profits by a renegotiation (as defined in section
1481(a)(1)(A)), the period shall not expire before September 1, 1959, or
the expiration of the 12th month following the month in which the
agreement or order for the elimination of such excessive profits becomes
final, whichever is the later.
(2) In the case of a claim for credit or refund involving a net
operating loss or capital loss carryback described in subparagraph (1)
of this paragraph (a), the amount of the credit or refund may exceed the
portion of the tax paid within the period provided in section 6511
(b)(2) or (c), whichever is applicable, to the extent of the amount of
the overpayment attributable to the carryback. If the claim involves an
overpayment based not only on a net operating loss or capital loss
carryback described in subparagraph (1) of this paragraph (a), but based
also on other items, the credit or refund cannot exceed the sum of the
following:
(i) The amount of the overpayment which is attributable to the net
operating loss or capital loss carryback, and
(ii) The balance of such overpayment up to a limit of the portion, if
any, of the tax paid within the period provided in section 6511 (b)(2)
or (c), or within the period provided in any other applicable provision
of law.
(3) If the claim involves an overpayment based not only on a net
operating loss or capital loss carryback described in subparagraph (1)
of this paragraph (a), but based also on other items, and if the claim
with respect to any items is barred by the expiration of any applicable
period of limitation, the portion of the overpayment attributable to the
items not so barred shall be determined by treating the allowance of
such items as the first adjustment to be made in computing such
overpayment. If a claim for credit or refund is not filed, and if
credit or refund is not allowed, within the period prescribed in this
paragraph, then credit or refund may be allowed or made only if claim
therefor is filed, or if such credit or refund is allowed, within the
period prescribed in section 6511 (a), (b), or (c), whichever is
applicable, subject to the provisions thereof limiting the amount of
credit or refund in the case of a claim filed, or if no claim was filed,
in case of credit or refund allowed, within such applicable period. For
the limitations on the allowance of interest for an overpayment where
credit or refund is subject to the provisions of this section, see
section 6611(f).
(b)(1) Barred overpayments. If the allowance of a credit or refund
of an overpayment of tax attributable to a net operating loss carryback
or capital loss carryback is otherwise prevented by the operation of any
law or rule of law (other than section 7122, relating to compromises),
such credit or refund may be allowed or made under the provisions of
section 6511(d)(2)(B) if a claim therefor is filed within the period
provided by section 6511(d)(2)(A) and paragraph (a) of this section for
filing a claim for credit or refund of an overpayment attributable to a
carryback. Similarly, if the allowance of an application, credit, or
refund of a decrease in the tax determined under section 6411(b) is
otherwise prevented by the operation of any law or rule of law (other
than section 7122), such application, credit, or refund may be allowed
or made if an application for a tentative carryback adjustment is filed
within the period provided in section 6411(a). Thus, for example, even
though the tax liability (not including the net operating loss deduction
or capital loss carryback (or the effect of such deduction or
carryback)) for a given taxable year has previously been litigated
before the Tax Court, credit or refund of an overpayment may be allowed
or made despite the provisions of section 6512(a), if claim for such
credit or refund is filed within the period provided in section
6511(d)(2)(A) and paragraph (a) of this section. In the case of a claim
for credit or refund of an overpayment attributable to a carryback, or
in the case of an application for a tentative carryback adjustment, the
determination of any court, including the Tax Court, in any proceeding
in which the decision of the court has become final, shall be conclusive
except with respect to the net operating loss deduction, and the effect
of such deduction, or with respect to the determination of a short-term
capital loss, and the effect of such short-term capital loss, to the
extent that such deduction or short-term capital loss is affected by a
carryback which was not in issue in such proceeding.
(2) For purposes of the special period of limitation for filing a
claim for credit or refund of an overpayment of tax with respect to a
computation year (as defined in section 1302(c)(1)) by an individual who
has chosen to compute his tax under sections 1301 through 1305 (relating
to income averaging), such claim is determined to relate to an
overpayment attributable to a net operating loss carryback when such
carryback relates to any base period year (as defined in section
1302(c)(3)). Thus, if (i) an individual has a net operating loss for a
taxable year subsequent to a taxable year for which he had chosen the
benefits of income averaging, and (ii) such net operating loss carryback
is wholly utilized in any one or more of his base period years (which
would result in an increased amount of averageable income for such
computation year), the special period of limitation with respect to such
individual's computation year applies and a timely claim for credit or
refund with respect to the computation year may be filed.
(T.D. 7196, 37 FR 13691, July 13, 1972, and T.D. 7301, 39 FR 976,
Jan. 4, 1974)
26 CFR 301.6511(d)-3 Special rules applicable to credit against income
tax for foreign taxes.
(a) Period in which claim may be filed. In the case of an
overpayment of income tax resulting from a credit, allowed under the
provisions of section 901 or under the provisions of any treaty to which
the United States is a party, for taxes paid or accrued to a foreign
country or possession of the United States, a claim for credit or refund
must be filed by the taxpayer within 10 years from the last date
prescribed for filing the return (determined without regard to any
extension of time for filing such return) for the taxable year with
respect to which the claim is made. Such 10-year period shall be
applied in lieu of the 3-year period prescribed in section 6511(a).
(b) Limit on amount to be credited or refunded. In the case of a
claim described in paragraph (a) of this section, the amount of the
credit or refund allowed or made may exceed the portion of the tax paid
within the period prescribed in section 6511 (b) or (c), whichever is
applicable, to the extent of the amount of the overpayment attributable
to the allowance of a credit against income tax referred to in paragraph
(a) of this section.
26 CFR 301.6511(d)-4 Overpayment of income tax on account of investment
credit carryback.
(a) Special period of limitation. (1) If the claim for credit or
refund relates to an overpayment of income tax attributable to an
investment credit carryback, provided in section 46(b), then in lieu of
the 3-year period from the time the return was filed in which the claim
may be filed or credit or refund allowed, as prescribed in section 6511
(a) or (b), the period shall be whichever of the following 2 periods
expires later:
(i) The period which ends with the expiration of the 15th day of the
40th month (or 39th month, in the case of a corporation) following the
end of the taxable year of the unused investment credit which resulted
in the carryback (or, with respect to any portion of an investment
credit carryback from a taxable year attributable to a net operating
loss carryback or a capital loss carryback from a subsequent taxable
year, the period which ends with the expiration of the 15th day of the
40th month (or 39th month, in the case of a corporation) following the
end of such subsequent taxable year); or
(ii) The period which ends with the expiration of the period
prescribed in section 6511(c) within which a claim for credit or refund
may be filed with respect to the taxable year of the unused investment
credit which resulted in the carryback.
(2) In the case of a claim for credit or refund involving an
investment credit carryback described in subparagraph (1) of this
paragraph, the amount of the credit or refund may exceed the portion of
the tax paid within the period provided in section 6511 (b)(2) or (c),
whichever is applicable, to the extent of the amount of the overpayment
attributable to the carryback. If the claim involves an overpayment
based not only on an investment credit carryback described in
subparagraph (1) of this paragraph (a), but based also on other items,
the credit or refund cannot exceed the sum of the following:
(i) The amount of the overpayment which is attributable to the
investment credit carryback, and
(ii) The balance of such overpayment up to a limit of the portion, if
any, of the tax paid within the period provided in section 6511 (b)(2)
or (c), or within the period provided in any other applicable provision
of law.
(3) If the claim involves an overpayment based not only on an
investment credit carryback described in subparagraph (1) of this
paragraph (a), but based also on other items, and if the claim with
respect to any items is barred by the expiration of any applicable
period of limitation, the portion of the overpayment attributable to the
items not so barred shall be determined by treating the allowance of
such items as the first adjustment to be made in computing such
overpayment. If a claim for credit or refund is not filed, and if
credit or refund is not allowed, within the period prescribed in this
paragraph, then credit or refund may be allowed or made only if claim
therefor is filed, or if such credit or refund is allowed, within the
period prescribed in section 6511 (a), (b), or (c), whichever is
applicable, subject to the provisions thereof limiting the amount of
credit or refund in the case of a claim filed, or if no claim was filed,
in case of credit or refund allowed, within such applicable period. For
the limitations on the allowance of interest for an overpayment where
credit or refund is subject to the provisions of this section, see
section 6611(f).
(b) Barred overpayments. If the allowance of a credit or refund of
an overpayment of tax attributable to an investment credit carryback is
otherwise prevented by the operation of any law or rule of law (other
than section 7122, relating to compromises), such credit or refund may
be allowed or made under the provisions of section 6511(d)(4)(B) if a
claim therefor is filed within the period provided by section
6511(d)(4)(A) and paragraph (a) of this section for filing a claim for
credit or refund of an overpayment attributable to a carryback. In the
case of a claim for credit or refund of an overpayment attributable to a
carryback, the determination of any court, including the Tax Court, in
any proceeding in which the decision of the court has become final,
shall not be conclusive with respect to the investment credit, and the
effect of such credit, to the extent that such credit is affected by a
carryback which was not in issue in such proceeding.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 977, Jan.
4, 1974)
26 CFR 301.6511(d)-7 Overpayment of income tax on account of work
incentive program credit carryback.
(a) Special period of limitation. (1) If the claim for credit or
refund related to an overpayment of income tax attributable to a work
incentive program (WIN) credit carryback, provided in section 50A, then
in lieu of the 3-year period from the time the return was filed in which
the claim may be filed or credit or refund allowed, as prescribed in
section 6511 (a) or (b), the period shall be whichever of the following
2 periods expires later:
(i) The period which ends with the expiration of the fifteenth day of
the fortieth month (or thirty-ninth month, in the case of a corporation)
following the end of the taxable year of the unused WIN credit which
resulted in the carryback (or, with respect to any portion of a WIN
credit carryback from a taxable year attributable to a net operating
loss carryback or a capital loss carryback from a subsequent taxable
year, the period which ends with the expiration of the fifteenth day of
the fortieth month (or thirty-ninth month in the case of a corporation)
following the end of such subsequent taxable year); or
(ii) The period which ends with the expiration of the period
prescribed in section 6511(c) within which a claim for credit or refund
may be filed with respect to the taxable year of the unused WIN credit
which resulted in the carryback.
(2) In the case of a claim for credit or refund involving a WIN
credit carryback described in paragraph (a)(1) of this section, the
amount of the credit or refund may exceed the portion of the tax paid
within the period provided in section 6511 (b)(2) or (c), whichever is
applicable, to the extent of the amount of the overpayment attributable
to the carryback. If the claim involves an overpayment based not only
on a WIN credit carryback described in paragraph (a)(1) of this section
but based also on other items, the credit or refund cannot exceed the
sum of the following:
(i) The amount of the overpayment which is attributable to the WIN
credit carryback, and
(ii) The balance of such overpayment up to a limit of the portion, if
any, of the tax paid within the period provided in section 6511 (b)(2)
or (c), or within the period provided in any other applicable provision
of law.
(3) If the claim involves an overpayment based not only on a WIN
credit carryback described in paragraph (a) (1) of this section but
based also on other items, and if the claim with respect to any items is
barred by the expiration of any applicable period of limitation, the
portion of the overpayment attributable to the items not so barred shall
be determined by treating the allowance of such items as the first
adjustment to be made in computing such overpayment. If a claim for
credit or refund is not filed, and if credit or refund is not allowed,
within the period prescribed in this paragraph, then credit or refund
may be allowed or made only if claim therefor is filed, or if such
credit or refund is allowed, within the period prescribed in section
6511 (a), (b), or (c), whichever is applicable, subject to the
provisions thereof limiting the amount of credit or refund in the case
of a claim filed, or if no claim was filed, in case of credit or refund
allowed, within such applicable period. For the limitations on the
allowance of interest for an overpayment where credit or refund is
subject to the provisions of this section, see section 6611(f).
(b) Barred overpayments. If the allowance of a credit or refund of
an overpayment of tax attributable to a WIN credit carryback is
otherwise prevented by the operation of any law or rule of law (other
than section 7122, relating to compromises), such credit or refund may
be allowed or made under the provisions of section 6511(d)(7)(B) if a
claim therefor is filed within the period provided by section
6511(d)(7)(A) and paragraph (a) of this section for filing a claim for
credit or refund of an overpayment attributable to a carryback. In the
case of a claim for credit or refund of an overpayment attributable to a
carryback, the determination of any court, including the Tax Court, in
any proceeding in which the decision of the courts has become final,
shall not be conclusive with respect to the WIN credit, and the effect
of such credit, to the extent that such credit is affected by a
carryback which was not in issue in such proceeding.
(T.D. 7301, 39 FR 977, Jan. 4, 1974; 39 FR 2758, Jan. 24, 1974)
26 CFR 301.6511(e)-1 Special rules applicable to manufactured sugar.
(a) Use as livestock feed and for distillation of alcohol. No
payment shall be allowed or made under section 6418 (a) unless within 2
years after the date the right to such payment has accrued a claim
therefor is filed by the person entitled thereto. Such right accrues as
of the date the manufactured sugar, or article manufactured therefrom,
is used for a purpose for which payment is allowable under section
6418(a).
(b) Exportation. No payment shall be allowed or made under section
6418 (b) unless within 2 years after the date the right to such payment
has accrued a claim therefor is filed by the person entitled thereto.
Such right accrues as of the date the articles are exported.
26 CFR 301.6511(f)-1 Special rules for chapter 42 taxes.
(a) In general. Claims for credit or refund of an overpayment of any
tax imposed by chapter 42 shall be filed by the taxpayer within 3 years
from the time a return was filed by the private foundation or trust (as
the case may be) with respect to such tax, or within 2 years from the
time the tax was paid, whichever of such periods expire the later.
(b) Examples. This section may be illustrated by the following
examples:
Example 1. In 1972, D, an individual taxpayer who was a disqualified
person under the provisions of section 4946(a)(1), participated in an
act of self-dealing with a private foundation and incurred a tax under
section 4941(a)(1). The private foundation files a Form 990-PF on May
15, 1973, and discloses thereon that it has engaged in an act of
self-dealing with D. D files a Form 4720 on July 2, 1973, and pays the
amount of tax imposed by section 4941(a) with respect to such act of
self-dealing. For purposes of this section, the return was filed on May
15, 1973, and any claim for credit or refund by D must be filed by May
17, 1976 (May 15, 1976, was a Saturday).
Example 2. Assume the same facts as in example 1 except that D filed
a Form 4720 on July 1, 1974, and pays the tax on that date. D must then
file any claim for credit or refund by July 1, 1976.
(T.D. 7838, 47 FR 44252, Oct. 7, 1982)
26 CFR 301.6511(g)-1 Special rule for partnership items of federally
registered partnerships.
(a) In general. In the case of any tax imposed by subtitle A with
respect to any person, the period for filing a claim for credit or
refund of any overpayment attributable to any partnership item of a
federally registered partnership shall not expire before the later of --
(1) The date which is 4 years after the date prescribed by law
(including extensions thereof) for filing the partnership return for the
partnership taxable year in which the item arose, or
(2) If the taxpayer or a general partner or a person authorized to
act on behalf of the partnership, as provided in 301.6501(o)-2(d),
consents to extend the period for assessing a deficiency attributable to
the partnership item before the date specified in paragraph (a)(1) of
this section, the date 6 months after the expiration of the extension.
(b) Limits on amount of credit or refund not applicable. In the case
of a claim for credit or refund of any income tax overpayment
attributable to any partnership item of a federally registered
partnership, the limitations provided in section 6511(b) (2) and (c)
shall not apply if the claim is filed within the period described in
paragraph (a) of this section.
(c) Special periods of limitation with respect to carryback of net
operating loss, capital loss, etc. The provisions of section 6511(g)
must also be taken into account in applying the various special periods
of limitation prescribed in section 6511(d). Thus, to the extent that a
carryback is attributable to a partnership item of a federally
registered partnership, the period for filing a claim for credit or
refund of an overpayment attributable to that carryback shall not expire
before the date determined under paragraph (a) of this section with
respect to the partnership taxable year in which the item arose.
(d) Definitions. For purposes of this section, the terms
''partnership item'' and ''federally registered partnership'' have the
same meaning as such terms have when used in section 6501(o),
301.6501(o)-2(c), and 301.6501(o)-3.
(e) Effective date. The provisions of this section are effective
generally for partnership items arising in partnership taxable years
beginning after December 31, 1978 and before September 4, 1982. This
section shall not apply, however, to any partnership taxable year with
respect to which the amendments made to Code section 6511(g) by section
402 of the Tax Equity and Fiscal Responsibility Act of 1982 are
effective. See section 407(a)(3) of that Act.
(Sec. 6501(o) (as it read before the enactment of the Tax Equity and
Fiscal Responsibility Act of 1982) and 7805 of the Internal Revenue Code
of 1954 (92 Stat. 2818, 26 U.S.C. 6501(o); 68A Stat. 917, 26 U.S.C.
7805))
(T.D. 7884, 48 FR 16244, Apr. 15, 1983)
26 CFR 301.6512-1 Limitations in case of petition to Tax Court.
(a) Effect of petition to Tax Court -- (1) General rule. If a person
having a right to file a petition with the Tax Court with respect to a
deficiency in income, estate, gift, or excise tax imposed by subtitle A
or B, or chapter 41, 42, 43, or 44 of the Code has filed such petition
within the time prescribed in section 6213(a), no credit or refund of
income tax for the same taxable year, of gift tax for the same calendar
year or calendar quarter, of estate tax in respect of the taxable estate
of the same decedent, or of tax imposed by chapter 41, 42, 43, or 44
with respect to any act (or failure to act) to which such petition
relates, in respect of which a district director or director of a
service center (or a regional director of appeals) has determined the
deficiency, shall be allowed or made, and no suit in any court for the
recovery of any part of such tax shall be instituted by the taxpayer,
except as to items set forth in paragraph (a)(2) of this section.
(2) Exceptions. The exceptions to the rule stated in subparagraph
(1) of this paragraph (a), are as follows:
(i) An overpayment determined by a decision of the Tax Court which
has become final;
(ii) Any amount collected in excess of an amount computed in
accordance with the decision of the Tax Court which has become final;
and
(iii) Any amount collected after the expiration of the period of
limitation upon levying or beginning a proceeding in court for
collection.
(b) Overpayment determined by Tax Court. If the Tax Court finds that
there is no deficiency and further finds that the taxpayer has made an
overpayment of income tax for the same taxable year, of gift tax for the
same calendar year or calendar quarter, of estate tax in respect of the
taxable estate of the same decedent, or of tax imposed by chapter 41,
42, 43, or 44 with respect to any act (or failure to act) to which such
petition relates, in respect of which a district director, or director
of a service center (or a regional director of appeals) has determined
the deficiency, or finds that there is a deficiency but that the
taxpayer has made an overpayment of such tax, the overpayment determined
by the Tax Court shall be credited or refunded to the taxpayer when the
decision of the Tax Court has become final. (See section 7481, relating
to the date when a Tax Court decision becomes final.) No such credit or
refund shall be allowed or made of any portion of the tax unless the Tax
Court determines as part of its decision that such portion was paid --
(1) After the mailing of the notice of deficiency, or
(2) Within the period which would be applicable under section
6511(b)(2), (c), (d) or (g) (see 301.6511(b)-1. 301.6511(c)-1,
301.6511(d)-1, 301.6511(d)-2, and 301.6511(d)-3), if on the date of the
mailing of the notice of deficiency a claim had been filed (whether or
not filed) stating the grounds upon which the Tax Court finds that there
is an overpayment.
(c) Jeopardy assessments. In the case of a jeopardy assessment made
under section 6861(a), if the amount which should have been assessed as
determined by a decision of the Tax Court which has become final is less
than the amount already collected, the excess payment shall be credited
or refunded subject to a determination being made by the Tax Court with
respect to the time of payment as stated in paragraph (b) of this
section.
(d) Disallowance of deficiency by reviewing court. If the amount of
the deficiency determined by the Tax Court (in a case where collection
has not been stayed by the filing of a bond) is disallowed in whole or
in part by the reviewing court, then the overpayment resulting from such
disallowance shall be credited or refunded without the making of claim
therefor, subject to a determination being made by the Tax Court with
respect to the time of payment as stated in paragraph (b) of this
section. (See section 7481, relating to date Tax Court decision becomes
final.)
(e) Collection in excess of amount determined by Tax Court. Where
the amount collected is in excess of the amount computed in accordance
with the decision of the Tax Court which has become final, the excess
payment shall be credited or refunded within the period of limitation
provided in section 6511.
(f) Collection after expiration of statutory period. Where an amount
is collected after the statutory period of limitation upon the beginning
of levy or a proceeding in court for collection has expired (see section
6502, relating to collection after assessment), the taxpayer may file a
claim for refund of the amount so collected within the period of
limitation provided in section 6511. In any such case, the decision of
the Tax Court as to whether the statutory period upon collection of the
tax expired before notice of the deficiency was mailed shall, when the
decision becomes final, be conclusive.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252,
Oct. 7, 1982)
26 CFR 301.6513-1 Time return deemed filed and tax considered paid.
(a) Early return or advance payment of tax. For purposes of section
6511, a return filed before the last day prescribed by law or
regulations for the filing thereof shall be considered as filed on such
last day. For purposes of section 6511 (b)(2) and (c) and section 6512,
payment of any portion of the tax made before the last day prescribed
for payment shall be considered made on such last day. An extension of
time for filing a return or for paying any tax, or an election to pay
any tax in installments, shall not be given any effect in determining
under this section the last day prescribed for filing a return or paying
any tax.
(b) Prepaid income tax. For purposes of section 6511 (relating to
limitations on credit or refund) or section 6512 (relating to
limitations in case of petition to Tax Court) --
(1) Any tax actually deducted and withheld at the source during any
calendar year under chapter 24 of the Code (relating to collection of
income tax at source on wages) shall, in respect of the recipient of the
income, be deemed to have been paid by him on the 15th day of the fourth
month following the close of his taxable year with respect to which such
tax is allowable as a credit under section 31 (relating to tax withheld
on wages),
(2) Any amount paid as estimated income tax for any taxable year
shall be deemed to have been paid on the last day prescribed for filing
the income tax return under section 6012 for such taxable year
(determined without regard to any extension of time for filing such
return), and
(3) Any tax withheld at the source on or after November 13, 1966,
under chapter 3 of the Code (relating to tax withheld on nonresident
aliens and foreign corporations and tax-free covenant bonds) shall, in
respect of the recipient of the income, be deemed to have been paid by
such recipient on the last day prescribed for filing his income tax
return under section 6012 for the taxable year (determined without
regard to any extension of time for filing such return) with respect to
which such tax is allowable as a credit under section 1462 (relating to
withheld tax as credit to recipient of income).
Subparagraph (3) of this paragraph (b), shall apply even though the
recipient of the income has been granted under section 6012 and the
regulations thereunder an exemption from the requirement of making an
income tax return for the taxable year.
(c) Return and payment of social security taxes and income tax
withholding. Notwithstanding paragraph (a) of this section, if a return
(or payment) on or after November 13, 1966, of tax imposed by chapter 3
of the Code (relating to withholding of tax on nonresident aliens and
foreign corporations and tax-free covenant bonds), or if a return (or
payment) of tax imposed by chapter 21 of the Code (relating to the
Federal Insurance Contributions Act) or by chapter 24 of the Code
(relating to the collection of income tax at source on wages), for any
period ending with or within a calendar year is filed or paid before
April 15 of the succeeding calendar year, for purposes of section 6511
(relating to limitations on credit or refund) the return shall be
considered filed, or the tax considered paid, on April 15 of such
succeeding calendar year.
(d) Overpayment of income tax credited to estimated tax. If a
taxpayer elects under the provisions of section 6402(b) to credit an
overpayment of income tax for a taxable year against estimated tax for
the succeeding taxable year, the amount so credited shall be considered
a payment of income tax for such succeeding taxable year (whether or not
claimed as a credit on the estimated tax return for such succeeding
taxable year). If the treatment of such amount as a payment of income
tax for the succeeding taxable year results in an overpayment for such
succeeding taxable year, the period of limitations applicable to such
overpayment is determined by reference to that taxable year. An
election so to credit an overpayment of income tax precludes the
allowance of a claim for credit or refund of such overpayment for the
taxable year in which the overpayment arises.
26 CFR 301.6514(a)-1 Credits or refunds after period of limitation.
(a) A refund of any portion of any internal revenue tax (or any
interest, additional amount, addition to the tax, or assessable penalty)
shall be considered erroneous and a credit of any such portion shall be
considered void:
(1) If made after the expiration of the period of limitation
prescribed by section 6511 for filing claim therefor, unless prior to
the expiration of such period claim was filed, or
(2) In the case of a timely claim, if the credit or refund was made
after the expiration of the period of limitation prescribed by section
6532(a) for the filing of suit, unless prior to the expiration of such
period suit was begun.
(b) For procedure by the United States to recover erroneous refunds,
see sections 6532(b) and 7405.
26 CFR 301.6514(b)-1 Credit against barred liability.
Any credit against a liability in respect of any taxable year shall
be void if the collection of such liability would be barred by the
applicable statute of limitations at the time such credit is made.
26 CFR 301.6514(b)-1 Mitigation of Effect of Period of Limitations
26 CFR 301.6521-1 Mitigation of effect of limitation in case of related
employee social security tax and self-employment tax.
(a) Section 6521 may be applied in the correction of a certain type
of error involving both the tax on self-employment income under section
1401 and the employee tax under section 3101 if the correction of the
error as to one tax is, on the date the correction is authorized,
prevented in whole or in part by the operation of any law or rule of law
other than section 7122, relating to compromises. Examples of such law
are sections 6212(c), 6401(a), 6501, 6511, 6512(a), 6514, 6532, 6901
(c), (d) and (e), 7121, and 7459(e).
(b) If the liability for either tax with respect to which the error
was made has been compromised under section 7122, the provisions of
section 6521 limiting the correction with respect to the other tax do
not apply.
(c) Section 6521 is not applicable if, on the date of the
authorization, correction of the effect of the error is permissible as
to both taxes without recourse to such section.
(d) If, because an amount of wages, as defined in section 3121(a), is
erroneously treated as self-employment income, as defined in section
1402(b), or an amount of self-employment income is erroneously treated
as wages, it is necessary in correcting the error to assess the correct
tax and give a credit or refund for the amount of the tax erroneously
paid, and if either, but not both, of such adjustments is prevented by
any law or rule of law (other than section 7122), the amount of the
assessment, or the amount of the credit or refund, authorized shall
reflect the adjustment which would be made in respect of the other tax
(either the tax on self-employment income under section 1401 or the
employee tax under section 3101) but for the operation of such law or
rule of law. For example, assume that during 1955 A paid $10 as tax on
an amount erroneously treated as ''wages'', when such amount was
actually self-employment income, and that credit or refund of the $10 is
not barred. A should have paid a self-employment tax of $15 on the
amount. If the assessment of the correct tax, that is, $15, is barred
by the statute of limitations, no credit or refund of the $10 shall be
made without offsetting against such $10 the $15, assessment of which is
barred. Thus, no credit or refund in respect of the $10 can be made.
(e) As another example, assume that during 1955 a taxpayer reports
wages of $4,200 and net earnings from self-employment of $900. By
reason of the limitations of section 1402(b) he shows no self-employment
income. Assume further that by reason of a final decision by the Tax
Court of the United States, further adjustments to the taxpayer's income
tax liability are barred. The question of the amount of his wages, as
defined in section 3121, was not in issue in the Tax Court litigation,
but it is subsequently determined (within the period of limitations
applicable under the Federal Insurance Contributions Act) that $700 of
the $4,200 reported as wages was not for employment as defined in
section 3121(b). Therefore, the taxpayer is entitled to the allowance
of a refund of the $14 tax paid on such remuneration under section 3101.
The reduction of his wages from $4,200 to $3,500 would result in the
determination of $700 self-employment income, the tax on which is $21
for the year. Under section 6521, the overpayment of $14 would be
offset by the barred deficiency of $21, thus eliminating the refund
otherwise allowable. If the facts were changed so that the taxpayer
erroneously paid tax on self-employment income of $700, having been
taxed on only $3,500 as wages, and within the period of limitations
applicable under the Federal Insurance Contributions Act, it is
determined that his wages were $4,200, the tax of $14 under section
3101, otherwise collectible, would be eliminated by offsetting under
section 6521 the barred overpayment of $21. The balance of the barred
overpayment, $7, cannot be credited or refunded.
(f) Another illustration of the operation of section 6521 is the case
of a taxpayer who, for 1955, is erroneously taxed on $2,500 as wages,
the tax on which is $50, and who reports no self-employment income.
After the period of limitations has run on the refund of the tax under
the Federal Insurance Contributions Act, it is determined that the
amount treated as wages should have been reported as net earnings from
self-employment. The taxpayer's self-employment income would then be
$2,500 and the tax thereon would be $75. Assume that the period of
limitations applicable to subtitle A of the Code has not expired, and
that a notice of deficiency may properly be issued. Under section 6521,
the amount of the deficiency of $75 must be reduced by the barred
overpayment of $50.
26 CFR 301.6521-2 Law applicable in determination of error.
The question of whether there was an erroneous treatment of
self-employment income or of wages is determined under the provisions of
law and regulations applicable with respect to the year or other taxable
period as to which the error was made. The fact that the error was in
pursuance of an interpretation, either judicial or administrative,
accorded such provisions of law and regulations at the time the action
involved was taken is not necessarily determinative of this question.
For example, if a later judicial decision authoritatively alters such
interpretation so that such action is contrary to the applicable
provisions of the law and regulations as later interpreted, the error
comes within the scope of section 6521.
26 CFR 301.6521-2 Periods of Limitation in Judicial Proceedings
26 CFR 301.6532-1 Periods of limitation on suits by taxpayers.
(a) No suit or proceeding under section 7422(a) for the recovery of
any internal revenue tax, penalty, or other sum shall be begun until
whichever of the following first occurs:
(1) The expiration of 6 months from the date of the filing of the
claim for credit or refund, or
(2) A decision is rendered on such claim prior to the expiration of 6
months after the filing thereof.
Except as provided in paragraph (b) of this section, no suit or
proceeding for the recovery of any internal revenue tax, penalty, or
other sum may be brought after the expiration of 2 years from the date
of mailing by registered mail prior to September 3, 1958, or by either
registered or certified mail on or after September 3, 1958, by a
district director, a director of an internal revenue service center, or
an assistant regional commissioner to a taxpayer of a notice of
disallowance of the part of the claim to which the suit or proceeding
relates.
(b) The 2-year period described in paragraph (a) of this section may
be extended if an agreement to extend the running of the period of
limitations is executed. The agreement must be signed by the taxpayer
or by an attorney, agent, trustee, or other fiduciary on behalf of the
taxpayer. If the agreement is signed by a person other than the
taxpayer, it shall be accompanied by an authenticated copy of the power
of attorney or other legal evidence of the authority of such person to
act on behalf of the taxpayer. If the taxpayer is a corporation, the
agreement should be signed with the corporate name followed by the
signature of a duly authorized officer of the corporation. The
agreement will not be effective until signed by a district director, a
director of an internal revenue service center, or an assistant regional
commissioner.
(c) The taxpayer may sign a waiver of the requirement that he be
mailed a notice of disallowance. Such waiver is irrevocable and will
commence the running of the 2-year period described in paragraph (a) of
this section on the date the waiver is filed. The waiver shall set
forth:
(1) The type of tax and the taxable period covered by the taxpayer's
claim for refund;
(2) The amount of the claim;
(3) The amount of the claim disallowed;
(4) A statement that the taxpayer agrees the filing of the waiver
will commence the running of the 2-year period provided for in section
6532(a)(1) as if a notice of disallowance had been sent the taxpayer by
either registered or certified mail.
The filing of such a waiver prior to the expiration of 6 months from
the date the claim was filed does not permit the filing of a suit for
refund prior to the time specified in section 6532(a)(1) and paragraph
(a) of this section.
(d) Any consideration, reconsideration, or other action with respect
to a claim after the mailing by registered mail prior to September 3,
1958, or by either registered or certified mail on or after September 3,
1958, of a notice of disallowance or after the execution of a waiver
referred to in paragraph (c) of this section, shall not extend the
period for bringing suit or other proceeding under section 7422(a).
26 CFR 301.6532-2 Periods of limitation on suits by the United States.
The United States may not recover any erroneous refund by civil
action under section 7405 unless such action is begun within 2 years
after the making of such refund. However, if any part of the refund was
induced by fraud or misrepresentation of a material fact, the action to
recover the erroneous refund may be brought at any time within 5 years
from the date the refund was made.
26 CFR 301.6532-3 Periods of limitation on suits by persons other than
taxpayers.
(a) General rule. No suit or proceeding, except as otherwise
provided in section 6532(c)(2) and paragraph (b) of this section, under
section 7426 and 301.7426-1 relating to civil actions by persons other
than taxpayers, shall be begun after the expiration of 9 months from the
date of levy or agreement under section 6325(b)(3) giving rise to such
action.
(b) Period when claim is filed. The 9-month period prescribed in
section 6532(c)(1) and paragraph (a) of this section shall be extended
to the shorter of,
(1) 12 months from the date of filing by a third party of a written
request under 301.6343-1(b)(2) for the return of property wrongfully
levied upon, or
(2) 6 months from the date of mailing by registered or certified mail
by the district director to the party claimant of a notice of
disallowance of the part of the request to which the action relates. A
request which, under 301.6343-1(b)(3), is not considered adequate does
not extend the 9-month period described in paragraph (a) of this
section.
(c) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. On June 1, 1970, a tax is assessed against A with respect
to his delinquent tax liability. On July 19, 1970, a levy is wrongfully
made upon certain tangible personal property of B's which is in A's
possession at that time. On July 20, 1970, notice of seizure is given
to A. Thus, under section 6502(b), July 20, 1970, is the date on which
the levy is considered to be made. Unless a request for the return of
property is sooner made to extend the 9-month period, no suit or
proceeding under section 7426 may be begun by B after April 20, 1971,
which is 9 months from the date of levy.
Example 2. Assume the same facts as in the preceding example except
that, on August 3, 1970, B properly files a request for the return of
his property wrongfully levied upon. Assume further that the district
director mails, on March 1, 1971, a notice of disallowance of B's
request for the return of the property. No suit or proceeding under
section 7426 may be begun by B after August 3, 1971, which is 12 months
from the date of filing a request for the return of property wrongfully
levied upon.
Example 3. Assume the same facts as in the preceding example except
that the notice of disallowance of B's request for the return of
property wrongfully levied upon is mailed to B on November 12, 1970.
Since the 6-month period from the mailing of the notice of disallowance
expires before the 12-month period from the date of filing the request
for the return of property which ends on August 3, 1971, no suit or
proceeding under section 7426 may be begun by B after May 12, 1971,
which is 6 months from the date of mailing the notice of disallowance.
(T.D. 7305, 39 FR 9950, Mar. 15, 1974)
26 CFR 301.6532-3 Interest
26 CFR 301.6532-3 Interest on Underpayments
26 CFR 301.6601-1 Interest on underpayments.
(a) General rule. (1) Interest at the annual rate referred to in the
regulations under section 6621 shall be paid on any unpaid amount of tax
from the last date prescribed for payment of the tax (determined without
regard to any extension of time for payment) to the date on which
payment is received.
(2) For provisions requiring the payment of interest during the
period occurring before July 1, 1975, see section 6601(a) prior to its
amendment by section 7 of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88
Stat. 2115).
(b) Satisfaction by credits made after December 31, 1957 -- (1) In
general. If any portion of a tax is satisfied by the credit of an
overpayment after December 31, 1957, interest shall not be imposed under
section 6601 on such portion of the tax for any period during which
interest on the overpayment would have been allowable if the overpayment
had been refunded.
(2) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. An examination of A's income tax returns for the calendar
years 1955 and 1956 discloses an underpayment of $800 for 1955 and an
overpayment of $500 for 1956. Interest under section 6601(a) ordinarily
accrues on the underpayment of $800 from April 15, 1956, to the date of
payment. However, the 1956 overpayment of $500 is credited after
December 31, 1957, against the underpayment in accordance with the
provisions of section 6402(a) and 301.6402-1. Under such circumstances
interest on the $800 underpayment runs from April 15, 1956, the last
date prescribed for payment of the 1955 tax, to April 15, 1957, the date
the overpayment of $500 was made. Since interest would have been
allowed on the overpayment, if refunded, from April 15, 1957, to a date
not more than 30 days prior to the date of the refund check, no interest
is imposed after April 15, 1957, on $500, the portion of the
underpayment satisfied by credit. Interest continues to run, however,
on $300 (the $800 underpayment for 1955 less the $500 overpayment for
1956) to the date of payment.
Example 2. An examination of A's income tax returns for the calendar
years 1956 and 1957 discloses an overpayment, occurring on April 15,
1957, of $700 for 1956 and an underpayment of $400 for 1957. After
April 15, 1958, the last date prescribed for payment of the 1957 tax,
the district director credits $400 of the overpayment against the
underpayment. In such a case, interest will accrue upon the overpayment
of $700 from April 15, 1957, to April 15, 1958, the due date of the
amount against which the credit is taken. Interest will also accrue
under section 6611 upon $300 ($700 overpayment less $400 underpayment)
from April 15, 1958, to a date not more than 30 days prior to the date
of the refund check. Since a refund of the portion of the overpayment
credited against the underpayment would have resulted in interest
running upon such portion from April 15, 1958, to a date not more than
30 days prior to the date of the refund check, no interest is imposed
upon the underpayment.
(c) Last date prescribed for payment. (1) In determining the last
date prescribed for payment, any extension of time granted for payment
of tax (including any postponement elected under section 6163(a)) shall
be disregarded. The granting of an extension of time for the payment of
tax does not relieve the taxpayer from liability for the payment of
interest thereon during the period of the extension. Thus, except as
provided in paragraph (b) of this section, interest at the annual rate
referred to in the regulations under section 6621 is payable on any
unpaid portion of the tax for the period during which such portion
remains unpaid by reason of an extension of time for the payment
thereof.
(2)(i) If a tax or portion thereof is payable in installments in
accordance with an election made under section 6152(a) or 6156(a), the
last date prescribed for payment of any installment of such tax or
portion thereof shall be determined under the provisions of section
6152(b) or 6156(b), as the case may be, and interest shall run on any
unpaid installment from such last date to the date on which payment is
received. However, in the event installment privileges are terminated
for failure to pay an installment when due as provided by section
6152(d) and the time for the payment of any remaining installment is
accelerated by the issuance of a notice and demand therefor, interest
shall run on such unpaid installment from the date of the notice and
demand to the date on which payment is received. But see section
6601(e)(4).
(ii) If the tax shown on a return is payable in installments,
interest will run on any tax not shown on the return from the last date
prescribed for payment of the first installment. If a deficiency is
prorated to any unpaid installments, in accordance with section 6152(c),
interest shall run on such prorated amounts from the date prescribed for
the payment of the first installment to the date on which payment is
received.
(3) If, by reason of jeopardy, a notice and demand for payment of any
tax is issued before the last date otherwise prescribed for payment,
such last date shall nevertheless be used for the purpose of the
interest computation, and no interest shall be imposed for the period
commencing with the date of the issuance of the notice and demand and
ending on such last date. If the tax is not paid on or before such last
date, interest will automatically accrue from such last date to the date
on which payment is received.
(4) In the case of taxes payable by stamp and in all other cases
where the last date for payment of the tax is not otherwise prescribed,
such last date for the purpose of the interest computation shall be
deemed to be the date on which the liability for the tax arose.
However, such last date shall in no event be later than the date of
issuance of a notice and demand for the tax.
(d) Suspension of interest; waiver of restrictions on assessment.
In the case of a deficiency determined by a district director (or an
assistant regional commissioner, appellate) with respect to any income,
estate, gift, or chapter 41, 42, 43, or 44 tax, if the taxpayer files
with such internal revenue officer an agreement waiving the restrictions
on assessment of such deficiency, and if notice and demand for payment
of such deficiency is not made within 30 days after the filing of such
waiver, no interest shall be imposed on the deficiency for the period
beginning immediately after such 30th day and ending on the date notice
and demand is made. In the case of an agreement with respect to a
portion of the deficiency, the rules as set forth in this paragraph are
applicable only to that portion of the deficiency to which the agreement
relates.
(e) Income tax reduced by carryback. (1) The carryback of a net
operating loss, net capital loss, investment credit, or a work incentive
program (WIN) credit shall not affect the computation of interest on any
income tax for the period commencing with the last day prescribed for
the payment of such tax and ending with the last day of the taxable year
in which the loss or credit arises. For example, if the carryback of a
net operating loss, a net capital loss, an investment credit, or a WIN
credit to a prior taxable period eliminates or reduces a deficiency in
income tax for that period, the full amount of the deficiency will
nevertheless bear interest at the annual rate referred to in the
regulations under section 6621 from the last date prescribed for payment
of such tax until the last day of the taxable year in which the loss or
credit arose. Interest will continue to run beyond such last day on any
portion of the deficiency which is not eliminated by the carryback.
With respect to any portion of an investment credit carryback or a WIN
credit carryback from a taxable year attributable to a net operating
loss carryback or a capital loss carryback from a subsequent taxable
year, such investment credit carryback or WIN credit carryback shall not
affect the computation of interest on any income tax for the period
commencing with the last day prescribed for the payment of such tax and
ending with the last day of such subsequent taxable year.
(2) Where an extension of time for payment of income tax has been
granted under section 6164 to a corporation expecting a net operating
loss carryback or a net capital loss carryback, interest is payable at
the annual rate established under section 6621 on the amount of such
unpaid tax from the last date prescribed for payment thereof without
regard to such extension.
(3) Where there has been an allowance of an overpayment attributable
to a net operating loss carryback, a capital loss carryback, an
investment credit carryback, or a WIN credit carryback and all or part
of such allowance is later determined to be excessive, interest shall be
computed on the excessive amount from the last day of the year in which
the net operating loss, net capital loss, investment credit, or WIN
credit arose until the date on which the repayment of such excessive
amount is received. Where there has been an allowance of an overpayment
with respect to any portion of an investment credit carryback or a WIN
credit carryback from a taxable year attributable to a net operating
loss carryback or a capital loss carryback from a subsequent taxable
year and all or part of such allowance is later determined to be
excessive, interest shall be computed on the excessive amount from the
last day of such subsequent taxable year until the date on which the
repayment of such excessive amount is received.
(f) Applicable rules. (1) Any interest prescribed by section 6601
shall be assessed and collected in the same manner as tax and shall be
paid upon notice and demand by the district director or the director of
the regional service center. Any reference in the Code (except in
subchapter B, chapter 63, relating to deficiency procedures) to any tax
imposed by the Code shall be deemed also to refer to the interest
imposed by section 6601 on such tax. Interest on a tax may be assessed
and collected at any time within the period of limitation on collection
after assessment of the tax to which it relates. For rules relating to
the period of limitation on collection after assessment, see section
6502.
(2) No interest under section 6601 shall be payable on any interest
provided by such section. This paragraph (f)(2) shall not apply after
December 31, 1982, with respect to interest accruing after such date, or
accrued but unpaid on such date. See 301.6622-1.
(3) Interest shall not be imposed on any assessable penalty, addition
to the tax, or additional amount less such assessable penalty, addition
to the tax, or additional amount is not paid within 10 days from the
date of notice and demand therefor. If interest is imposed, it shall be
imposed only for the period from the date of the notice and demand to
the date on which payment is received.
(4) If notice and demand is made for any amount and such amount is
paid within 10 days after the date of such notice and demand, interest
shall not be imposed for the period after the date of such notice and
demand.
(5) No interest shall be imposed for failure to pay estimated tax as
required by section 59 of the Internal Revenue Code of 1939 or section
6153 or 6154 of the Internal Revenue Code of 1954.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7238, 37 FR 28742,
Dec. 29, 1972; T.D. 7301, 39 FR 978, Jan. 4, 1974; T.D. 7384, 40 FR
49324, Oct. 22, 1975; T.D. 7838, 47 FR 44252, Oct. 7, 1982; T.D.
7907, 48 FR 38230, Aug. 23, 1983)
26 CFR 301.6602-1 Interest on erroneous refund recoverable by suit.
Any portion of an internal revenue tax (or any interest, assessable
penalty, additional amount, or addition to tax) which has been
erroneously refunded, and which is recoverable by a civil action
pursuant to section 7405, shall bear interest at the annual rate
referred to in the regulations under section 6621 from the date of the
payment of the refund.
(T.D. 7384, 40 FR 49324, Oct. 22, 1975)
26 CFR 301.6602-1 Interest on Overpayments
26 CFR 301.6611-1 Interest on overpayments.
(a) General rule. Except as otherwise provided, interest shall be
allowed on any overpayment of any tax at the annual rate referred to in
the regulations under section 6621 from the date of overpayment of the
tax.
(b) Date of overpayment. Except as provided in section 6401(a),
relating to assessment and collection after the expiration of the
applicable period of limitation, there can be no overpayment of tax
until the entire tax liability has been satisfied. Therefore, the dates
of overpayment of any tax are the date of payment of the first amount
which (when added to previous payments) is in excess of the tax
liability (including any interest, addition to the tax, or additional
amount) and the dates of payment of all amounts subsequently paid with
respect to such tax liability. For rules relating to the determination
of the date of payment in the case of an advance payment of tax, a
payment of estimated tax, and a credit for income tax withholding, see
paragraph (d) of this section.
(c) Examples. The application of paragraph (b) may be illustrated by
the following examples:
Example 1. Corporation X files an income tax return on March 15,
1955, for the calendar year 1954 disclosing a tax liability of $1,000
and elects to pay the tax in installments. Subsequent to payment of the
final installment, the correct tax liability is determined to be $900.
Since the correct liability in this case is $900, the payment of $500
made on March 15, 1955, and $400 of the payment made on June 15, 1955,
are applied in satisfaction of the tax liability. The balance of the
payment made on June 15, 1955 ($100) constitutes the amount of the
overpayment, and the date on which such payment was made would be the
date of the overpayment from which interest would be computed.
Example 2. Corporation Y files an income tax return for the calendar
year 1954 on March 15, 1955, disclosing a tax liability of $50,000, and
elects to pay the tax in installments. On October 15, 1956, a
deficiency in the amount of $10,000 is assessed and is paid in equal
amounts on November 15 and November 26, 1956. On April 15, 1957, it is
determined that the correct tax liability of the taxpayer for 1954 is
only $35,000.
Since the correct liability in this case is $35,000, the entire
payment of $25,000 made on March 15, 1955, and $10,000 of the payment
made on June 15, 1955, are applied in satisfaction of the tax liability.
The balance of the payment made on June 15, 1955 ($15,000), plus the
amounts paid on November 15 ($5,000), and November 26, 1956 ($5,000),
constitute the amount of the overpayment. The dates of the overpayments
from which interest would be computed are as follows:
The amount of any interest paid with respect to the deficiency of
$10,000 is also an overpayment.
(d) Advance payment of tax, payment of estimated tax, and credit for
income tax withholding. In the case of an advance payment of tax, a
payment of estimated income tax, or a credit for income tax withholding,
the provisions of section 6513 (except the provisions of subsection (c)
thereof), applicable in determining the date of payment of tax for
purposes of the period of limitations on credit or refund, shall apply
in determining the date of overpayment for purposes of computing
interest thereon.
(e) Refund of income tax caused by carryback. If any overpayment of
tax imposed by subtitle A of the Code results from the carryback of a
net operating loss, a net capital loss, an investment credit, or a work
incentive (WIN) credit, such overpayment, for purposes of this section,
shall be deemed not to have been made prior to the end of the taxable
year in which the loss or credit arises, or, with respect to any portion
of an investment credit carryback or a WIN credit carryback from a
taxable year attributable to a net operating loss carryback or a capital
loss carryback from a subsequent taxable year, such overpayment shall be
deemed not to have been made prior to the close of such subsequent
taxable year.
(f) Refund of income tax caused by carryback of foreign taxes. For
purposes of paragraph (a) of this section, any overpayment of tax
resulting from a carryback of tax paid or accrued to foreign countries
or possessions of the United States shall be deemed not to have been
paid or accrued before the close of the taxable year under subtitle F of
the Code in which such taxes were in fact paid or accrued.
(g) Period for which interest allowable in case of refunds. If an
overpayment of tax is refunded, interest shall be allowed from the date
of the overpayment to a date determined by the district director or the
director of the regional service center, which shall be not more than 30
days prior to the date of the refund check. The acceptance of a refund
check shall not deprive the taxpayer of the right to make a claim for
any additional overpayment and interest thereon, provided the claim is
made within the applicable period of limitation. However, if a taxpayer
does not accept a refund check, no additional interest on the amount of
the overpayment included in such check shall be allowed.
(h) Period for which interest allowable in case of credits -- (1)
General rule. If an overpayment of tax is credited, interest shall be
allowed from the date of overpayment to the due date (as determined
under subparagraph (2) of this paragraph (h)) of the amount against
which such overpayment is credited.
(2) Determination of due date -- (i) In general. The term ''due
date'', as used in this section, means the last day fixed by law or
regulations for the payment of the tax (determined without regard to any
extension of time), and not the date on which the district director or
the director of the regional service center makes demand for the payment
of the tax. Therefore, the due date of a tax (other than an additional
assessment subject to the special rule provided by subdivision (iv) of
this subparagraph) is the date fixed for the payment of the tax or the
several installments thereof.
(ii) Tax payable in installments -- (a) In general. In the case of a
credit against a tax, where the taxpayer had properly elected to pay the
tax in installments, the due date is the date prescribed for the payment
of the installment against which the credit is applied.
(b) Delinquent installment. If the taxpayer is delinquent in payment
of an installment of tax and a notice and demand has been issued for the
payment of the delinquent installment and the remaining installments,
the due date of each remaining installment shall then be the date of
such notice and demand.
(iii) Tax or installment not yet due. If a taxpayer agrees to the
crediting of an overpayment against tax or an installment of tax and the
schedule of allowance is signed prior to the date on which such tax or
installment would otherwise become due, then the due date of such tax or
installment shall be the date on which such schedule is signed.
(iv) Additional assessment satisfied by credit before Jafuary 1,
1958. In the case of a credit made before January 1, 1958, against an
additional assessment, the due date of the tax satisfied by the credit
is the date the additional assessment was made. For purposes of this
subdivision, the term ''additional assessment'' means a further
assessment of a tax of the same character previously paid in part, and
includes the assessment of a deficiency as defined in section 6211.
(v) Assessed interest. In the case of a credit against assessed
interest, the due date is the date of the assessment of such interest.
(vi) Additional amount, addition to the tax, or assessable penalty.
In the case of a credit against an amount assessed as an additional
amount, addition to the tax, or assessable penalty, the due date is the
date of the assessment.
(vii) Estimated income tax for succeeding year. If the taxpayer
elects to have all or part of the overpayment shown by his return
applied to his estimated tax for his succeeding taxable year, no
interest shall be allowed on such portion of the overpayment credited
and such amount shall be applied as a payment on account of the
estimated tax for such year or the installments thereof.
(i) (Reserved)
(j) Refund of overpayment. No interest shall be allowed on any
overpayment of tax imposed by subtitle A of the Code if such overpayment
is refunded --
(1) In the case of a return filed on or before the last date
prescribed for filing the return of such tax (determined without regard
to any extension of time for filing such return), within 45 days after
such last date, or
(2) After December 17, 1966, in the case of a return filed after the
last day prescribed for filing the return, within 45 days after the date
on which the return is filed.
However, in the case of any overpayment of tax by an individual
(other than an estate or trust and other than a nonresident alien
individual) for a taxable year beginning in 1974, ''60 days'' shall be
substituted for ''45 days'' each place it appears in this paragraph.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7301, 39 FR 979, Jan.
4, 1974; T.D. 7384, 40 FR 49325, Oct. 22, 1975; T.D., 7415, 41 FR
14369, Apr. 5, 1976)
26 CFR 301.6611-1 Determination of Interest Rate
26 CFR 301.6621-1 Interest rate.
(a) In general. The interest rate established under section 6621
shall be --
(1) On amounts outstanding before July 1, 1975, 6 percent per annum
(or 4 percent in the case of certain extensions of time for payment of
taxes as provided in sections 6601 (b) and (j) prior to amendment by
section 7(b) of the Act of Jan. 3, 1975 (Pub. L. 93-625, 88 Stat. 2115),
and certain overpayments of the unrelated business income tax as
provided in section 514(b)(3)(D), prior to its amendment by such Act).
(2) On amounts outstanding --
(3) On amounts outstanding after December 31, 1982, the adjusted rate
established by the Commissioner under section 6621(b). This adjusted
rate shall be published by the Commissioner in a Revenue Ruling. See
301.6622-1 for application of daily compounding in determining interest
accruing after December 31, 1982. Because interest accruing after
December 31, 1982, accrues at the prescribed rate per annum compounded
daily, the effective annual percentage rate of interest will exceed the
prescribed rate of interest.
(b) (Reserved)
(c) Applicability of interest rate -- (1) Computation. Interest and
additions to tax on any amount outstanding on a specific day shall be
computed at the annual rate applicable on such day.
(2) Additions to tax. Additions to tax under any section of the Code
that refers to the annual rate established under this section, including
sections 644(a)(2)(B), 4497(c)(2), 6654(a), and 6655 (a) and (g), shall
be computed at the same rate per annum as the interest rate set forth
under paragraph (a) of this section.
(3) Interest. Interest provided for under any section of the Code
that refers to the annual rate established under this section, including
sections 47(d)(3)(G), 167(q), 6332(c)(1), 6343(c), 6601(a), 6602,
6611(a), 7426(g), and section 1961(c)(1) or 2411 of Title 28 of the
United States Code, shall be computed at the rate per annum set forth
under paragraph (a) of this section.
(d) Examples. The provisions of this section may be illustrated by
the following examples. Example 6 illustrates the computation of
interest for interest accuring after December 31, 1982.
Example 1. A, an individual, files an income tax return for the
calendar year 1974 on April 15, 1975, showing a tax due of $1,000. A
pays the $1,000 on September 1, 1975. Pursuant to section 6601(a),
interest on the underpayment of $1,000 is computed at the rate of 6
percent per annum from April 15, 1975, to June 30, 1975, a total of 76
days. Interest for 63 days, from June 30, 1975, to September 1, 1975,
shall be computed at the rate of 9 percent per annum.
Example 2. An executor of an estate is granted, in accordance with
section 6161(a)(2)(A), a two-year extension of time for payment of the
estate tax shown on the estate tax return, which tax was otherwise due
on January 15, 1974. The tax is paid on January 15, 1976. Interest on
the underpayemnt shall be computed at the rate of 4 percent per annum
from January 15, 1974, to June 30, 1975, and at the rate of 9 percent
per annum from June 30, 1975, to January 15, 1976.
Example 3. X, a corporation, files its 1973 corporate income tax
return on March 15, 1974, and pays the balance of tax due shown thereon.
On August 1, 1975, an assessment of a deficiency is made against X with
respect to such tax. The deficiency is paid on October 1, 1975.
Interest at the rate of 6 percent per annum is due on the deficiency
from March 15, 1974, the due date of the return, to June 30, 1975, and
at the rate of 9 percent per annum from June 30, 1975, to October 1,
1975.
Example 4. Y, an individual, files an amended individual income tax
return on October 1, 1975, for the refund of an overpayment of income
tax Y made on April 15, 1975. Interest is allowed on the overpayment to
December 1, 1975. Pursuant to section 6611(a), interest is computed at
the rate of 6 percent per annum from April 15, 1975, the date of
overpayment, to June 30, 1975. Interest from June 30, 1975, to December
1, 1975, shall be computed at the rate of 9 percent per annum.
Example 5. A, an individual, is liable for an addition to tax under
section 6654 for the underpayment of estimated tax from April 15, 1975
until January 15, 1976. The addition to tax shall be computed at the
annual rate of 6 percent per annum from April 15, 1975, to June 30,
1975, and at the annual rate of 9 percent per annum from June 30, 1975,
to January 15, 1976.
Example 6. B, an individual, files an income tax return for calendar
year 1980 on April 15, 1981, showing a tax due of $1,000. B pays the
$1,000 on March 1, 1983. Under section 6601 (a), interest on the $1,000
underpayment is due from April 15, 1981, to March 1, 1983. Such
interest is computed at the rate of 12 percent per annum, simple
interest from April 15, 1981, to January 31, 1982, and at the rate of 20
percent per annum, simple interest from January 31, 1982, to December
31, 1982, and at the rate of 16 percent per annum, compounded daily,
from December 31, 1982, to March 1, 1983. The total simple interest
accrued but unpaid at the end of December 31, 1982, is combined with the
$1,000 underpayment for purposes of determining the amount of daily
compounded interest to be charged from December 31, 1982, to March 1,
1983.
(T.D. 7907, 48 FR 38230, Aug. 23, 1983; 48 FR 41018, Sept. 13, 1983;
48 FR 41581, Sept. 16, 1983)
26 CFR 301.6621-2T Questions and answers relating to the increased rate
of interest on substantial underpayments attributable to certain tax
motivated transactions (temporary).
The following questions and answers relate to the increased rate of
interest on substantial underpayments attributable to certain tax
motivated transactions as provided in section 6621(d) of the Internal
Revenue Code of 1954, as added by section 144 of the Tax Reform Act of
1984 (Pub. L. 98-369, 98 Stat. 682):
Q-1. What is the annual interest rate under section 6621 for purposes
of computing the amount of interest that must be paid under section 6601
(relating to interest on underpayments)?
A-1. In general, the annual interest rate for purposes of section
6601 is the adjusted rate of interest established under section 6621 (b)
301.6621-1 (''adjusted rate''). If, however, a tax motivated
underpayment (as defined in A-2 of this section) for a taxable year is
substantial (as defined in A-7 of this section), section 6621(d)
provides that the annual rate of interest with respect to the tax
motivated underpayment is 120 percent of the adjusted rate (''120
percent rate''), rounded to the nearest tenth of a percent.
Q-2. What is a tax motivated underpayment?
A-2. A tax motivated underpayment is the portion of a deficiency (as
defined in section 6211) of tax imposed by subtitle A (income taxes)
that is attributable to any of the following tax motivated transactions:
(1) Any instance in which the value of any property, or the adjusted
basis of any property, claimed on a return is 150 percent or more of the
amount determined to be the correct amount of such valuation or adjusted
basis (i.e., a valuation overstatement within the meaning of section
6659(c)(1));
(2) Any loss disallowed for any period by reason of section 465(a) or
any amount included in gross income by reason of section 465(e);
(3) Any credit disallowed for any period by reason of section
46(c)(8) or section 48(d)(6);
(4) Any loss disallowed for any period with respect to a straddle, as
defined in section 1092(c), but without regard to sections 1092 (d) and
(e);
(5) Any use of an accounting method that may result in a substantial
distortion of income for any period (see A-3 of this section); and
(6) Any deduction disallowed with respect to any other tax motivated
transactions (see A-4 of this section).
Q-3. What accounting methods may result in a substantial distortion
of income for any period under A-2(5) of this section?
A-3. A deduction or credit disallowed, or income included, in any of
the circumstances listed below shall be treated as attributable to the
use of an accounting method that may result in a substantial distortion
of income and shall thus be a tax motivated transaction that results in
a tax motivated underpayment:
(1) Any deduction disallowed for any period by reason of section 464
or section 278(b), relating to certain expenses of farming syndicates;
(2) In the case of a taxpayer who computes taxable income using the
cash receipts and disbursements method of accounting, any interest
deduction disallowed for any period by reason of section 461(g),
relating to prepaid interest, provided the interest is not paid with
respect to indebtedness incurred in connection with (i) the purchase,
refinancing, or improvement of the principal residence of the taxpayer,
or (ii) the purchase of consumer goods by the taxpayer;
(3) Any interest deduction disallowed for any period because the
amount of the claimed deduction was computed using a method resulting in
an amount of interest for a period that exceeds the true cost of the
indebtedness for the period computed by applying the effective rate of
interest on the loan to the unpaid balance of the loan for the period
(i.e., the economic accrual of interest for the period), provided the
interest is not accrued with respect to indebtedness incurred in
connection with (i) the purchase, refinancing, or improvement of the
principal residence of the taxpayer, or (ii) the purchase of consumer
goods by the taxpayer (see Rev. Rul. 83-84, 1983-1 C.B. 97, and sections
163(e), 446(b), and 483);
(4) Any deduction disallowed for any period under section 709,
relating to organization or syndication expenditures of a partnership;
(5) In the case of any expenditure described in section 248(b) that
was incurred by an S corporation, any deduction disallowed because it
exceeds the amount allowable under section 248, relating to
organizational expenditures;
(6) Any deduction disallowed for any period under section 267(a),
relating to transactions between related taxpayers;
(7) Any deduction disallowed for any period, or any income required
to be included for any period, under section 467, relating to certain
payments for the use of property or services;
(8) Any deduction disallowed for any period under section 461(i),
relating to certain deductions of tax shelters; and
(9) In the case of a taxpayer who computes taxable income using the
cash receipts and disbursements method of accounting, any deduction
disallowed for any period because (i) the expenditure resulting in the
deduction was a deposit rather than a payment, (ii) the expenditure was
prepaid for tax avoidance purposes and not for a business purpose, or
(iii) the deduction resulted in a material distortion of income (see,
e.g., Rev. Rul. 79-229, 1979-2 C.B. 210).
Q-4. Are any transaction other than those specified in A-2 of this
section and those involving the sue of accounting methods under
circumstances specified in A-3 of this section considered tax motivated
transactions under A-2(6) of this section?
A-4. Yes. Deductions disallowed under the following provisions are
considered to be attributable to tax motivated transactions:
(1) Any deduction disallowed for any period under section 183,
relatiing to an activity engaged in by an individual or an S corporation
that is not engaged in for profit, and
(2) Any deduction disallowed for any period under section 165(c)(2),
relating to any transaction not entered into for profit.
Q-5. How is the amount of a tax motivated underpayment determined?
A-5. Except as provided in A-6 of this section, the amount of a tax
motivated underpayment is detemined in the following manner:
(1) Calculate the amount of the tax liability for the taxable year as
if all items of income, gain, loss, deduction, or credit, had been
reported properly on the income tax return of the taxpayer (''total tax
liability''); and
(2) Without taking into account any adjustments to items of income,
gain, loss, deduction, or credit that are attributable to tax motivated
transactions (as defined in A-2 through A-4 of this section), calculate
the amount of the tax liability for the taxable year as if all other
items of income, gain loss, deduction, or credit had been reported
properly on the income tax return of the taxpayer (''tax liability
without regard to tax motivated transactions'').
(3) The difference between the total tax liability and the tax
liability without regard to tax motivated transactions is the amount of
the tax motivated underpayment.
Example. Taxpayer A, a calendar year taxpayer, files his 1984 income
tax return reporting $70,000 of taxable income and $23,171 of tax
liability. On January 20, 1986, A enters into a closing agreement with
the Internal Revenue Service that includes the following adjustments;
The tax motivated underpayment (i.e., the underpayment attributable
to tax motivated transactions) is $10,994 ($39,685^$28,691).
Accordingly, the interest on $10,994 woulld be computed at the 120
percent rate.
The remainder of the underpayment (i.e., the underpayment not
attributable to tax motivatd transactions) is $5.520 ($28,691
(taxliability without regard to tax motivated items)^$23,171 (tax paid
with return)). The interest on $5,520 would be computed at the adjusted
rate.
Q-6: How are the amounts of the tax motivated underpayment and the
underpayment attributable to fraud or negligence detemine if all or a
portion of the taxpayer's underpayment is attributable to one or more
tax motivated transactions and all or a portion is subject to the
addition to tax imposed by section 6653(a)(2) (in the case of an
underpayment attributable to negligence or intentional disregard) or
section 6653(b)(2) (in the case of an underpayment attributable to
fraud)?
A-6: If all or a portion of the taxpayer's underpayment is
attributable to tax motivated transactions, and all or a portion is
attributable to fraudulent or negligent items (i.e., items that result
in an underpayment subject to the addition to tax imposed by section
6653 (a)(2) or (b)(2)), the amount of the tax motivated underpayment and
the underpayment attributable to fraud or negligence is determined in
the following manner:
(1) Determine the following amounts;
(i) The tax liability for the taxable year of the taxpayer as if all
items of income, gain, loss, deduction, or credit had been reported
properly on the income tax return of the taxpayer (''total tax
liability'');
(ii) The tax liability for the taxable year of the taxpayer as if all
items of income, gain, loss, deduction, or credit without taking into
account adjustments to items of income, gain, loss, deduction, or credit
that are both (a) attributable to tax motivated transactions and (b)
subject to section 6653(a)(2) or section 6653(b)(2), had been reported
properly on the income tax return of the taxpayer (''tax liability
without regard to fraudulent or negligent tax motivated items'');
(iii) The tax liability for the taxable year of the taxpayer as if
all items of income, gain, loss, deduction, or credit, without taking
into account adjustments to items of income, gain, loss, deduction, or
credit that are subject to section 6653(a)(2) or section 6653(b)(2), had
been reported properly on the income tax return of the taxpayer (''tax
liability without regard to fraudulent or negligent items'');
(iv) The tax liability for the taxable year of the taxpayer as if all
items of income, gain, loss, deduction, or credit, without taking into
account adjustments to items of income, gain, loss, deduction, or credit
that are wither subject to section 6653(a)(2) or section 6653(b)(2) or
attributable to tax motivated transactions, had been reported properly
on the income tax return of the taxpayer (''tax liability without regard
to tax motivated or fraudulent or negligent items'').
(2) The tax motivated underpayment attributable to fraudulent or
negligent items is the excess of the total tax liability over the tax
liability determined without regard to fraudulent or negligent tax
motivated items ((i)-(ii)).
(3) The tax motivated underpayment is the sum of (a) the tax
motivated underpayment attributable to fraudulent or negligent items
((i)-(ii)) plus (b) the excess of the tax liability without regard to
fraudulent or negligent items over the tax liability without regard to
tax motivated or fraudulent or negligent items ((iii)-(iv)). Interest
on this underpayment is computed at the 120 percent rate.
(4) The underpayment attributable to fraudulent or negligent items is
the excess of the total tax liability over the tax liability without
regard to fraudulent or negligent items ((i)-(iii)). The section 6653
addition to tax is 50 percent of the interest on this underpayment
computed at the 120 percent rate on an amount equal to the tax motivated
underpayment attributable to fraudulent or negligent items (computed in
(2)) and at the adjusted rate on the remainder.
Example. Taxpayer A, a calendar year taxpayer, files his 1984 income
tax return reporting $70,000 of taxable income and $23,171 of tax
liability. On January 20, 1986, A enters into a closing agreement with
the Internal Revenue Service that includes the following adjustments:
The tax motivated underpayment is determined in the following manner:
(2) The tax motivated underpayment attributable to fraudulent or
negligent items is $2,500 ((i))-(ii) or $39,685^$37,185).
(3) The tax motivated underpayment is $10,844 ((2)+((iii)-(iv)) or
$2,500+($33,435^$25,091)). Interest on $10,844 is computed at the 120
percent rate.
(4) The underpayment attributable to fraudulent or negligent items is
$6,250 ((i)-(iii) or $39,685^$33,435). The section 6653 addition to tax
is 50 percent of the interest on $6,250, computed at the 120 percent
rate on an amount equal to the tax motivated underpayment attributable
to fraudulent or negligent items ($2,500) and at the adjusted rate on
the remainer ($3,750).
(5) In summary, therefore, the total underpayment is $16,514 (total
tax liability ($39,685) less reported tax liability ($23,171)) of which
$10,844 accrues interest at the 120 percent rate and $5,670
($16,514^$10,844) accrues interest at the adjusted rate. In addition,
$6,250 of the underpayment is subject to the section 6653(a)(2) or
section 6653(b)(2) addition to tax. The underlying interest, upon which
the addition to tax is based, is computed using the 120 percent rate for
the portion of the underpayment subject to section 6621(d) ($2,500) and
the adjusted rate for the portion that is not subject to section 6621(d)
($3,750).
Q-7. Does the 120 percent rate apply to all tax motivated
underpayments?
A-7. No. The 120 percent rate applies only if the tax motivated
underpayment for the taxable year is substantial. A tax motivated
underpayment is substantial only if it exceeds $1,000. If, for example,
a taxpayer has a $600 underpayment attributable to a valuation
overstatement (within the meaning of section 6659(c)(1)) and a $500
underpayment attributable to a loss disallowed under section 465(a), the
amount of the tax motivated underpayment is $1,100. Because the amount
of the tax motivated underpayment is thus substantial the 120 percent
rate applies.
Q-8. How do carryovers affect the amount of the tax motivated
underpayment and the amount of the underpayment attributable to
fraudulent or negligent items?
A-8. For purposes of A-5 and A-6 of this section, a net operating
loss carryover, capital loss carryover, or credit carryover is treated
as a deduction or credit in the year in which taken into account. In
any computation of tax liability required under A-5 or A-6 of this
section (i.e., total tax liability, tax liability without regard to tax
motivated transactions, etc.), the amount of such deduction or credit is
the amount of the carryover determined as if the taxpayer had properly
reported in each taxable year all items of income, gain, loss,
deduction, or credit affecting the amount of the carryover other than
adjustments of a type not taken into account in such computation of tax
liability. A net operating loss carryback, capital loss carryback, or
credit carryback is not taken into account, however, in determining the
amount of the tax motivated underpayment or the amount of the
underpayment attributable to fraud or negligence for periods before the
last date prescribed for filing the income tax return for the taxable
year in which the carryback arises (determined without regard to
extensions).
Q-9. What amount is subject to the 120 percent rate if the amount of
a taxpayer's unpaid tax for a year is less than the taxpayer's
substantial tax motivated underpayment?
A-9. The 120 percent rate applies with respect to the lesser of --
(1) The amount of unpaid tax for the taxable year determined in
accordance with 301.6601-1; or
(2) The substantial tax motivated underpayment for the taxable year.
Q-10. What is the effective date for the 120 percent rate?
A-10. The 120 percent rate applies to interest accruing on a
deficiency attributable to a substantial tax motivated underpayment
after December 31, 1984, including interest accruing with respect to
transactions described in A-3 and A-4 of this section, regardless of the
date prescribed for payment of the tax.
Example. Taxpayer A files his income tax return on April 15, 1983
(the last date prescribed for payment of tax for taxable year 1982 under
section 6601). In January 1985, Taxpayer A files a petition in the Tax
Court in response to a statutory notice of deficiency for taxable year
1982, which includes a tax motivated underpayment of $10,000. In
September 1986, the Tax Court enters a decision for the Internal Revenue
Service. Under section 6601, interest accrues at the adjusted rate,
compounded daily, on tax motivated underpayments outstanding before
January 1, 1985, and at the 120 percent rate, compounded daily, on
amounts outstanding after December 31, 1984. The underpayment that is
subject to the 120 percent rate includes both the $10,000 tax motivated
underpayment and the interest that accrued on the underpayment at the
adjusted rate from April 16, 1983, through December 31, 1984.
Q-11. Can a taxpayer stop the running of interest on a tax motivated
underpayment by application of a remittance?
A-11. Yes. The running of interest on a tax liability stops on the
date the remittance (either a payment of tax or a deposit in the nature
of a cash bond) is received by the Internal Revenue Service, regardless
of when the liability is assessed or the remittance is actually applied
against the taxpayer's account. A taxpayer must make a remittance for
both the tax liability and the interest that has accrued as of the date
of remittance to stop the running of interest on both the tax liability
and the accrued interest with respect to the liability. (See Rev. Proc.
84-58.) Taxpayer cannot make partial remittances applicable only to tax
motivated underpayments. Under A-9 of this section, the 120 percent
rate applies to the amount of unpaid tax to the extent that amount does
not exceed the tax motivated underpayment. Therefore, a partial
remittance is applied first to any tax due that is not attributable to a
tax motivated underpayment. The excess of the partial remittance over
tax that is not attributable to a tax motivated underpayment, if any,
will then be applied to tax due that is attributable to a tax motivated
underpayment.
Q-12. Does the 120 percent rate apply to interest accuring on
interest, penalties, additional amounts, or additions to tax as provided
in section 6601(e)(2)?
A-12. The 120 percent rate applies only to taxes imposed by subtitle
A (income taxes) and to interest accured with respect to such taxes.
The penalties, additional amounts, and additions to tax specified in
section 6601(e)(2) are not imposed by subtitle A and are not, therefore,
included in the amount of a tax motivated underpayment. They are,
however, included in the amount of unpaid tax for purposes of A-9 of
this section.
Example. Taxpayer A, for taxable year 1984, has a $10,000 tax
motivated underpayment and a $2,000 addition to tax for a total unpaid
tax of $12,000. If A makes a $5,000 payment of tax, he will still have
a $10,000 tax motivated underpayment but will now have only $7,000 of
unpaid tax. Pursuant to A-9 of this section, therefore, the 120 percent
rate would apply to the $7,000 of unpaid tax.
(Secs. 6621(d) and 7805, Internal Revenue Code of 1954 (98 Stat.
682, 26 U.S.C. 6621(d); 68A Stat. 917, 26 U.S.C. 7805))
(T.D. 7998, 49 FR 50391, Dec. 28, 1984)
26 CFR 301.6621-3 Higher interest rate payable on large corporate
underpayments.
(a) In general. Section 6621 establishes the interest rate for
purposes of computing the amount of interest that must be paid under
section 6601, relating to interest on underpayments of tax. Section
6621(a)(2) provides that the underpayment rate is the sum of the Federal
short-term rate (determined under section 6621(b)) plus 3 percentage
points. That underpayment rate is referred to hereinafter as the
''section 6621(a)(2) rate.'' Section 6621(c) and this section, however,
provide that the underpayment rate on any large corporate underpayment
is the sum of the Federal short-term rate (determined under section
6621(b)) plus 5 percentage points. This higher underpayment rate is
referred to hereinafter as the ''section 6621(c) rate.'' The section
6621(c) rate applies only for periods after the applicable date (as
determined in paragraph (c) of this section).
(b) Large corporate underpayment -- (1) Defined. For purposes of
section 6621(c) and this section, ''large corporate underpayment'' means
any underpayment of a tax by a C corporation for any taxable period if
the amount of the threshold underpayment of the tax (as defined in
paragraph (b)(2)(ii) of this section) for that taxable period exceeds
$100,000.
(2) Underpayment of a tax -- (i) In general. As used in section
6621(c) and this section, ''underpayment of a tax'' means the excess of
a tax imposed by the Internal Revenue Code over the amount of such tax
paid on or before the last date prescribed for payment. Except as
provided in paragraph (b)(2)(ii) of this section, ''tax'' for such
purposes includes interest, penalties, additional amounts, and additions
to tax. See sections 6601(e)(1), 6665(a), and 6671(a). Thus, the
section 6621(c) rate generally applies to any interest, penalties,
additional amounts, and additions to tax, as well as to the underlying
tax with respect to which such amounts are imposed.
(ii) Threshold underpayment of a tax. Solely for purposes of this
section and not for any other purpose under section 6621(c) or elsewhere
in the interpretation or administration of the federal tax laws, a
''threshold underpayment of a tax'' is the excess of a tax imposed by
the Internal Revenue Code (exclusive of interest, penalties, additional
amounts, and additions to tax) for the taxable period over the amount of
such tax paid on or before the last date prescribed for payment. Thus,
any payments made after the last date prescribed for payment (for
example, by way of an amended return) will not affect the existence of a
threshold underpayment. In determining whether there is a threshold
underpayment, different types of taxes (such as income tax and FICA tax)
and amounts that relate to different taxable periods are not added
together.
(iii) When determined -- (A) In general. The existence of a
threshold underpayment of a tax and the amount of a large corporate
underpayment are generally determined only when an assessment is made
with respect to the taxable period. Thus, the amount of a deficiency or
proposed deficiency set forth in a letter or notice pursuant to which
the applicable date is determined (under paragraph (c) of this section)
does not determine whether there is a large corporate underpayment.
(B) Judicial determinations. Notwithstanding any prior assessment
made with respect to a taxable period, the section 6621(c) rate does not
apply if, after a federal court determines the taxpayer's liability for
a period, the threshold underpayment for that taxable period does not
exceed $100,000. See Example 3 in paragraph (d) of this section.
(iv) Special rule. The section 6621(c) rate is not used to compute
the interest charges that a taxpayer timely assesses against itself in
return for using a method of tax accounting or reporting that defers the
payment of tax, such as the interest charges relating to passive foreign
investment companies under section 1291(c) and installment obligations
of nondealers under section 453A(c). However, to the extent such
charges are not paid on or before the last date prescribed for payment
and therefore become part of an underpayment of a tax, the section
6621(c) rate will apply to such amounts for periods after the applicable
date (as determined in paragraph (c) of this section).
(3) C corporation defined. For purposes of section 6621(c)(3)(A) and
this section, ''C corporation'' means, with respect to any taxable
period, a corporation that is a C corporation during any part of the
taxable period. Interest on a large corporate underpayment for a
taxable period continues to be imposed at the section 6621(c) rate even
if during or after the taxable period --
(i) The taxpayer ceases to be a C corporation; or
(ii) The underpayment becomes the liability of a successor or
transferee that is not a C corporation.
(4) Taxable period. For purposes of section 6621(c) and this
section, the ''taxable period'' is the taxable year in the case of any
tax imposed by subtitle A of the Internal Revenue Code. In the case of
any other tax, the ''taxable period'' is the period to which the
underpayment relates. For example, the taxable period for an
underpayment of FICA taxes is the calendar quarter. If the underpayment
does not relate to a particular period (for example, in the case of
certain transactional excise taxes), the ''taxable period'' is the
period covered by a return on which the tax is required to be shown.
(5) Last date prescribed for payment. For purposes of this section,
the ''last date prescribed for payment'' means the last date prescribed
for payment as determined, without regard to any extension of time,
under section 6601(b).
(c) Applicable date -- (1) In general. The section 6621(c) rate
applies only to periods after the applicable date. Pursuant to the
effective date of section 6621(c) and paragraph (e) of this section,
however, the section 6621(c) rate will not apply prior to January 1,
1991, even if the applicable date is prior to December 31, 1990. A
letter or notice relating to a particular type of tax creates an
applicable date only for that type of tax. For example, a letter or
notice with respect to FUTA tax will not create an applicable date with
respect to income tax for the same taxable year.
(2) When deficiency procedures apply. The applicable date, in the
case of any underpayment of a tax to which the deficiency procedures of
subchapter B of chapter 63 of the Internal Revenue Code apply, is the
30th day after the earlier of --
(i) The date on which the Service sends the taxpayer the first letter
of proposed deficiency that allows the taxpayer an opportunity for
administrative review in the Service's Office of Appeals (commonly
called a ''30-day letter''); or
(ii) The date on which the Service sends a deficiency notice under
section 6212 of the Internal Revenue Code (commonly called a ''90-day
letter'').
(3) When deficiency procedures do not apply. The applicable date, in
the case of any underpayment of a tax to which the deficiency procedures
do not apply, is the 30th day after the date on which the Service sends
the first letter or notice that notifies the taxpayer of an assessment
or proposed assessment of the tax. In the case of income taxes, for
example, the deficiency procedures do not apply to amounts shown as due
on the taxpayer's return if the taxpayer fails to remit the full amount
on or before the last date prescribed for payment, and to amounts
attributable to mathematical or clerical errors on a return (unless a
request for abatement is filed by the taxpayer under section 6213(b)).
Because no 30-day letter or 90-day letter is issued to the taxpayer in
such cases, the applicable date is the 30th day after the date on which
an assessment notice under section 6303 of the Internal Revenue Code is
sent.
(4) Partnership items. For purposes of section 6621(c) and this
paragraph (c), 60-day letters and the notices described in sections
6223(a)(1) and 6223(a)(2) (relating to administrative proceedings at the
partnership level) are not treated as letters of proposed deficiency
that allow the taxpayer an opportunity for administrative review in the
Service's Office of Appeals, deficiency notices under section 6212 of
the Internal Revenue Code, or letters or notices that notify the
taxpayer of an assessment or proposed assessment of the tax. Thus, in
the absence of any other letter or notice described in paragraph (c)(2)
or (c)(3) of this section that establishes an earlier applicable date,
the applicable date in the case of any underpayment of a tax
attributable, in whole or in part, to a partnership item (as defined in
section 6231(a)(3)) is the 30th day after the date on which the Service
sends the first letter or notice that notifies the taxpayer of an
assessment of the tax.
(5) Exception of payment of amount shown as due -- (i) In general. A
letter of notice will be disregarded for purposes of determining the
applicable date if the taxpayer makes a payment equal to the amount
shown as due in the letter or notice within 30 days from the date that
the Service sends the letter or notice.
(ii) Special transition rule. A letter or notice sent by the Service
prior to January 1, 1991, will be disregarded by the Service for
purposes of determining the applicable date if the taxpayer makes a
payment on or before January 31, 1991, equal to the amount shown as due
in the letter or notice plus a reasonable estimate of the interest
payable on such amount computed by applying the section 6621(a)(2) rate.
If the taxpayer has received two or more letters or notices with
respect to the same tax for the same taxable period and pays the amount
shown as due in the last letter or notice sent prior to December 19,
1990, (plus a reasonable estimate of the interest), all of the prior
letters and notices with respect to the same tax for the same taxable
period will be disregarded under this paragraph (c)(5)(ii). In the case
of an assessment notice, the payment of the amount of interest shown as
due on the last assessment notice sent to the taxpayer prior to December
19, 1990, will be treated as a payment of a reasonable estimate of the
interest payable on the amount shown in that assessment notice or in any
prior assessment notice sent with respect to the same tax for the same
taxable period. The special transition rule in this paragraph
(c)(5)(ii) applies even if the payment is not made within 30 days of the
date on which the Service sent the letter or notice.
(iii) Amount shown as due. For purposes of section 6621(c)(2)(B)(ii)
and this paragraph (c)(5), the ''amount shown as due'' in any letter or
notice means the total amount of tax, as well as any interest,
penalties, additional amounts, and additions to tax that are set forth
in the letter or notice. A deposit in the nature of a cash bond will
not be considered a payment of the amount shown as due.
(6) Exception for withdrawn letters and notices -- (i) Letters of
proposed deficiency. A letter of proposed deficiency will be
disregarded for purposes of determining the applicable date if the
letter of proposed deficiency is issued as a result of an administrative
error either to the wrong taxpayer or for the wrong taxable period.
(ii) Deficiency notices. A deficiency notice under section 6212 of
the Internal Revenue Code will be disregarded for purposes of
determining the applicable date if the deficiency notice is rescinded
under section 6212(d).
(iii) Assessment letters and notices. A letter or notice that
notifies the taxpayer of an assessment or proposed assessment of tax
will be disregarded for purposes of determining the applicable date if
the full amount of tax assessed is subsequently abated.
(d) Examples. The application of this section may be illustrated by
the following examples.
Example 1. V, a C corporation, timely files Form 941 on January 31,
1991, for the fourth quarter of 1990. On September 1, 1992, the Service
sends V a section 6303 notice and demand reflecting an additional FICA
tax liability for that quarter of $90,000. Interest computed at the
section 6621(a)(2) rate totals $15,000 as of September 1, 1992.
Accordingly, V's underpayment of FICA tax for the fourth quarter of 1990
exceeds $100,000. However, V's $90,000 threshold underpayment of FICA
tax for that taxable period is less than $100,000, so that the section
6621(c) rate will not apply to the underpayment for that taxable period.
Example 2. (i) W, a C corporation, timely files its 1990 income tax
return on March 15, 1991, showing a liability of $95,000, of which W
pays only $35,000 with the return. On June 1, 1991, the Service sends W
an assessment notice reflecting the balance due of $60,000 plus interest
computed at the section 6621(a)(2) rate. W pays all amounts due on
August 1, 1991. On July 1, 1993, the Service sends W a 90-day letter
(without having sent a 30-day letter) reflecting an additional income
tax deficiency of $85,000 for the taxable year 1990. W files a petition
in the Tax Court within 90 days. In 1995, the Tax Court determines a
$50,000 income tax deficiency (exclusive of interest, penalties,
additional amounts, and additions to tax) for 1990, which the Service
promptly assesses against W.
(ii) As a result of the combination of the failure to timely pay the
$60,000 of income tax reported as due on the return and the Tax Court's
determination of an additional deficiency of $50,000, W's threshold
underpayment of income tax for 1990 is $110,000. Because W is a C
corporation and the threshold underpayment for 1990 exceeds $100,000,
the section 6621(c) rate applies to W's 1990 large corporate
underpayment for periods after the applicable date.
(iii) The applicable date is July 1, 1991, the 30th day after the
date on which the Service sent W the first assessment notice.
(iv) From March 16, 1991, through July 1, 1991, interest on W's 1990
underpayment of income tax (including any interest, penalties,
additional amounts, and additions to tax) is computed at the section
6621(a)(2) rate. From July 2, 1991, such interest is computed at the
section 6621(c) rate.
(v) If W had paid the amount shown as due on the June 1, 1991,
assessment notice on or before June 30, 1991, instead of on August 1,
1991, the applicable date would have been July 31, 1993.
(vi) Assume that W had paid the amount shown as due on the June 1,
1991, assessment notice on or before June 30, 1991. If W had made a
$40,000 deposit in the nature of a cash bond on July 15, 1993, the
applicable date would be July 31, 1993. Moreover, the deposit would
have no effect on the existence or amount of W's threshold underpayment
or large corporate underpayment for 1990. In such a case, however, when
the Service assesses the amount due from W in 1995, the deposit would be
treated as a payment made as of July 15, 1993, for purposes of computing
interest due after that date. As a result, interest would accrue after
July 15, 1993, (at the section 6621(c) rate) only on the portion of W's
1990 underpayment that exceeds the $40,000 deposit amount.
Example 3. (i) X, a C corporation, filed its 1989 income tax return
,on September 17, 1990, pursuant to an automatic extension. X enclosed
payment of the $7,500 balance reported on the return as due (plus
interest). On January 1, 1992, the Service sends X a written
notification that X's 1989 income tax return is being examined. This
written notification also contains a request that X provide supplemental
information with respect to particular deductions totalling $1.5
million. On July 1, 1993, the Service sends X a 30-day letter proposing
a $450,000 deficiency (without any reference to penalties, additional
amounts, additions to tax, and interest) with respect to 1989. On
December 15, 1993, the Service sends X a 90-day letter asserting a
deficiency of $300,000 (excluding penalties, additional amounts,
additions to tax, and other interest). X does not file a Tax Court
petition and the Service assesses the $300,000 (plus interest and
penalties) on April 1, 1994. On April 5, 1994, X pays the full amount
assessed. Thereafter, X timely files an administrative claim for refund
and a refund suit in federal district court for the amounts assessed on
April 1, 1994. On September 30, 1995, the federal district court
determines that, exclusive of interest and penalties, X overpaid its
1989 income tax by $250,000.
(ii) The April 1, 1994, assessment establishes at that time that X's
threshold underpayment of income tax for 1989 is $300,000. Because X is
a C corporation and the threshold underpayment for 1989 exceeds
$100,000, X's underpayment of income tax for 1989 is a large corporate
underpayment to which the section 6621(c) rate applies for periods after
the applicable date. X's decision to file a refund claim does not
affect, in and of itself, either the existence of a threshold
underpayment or the amount of X's large corporate underpayment.
(iii) For purposes of determining the amount of interest to assess on
April 1, 1994, the applicable date is July 31, 1993, the 30th day after
the date on which the Service sent X a 30-day letter. The January 1,
1992, notice of examination and request for additional information has
no effect on the applicable date. Similarly, the September 30, 1995,
federal district court decision has no effect on the applicable date.
(iv) From March 16, 1990, through July 31, 1993, interest on X's 1989
underpayment of income tax (including any interest, penalties,
additional amounts, and additions to tax) is computed at the section
6621(a)(2) rate. From August 1, 1993, through April 5, 1994, such
interest is computed at the section 6621(c) rate.
(v) Because of the federal district court's decision that X's
underpayment, exclusive of interest and penalties, was only $50,000, X
does not have a large corporate underpayment of income tax for 1989.
Thus, the interest X paid with respect to the remaining $250,000 in
taxes (exclusive of interest and penalties) becomes part of the
overpayment and will be refunded. In addition, any interest computed at
the section 6621(c) rate for the period from August 1, 1993, through
April 5, 1994, should be recomputed at the section 6621(a)(2) rate and
the difference refunded.
Example 4. (i) Y, a C corporation, timely filed its 1989 income tax
return on March 15, 1990, and enclosed payment of the amount reported on
the return as due. On May 1, 1990, the Service sent to Y an assessment
notice for $1,000 resulting from a math error on Y's return. Y did not
request an abatement of the assessment pursuant to section 6213(b).
Instead, Y paid the $1,000, plus interest, on July 31, 1990. On March
31, 1992, the Service sends Y a 90-day letter showing an income tax
deficiency for 1989 of $125,000 (exclusive of interest, penalties,
additional amounts, and additions to tax). No 30-day letter had been
issued previously to Y in connection with its 1989 taxable year. Y does
not file a petition with the Tax Court, but files an amended return for
1989 on April 15, 1992, showing $30,000 of tax due. Y pays this amount
(plus interest from March 15, 1990, computed at the section 6621(a)(2)
rate) with the amended return. Shortly thereafter, the Service assesses
the $125,000 deficiency (plus interest) and credits the April 15, 1992,
payment against the assessment.
(ii) Y's threshold underpayment for 1989 is $125,000 notwithstanding
Y's April 15, 1992, payment of $30,000. Because Y is a C corporation
and the threshold underpayment for 1989 exceeds $100,000, Y has a large
corporate underpayment of income tax for the taxable period 1989 to
which the section 6621(c) rate applies for periods after the applicable
date.
(iii) Because Y paid the $1,000 amount shown as due on the math error
assessment notice (plus interest) on or before January 31, 1991, the
applicable date is April 30, 1992, the 30th day after the 90-day letter
is sent.
(iv) From March 16, 1990, through April 30, 1992, interest is
computed on Y's underpayment of income tax (including any interest,
penalties, additional amounts, and additions to tax) at the section
6621(a)(2) rate. From May 1, 1992, such interest is computed at the
section 6621(c) rate.
(v) If Y had not paid the $1,000 amount shown as due on the math
error assessment notice (plus interest) on or before January 31, 1991,
the applicable date would have been May 31, 1990, and interest would be
computed at the section 6621(c) rate beginning on January 1, 1991. If,
however, Y had timely requested an abatement of the assessment under
section 6213(b), the applicable date would be April 30, 1992.
Example 5. (i) Effective January 1, 1993, Y converts from a C
corporation to an S corporation. On January 31, 1993 Y files its 1992
FUTA tax return and encloses a payment equal to the amount reported as
due on the return. On March 15, 1993, Y files its 1992 income tax
return and encloses a payment equal to the amount reported as due on the
return. On August 1, 1993, the Service sends to Y an assessment notice
for $150,000 of FUTA tax, plus interest, with respect to calendar year
1992. Y pays the full amount shown as due in the assessment notice on
August 7, 1993. On January 1, 1995, Y files an amended income tax
return for 1992 showing $15,000 of tax due. Y pays this amount with the
amended return. On February 10, 1995, the Service sends Y an assessment
notice for the interest payable on the $15,000. Y pays this interest on
February 13, 1995.
(ii) Y's threshold underpayment of FUTA tax for 1992 is $150,000.
Because Y was a C corporation in 1992 and the threshold underpayment of
FUTA tax for 1992 exceeds $100,000, Y has a large corporate underpayment
of FUTA tax. However, Y's threshold underpayment of income tax for the
same taxable period (i.e., calendar 1992) is $15,000, so that Y does not
have a large corporate underpayment of income tax for that year.
(iii) Because Y pays within 30 days the amount shown as due on the
August 1, 1993, assessment notice, there is no applicable date with
respect to the large corporate underpayment of FUTA tax for 1992.
(iv) All of the interest payable with respect to the 1992
underpayments of FUTA and income taxes is computed at the section
6621(a)(2) rate.
(v) If Y had not paid the amount shown as due on the August 1, 1993,
FUTA tax assessment notice within 30 days, the applicable date would
have been August 31, 1993, (the 30th day after the assessment notice is
sent). Thus, interest would have been computed at the section 6621(c)
rate after that date, even though Y is not at that time a C corporation.
(vi) If the amended 1992 income tax return Y files on January 1,
1995, had shown $115,000 of tax due instead of $15,000, Y's threshold
underpayment of income tax for 1992 would have been $115,000. Because Y
was a C corporation in 1992 and the threshold underpayment of income tax
for that year would have exceeded $100,000, Y would have a large
corporate underpayment of income tax for that year. However, because Y
would have paid the amount shown as due in the February 10, 1995,
assessment notice within 30 days of when that assessment notice was
sent, there would have been no applicable date with respect to that
large corporate underpayment and the section 6621(c) rate would have not
applied.
Example 6. (i) On August 1, 1990, the Service sent to Z, a C
corporation, an assessment notice for $200,000 of income tax, plus
$30,000 in interest and penalties, with respect to calendar year 1988.
Subsequent assessment notices were sent to Z on September 12, 1990,
October 10, 1990, and November 14, 1990, each including additional
interest. The November 14, 1990, assessment notice provided that the
total amount of tax, interest and penalties due was $242,000. On
December 31, 1990, Z pays $230,000. On February 13, 1991, the Service
sends Z an assessment notice for the remaining balance (plus additional
interest thereon). On December 31, 1991, Z pays all amounts owed as of
that date in connection with its 1988 income tax liability.
(ii) Z's threshold underpayment of income tax for 1988 is $200,000.
Because Z is a C corporation and its threshold underpayment of income
tax for 1988 exceeds $100,000, Z has a large corporate underpayment for
1988 to which the section 6621(c) rate applies for periods after the
applicable date.
(iii) Notwithstanding Z's payment of $230,000 on December 31, 1990,
the applicable date with respect to the large corporate underpayment of
1988 income tax is August 31, 1990, the 30th day after the date on which
the Service sent the first assessment notice.
(iv) From March 16, 1989, to December 31, 1990, interest is computed
on Z's underpayment of income tax (including any interest, penalties,
additional amounts and additions to tax) at the section 6621(a)(2) rate.
From January 1, 1991, through December 31, 1991, interest is computed
on that underpayment at the section 6621(c) rate.
(v) If Z had paid on or before January 31, 1991, the full $242,000
shown as due on the November 14, 1990, assessment notice, the applicable
date with respect to any remaining unpaid interest would have been March
15, 1991, the 30th day after the Service sent the February 13, 1991,
assessment notice.
(vi) The same result as in paragraph (v) of this Example 6 would
apply if the November 14, 1990, assessment notice had provided that only
$150,000 was due with respect to calendar year 1988 (as a result of a
correction by the Service of an error in its original August 1, 1990,
assessment, and not as a result of any payment by Z), and if Z had paid
that $150,000 on or before January 31, 1991.
(e) Effective date. Section 6621(c) and this section are effective
for determining interest for periods after December 31, 1990, regardless
of the taxable period to which the underlying tax may relate and even if
the applicable date is prior to December 31, 1990.
(T.D. 8447, 57 FR 53554, Nov. 12, 1992; 57 FR 60846, Dec. 22, 1992)
26 CFR 301.6622-1 Interest compounded daily.
(a) General rule. Effective for interest accruing after December 31,
1982, in computing the amount of any interest required to be paid under
the Internal Revenue Code of 1954 or sections 1961(c)(1) or 2411 of
Title 28, United States Code, by the Commissioner or by the taxpayer, or
in computing any other amount determined by reference to such amount of
interest, or by reference to the interest rate established under section
6621, such interest or such other amount shall be compounded daily by
dividing such rate of interest by 365 (366 in a leap year) and
compounding such daily interest rate each day.
(b) Exception. Paragraph (a) of this section shall not apply for
purposes of determining the amount of any addition to tax under sections
6654 or 6655 (relating to failure to pay estimated income tax).
(c) Applicability to unpaid amounts on December 31, 1982 -- (1) In
general. The unpaid interest (or other amount) that shall be compounded
daily includes the interest (or other amount) accrued but unpaid on
December 31, 1982.
(2) Illustration. The provisions of this (c) may be illustrated by
the following example.
Example. Individual A files a tax return for calendar year 1981 on
April 15, 1982, showing a tax due of $10,000. A pays $10,000 on
December 31, 1982, but A does not pay any interest with respect to this
underpayment until March 1, 1983, on which date A paid all amounts of
interest with respect to the $10,000 underpayment of tax. On December
31, 1982, A's unsatisfied interest liability was $1,424.66 ($10,000 20
percent 260/365 days). Interest, compounded daily, accrues on this
unsatisfied interest obligation beginning on January 1, 1983, until
March 1, 1983, the date the total interest obligation is satisfied. On
March 1, 1983, the total interest obligation is $1,462.62, computed as
follows:
(T.D. 7907, 48 FR 38231, Aug. 23, 1983)
26 CFR 301.6622-1 Additions to the Tax, Additional Amounts, and Assessable Penalties
26 CFR 301.6622-1 Additions to the Tax and Additional Amounts
26 CFR 301.6651-1 Failure to file tax return or to pay tax.
(a) Addition to the tax -- (1) Failure to file tax return. In case
of failure to file a return required under authority of --
(i) Subchapter A, chapter 61 of the Code, relating to returns and
records (other than sections 6015 and 6016, relating to declarations of
estimated tax, and part III thereof, relating to information returns);
(ii) Subchapter A, chapter 51 of the Code, relating to distilled
spirits, wines, and beer;
(iii) Subchapter A, chapter 52 of the Code, relating to cigars,
cigarettes, and cigarette papers and tubes; or
(iv) Subchapter A, chapter 53 of the Code, relating to machine guns,
destructive devices, and certain other firearms; and
The regulations thereunder, on or before the date prescribed for
filing (determined with regard to any extension of time for such
filing), there shall be added to the tax required to be shown on the
return the amount specified below unless the failure to file the return
within the prescribed time is shown to the satisfaction of the district
director or the director of the service center to be due to reasonable
cause and not to willful neglect. The amount to be added to the tax is
5 percent thereof if the failure is for not more than 1 month, with an
additional 5 percent for each additional month or fraction thereof
during which the failure continues, but not to exceed 25 percent in the
aggregate. The amount of any addition under this subparagraph shall be
reduced by the amount of the addition under subparagraph (2) of this
paragraph for any month to which an addition to tax applies under both
subparagraphs (1) and (2) of this paragraph (a).
(2) Failure to pay tax shown on return. In case of failure to pay
the amount shown as tax on any return (required to be filed after
December 31, 1969, without regard to any extension of time for filing
thereof) specified in subparagraph (1) of this paragraph (a), on or
before the date prescribed for payment of such tax (determined with
regard to any extension of time for payment), there shall be added to
the tax shown on the return the amount specified below unless the
failure to pay the tax within the prescribed time is shown to the
satisfaction of the district director, or, as provided in paragraph (a)
of this section, the Assistant Regional Commissioner (Alcohol, Tobacco
and Firearms), the director of the service center, to be due to
reasonable cause and not to willful neglect. The amount to be added to
the tax is 0.5 percent of the amount of tax shown on the return if the
failure is for not more than 1 month, with an additional 0.5 percent for
each additional month or fraction thereof during which the failure
continues, but not to exceed 25 percent in the aggregate.
(3) Failure to pay tax not shown on return. In case of failure to
pay any amount in respect of any tax required to be shown on a return
specified in subparagraph (1) of this paragraph (a), which is not so
shown (including an assessment made pursuant to section 6213(b)) within
10 days from the date of the notice and demand therefor (if such notice
and demand is made after December 31, 1969), there shall be added to the
amount stated in the notice and demand the amount specified below unless
the failure to pay the tax within the prescribed time is shown to the
satisfaction of the district director or the director of the service
center to be due to reasonable cause and not to willful neglect. The
amount to be added to the tax is 0.5 percent of the amount stated in the
notice and demand if the failure is for not more than 1 month, with an
additional 0.5 percent for each additional month or fraction thereof
during which the failure continues, but not to exceed 25 percent in the
aggregate, be reduced by the amount of the addition permitted under this
subparagraph shall be reduced by the amount of the addition under
subparagraph (1) of this paragraph (a), which is attributable to the tax
for which the notice and demand is made and which is not paid within 10
days from the date of notice and demand.
(b) Month defined. (1) If the date prescribed for filing the return
or paying tax is the last day of a calendar month, each succeeding
calendar month or fraction thereof during which the failure to file or
pay tax continues shall constitute a month for purposes of section 6651.
(2) If the date prescribed for filing the return or paying tax is a
date other than the last day of a calendar month, the period which
terminates with the date numerically corresponding thereto in the
succeeding calendar month and each such successive period shall
constitute a month for purposes of section 6651. If, in the month of
February, there is no date corresponding to the date prescribed for
filing the return or paying tax, the period from such date in January
through the last day of February shall constitute a month for purposes
of section 6651. Thus, if a return is due on January 30, the first
month shall end on February 28 (or 29 if a leap year), and the
succeeding months shall end on March 30, April 30, etc.
(3) If a return is not timely filed or tax is not timely paid, the
fact that the date prescribed for filing the return or paying tax, or
the corresponding date in any succeeding calendar month, falls on a
Saturday, Sunday, or a legal holiday is immaterial in determining the
number of months for which the addition to the tax under section 6651
applies.
(c) Showing of reasonable cause. (1) Except as provided in
subparagraphs (3) and (4) of this paragraph (b), a taxpayer who wishes
to avoid the addition to the tax for failure to file a tax return or pay
tax must make an affirmative showing of all facts alleged as a
reasonable cause for his failure to file such return or pay such tax on
time in the form of a written statement containing a declaration that it
is made under penalties of perjury. Such statement should be filed with
the district director or the director of the service center with whom
the return is required to be filed; Provided, That where special tax
returns of liquor dealers are delivered to an alcohol, tobacco and
firearms officer working under the supervision of the Regional Director,
Bureau of Alcohol, Tobacco and Firearms, such statement may be delivered
with the return. If the district director, the director of the service
center, or, where applicable, the Regional Director, Bureau of Alcohol,
Tobacco and Firearms, determines that the delinquency was due to a
reasonable cause and not to willful neglect, the addition to the tax
will not be assessed. If the taxpayer exercised ordinary business care
and prudence and was nevertheless unable to file the return within the
prescribed time, then the delay is due to a reasonable cause. A failure
to pay will be considered to be due to reasonable cause to the extent
that the taxpayer has made a satisfactory showing that he exercised
ordinary business care and prudence in providing for payment of his tax
liability and was nevertheless either unable to pay the tax or would
suffer an undue hardship (as described in 1.6161-1(b) of this chapter)
if he paid on the due date. In determining whether the taxpayer was
unable to pay the tax in spite of the exercise of ordinary business care
and prudence in providing for payment of his tax liability,
consideration will be given to all the facts and circumstances of the
taxpayer's financial situation, including the amount and nature of the
taxpayer's expenditures in light of the income (or other amounts) he
could, at the time of such expenditures, reasonably expect to receive
prior to the date prescribed for the payment of the tax. Thus, for
example, a taxpayer who incurs lavish or extravagant living expenses in
an amount such that the remainder of his assets and anticipated income
will be insufficient to pay his tax, has not exercised ordinary business
care and prudence in providing for the payment of his tax liability.
Further, a taxpayer who invests funds in speculative or illiquid assets
has not exercised ordinary business care and prudence in providing for
the payment of his tax liability unless, at the time of the investment,
the remainder of the taxpayer's assets and estimated income will be
sufficient to pay his tax or it can be reasonably foreseen that the
speculative or illiquid investment made by the taxpayer can be utilized
(by sale or as security for a loan) to realize sufficient funds to
satisfy the tax liability. A taxpayer will be considered to have
exercised ordinary business care and prudence if he made reasonable
efforts to conserve sufficient assets in marketable form to satisfy his
tax liability and nevertheless was unable to pay all or a portion of the
tax when it became due.
(2) In determining if the taxpayer exercised ordinary business care
and prudence in providing for the payment of his tax liability,
consideration will be given to the nature of the tax which the taxpayer
has failed to pay. Thus, for example, facts and circumstances which,
because of the taxpayer's efforts to conserve assets in marketable form,
may constitute reasonable cause for nonpayment of income taxes may not
constitute reasonable cause for failure to pay over taxes described in
section 7501 that are collected or withheld from any other person.
(3) If for a taxable year ending on or after December 31, 1971, an
individual taxpayer satisfies the requirements of 1.6081-4(a) (relating
to an automatic extension of time for filing an individual income tax
return), reasonable cause shall be presumed, for the period of the
extension of time to file, with respect to any underpayment of tax if --
(i) The excess of the amount of tax shown on Form 1040 over, the
amount of tax paid on or before the regular due date of the return by
virtue of taxes withheld by the employer, payments pursuant to the
declaration of estimated tax and the payment in full of estimated tax
liability pursuant to 1.6081-4, is no greater than 10 percent of the
amount of tax shown on the individual's Form 1040, and
(ii) Any balance due shown on the Form 1040 is remitted with the
return.
(4) If, for a taxable year ending on or after December 31, 1972, a
corporate taxpayer satisfies the requirements of 1.6081-3 (a) or (b)
(relating to an automatic extension of time for filing a corporation
income tax return), reasonable cause shall be presumed, for the period
of the extension of time to file, with respect to any underpayment of
tax if --
(i) Not less than the amount of tax that would be required as the
first installment under section 6152(a) (1), if the taxpayer elected to
pay the tax in installments, is paid on or before the regular due date
of the return and the second installment is paid on or before 3 months
after such date,
(ii) The amount of tax (determined without regard to any prepayment
thereof) shown on Form 7004, or the amount of tax paid on or before the
regular due date of the return, is at least 90 percent of the amount of
tax shown on the taxpayer's Form 1120, and
(iii) Any balance due shown on the Form 1120 is paid on, or before
the due date of the return, including any extensions of time for filing.
(d) Penalty imposed on net amount due -- (1) Credits against the tax.
The amount of tax required to be shown on the return for purposes of
section 6651 (a) (1) and the amount shown as tax on the return for
purposes of section 6651(a)(2) shall be reduced by the amount of any
part of the tax which is paid on or before the date prescribed for
payment of the tax and by the amount of any credit against the tax which
may be claimed on the return.
(2) Partial payments. (i) The amount of tax required to be shown on
the return for purposes of section 6651(a)(2) shall, for the purpose of
computing the addition for any month, be reduced by the amount of any
part of the tax which is paid after the date prescribed for payment and
on or before the first day of such month.
(ii) The amount of tax stated in the notice and demand for purposes
of section 6651(a)(3) shall, for the purpose of computing the addition
for any month, be reduced by the amount of any part of the tax which is
paid before the first day of such month.
(e) No addition to tax if fraud penalty assessed. No addition to the
tax under section 6651 shall be assessed with respect to an underpayment
of tax if a 50-percent addition to the tax for fraud is assessed with
respect to the same underpayment under section 6653(b). See section
6653(d).
(f) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. (a) Under section 6072(a), income tax returns of
individuals on a calendar year basis must be filed on or before the 15th
day of April following the close of the calendar year. Assume an
individual filed his income tax return for the calendar year 1969 on
July 20, 1970, and the failure to file on or before the prescribed date
is not due to reasonable cause. The tax shown on the return is $800 and
a deficiency of $200 is subsequently assessed, making the tax required
to be shown on the return, $1,000. Of this amount, $300 has been paid
by withholding from wages and $400 has been paid as estimated tax. The
balance due as shown on the return of $100 ($800 shown as tax on the
return less $700 previously paid) is paid on August 21, 1970. The
failure to pay on or before the prescribed date is not due to reasonable
cause. There will be imposed, in addition to interest, an additional
amount under section 6651(a) (2) of $2.50, which is 2.5 percent (2% for
the 4 months from April 16 through August 15, and 0.5% for the
fractional part of the month from August 16 through August 21) of the
net amount due as shown on the return of $100 ($800 shown on the return
less $700 paid on or before April 15). There will also be imposed an
additional amount under section 6651(a) (1) of $58, determined as
follows:
(b) A notice and demand for the $200 deficiency is issued on January
8, 1971, but the taxpayer does not pay the deficiency until December 23,
1971. In addition to interest there will be imposed an additional
amount under section 6651(a)(3) of $10, determined as follows:
Example 2. An individual files his income tax return for the
calendar year 1969 on December 2, 1970, and such delinquency is not due
to reasonable cause. The balance due, as shown on the return, of $500
is paid when the return is filed on December 2, 1970. In addition to
interest and the addition for failure to pay under section 6651(a)(2) of
$20 (8 months at 0.5% per month, 4%), there will also be imposed an
additional amount under section 6651(a)(1) of $112.50, determined as
follows:
(T.D. 7133, 36 FR 13594, July 22, 1971, as amended by T.D. 7160, 37
FR 2507, Feb. 2, 1972; T.D. 7260, 38 FR 4259, Feb. 12, 1973)
26 CFR 301.6652-1 Failure to file certain information returns.
(a) Returns with respect to payments made in calendar years after
1962 -- (1) Payments of dividends, interest, or patronage dividends
aggregating $10 or more. In the case of each failure to file a
statement required by --
(i) Section 6042(a) (1), relating to information returns with respect
to payments of dividends aggregating $10 or more in a calendar year, in
effect with respect to payments made after December 31, 1962,
(ii) Section 6044(a) (1), relating to information returns with
respect to certain payments by cooperatives aggregating $10 or more in a
calendar year, in effect with respect to payments made on or after the
first day of the first taxable year of the cooperative beginning after
December 31, 1962, with respect to patronage occurring on or after such
first day, or
(iii) Section 6049(a) (1), relating to information returns with
respect to payments of interest aggregating $10 or more in a calendar
year, in effect with respect to payments made after December 31, 1962,
and the regulations under such section, within the time prescribed for
filing such statement (determined with regard to any extension of time
for filing), there shall be paid by the person failing to so file the
statement $10 for each such statement not so filed. However, the total
amount imposed on the delinquent person for all such failures under
section 6652(a) and this section during any calendar year shall not
exceed $25,000.
(2) Other payments; statements with respect to tips. In the case of
each failure --
(i) To file a statement of a payment made to another person required
under authority of section 6041, relating to information returns with
respect to certain information at source, or section 6051(d), relating
to information returns with respect to payments of wages as defined in
section 3401(a), or section 6050(a), relating to information returns
with respect to remuneration of certain crew members defined in section
3121(b)(20), or
(ii) To furnish a statement required under authority of section
6053(b), relating to statements furnished by employers with respect to
tips, or section 6050A(b), relating to statements furnished by fishing
boat operators with respect to remuneration of certain crew members,
within the time prescribed by regulations under those sections for
filing such statements (determined with regard to any extension of time
for filing),
There shall be paid by the person failing to so file the statement $1
for each such statement not so filed. However, the total amount imposed
on the delinquent person for all such failures during any calendar year
shall not exceed $1,000.
(b) Returns with respect to payments made in calendar years before
1963 and to certain payments by cooperatives after 1962. In the case of
each failure to file a statement, with respect to a payment to another
person, required under authority of --
(1) Section 6041, relating to information returns with respect to
certain information at source, in effect with respect to payments made
before 1963,
(2) Section 6042(1), relating to information returns with respect to
payments of corporate dividends, in effect with respect to payments made
before 1963,
(3) Section 6044, relating to information returns with respect to
payments of patronage dividends, in effect with respect to payments made
by a cooperative with respect to patronage occurring before the first
day of the first taxable year of the cooperative beginning after
December 31, 1962, or
(4) Section 6051(d), relating to information returns with respect to
payments of wages as defined in section 3401(a), in effect with respect
to payments made before 1963,
and the regulations under such section, within the time prescribed
for filing such statement (determined with regard to any extension of
time for filing), there shall be paid by the person failing to so file
such statement $1 for each such statement not so filed. However, the
total amount imposed on the delinquent person for all such failures
during any calendar year shall not exceed $1,000.
(c) Returns with respect to reporting payments of wages in the form
of group-term life insurance provided in a calendar year after December
31, 1963. In the case of each failure to file a return required by
section 6052(a), relating to reporting payment of wages in the form of
group-term life insurance provided for any employee on his life in a
calendar year after December 31, 1963, and the regulations under such
section, within the time prescribed for filing such return (determined
with regard to any extension of time for filing), there shall be paid by
the person failing to so file such return $10 for each such return not
so filed. However, the total amount imposed on the delinquent person
for all such failures under section 6652(a) and this section during any
calendar year shall not exceed $25,000.
(d) Returns with respect to transfer of stock or record title thereto
pursuant to options exercised on or after January 1, 1964. In the case
of each failure to file a statement of the transfer of stock or of
record title thereto as required by section 6039(a) and the regulations
under such section within the time prescribed for filing such statement
(determined with regard to any extension of time for filing), there
shall be paid by the corporation failing to so file such statement, $10
for each such statement not so filed. However, the total amount imposed
on the delinquent corporation for all such failures under section
6652(a) and this section during any calendar year shall not exceed
$25,000.
(e) Manner of payment. The amount imposed under subsection (a), (b),
or (c) of section 6652 and this section on any person shall be paid in
the same manner as tax upon the issuance of a notice and demand
therefor.
(f) Showing of reasonable cause. The amount imposed by subsection
(a), (b), or (c) of section 6652 shall not apply with respect to a
failure to file a statement within the time prescribed if it is
established to the satisfaction of the district director or the director
of the internal revenue service center that such failure was due to
reasonable cause and not to willful neglect. An affirmative showing of
reasonable cause must be made in the form of a written statement,
containing a declaration that it is made under the penalties of perjury,
setting forth all the facts alleged as a reasonable cause.
(g) Alcohol and tobacco taxes. For penalties for failure to file
certain information returns with respect to alcohol and tobacco taxes,
see, generally, subtitle E of the Code.
(h) Tips. For regulations under section 6652(c) in respect of
failure to report tips, see 31.6652-1 of this chapter (Employment Tax
Regulations).
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7001, 34 FR 1006, Jan.
23, 1969; T.D. 7127, 36 FR 11503, June 15, 1971; T.D. 7716, 45 FR
57124, Aug. 27, 1980)
26 CFR 301.6652-2 Failure by exempt organizations and certain nonexempt
organizations to file certain returns or to comply with section 6104(d)
for taxable years beginning after December 31, 1969.
(a) Exempt organization or trust. In the case of a failure to file a
return required by --
(1) Section 6033, relating to returns by exempt organizations, trusts
described in section 4947(a)(1) and nonexempt private foundations,
(2) Section 6034, relating to returns by certain trusts, or
(3) Section 6043(b), relating to returns regarding the liquidation,
dissolution, termination, or substantial contraction of an exempt
organization,
within the time and in the manner prescribed for filing such return
(determined with regard to any extension of time for filing), unless it
is shown that such failure is due to reasonable cause, there shall be
paid by the exempt organization or trust failing to file such return $10
for each day during which such failure continues. However, the total
amount imposed on any exempt organization or trust under this paragraph
for such failure with regard to any one return shall not exceed $5,000.
(b) Managers. If an exempt organization or trust fails to file under
section 6652(d) (1), the Commissioner may, by written demand, request
that such organization or trust file the delinquent return within 90
days after the date of mailing of such demand, or within such additional
period as the Commissioner shall determine is reasonable under the
circumstances. If such organization or trust does not so file on or
before the date specified in such demand, there shall be paid by the
person or persons responsible for such failure to file $10 for each day
after such date during which such failure continues, unless it is shown
that such failure is due to reasonable cause. However, the total amount
imposed under this paragraph on all persons responsible for such failure
with regard to any one return shall not exceed $5,000.
(c) Public inspection of private foundations' annual returns -- (1)
In general. In the case of a failure to comply with the requirements of
section 6104(d), relating to public inspection of private foundations'
annual returns, within the time and in the manner prescribed for
complying with section 6104(d), unless it is shown that such failure is
due to reasonable cause, there shall be paid by the person or persons
responsible for failing to comply with section 6104(d) $10 for each day
during which such failure continues. However, the total amount imposed
under this subparagraph on all persons responsible for any such failure
with regard to any one annual return shall not exceed $5,000.
(2) Amount imposed. The amount imposed under section 6652(d)(3) is
$10 per day for a failure to comply with section 6104(d). For example,
assume that an annual return must be filed by private foundation X on or
before May 15, 1982, for the calendar year 1981. The foundation without
reasonable cause does not comply with section 6104(d) by publishing
notice of the availability of the annual return until July 30, 1982. In
this case, the person failing to comply with section 6104(d) within the
prescribed time is required to pay $760 for complying with section
6104(d) 76 days late.
(3) Cross reference. For the penalty for willful failure to comply
with section 6104(d), see 301.6685-1.
(d) Special rules. For purposes of section 6652(d) and this section
--
(1) Person. The term ''person'' means any officer, director,
trustee, employee, member, or other individual whose duty it is to
perform the act in respect of which the violation occurs.
(2) Liability. If more than one person (as defined in subparagraph
(1) of this paragraph (d)) is liable for a failure to file or to comply
with section 6652(d) (2) or (3), all such persons shall be jointly and
severally liable with respect to such failure.
(e) Manner of payment. The amount imposed under section 6652(d) and
this section on any exempt organization, trust, or person (as defined in
paragraph (d) (1) of this section) shall be paid in the same manner as
tax upon the issuance of a notice and demand therefor.
(f) Showing of reasonable cause. No amount imposed by section
6652(d) shall apply with respect to a failure to file or comply under
this section if it is established to the satisfaction of the district
director or director of the internal revenue service center that such
failure was due to reasonable cause. An affirmative showing of
reasonable cause must be made in the form of a written statement
containing a declaration by the appropriate person (as defined in
paragraph (d) (1) of this section), or in his absence, by any officer,
director, or trustee of the organization, that the statement is made
under the penalties of perjury, setting forth all the facts alleged as
reasonable cause.
(g) Group returns. If a central organization is authorized to file a
group return on behalf of two or more of its local organizations for the
taxable year in accordance with paragraph (d) of 1.6033-2 (Income Tax
Regulations), the responsibility for timely filing of such a return is
placed upon the central organization for purposes of this section.
Consequently, the amount imposed by section 6652(d) (1) for failure to
file the group return shall be paid by the central organization and the
amount imposed by section 6652(d) (2) for failure to file the group
return within the time prescribed by the Commissioner shall be paid by
the person or persons responsible for filing the group return.
(h) Effective date. This section shall apply for taxable years
beginning after December 31, 1969.
(T.D. 7127, 36 FR 11503, June 15, 1971, as amended by T.D. 8026, 50
FR 20758, May 20, 1985)
26 CFR 301.6652-3 Failure to file information with respect to employee
retirement benefit plan.
(a) Amount imposed -- (1) Annual registration statement. The plan
administrator (within the meaning of section 414(g)) of an employee
retirement benefit plan defined in 301.6057-1(a)(3) is liable for the
amount imposed by section 6652(e)(1) in each case in which there is a
failure to file information relating to the deferred vested retirement
benefit of a plan participant, as required by section 6057(a) and
301.6057-1, at the time and place and in the manner prescribed therefor
(determined without regard to any extension of time for filing). The
amount imposed by section 6652(e)(1) on the plan administrator is $1 for
each participant with respect to whom there is a failure to file the
required information, multiplied by the number of days during which the
failure continues. However, the total amount imposed by section
6652(e)(1) on the plan administrator with respect to a failure to file
on behalf of a plan for a plan year shall not exceed $5,000.
(2) Notification of change in status. The plan administrator (within
the meaning of section 414(g)) of an employee retirement benefit plan
defined in 301.6057-1(a)(3) is liable for the amount imposed by section
6652(e)(2) in each case in which there is a failure to file a
notification of a change in plan status, as described in section 6057(b)
and 301.6057-2, at the time and place and in the manner prescribed
therefor (determined without regard to any extension of time for
filing). The amount imposed by section 6652(e)(2) on the plan
administrator is $1 for each day during which the failure to so file a
notification of a change in plan status continues. However, the total
amount imposed by section 6652(e)(2) on the plan administrator with
respect to a failure to file a notification of a change in plan status
shall not exceed $1,000.
(3) Annual return of funded plan of deferred compensation. Under
section 6652(f) the amount described in this subparagraph is imposed in
each case in which there is a failure to file the annual return
described in section 6058(a) on behalf of a plan described in
301.6058-1(a) at the time and in the manner prescribed therefor
(determined with regard to any extension of time for filing). The
employer maintaining the plan is liable for the amount imposed with
respect to a failure to so file the annual return in each case in which
the employer must file the return under 301.6058-1(a). The plan
administrator (within the meaning of section 414(g)) is liable for the
amount imposed in each case in which the plan administrator must file
the return under 301.6058-1(a). In the case of an individual retirement
account or annuity described in section 408, the individual described in
301.6058-1(d)(2) who must file the annual return under 301.6058-1(d)
is liable for the amount imposed with respect to a failure to so file
the annual return. The amount imposed is $10 for each day during which
the failure to file the annual return on behalf of a plan for a year
continues. However, the total amount imposed with respect to a failure
to file on behalf of a plan for any year shall not exceed $5,000.
(4) Actuarial statement in case of mergers. The plan administrator
(within the meaning of section 414(g)) is liable for an amount imposed
by section 6652(f) in each case in which there is a failure to file the
actuarial statement described in section 6058(b) at the time and in the
manner prescribed therefor (determined with regard to any extension of
time for filing). The amount imposed by section 6652(f) on the plan
administrator is $10 for each day during which the failure to file the
statement with respect to a merger, consolidation or transfer of assets
or liabilities continues. However, the amount imposed by section
6652(f) on the plan administrator with respect to a failure to file the
statement with respect to a merger, consolidation or transfer shall not
exceed $5,000.
(5) Information relating to certain trusts and annuity and bond
purchase plans. Under section 6652(f) the amount described in this
subparagraph is imposed in each case in which there is a failure to file
a return or statement required by section 6047 at the time and in the
manner prescribed therefor in 1.6047-1 (determined with regard to any
extension of time for filing). The amount is imposed upon the trustee
of a trust described in section 401(a), custodian of a custodial account
or issuer of an annuity contract, as the case may be (see
1.6047-1(a)(1) (i) and (ii)). The amount imposed by section 6652(f) is
$10 for each day during which the failure to file with respect to a
payee for a calendar year continues. However, the amount imposed with
respect to a failure to file with respect to a payee for a calendar year
shall not exceed $5,000.
(b) Showing of reasonable cause. (1) No amount imposed by section
6652(e) shall apply with respect to a failure to file information
relating to the deferred vested retirement benefit of a plan participant
under section 6057(a), or a failure to give notice of a change in plan
status under section 6057(b), if it is established to the satisfaction
of the director of the internal revenue service center at which the
information or notice is required to be filed that the failure was due
to reasonable cause.
(2) No amount imposed by section 6652(f) shall apply with respect to
a failure to file a return or statement required by section 6058 or
6047, or a failure to provide material items of information called for
on such a return or statement, if it is established to the satisfaction
of the appropriate district director or the director of the internal
revenue service center at which the return or statement is required to
be filed that the failure was due to reasonable cause.
(3) An affirmative showing of reasonable cause must be made in the
form of a written statement setting forth all the facts alleged as
reasonable cause. The statement must contain a declaration by the
appropriate individual that the statement is made under the penalties of
perjury.
(c) Joint liability. If more than one person is responsible for a
failure to comply with sections 6057 (a) or (b) or section 6058 (a) or
(b) or section 6047, all such persons shall be jointly and severally
liable with respect to the failure.
(d) Manner of payment. An amount imposed under section 6652 (e) or
(f) and this section shall be paid in the same manner as a tax upon the
issuance of notice and demand therefor.
(e) Effective dates -- (1) Annual registration statement. With
respect to the annual registration statement described in section
6057(a), this section is effective --
(i) In the case of a plan to which only one employer contributes, for
plan years beginning after December 31, 1975, with respect to
participants who separate from service covered by the plan in plan years
beginning after that date, and
(ii) In the case of a plan to which more than one employer
contributes, for plan years beginning after December 31, 1977, and with
respect to participants who complete two consecutive 1-year breaks in
service under the plan in service computation periods beginning after
December 31, 1974.
(2) Notification of change in status. With respect to the
notification of change in plan status required by section 6057(b), this
section is effective with respect to a change in status occurring within
plan years beginning after December 31, 1975.
(3) Annual return of employee benefit plan. With respect to the
annual return of employee benefit plan required by section 6058(a), this
section is effective for plan years beginning after September 2, 1974.
(4) Actuarial statement in case of mergers. With respect to the
actuarial statement required by section 6058(b), this section is
effective with respect to mergers, consolidations or transfers of assets
or liabilities occurring after September 2, 1974.
(5) Information relating to certain trusts and annuity and bond
purchase plans. With respect to reports or statements required to be
filed by section 6047 and the regulations thereunder, this section is
effective with respect to calendar years ending after September 2, 1974.
(T.D. 7551, 43 FR 29293, July 7, 1978, and T.D. 7561, 43 FR 38006,
Aug. 25, 1978; 44 FR 24285, Apr. 25, 1979)
26 CFR 301.6653-1 Failure to pay tax.
(a) Negligence or intentional disregard of rules and regulations with
respect to income or gift taxes. If any part of any underpayment, as
defined in section 6653(c)(1) and paragraph (c)(1) of this section, of
any income tax imposed by Subtitle A of the Code, or gift tax imposed by
Chapter 12, Subtitle B, of the Code, is due to negligence or intentional
disregard of rules and regulations, but without intent to defraud, there
shall be added to the tax an amount equal to 5 percent of the
underpayment.
(b) Fraud. (1) If any part of any underpayment of tax, as defined in
section 6653(c) and paragraph (c) of this section, required to be shown
on a return is due to fraud, there shall be added to the tax an amount
equal to 50 percent of the underpayment.
(2) If a 50 percent addition to the tax for fraud is assessed under
section 6653(b) with respect to an underpayment --
(i) The addition to the tax under section 6651, relating to failure
to file a tax return, will not be assessed with respect to the same
underpayment, and
(ii) In the case of the income taxes imposed by Subtitle A and the
gift tax imposed by Chapter 12 of Subtitle B, the 5 percent addition to
the tax under section 6653(a), relating to negligence and intentional
disregard of rules and regulations, will not be assessed with respect to
the same underpayment.
(c) Definition of underpayment -- (1) Income, estate, gift, and
Chapter 41, 42, 43, and 44 taxes. In the case of income, estate, gift,
and Chapter 41, 42, 43, and 44 taxes, an underpayment for purposes of
section 6653 and this section is --
(i) The total amount of all deficiencies as defined in section 6211,
if a return was filed on or before the last date (determined with regard
to any extension of time) prescribed for filing such return, or
(ii) The amount of the tax imposed by Subtitle A or B, or Chapter 41,
42, 43, or 44, as the case may be, if a return was not filed on or
before the last date (determined with regard to any extension of time)
prescribed for filing such return.
However, for purposes of paragraph (c)(1)(i) of this section, any
amount of additional tax shown on the amended return, so called, filed
after the due date of the return is a deficiency.
(2) Other taxes. In the case of any tax other than an income,
estate, gift or Chapter 41, 42, 43, or 44 tax, an underpayment for
purposes of section 6653 and this section is the amount by which the tax
imposed exceeds --
(i) In the case of any tax with respect to which the taxpayer is
required to file a return, the sum of (a) the amount shown as tax by the
taxpayer upon his return filed in respect of such tax, but only if the
return is filed on or before the last date (determined with regard to
any extension of time) prescribed for filing such return, plus (b) any
amount not shown on a return filed by the taxpayer which is paid in
respect of such tax prior to the date prescribed for filing the return.
The ''amount shown as tax by the taxpayer upon his return'' for the
purposes of this subparagraph shall be determined without regard to any
credit for an overpayment for any prior tax return period, and without
regard to any adjustment made under section 6205(a), or section 6413(a),
relating to special rules applicable to certain employment taxes.
(ii) In the case of any tax payable by stamp, the amount paid (on or
before the date prescribed for payment) in respect of such tax.
The amounts specified in subdivisions (i) and (ii) of this
subparagraph shall be reduced, for purposes of determining the amount of
the underpayment, by the amount of any rebates made. For purposes of
this subparagraph, the term ''rebates'' means so much of an abatement,
credit, refund, or other repayment as was made on the ground that the
tax imposed was less than the excess of the amount specified in
subdivision (i) or (ii) of this subparagraph, whichever is applicable,
over any rebates previously made.
(d) No delinquency penalty if fraud assessed. See paragraph (b) (2)
of this section.
(e) Failure to pay stamp tax. Any person (as defined in section
6671(b)) who willfully fails to pay any tax payable by stamp, coupons,
tickets, books or other devices or methods prescribed by the Code or
regulations promulgated thereunder, or willfully attempts in any manner
to evade or defeat any such tax or the payment thereof, shall, in
addition to other penalties provided by law, be liable to a penalty of
50 percent of the total amount of the underpayment of the tax.
(f) Joint returns. No person filing a joint return shall be held
liable for a fraud penalty except for his own personal fraudulent
conduct. Thus, for the fraud penalty to apply to a taxpayer who files a
joint return some part of the underpayment in such return must be due to
the fraud of such taxpayer. A taxpayer shall not be subject to the
fraud penalty solely by reason of the fraud of a spouse and his filing
of a joint return with such spouse.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7320, 39 FR 28279,
Aug. 6, 1974; 39 FR 29353, Aug. 15, 1974; T.D. 7838, 47 FR 44252, Oct.
7, 1982)
26 CFR 301.6654-1 Failure by individual to pay estimated income tax.
For regulations under section 6654, see 1.6654-1 to 1.6654-5,
inclusive, of this chapter (Income Tax Regulations).
(T.D. 7282, 38 FR 19029, July 19, 1973)
26 CFR 301.6655-1 Failure by corporation to pay estimated income tax.
For regulations under section 6655, see 1.6655-1 to 1.6655-3,
inclusive, and 1.6655-5, of this chapter (Income Tax Regulations).
(T.D. 7059, 35 FR 14549, Sept. 17, 1970)
26 CFR 301.6656-1 Penalty for underpayment of deposits.
(a) General rule. If any person is required by the Code or
regulations prescribed thereunder to deposit any tax in a government
depositary that is authorized under section 6302(c) to receive the
deposit, and fails to deposit the tax within the time prescribed
therefor, a penalty shall be imposed on such person unless the failure
is shown to be due to reasonable cause and not due to willful neglect.
The penalty shall be 5 percent of the amount of the underpayment without
regard to the period during which the underpayment continues. For
purposes of this section, the term ''underpayment'' means the amount of
tax required to be deposited less the amount, if any, that was deposited
on or before the date prescribed therefor. Section 7502(e) applies in
determining the date a deposit is made.
(b) Assertion of reasonable cause. To show that the underpayment was
due to reasonable cause and not due to willful neglect, a taxpayer must
make an affirmative showing of all facts alleged as a reasonable cause
in a written statement containing a declaration that it is made under
the penalties of perjury. The statement must be filed with the district
director for the district or the director of the service center where
the return with respect to the tax is required to be filed. If the
district director or the director of the service center determines that
the underpayment was due to reasonable cause and not due to willful
neglect, the penalty will not be imposed.
(T.D. 7925, 48 FR 55454, Dec. 13, 1983)
26 CFR 301.6656-2 Penalty for overstated deposit claims.
(a) General rule. Any person who makes an overstated deposit claim
on a return is subject to a penalty equal to 25 percent of such claim,
unless it is shown that the overstated deposit claim is due to
reasonable cause and not due to willful neglect. This penalty is in
addition to any other penalty provided by law, such as the penalty
provided by section 6656(a), relating to underpayment of deposits.
(b) Overstated deposit claim. An overstated deposit claim is the
excess of --
(1) The amount of any internal revenue tax for any period that a
person claims, in a return (including an amended return) filed after
August 13, 1981, to have deposited in a government depositary authorized
under section 6302(c) to receive the deposit, over
(2) The aggregate amount for that period that the person has
deposited, on or before the date such return for that period is filed,
in a government depositary authorized under section 6302(c) to receive
the deposit.
An overstated deposit claim includes a claim that deposits have been
made when no deposits have been made in an authorized government
depositary. The existence or amount of an overstated deposit claim is
not limited even though the amount described in subparagraph (1) of this
paragraph (b) or the amount described in subparagraph (2) of this
paragraph (b) exceeds the actual tax liability. For purposes of this
paragraph (b), the date a return is considered to be filed is the later
of the date the return is due to be filed (not including extensions) or
the date the return is actually filed. Section 7502(e) applies in
determining the date a deposit is made. The application of this
paragraph is illustrated by the following examples.
Example 1. On the date a return is due for the taxable period ended
December 31, 1982, Z files the return claiming deposits of tax in the
amount of $150 for that period. Z actually made deposits of $75 for
that period on or before the date the return was due and filed. Z's tax
liability for that period is $150. Z has made an overstated deposit
claim in the amount of $75, the excess of the amount of tax claimed on
the return to have been deposited ($150), over the amount actually
deposited ($75) for that period on or before the date the return was due
and filed.
Example 2. On the date a return is due for the quarter ended
December 31, 1982, X files the return claiming deposits of tax in the
amount of $200 for that period. X actually made deposits of $100 for
that period on or before the date the return was due and filed. X's tax
liability for that period is $100. X has made an overstated deposit
claim of $100, the excess of the amount of tax claimed on the return to
have been deposited ($200), over the amount actually deposited ($100)
for that period on or before the date the return was due and filed.
Example 3. The facts are the same as in example 2. For that quarter
ended March 31, 1983, X files a return on the date it is due, claiming
$100 (the excess of the amount of tax claimed to have been deposited on
the prior quarter's return, $200, over X's liability for the prior
quarter, $100) as a deposit for the quarter ended March 31, 1983. X did
not actually deposit any amount for the quarter ended March 31, 1983, on
or before the date the return was due and filed. X made an overstated
deposit claim of $100 for the quarter ended December 31, 1982, as
described in example 2. For the quarter ended March 31, 1983, X made an
overstated deposit claim of $100, the excess of the amount of tax
claimed to have been deposited ($100), over the amount actually
deposited (0) for that period on or before the date the return was due
and filed.
(c) Assertion of reasonable cause. To show that an overstated
deposit claim was due to reasonable cause and not due to willful
neglect, a taxpayer must make an affirmative showing of all facts
alleged as a reasonable cause in a written statement containing a
declaration that is is made under the penalties of perjury. The
statement must be filed with the district director for the district or
the director of the service center where the return with respect to the
tax is required to be filed. If the district director or the director
of the service center determines that the overstated deposit claim was
due to reasonable cause and was not due to willful neglect, the penalty
will not be imposed. The fact that a correct amended return has been
filed may in some cases be evidence that an overstated deposit claim on
the original return was due to reasonable cause and not due to willful
neglect, but is not determinative of that issue.
(T.D. 7925, 48 FR 55454, Dec. 13, 1983)
26 CFR 301.6657-1 Bad checks.
(a) In general. Except as provided in paragraph (b) of this section,
if a check or money order is tendered in the payment of any amount
receivable under the Code, and such check or money order is not paid
upon presentment, a penalty of one percent of the amount of the check or
money order, in addition to any other penalties provided by law shall be
paid by the person who tendered such check or money order. If, however,
the amount of the check or money order is less than $500, the penalty
shall be $5 or the amount of the check or money order, whichever amount
is the lesser. Such penalty shall be paid in the same manner as tax
upon the issuance of a notice and demand therefor.
(b) Reasonable cause. If payment is refused upon presentment of any
check or money order and the person who tendered such check or money
order establishes to the satisfaction of the district director that it
was tendered in good faith with reasonable cause to believe that it
would be duly paid, the penalty set forth in paragraph (a) of this
section shall not apply.
26 CFR 301.6658-1 Addition to tax in case of jeopardy.
Upon a finding by the district director that any taxpayer violated,
or attempted to violate, section 6851 (relating to termination of
taxable year) there shall, in addition to all other penalties, be added
as part of the tax 25 percent of the total amount of the tax or
deficiency in the tax.
26 CFR 301.6659-1 Applicable rules.
(a) Additions treated as tax. Except as otherwise provided in the
Code, any reference in the Code to ''tax'' shall be deemed also to be a
reference to any addition to the tax, additional amount, or penalty
imposed by chapter 68 of the Code with respect to such tax. Such
additions to the tax, additional amounts, and penalties shall become
payable upon notice and demand therefor and shall be assessed,
collected, and paid in the same manner as taxes.
(b) Additions to tax for failure to file return or pay tax. Any
addition under section 6651 or section 6653 to a tax shall be considered
a part of such tax for the purpose of the assessment and collection of
such tax. For applicability of deficiency procedures to additions to
the tax, see paragraph (c) of this section.
(c) Deficiency procedures -- (1) Addition to the tax for failure to
file tax return. (i) Subchapter B, chapter 63, of the Code (deficiency
procedures) applies to the additions to the income estate, gift, and
chapter 41, 42, 43, and 44 taxes imposed by section 6651 for failure to
file a tax return to the same extent that it applies to such taxes.
Accordingly, if there is a deficiency (as defined in section 6211) in
the tax (apart from the addition to the tax) where a return has not been
timely filed, deficiency procedures apply to the addition to the tax
under section 6651. If there is no deficiency in the tax where a return
has not been timely filed, the addition to the tax under section 6651
may be assessed and collected without deficiency procedures.
(ii) The provisions of paragraph (c)(1)(i) of this section may be
illustrated by the following examples:
Example 1. A filed his income tax return for the calendar year 1955
on May 15, 1956, not having been granted an extension of time for such
filing. His failure to file on time was not due to reasonable cause.
The return showed a liability of $1,000 and it was determined that A is
liable under section 6651 for an addition to such tax of $50 (5 percent
a month for 1 month). The provisions of subchapter B of chapter 63
(deficiency procedures) do not apply to the assessment and collection of
the addition to the tax since such provisions are not applicable to the
tax with respect to which such addition was asserted, there being no
statutory deficiency for purposes of section 6211.
Example 2. Assume the same facts as in example 1 and assume further
that a deficiency of $500 in tax and a further $25 addition to the tax
under section 6651 is asserted against A for the calendar year 1955.
Thus, the total addition to the tax under section 6651 is $75. Since
the provisions of subchapter B of chapter 63 are applicable to the $500
deficiency, they likewise apply to the $25 addition to the tax asserted
with respect to such deficiency (but not to the $50 addition to the tax
under example 1).
(2) Additions to the tax for negligence or fraud. Subchapter B of
chapter 63 (deficiency procedures) applies to all additions to the
income, estate, gift, and chapter 41, 42, 43, and 44 taxes imposed by
section 6653 (a) and (b) for negligence and fraud.
(3) Additions to tax for failure to pay estimated income taxes -- (i)
Return filed by taxpayer. The addition to the tax for underpayment of
estimated income tax imposed by section 6654 (relating to failure by
individuals to pay estimated income tax) or section 6655 (relating to
failure by corporations to pay estimated income tax) is determined by
reference to the tax shown on the return if a return is filed.
Therefore, such addition may be assessed and collected without regard to
the provisions of subchapter B of chapter 63 (deficiency procedures) if
a return is filed since such provisions are not applicable to the
assessment of the tax shown on the return. Further, since the additions
to the tax imposed by section 6654 or 6655 are determined solely by
reference to the amount of tax shown on the return if a return is filed,
the assertion of a deficiency with respect to any tax not shown on such
return will not make the provisions of subchapter B of chapter 63
(deficiency procedures) apply to the assessment and collection of any
additions to the tax under section 6654 or 6655.
(ii) No return filed by taxpayer. If the taxpayer has not filed a
return and his entire income tax liability is asserted as a deficiency
to which the provisions of subchapter B of chapter 63 apply, such
provisions likewise will apply to any addition to such tax imposed by
section 6654 or 6655.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7838, 47 FR 44252,
Oct. 7, 1982)
26 CFR 301.6659-1 Assessable Penalties
26 CFR 301.6671-1 Rules for application of assessable penalties.
(a) Penalty assessed as tax. The penalties and liabilities provided
by subchapter B, chapter 68, of the Code (sections 6671 to 6675,
inclusive) shall be paid upon notice and demand by the district director
or the director of the regional service center and shall be assessed and
collected in the same manner as taxes. Except as otherwise provided,
any reference in the Code to ''tax'' imposed thereunder shall also be
deemed to refer to the penalties and liabilities provided by subchapter
B of chapter 68.
(b) Person defined. For purposes of subchapter B of chapter 68, the
term ''person'' includes an officer or employee of a corporation, or a
member or employee of a partnership, who as such officer, employee, or
member is under a duty to perform the act in respect of which the
violation occurs.
26 CFR 301.6672-1 Failure to collect and pay over tax, or attempt to
evade or defeat tax.
Any person required to collect, truthfully account for, and pay over
any tax imposed by the Code who willfully fails to collect such tax, or
truthfully account for and pay over such tax, or willfully attempts in
any manner to evade or defeat any such tax or the payment thereof,
shall, in addition to other penalties, be liable to a penalty equal to
the total amount of the tax evaded, or not collected, or not accounted
for and paid over. The penalty imposed by section 6672 applies only to
the collection, accounting for, or payment over of taxes imposed on a
person other than the person who is required to collect, account for,
and pay over such taxes. No penalty under section 6653, relating to
failure to pay tax, shall be imposed for any offense to which this
section is applicable.
26 CFR 301.6673-1 Damages assessable for instituting proceedings before
the Tax Court merely for delay.
Any damages awarded to the United States by the Tax Court under
section 6673 against a taxpayer for instituting proceedings before the
Tax Court merely for delay shall be assessed at the same time at the
deficiency and shall be paid upon notice and demand from the district
director or the director of the regional service center and shall be
collected as a part of the tax.
26 CFR 301.6674-1 Fraudulent statement or failure to furnish statement
to employee.
For regulations under section 6674, see 31.6674-1 of this chapter
(Employment Tax Regulations).
26 CFR 301.6675-1 Excessive claims with respect to the use of certain
gasoline.
For regulations under section 6675, see 48.6675-1 of this chapter
(Manufacturers and Retailers Excise Tax Regulations).
26 CFR 301.6676-1 Penalty for failure to supply identifying number.
(a) In general. Except as provided in paragraph (c) of this section,
if any person who is required by the regulations under section 6109 --
(1) To include his identifying number in any return, statement, or
other document,
(2) To furnish his identifying number to another person, or
(3) To include in any return, statement, or other document made with
respect to another person the identifying number of such other person,
fails to comply with such requirement at the time prescribed by such
regulations, such person shall pay a penalty of $5 for each such
failure. Such penalty shall be paid in the same manner as tax upon the
issuance of a notice and demand therefor. Under 301.6109-1(c) a payer
is required to request the identifying number of the payee. If, after
such a request has been made, the payee does not furnish the payer with
his identifying number, the penalty will not be assessed against the
payer.
(b) Deficiency procedures not to apply. Subchapter B, chapter 63, of
the Code (deficiency procedures) shall not apply in respect of the
assessment or collection of the penalty set forth in paragraph (a) of
this section.
(c) Reasonable cause. If any person who is required by the
regulations under section 6109 to supply an identifying number fails to
comply with such requirement at the time prescribed by such regulations,
but establishes to the satisfaction of the district director or the
director of the regional service center that such failure was due to
reasonable cause, the penalty set forth in paragraph (a) of this section
shall not apply.
(d) Persons required to supply identifying numbers. For regulations
under section 6109 relating to persons required to supply an identifying
number, see the regulations relating to the particular tax.
(32 FR 15241, Nov. 3, 1967, as amended by T.D. 7306, 39 FR 9947, Mar.
15, 1974)
26 CFR 301.6678-1 Failure to furnish statements to payees.
(a) In general. In the case of each failure to furnish a statement
required --
(1) Under section 6042(c) and 1.6042-4 to a person with respect to
whom a return has been made under section 6042(a)(1), relating to
information returns with respect to payment of dividends aggregating $10
or more in a calendar year,
(2) Under section 6044(e) and 1.6044-5 to a person with respect to
whom a return has been made under section 6044(a)(1), relating to
information returns with respect to certain payments by cooperatives
aggregating $10 or more in a calendar year,
(3) Under section 6049(c) and 1.6049-3 to a person with respect to
whom a return has been made under section 6049(a)(1), relating to
information returns with respect to payments of interest aggregating $10
or more in a calendar year,
(4) Under section 6039(b) and 1.6039-2 to a person with respect to
whom a return has been made under section 6039(a), relating to
information returns with respect to certain stock option transactions
occurring in a calendar year, or
(5) Under section 6052(b) and 1.6052-2 to a person with respect to
whom a return has been made under section 6052(a), relating to
information returns with respect to payment of wages in the form of
group-term life insurance provided for an employee on his life, within
the time prescribed for furnishing such statement (determined with
regard to any extension of time for furnishing), there shall be paid by
the person failing to so furnish the statement $10 for each such
statement not so furnished. However, the total amount imposed on the
delinquent person for all such failures during a calendar year shall not
exceed $25,000.
(b) Manner of payment. The penalty imposed under section 6678 and
this section on any person shall be paid in the same manner as tax upon
the issuance of a notice and demand therefor.
(c) Showing of reasonable cause. The penalty imposed by section 6678
shall not apply with respect to a failure to furnish a statement within
the time prescribed if it is established to the satisfaction of the
district director or the director of the regional service center that
such failure was due to reasonable cause and not to willful neglect. An
affirmative showing of reasonable cause must be made in the form of a
written statement, containing a declaration that it is made under the
penalties of perjury, setting forth all the facts alleged as a
reasonable cause.
26 CFR 301.6679-1 Failure to file returns, etc. with respect to
foreign corporations or foreign partnerships for taxable years beginning
after September 3, 1982.
(a) Civil penalty -- (1) In general. In addition to any cirminal
penalty provided by law, each United States citizen, resident or person
filing a separate or joint information return or on whose behalf a
return is filed, pursuant to sections 6035, 6046, or 6046A, and the
regulations thereunder, who fails to file such a return within the time
provided, or who files a return which does not show the required
information, shall pay a penalty of $1,000, unless such failure is shown
to be due to reasonable cause.
(2) Joint return. The penalty imposed by section 6679 and this
section shall apply to each U.S. citizen, resident, or person filing a
joint return pursuant to the provisions of section 6035, 6046, or 6046A,
which does not show the required information.
(3) Showing of reasonable cause. The district director, the director
of the Internal Revenue service center, and the director of
International Operations are authorized to make the determination that
such failure was due to a reasonable cause and that, accordingly, the
penalty imposed by section 6679 shall not apply. An affirmative showing
of reasonable cause must be made in the form of a written statement,
containing a declaration that it is made under the penalties of perjury,
setting forth all the facts alleged as a reasonable cause. If the
taxpayer exercises ordinary business care and prudence and is
nevertheless unable to furnish any item of information required under
section 6035, 6046, or 6046A and the regulations thereunder, such
failure shall be considered due to a reasonable cause. In determining
the extent of a taxpayer's ability to obtain information, the percentage
of stock owned by such taxpayer and the nature of the other interests in
the foreign corporation will be considered.
(b) Deficiency procedures not to apply. The penalty imposed by
section 6679 may be assessed and collected without regard to the
deficiency procedures provided by subchapter B of chapter 63 of the
Code.
(32 FR 15421, Nov. 3, 1967, as amended by T.D. 7288, 38 FR 27215,
Oct. 1, 1973; T.D. 7542, 43 FR 18552, May 1, 1978; T.D. 8028, 50 FR
23409, June 4, 1985)
26 CFR 301.6682-1 False information with respect to withholding
allowances based on itemized deductions.
For regulations under section 6682, see 31.6682-1 of this chapter
(Employment Tax Regulations).
(T.D. 7109, 35 FR 16544, Oct. 23, 1970)
26 CFR 301.6684-1 Assessable penalties with respect to liability for
tax under chapter 42.
(a) In general. If any person (as defined in section 7701(a)(1))
becomes liable for tax under any section of chapter 42 (other than
section 4940 or 4948(a)), relating to private foundations, by reason of
any act or failure to act which is not due to reasonable cause and
either --
(1) Such person has theretofore (at any time) been liable for tax
under any section of such chapter (other than section 4940 or 4948(a)),
or
(2) Such act or failure to act is both willful and flagrant,
then such person shall be liable for a penalty equal to the amount of
such tax.
(b) Showing of reasonable cause. The penalty imposed by section 6684
shall not apply to any person with respect to a violation of any section
of chapter 42 if it is established to the satisfaction of the district
director or director of the internal revenue service center that such
violation was due to reasonable cause. An affirmative showing of
reasonable cause must be made in the form of a written statement,
containing a declaration by such person that it is made under the
penalties of perjury, setting forth all the facts alleged as reasonable
cause.
(c) Willful and flagrant. For purposes of this section, the term
''willful and flagrant'' has the same meaning as such term possesses in
section 507(a)(2)(A) and the regulations thereunder.
(d) Effective date. This section shall take effect on January 1,
1970.
(T.D. 7127, 36 FR 11504, June 15, 1971)
26 CFR 301.6685-1 Assessable penalties with respect to private
foundations' failure to comply with section 6104 (d).
(a) In general. In addition to the penalty imposed by section 7207,
relating to fraudulent returns, statements, or other documents, any
person (as defined in paragraph (b) of this section) who is required to
comply with the requirements of section 6104(d), relating to public
inspection of private foundations' annual returns, and who fails so to
comply, if such failure is willful, shall pay a penalty of $1,000 with
respect to each such return with respect to which there is a failure so
to comply.
(b) Person. For purposes of this section, the term ''person'' means
any officer, director, trustee, employee, member, or other individual
whose duty it is to perform the act in respect of which the failure
occurs.
(c) Effective date. This section shall take effect on January 1,
1970.
(d) Cross reference. For the amount imposed for failure to comply
with section 6104(d), see paragraph (c) of 301.6652-2.
(T.D. 7127, 36 FR 11505, June 15, 1971, as amended by T.D. 8026, 50
FR 20758, May 20, 1985)
26 CFR 301.6686-1 Failure of DISC to file returns.
(a) In general. In addition to the penalty imposed by section 7203
(relating to willful failure to file a return, supply informatin, or pay
tax) any person who is required to supply informatin or to file a return
under section 6011(c) (relating to records and returns of DISC's) and
who fails to supply such information of file such return at the time
prescribed in sections 6072(b) and 1.6072-2(e) shall pay a penalty of
$100 for each failure to supply information (provided that the total
amount imposed on the delinquent person for all such failures during a
calendar year shall not exceed $25,000) and a penalty of $1,000 with
respect to each failure to file a return, unless it is shown that such
failure is due to a reasonable cause.
(b) Showing of reasonable cause. The penalty imposed by section 6686
shall not apply to any person with respect to a failure to supply
information, or to file a return, under section 6011(c) if it is
established to the satisfaction of the district director or director of
the Internal Revenue Service Center that such failure was due to
reasonable cause. An affirmative showing of reasonable cause must be
made in the form of a written statement, which contains a declaration by
such person that the statement is made under the penalties of perjury,
and sets forth all the facts alleged as reasonable cause.
(T.D. 7533, 43 FR 6604, Feb. 15, 1978)
26 CFR 301.6688-1 Assessable penalties with respect to information
required to be furnished under section 7654 on allocation of tax to Guam
or the United States.
(a) In general. Each individual to whom paragraph (a)(2) of
301.7654-1 applies for a taxable year who fails to file for such year
the information return required by paragraph (d) of such section within
the time prescribed therein, or who files such a return but does not
show the information required thereon, shall, in addition to any
criminal penalty provided by law, pay a penalty of $100 for each such
failure.
(b) Manner of payment. The penalty set forth in paragraph (a) of
this section shall be paid in the same manner as tax upon the issuance
of a notice and demand therefor.
(c) Reasonable cause. The penalty set forth in paragraph (a) of this
section shall not apply if it is established, to the satisfaction of the
district director (or of the Commissioner of Revenue and Taxation of
Guam if the individual was required to file his return of income tax for
the taxable year with Guam) that the failure to file the information
return or furnish the information within the prescribed time was due to
reasonable cause and not to willful neglect. An individual who wishes
to avoid the penalty must make an affirmative showing of all facts
alleged as a reasonable cause for his failure to file the information
return on time, or furnish the information on time, in the form of a
written statement containing a declaration that it is made under
penalties of perjury. Such statement must be filed with the district
director (or with the Commissioner of Revenue and Taxation, Agana, Guam
96910, if the individual was required to file his return of income tax
for the taxable year with Guam). In determining whether there was
reasonable cause for failure to furnish the required information,
account will be taken of the fact that the individual was unable to
furnish the required information in spite of the exercise of ordinary
business care and prudence in his effort to furnish the information. An
individual will be considered to have exercised ordinary business care
and prudence in his effort to furnish the required information if he
made reasonable efforts to furnish the information but was unable to do
so because of a lack of sufficient facts on which to make a proper
determination. See paragraph (b) of 1.935-1 of this chapter (Income
Tax Regulations) for the rules which specify where returns of income tax
must be filed for the taxable year by individuals to whom this section
applies.
(d) Effective date. This section shall apply for taxable years
beginning after December 31, 1972.
(T.D. 7385, 40 FR 50264, Oct. 29, 1975)
26 CFR 301.6689-1T Failure to file notice of redetermination of foreign
tax (temporary).
(a) Application of civil penalty. If a foreign tax redetermination
was made with respect to taxes for which the taxpayer previously claimed
the foreign tax credit, and the taxpayer failed to notify the Service on
or before the date prescribed in regulations under section 905(c) or in
regulations under section 404A(g) (2) for giving notice of a foreign tax
redetermination, then, unless paragraph (d) of this section applies,
there shall be added to the deficiency attributable to such
redetermination an amount determined under paragraph (b) of this
section.
(b) Amount of penalty. The amount of the penalty shall be equal to
--
(1) Five percent of the deficiency if the failure is for not more
than one month, plus
(2) An additional five percent of the deficiency for each month (or
fraction thereof) during which the failure continues, but not to exceed
in the aggregate twenty-five percent of the deficiency. If the penalty
imposed under paragraph (a) of this section applies, then the penalty
imposed under section 6653(a), relating to failure to pay by reason of
negligent or intentional disregard of rules and regulations, shall not
apply.
(c) Foreign tax redetermination defined. For purposes of this
section, a foreign tax redetermination is any redetermination for which
a notice is required under section 905(c) and the regulations
thereunder, or section 404A(g)(2) and the regulations thereunder.
(d) Reasonable cause. The penalty set forth in this section shall
not apply if it is established to the satisfaction of the Service that
the failure to file the notification within the prescribed time was due
to reasonable cause and not due to willful neglect. An affirmative
showing of reasonable cause must be made in the form of a written
statement that sets forth all the facts alleged as reasonable cause for
the failure to file the notification on time and that contains a
declaration by the taxpayer that the statement is made under the
penalties of perjury. This statement must be filed with the service
center in which the notification was required to be filed. The taxpayer
must file this statement with the notice required under section 905(c)
and the regulations thereunder or section 404A(g)(2) and the regulations
thereunder. If the taxpayer exercised ordinary business care and
prudence and was nevertheless unable to file the notification within the
prescribed time, then the delay will be considered to be due to
reasonable cause and not willful neglect.
(e) Effective date. This section is effective with respect to
foreign tax redeterminations occurring after December 31, 1979.
(T.D. 8210, 53 FR 23618, June 23, 1988)
26 CFR 301.6690-1 Penalty for fraudulent statement or failure to
furnish statement to plan participant.
(a) Penalty. Any plan administrator required by section 6057(e) and
301.6057-1(e) to furnish a statement of deferred vested retirement
benefit to a plan participant is subject to a penalty of $50 in each
case in which the administrator (1) willfully fails to furnish the
statement to the participant in the manner, at the time, and showing the
information required by section 6057(e) and 301.6057-1(e), or (2)
willfully furnishes a false or fraudulent statement to the participant.
The penalty shall be assessed and collected in the same manner as the
tax imposed on employers under the Federal Insurance Contributions Act.
(b) Effective date. This section shall take effect on September 2,
1974.
(T.D. 7561, 43 FR 38007, Aug. 25, 1978)
26 CFR 301.6692-1 Failure to file actuarial report.
(a) Penalty. In each case in which the plan administrator (within
the meaning of section 414(g)) of a defined benefit plan to which the
minimum funding standards of section 412 apply fails to file the
actuarial report described in section 6059 and 301.6059-1 within the
time prescribed, the plan administrator shall pay a penalty of $1,000.
A failure to provide a material item of information called for in the
actuarial report is considered a failure to file the report. For this
purpose, the signature of an enrolled actuary (see 301.6059-1(d)) is
considered a material item of information.
Further, for any report filed for a plan year ending after January
25, 1982, if the actuary seeks to materially qualify a statement
required by 301.6059-1(c) (4) or (5) there is a failure to provide a
material item of information called for in the report. For rules
relating to statements not considered as materially qualifying the
required statements, see 301.6059-1(d).
(b) Failure to make actuarial valuation. Section 412(c)(9) and the
regulations thereunder prescribe the time for making an actuarial
valuation of a defined benefit plan. For purposes of this section, the
failure to base information called for in the actuarial report upon an
actuarial valuation of the plan which is made within the time prescribed
by section 412(c)(9) and the regulations thereunder is considered a
failure to file the actuarial report.
(c) Showing of reasonable cause. The penalty imposed by this section
does not apply if it is established to the satisfaction of the
appropriate district director or the director of the Internal Revenue
Service Center at which the actuarial report is required to be filed
that the failure to file the report was due to reasonable cause. An
affirmative showing of reasonable cause must be made in the form of a
written statement setting forth all the facts alleged as reasonable
cause. The statement must contain a declaration by the appropriate
individual that the statement is made under the penalties of perjury.
(d) Joint liability. If more than one person is responsible as a
plan administrator for a failure to file the actuarial report, all such
persons are jointly and severally liable with respect to the failure.
(e) Manner of payment. The penalty imposed for the failure to file
an actuarial report shall be paid in the same manner as a tax upon the
issuance of notice and demand therefor.
(f) Effective dates. In the case of a plan in existence on January
1, 1974, this section is effective beginning with the first plan year
beginning after December 31, 1975, for which the minimum funding
standards of section 412 apply to the plan. In the case of a plan not
in existence on January 1, 1974, this section is effective beginning
with the first plan year beginning after September 2, 1974, for which
the minimum funding standards apply to the plan.
(Secs. 6059 and 7805 of the Internal Revenue Code of 1954 (88 Stat.
947, 68A Stat. 917; 26 U.S.C. 6059, 7805))
(T.D. 7798, 46 FR 57484, Nov. 24, 1981)
26 CFR 301.6693-1 Penalty for failure to provide reports and documents
concerning individual retirement accounts or annuities.
(a) In general -- (1) Annual reports, etc. The trustee of an
individual retirement account described in section 408(a), or the issuer
of an individual retirement annuity described in section 408(b), who
fails to furnish or file a report or any other document required under
section 408(i) and 1.408-5 within the time and in the manner prescribed
for furnishing or filing such item shall pay a penalty of $10 for each
failure unless it is shown that such failure is due to reasonable cause.
(2) Disclosure statements. The trustee of an individual retirement
account described in section 408(a), or the issuer of an individual
retirement annuity described in section 408(b), who fails to furnish or
file a disclosure statement, a governing instrument, an amendment to
either, or any other document required under section 408(i) and
1.408-6, within the time and in the manner prescribed for furnishing or
filing such item, shall pay a penalty of $10 for each failure unless it
is shown that such failure is due to reasonable cause.
(b) Showing of reasonable cause. The penalty imposed by section 6693
shall not apply to any person with respect to a failure to furnish or
file a report, statement, or other document within the time and in the
manner prescribed if it is established to the satisfaction of the
district director that such failure was due to reasonable cause. An
affirmative showing of reasonable cause must be made in the form of a
written statement, containing a declaration by such person that it is
made under the penalties of perjury and setting forth all the facts
alleged to constitute reasonable cause.
(c) Deficiency procedures not to apply. The penalty imposed by
section 6693 may be assessed and collected without regard to the
deficiency procedures provided by subchapter B of chapter 63 of the
Code.
(d) Other penalties. The penalties of section 6693 and this section
are in lieu of any penalty imposed by section 6652(f) for violation of
section 6047(d), with respect to any failure to furnish or file
described in this section.
(e) Effective date. This section shall take effect on January 1,
1975.
(T.D. 7730, 45 FR 72652, Nov. 3, 1980)
26 CFR 301.6707-1T Questions and answers relating to penalties for
failure to furnish information regarding tax shelters.
The following questions and answers relate to the penalties imposed
by section 6707 of the Internal Revenue Code of 1954, as added by
section 141(b) of the Tax Reform Act of 1984 (Pub. L. 98-369, 98 Stat.
681), for failure to furnish information regarding tax shelters.
26 CFR 301.6707-1T Penalties for Failure To Register and for Providing
False or Incomplete Information
Q-1. What are the consequences if a person required to register a tax
shelter (''tax shelter organizer'') fails to register the shelter
timely?
A-1. Generally, a penalty will be imposed. The penalty for failure
to register timely is the greater of (i) $500 or (ii) 1 percent of the
aggregate amount invested in the tax shelter, not to exceed $10,000.
The $10,000 limitation does not apply, however, if the tax shelter
organizer intentionally disregards the registration requirements. For
purposes of this penalty, the aggregate amount invested in the tax
shelter is computed in the manner prescribed in A-21 of 301.6111-1T,
except that the amount to be received from the sale of an interest is
taken into account to determine the amount of the penalty only if the
interest is sold to an investor. No penalty will be imposed on a person
for failure to register a tax shelter if the failure is due to
reasonable cause. See A-4 through A-6 of this section for rules
relating to reasonable cause.
Q-2. Will registration of a tax shelter by a person participating in
the management (''manager'') or a person participating in the sale
(''seller'') of a tax shelter after the date that interests in the tax
shelter were first offered for sale relieve a person principally
responsible for organizing the tax shelter (''principal organizer'') or
a person who participated in the organization of the tax shelter of
liability for failure to register?
A-2. No. A principal organizer of a tax shelter and a person who
participates in the organization of a tax shelter are subject to penalty
if they fail to register a tax shelter by the day interests in the tax
shelter are first offered for sale, regardless of whether a seller or
manager subsequently registers the tax shelter.
Q-3. Does registration of a tax shelter by a seller or manager
relieve other sellers or managers who are required to register the tax
shelter from liability for failure to register?
A-3. No. Sellers and managers who are required to register a tax
shelter and fail to do so are subject to the penalty unless their
failure to register is due to reasonable cause. A seller or manager,
however, is not required to register a tax shelter once the seller or
manager knows the tax shelter has been registered. See A-6 of this
section for rules relating to reasonable cause for failure to register
in the case of a seller.
Q-4. What constitutes reasonable cause for failure to register a tax
shelter?
A-4. In general, the determination of whether reasonable cause exists
for failure to register a tax shelter is a question of fact. In
determining whether reasonable cause exists, all representations known
to the tax shelter organizer (or for which there is reason for the tax
shelter organizer to have known) must be taken into account. A tax
shelter organizer (other than a seller) ordinarily will be deemed to
know of all representations (including those made by sellers) that the
tax shelter organizer would have discovered through inquiry that a
reasonable person acting in the tax shelter organizer's capacity could
have undertaken. Thus, for example, a principal organizer generally
will be obligated to make a more thorough inquiry than a person who
merely participated in the management of a tax shelter.
Q-5. Will a tax shelter organizer who is required to register a tax
shelter before October 1, 1984, have reasonable cause for failure timely
to register the tax shelter, if the tax shelter organizer registers the
tax shelter after the day on which the first offering for sale of
interests occurs, but before October 1, 1984?
A-5. Yes. A person who is required to register a tax shelter before
October 1, 1984 (i.e., a tax shelter in which the first offering for
sale of an interest occurred before September 1, 1984, but in which
interests will be sold after August 31, 1984, or a tax shelter in which
the first offering for sale of an interest occurs after August 31, 1984,
and before October 1, 1984), will have reasonable cause for the failure
to register timely if the person registers the tax shelter on or before
September 30, 1984.
Q-6. What constitutes reasonable cause for failure to register a tax
shelter in the case of a seller of interests in the tax shelter?
A-6. Reasonable cause for failure to register a tax shelter will
generally exist with respect to a seller who is required to register the
tax shelter under A-36 or A-39 of 301.6111-1T, if the seller registers
the tax shelter as soon as practicable after the seller first knows or
has reason to know that the tax shelter has not been timely registered.
A seller will not have reasonable cause, however, if the seller fails to
make a reasonable inquiry to determine whether the tax shelter is
registered.
Q-7. If a group of tax shelter organizers enters into a designation
agreement under A-38 of 301.6111-1T and the designated organizer fails
to register the tax shelter timely, will the other persons who have
signed the designation agreement have reasonable cause for failure to
register the tax shelter?
A-7. Each of the persons who signs a designation agreement, other
than the designated organizer, will have reasonable cause for failure to
register the tax shelter timely, provided the person does not
participate in the tax shelter at a time when the person knows or has
reason to know the tax shelter is not registered (without registering
the tax shelter) and the person registers the tax shelter as required by
A-39 of 301.6111-1T.
Q-8. What are the consequences if a tax shelter organizer files false
or incomplete information on Form 8264?
A-8. Generally, a penalty will be imposed for filing information that
a reasonable person would know or have reason to know is false or
incomplete. The amount of the penalty is the greater of (i) $500 or
(ii) 1 percent of the aggregate amount invested in the tax shelter
(computed in the manner prescribed in A-1 of this section), but not to
exceed $10,000. The $10,000 limitation does not apply, however, if the
tax shelter organizer intentionally disregards the requirements relating
to registration.
Q-9. What is the maximum penalty that may be imposed on any one tax
shelter?
A-9. Although the penalty for failure to register a tax shelter
timely and the penalty for providing false or incomplete information may
be imposed on each person who fails to register a tax shelter timely or
who provides false or incomplete information, the maximum penalty is
$10,000 for any one tax shelter, provided there is no intentional
disregard of the registration requirements. For example, assume that A
is the principal organizer of a tax shelter, and seven other persons
participate in the organization of the tax shelter, and assume the tax
shelter is not registered before the day on which the first offering for
sale of an interest in the tax shelter occurs. Assume also that the A
and other participants do not have reasonable cause for failure to
register timely and the failure is not due to intentional disregard of
the registration requirement on the part of any of the participants.
The maximum penalty that may be imposed is $10,000, for which the 8
participants are jointly and severally liable.
Q-10. How will the Internal Revenue Service determine whether a
person has intentionally disregarded any of the registration
requirements?
A-10. The determination of intentional disregard will be made
individually for each tax shelter organizer. If one tax shelter
organizer intentionally disregards the registration requirements, the
$10,000 limitation will not apply to that organizer. The limitation
will apply, however, to any tax shelter organizers whose failure to
register timely or whose furnishing of false or incomplete information
was not due to intentional disregard.
Q-11. What is the maximum penalty that may be imposed if a tax
shelter that is a substantial investment consisting of similar
investments that are required to be aggregated under A-22 of
301.6171-1T is not timely registered or if false or incomplete
information is filed with respect to the tax shelter?
A-11. The maximum penalty is $10,000 as determined under A-6 of this
section, with respect to any investment that is a tax shelter within the
meaning of A-4 of 301.6111-1T without regard to the aggregation rules
provided in A-22 of 301.6111-1T. The maximum penalty that may be
imposed with respect to investments that are considered in a single tax
shelter only by reason of the aggregation rules of A-22 of 301.6111-1T
is $10,000, even if more than one Form 8264 is required with respect to
the aggregated investment (see A-48 of 301.6111-1T). The penalty may be
imposed, however, if there is a failure with respect to any of the
required forms.
26 CFR 301.6707-1T Penalty for Failure To Furnish a Registration Number
Q-12. What is the penalty for failure to furnish the registration
number to a purchaser or other transferee of an interest in a tax
shelter as required by A-52 through A-54 of 301.6111-1T?
A-12. The penalty for failure to furnish the tax shelter registration
number in the form required by A-55 through A-54 of 301.6111-1T is $100
for each failure.
26 CFR 301.6707-1T Penalty for Failure To Report a Registration Number
on a Return
Q-13. What is the penalty for failure to include the tax shelter
registration number on a return on which any deduction, loss, credit,
other tax benefit, or any income attributable to a registered tax
shelter is included?
A-13. The penalty for each failure by an investor to furnish the tax
shelter registration number on such a return is $50 for each tax
shelter, unless the failure is due to reasonable cause.
There is a need for immediate guidance with respect to provisions
contained in this Treasury decision. For this reason, it is found
impracticable to issue it with notice and public procedure under
subsection (b) of section 553 of Title 5 of United States Code or
subject to the effective date limitation of subsection (d) of that
section.
(Secs. 6111 and 7805, Internal Revenue Code of 1954 (98 Stat. 678, 26
U.S.C. 6111; 68A Stat. 917, 26 U.S.C. 7805))
(T.D. 7964, 49 FR 32725, Aug. 15, 1984; 49 FR 44461, Nov. 7, 1984)
26 CFR 301.6708-1T Failure to maintain list of investors in potentially
abusive tax shelters (temporary).
The following questions and answers issued under section 6708 of the
Internal Revenue Code of 1954, as added by section 142 of the Tax Reform
Act of 1984 (Pub. L. 98-369; 98 Stat. 683), relate to the penalty for
failure to maintain a list of investors in potentially abusive tax
shelters.
Q-1: What penalties are provided with respect to the failure
properly to maintain a list of persons who acquire interests in
potentially abusive tax shelters?
A-1: Any organizer (as defined in A-5 of 301.6112-1T) of a tax
shelter (as defined in A-3 of 301.6112-1T) or seller (as defined in A-6
of 301.6112-1T) of interests in a tax shelter who fails to meet any
requirement imposed by section 6112 regarding the requirement to
maintain a list of persons who have acquired interests in a tax shelter
shall pay a penalty of $50 for each investor with respect to whom there
is such a failure, unless it is shown that the failure is due to
reasonable cause and not due to willful neglect. For example, if an
organizer who is required to maintain a list identifying each of 100
persons who acquired interests in a tax shelter fails to maintain the
list, the organizer will be liable for a penalty of $5,000 ($50 100
persons), unless the organizer can show the failure was due to
reasonable cause and not due to willful neglect. As another example, if
a seller is required to maintain a list identifying each of 100 persons
who acquired interests in a tax shelter from the seller and fails
properly to maintain such list by omitting the TIN of each person, the
seller will be liable for a penalty of $5,000 ($50 100 persons),
unless the seller can show the failure was due to reasonable cause and
not due to willful neglect.
Q-2: If an organizer or seller properly maintains a list, but fails
to make the list available to the Internal Revenue Service upon request,
will the organizer or seller be subject to a penalty?
A-2: Yes. A penalty applies if an organizer or seller fails to meet
any requirement imposed by section 6112, including the requirement, upon
request, to make the list available to the Internal Revenue Service as
soon as practicable, but in any event within 10 calendar days. (See
A-21 of 301.6112-1T). The amount of the penalty is $50 for each person
required to be on the list at the time of the request by the Internal
Revenue Service. Assume, for example, that an organizer of a tax
shelter properly maintains a list of 200 persons who have acquired
interests in a tax shelter and that the Internal Revenue Service
requests the organizer to provide the list. If the organizer fails to
provide the list to the Internal Revenue Service as soon as practicable
(as required by A-21 of 301.6112-1T), or in a form that enables the
Internal Revenue Service to obtain the required information without
undue delay or difficulty (as required by A-16 of 301.6112-1T), the
organizer will be liable for a penalty of $10,000 ($50 200 persons),
unless the organizer can show that the failure to provide the list was
due to reasonable cause and not to willful neglect.
Q-3: If an organizer or seller is required to maintain lists for
more than one tax shelter in which the same person has acquired
interests, how does the penalty apply if the organizer or seller fails
to identify the person on each of the lists?
A-3: A separate $50 penalty applies with respect to the list for
each tax shelter on which the person who acquired interests is not
identified.
Q-4: Is there a limitation on the amount of the penalty imposed on a
seller or organizer required to maintain a list of persons who have
acquired interests in a tax shelter?
A-4: Yes. The maximum penalty that may be imposed on a person for
any calendar year may not exceed $50,000.
Q-5: How does the calendar year limitation apply?
A-5: A separate $50,000 limitation applies to each calendar year in
which a failure occurs, and to each tax shelter for which a list is
required to be maintained. See A-6 of this section for special rules
for determining how the $50,000 limitation applies to a designated
person who fails properly to maintain a list of investors.
Example 1. Assume that A, an organizer of a tax shelter, fails to
maintain and to provide to the Internal Revenue Service a list of 900
persons who acquired interests in the tax shelter in 1986. In addition,
assume that A again fails to maintain and to provide the list of 900
investors upon request in 1987. A is subject to a penalty of $45,000
(900 persons $50) for each calendar year in which there is a failure
to comply with the requirements of section 6112. Thus, A is subject to
$45,000 in penalties for the failures to maintain and to provide the
list in 1986, and $45,000 in penalties for the failures to maintain and
to provide the list in 1987, unless A can show reasonable cause for the
failures.
Example 2. Assume that B, an organizer of Tax Shelter I, fails to
provide a list of 1,500 persons who acquired interests in the tax
shelter to the Internal Revenue Service upon request in 1987. Assume
also that B, an organizer of Tax Shelter II, fails to provide a list of
2,000 persons who acquired interests in Tax Shelter II to the Internal
Revenue Service upon request in 1987. Because the $50,000 calendar year
limitation applies separately with respect to each tax shelter for which
a list must be maintained, B is subject to a penalty of $50,000 for
failing to provide the list for Tax Shelter I in 1987 and a $50,000
penalty for failing to provide the list for Tax Shelter II in 1987.
Q-6: How does the penalty apply to a designated person?
A-6: Separate penalties, each with its own $50,000 calendar year
limitation, apply with respect to the portion of the list kept by the
designated person in that person's capacity as organizer and to each
portion of the list kept by the designated person in that person's
capacity as the designated person with respect to each organizer and
seller who signed the agreement under A-12 of 301.6112-1T and for whom
the designated person is responsible for complying with the requirements
of section 6112.
Example. Assume that X, an organizer and seller, sells interests in a
tax shelter directly to 750 investors in 1985. In addition, assume that
A, an agent of X, negotiates for X sales of interests in the tax shelter
to an additional 500 persons in 1985. If no agreement to designate X is
made pursuant to A-11 of 301.6112-1T, X would be required to maintain a
list of the 1,250 investors who acquired interests in the tax shelter
(see paragraph (a) of A-8 of 301.6112-1T) and A would be required to
maintain a list of the 500 persons who acquired interests through A (see
A-10 of 301.6112-1T). If, therefore, neither X nor A complied with the
requirements of section 6112 in 1985, X would be liable for $50,000 in
penalties ($50 1,250 investors, subject to the $50,000 maximum) and A
would be liable for $25,000 in penalties $50 500 investors). Assume,
however, that X and A enter into a written agreement to designate X to
maintain the list for the tax shelter. Pursuant to that agreement, A
submits to X all of the required information regarding the sales to the
500 persons otherwise required to be maintained on A's list and provides
the notice required by A-13 of 301.6112-1T to each person. In 1986, X
fails to provide any list of investors to the Internal Revenue Service
upon request. For calendar year 1986, X is liable for penalties of
$50,000 in X's capacity as an organizer ($50 1,250 persons, subject to
the $50,000 maximum). In addition, X, as the person designated to
maintain the list for A, is liable for penalties of $25,000 for failing
properly to maintain A's list of investors ($50 500 persons). A would
not be liable for any penalties.
Q-7: If an organizer or seller is subject to a penalty with respect
to a tax shelter under section 6708, may the organizer or seller also be
liable for other fines or penalties with respect to the tax shelter?
A-7: Yes. The penalty imposed by section 6708 is in addition to any
other penalty provided by law. If, for example, an organizer of a tax
shelter is subject to a penalty under section 6700 for promoting an
abusive tax shelter, the organizer also would be liable for any
applicable penalties for failing properly to maintain a list for the tax
shelter. Similarly, if an organizer or seller fails to furnish a list
upon request by the Internal Revenue Service, the organizer or seller
may be subject both to the fine under section 7203 for the willful
failure to supply information, and to the penalty for failing properly
to maintain a list for the tax shelter.
Q-8: When is the penalty under section 6708 effective?
A-8: The penalty under section 6708 applies with respect to any
interest in a tax shelter which is required to be included on a list
under section 6112. See A-22 of 301.6112-1T.
(Secs. 6112 and 7805, Internal Revenue Code of 1954 (98 Stat. 681;
68A Stat. 917; 26 U.S.C. 6112 and 7805))
(T.D. 7969, 49 FR 34204, Aug. 29, 1984)
26 CFR 301.6712-1 Failure to disclose treaty-based return positions.
(a) Penalty imposed. A taxpayer who fails in a material way to
disclose one or more positions taken for a taxable year, as required by
section 6114 and the regulations thereunder, is subject to a separate
penalty for each failure to disclose a position taken with respect to
each separate payment or separate income item in the amount of --
(1) For a corporation taxable as such under the Code $10,000; or
(2) For all other taxpayers, $1,000.
The penalty imposed by this section may be imposed more than once for
a single taxable year if a taxpayer has failed to disclose one or more
positions taken with respect to more than one separate payment or
separate income item and may be imposed in addition to any other penalty
imposed by law. For this purpose, separate payments or income items of
the same type (e.g., interest payments) received from the same ultimate
payor (e.g., the obligor on the note) will be treated as separate
payments or income items (and not aggregated). However, for purposes of
determining the number of separate penalties to be imposed under this
section, the District Director shall have the discretion to aggregate
separate payments or income items, in whole or in part, in accordance
with the rules for aggregation of such items for purposes of reporting,
as described in 301.6114-1(d).
(b) Penalty waived. Pursuant to the authority contained in section
6712(b) of the Code, the penalty imposed by paragraph (a) of this
section may be waived, in whole or in part, if it is established to the
satisfaction of the Assistant Commissioner (International), the District
Director or the Director of the Internal Revenue Service Center that the
taxpayer's failure to disclose the required information was not due to
willful neglect. An affirmative showing of lack of willful neglect must
be made in the form of a written statement that sets forth all the facts
alleged to show lack of willful neglect and contains a declaration by
such person that the statement is made under the penalties of perjury.
(c) Manner of payment. The penalty set forth in paragraph (a) of
this section shall be paid in the same manner as tax upon the issuance
of a notice and demand thereof.
(d) Effective date. This section is effective for taxable years of
the taxpayer for which the due date for filing returns (without
extension) occurs after December 31, 1988.
(T.D. 8292, 55 FR 9441, Mar. 14, 1990)
26 CFR 301.6721-0 Table of Contents.
In order to facilitate the use of 301.6721-1 through 6724-1, this
301.6721-0 lists the paragraph headings contained in these sections.
(a) Imposition of penalty.
(1) General rule.
(2) Failures subject to the penalty.
(b) Reduction in the penalty when a correction is made within
specified periods.
(1) Correction within 30 days.
(2) Correction after 30 days but on or before August 1.
(3) Required filing date defined.
(4) Penalty amount for return with multiple failures.
(5) Examples.
(6) Applications to returns not due on February 28 or March 15.
(c) Exception for inconsequential errors or omissions.
(1) In General.
(2) Errors or omissions that are never inconsequential.
(3) Examples.
(d) Exception for a de minimis number of failures.
(1) Requirements.
(2) Calculation of the de minimis exception.
(3) Examples.
(4) Nonapplication to returns not due on February 28 or March 15.
(e) Lower limitations on the $250,000 maximum penalty amount with
respect to persons with gross receipts of not more than $5,000,000.
(1) In general.
(2) Gross receipts test.
(f) Higher penalty for intentional disregard of requirement to file
timely correct information returns.
(1) Application of section 6721(e).
(2) Meaning of ''Intentional disregard.''
(3) Facts and circumstances considered.
(4) Amount of the penalty.
(5) Computation of the penalty; aggregate dollar amount of the items
required to be reported correctly.
(6) Examples.
(g) Definitions.
(1) Information return.
(2) Statements.
(3) Returns.
(4) Other items.
(5) Payee.
(6) Filer.
(a) Imposition of penalty.
(1) General rule.
(2) Failures subject to the penalty.
(b) Exception for inconsequential errors or omissions.
(1) In general.
(2) Errors or omissions that are never inconsequential.
(3) Examples.
(c) Higher penalty for intentional disregard of requirement to
furnish timely correct payee statements.
(1) Application of section 6722(c).
(2) Amount of the penalty.
(3) Computation of the penalty; aggregate dollar amount of items
required to be shown correctly.
(d) Definitions.
(1) Payee.
(2) Payee statement.
(3) Other items.
(a) Imposition of penalty.
(1) General rule.
(2) Failures subject to the penalty.
(3) Exception for inconsequential errors or omissions.
(4) Specified information reporting requirement defined.
(b) Examples.
(a) Waiver of the penalty.
(1) General rule.
(2) Reasonable cause defined.
(b) Significant mitigating factors.
(c) Events beyond the filer's control.
(1) In general.
(2) Unavailability of the relevant business records.
(3) Undue economic hardship relating to filing on magnetic media.
(4) Actions of the Internal Revenue Service.
(5) Actions of agent -- imputed reasonable cause.
(6) Actions of the payee or any other person.
(d) Responsible manner.
(1) In general.
(2) Special rule for filers seeking a waiver pursuant to paragraph
(c)(6) of this section.
(e) Acting in a responsible manner -- special rules for missing TINs.
(1) In general.
(i) Initial solicitation.
(ii) First annual solicitation.
(iii) Second annual solicitation.
(iv) Additional requirements.
(v) Failures to which a solicitation relates.
(vi) Exceptions and limitations.
(2) Manner of making annual solicitations -- by mail or telephone.
(i) By mail.
(ii) By telephone.
(f) Acting in a responsible manner -- special rules for incorrect
TINs.
(1) In general.
(i) Initial solicitation.
(ii) First annual solicitation.
(iii) Second annual solicitation.
(iv) Additional requirements.
(2) Manner of making annual solicitation if notified pursuant to
section 3406(a)(1)(B) and the regulations thereunder.
(3) Manner of making annual solicitation if notified pursuant to
section 6721.
(4) Failures to which a solicitation relates.
(5) Exceptions and limitations.
(g) Due diligence safe harbor.
(h) Transitional rules for information returns required to be filed
(or payee statements required to be furnished) after December 31, 1989
(without regard to extensions), and on or before April 22, 1991.
(1) In general.
(2) Special rule on TINs.
(i) (Reserved).
(j) Failures to which this section relates.
(k) Examples.
(l) (Reserved).
(m) Procedure for seeking a waiver.
(n) Manner of payment.
(T.D. 8386, 56 FR 67182, Dec. 30, 1991)
26 CFR 301.6721-1 Failure to file correct information returns.
(a) Imposition of penalty -- (1) General rule. A penalty of $50 is
imposed for each information return (as defined in section 6724(d)(1)
and paragraph (g) of this section) with respect to which a failure (as
defined in section 6721(a)(2) and paragraph (a)(2) of this section)
occurs. No more than one penalty will be imposed under this paragraph
(a)(1) with respect to a single information return even though there may
be more than one failure with respect to such return. The total amount
imposed on any person for all failures during any calendar year with
respect to all information returns shall not exceed $250,000. See
paragraph (b) of this section for a reduction in the penalty when the
failures are corrected within specified periods. See paragraph (c) of
this section for an exception to the penalty for inconsequential errors
or omissions. See paragraph (d) of this section for an exception to the
penalty for a de minimis number of failures. See paragraph (e) of this
section for lower limitations to the $250,000 maximum penalty. See
paragraph (f) of this section for higher penalties when a failure is due
to intentional disregard of the requirement to file timely correct
information returns. See paragraph (a)(1) of 301.6724-1 for waiver of
the penalty for a failure that is due to reasonable cause.
(2) Failures subject to the penalty. The failures to which section
6721(a) and paragraph (a)(1) of this section apply are --
(i) A failure to file an information return on or before the required
filing date (''failure to file timely''), and
(ii) A failure to include all of the information required to be shown
on the return or the inclusion of incorrect information (''failure to
include correct information''). A failure to file timely includes a
failure to file in the required manner, for example, on magnetic media
or in other machine-readable form as provided under section 6011(e).
However, no penalty is imposed under paragraph (a)(1) of this section
solely by reason of any failure to comply with the requirements of
section 6011(e)(2)(A), except to the extent that such a failure occurs
with respect to more than 250 information returns (the 250-threshold
requirement). The 250-threshold requirements applies separately to each
type of information return required to be filed. Further, the
250-threshold requirement applies separately to original and corrected
returns. Thus, for example, if a filer files 300 returns on Form
1099-DIV and later files 70 corrected returns on Form 1099-DIV, the
corrected returns may be filed either on the prescribed paper form
(because they fall below the 250-threshold requirement) or on magnetic
media or other machine-readable form. Filers who are required to file
information returns on magnetic media and who file such information
returns electronically are considered to have satisfied the magnetic
media filing requirement. Except as provided in paragraph (c)(1) of
this section, a failure to include correct information encompasses a
failure to include the information required by applicable information
reporting statutes or by any administrative pronouncements issued
thereunder (such as regulations, revenue rulings, revenue procedures, or
information reporting forms and form instructions). A failure to
include information in the correct format may be either a failure to
file timely an information return or a failure to include correct
information on an information return. For example, an error on a
magnetic media submission to the Internal Revenue Service that prevents
processing by the Internal Revenue Service may constitute a failure to
file timely. However, if information is set forth on the wrong field of
the magnetic media submission, such an error may constitute a failure to
file timely or a failure to include correct information, depending upon
the extent of the failure.
(b) Reduction in the penalty when a correction is made within
specified periods -- (1) Correction within 30 days. The penalty imposed
under section 6721(a) for a failure to file timely or for a failure to
include correct information shall be $15 in lieu of $50 if the failure
is corrected on or before the 30th day after the required filing date
(''within 30 days''). The total amount imposed on a person for all
failures during any calendar year that are corrected within 30 days
shall not exceed $75,000.
(2) Correction after 30 days but on or before August 1. The penalty
imposed under section 6721(a) for a failure to file timely or for a
failure to include correct information shall be $30 in lieu of $50 if
the failure is corrected after the 30-day period described in paragraph
(b)(1) of this section but on or before August 1 of the year in which
the required filing date occurs (''after 30 days but on or before August
1''). (See paragraph (b)(6) of this section for an exception to the
provisions of this paragraph (b)(2) for returns that are not due on
February 28 or March 15.) The total amount imposed on a person for all
failures during any calendar year corrected after 30 days but on or
before August 1 shall not exceed $150,000.
(3) Required filing date defined. The term ''required filing date''
means the date prescribed for filing an information return with the
Internal Revenue Service (or the Social Security Administration in the
case of Forms W-2) determined with regard to any extension of time for
filing.
(4) Penalty amount for return with multiple failures. If a return is
subject to a penalty for more than one failure, and the penalty amounts
for the failures differ, the higher penalty amount will be imposed.
(5) Examples. The provisions of paragraphs (a) and (b) (1) through
(4) of this section may be illustrated by the following examples. These
examples do not take into account any possible application of the de
minimis exception under paragraph (d) of this section, the lower small
business limitations under paragraph (e) of this section, the penalty
for intentional disregard under paragraph (f) of this section, or the
reasonable cause waiver under paragraph (a) of 301.6724-1:
Example 1. Corporation R fails to file timely 11,000 Forms 1099-MISC
(relating to miscellaneous income) for the 1990 calendar year. Five
thousand of these returns are filed with correct information within 30
days, and 6,000 after 30 days but on or before August 1, 1991. For the
same year R fails to file timely 400 Forms 1099-INT (relating to
payments of interest) which R eventually files on September 28, 1991,
after the period for reduction of the penalty has elapsed. R is subject
to a penalty of $20,000 for the 400 forms which were not filed by August
1 ($50 400 = $20,000), $150,000 for the 6,000 forms filed after 30
days ($30 6,000 = $180,000, limited to $150,000 under paragraph (b)(2)
of this section), and $75,000 for the 5,000 forms filed within 30 days
($15 5,000 = $75,000), for a total penalty of $245,000.
Example 2. Corporation T fails to file timely 6,000 Forms 1099-MISC
for the 1990 calendar year. T files the 6000 Forms 1099-MISC on
September 1, 1991. Because T does not correct the failure by August 1,
1991, T is subject to a penalty of $250,000, the maximum penalty under
paragraph (a) of this section. Without the limitation of paragraph (a),
T would be subject to a $300,000 penalty ($50 6,000 = $300,000).
Example 3. Corporation U files timely 300 Forms 1099-MISC on paper
for the 1990 calendar year with correct information. Under section
6011(e)(2) a person required to file at least 250 returns during a
calendar year must file those returns on magnetic media. U does not
correct its failures to file these returns on magnetic media by August
1, 1991. It is therefore subject to a penalty for a failure to file
timely under paragraph (a)(2) of this section. However, pursuant to
section 6724(c) and paragraph (a)(2) of this section, the penalty for a
failure to file timely on magnetic media applies only to the extent the
number of returns exceeds 250. As U was required to file 300 returns on
magnetic media, U is subject to a penalty of $2,500 for 50 returns ($50
50 = $2,500).
Example 4. Corporation V files 300 Forms 1099-MISC on paper for the
1990 calendar year. The forms were filed on March 15, 1991, rather than
on the required filing date of February 28,1991. Under Section
6011(e)(2), a person required to file at least 250 returns during a
calendar year must file those returns on magnetic media. V does not
correctly file these returns on magnetic media by August 1, 1991. V is
subject to a penalty of $3,750 for filing 250 of the returns late ($15
250) and $2,500 for failing to file 50 returns on magnetic media ($50
50) for a total penalty of $6,250.
(6) Application to returns not due on February 28, or March 15. For
returns that are not due on February 28 or March 15 (for example, Forms
8300 reporting certain cash payments of $10,000 or more), the penalty is
$15 if the failure is corrected within 30 days. If the failure is
corrected after 30 days, the penalty is $50 rather than $30. There is
no period during which the penalty is reduced to $30 under paragraph
(b)(2) of this section.
(c) Exception for inconsequential errors or omissions -- (1) In
general. An inconsequential error or omission is not considered a
failure to include correct information. For purposes of this paragraph
(c)(1), the term ''inconsequential error or omission'' means any failure
that does not prevent or hinder the Internal Revenue Service from
processing the return, from correlating the information required to be
shown on the return with the information shown on the payee's tax
return, or from otherwise putting the return to its intended use. See
paragraph (g)(5) of this section for the definition of ''payee.''
(2) Errors or omissions that are never inconsequential. Errors or
omissions relating to the following are never inconsequential --
(i) A taxpayer identification number;
(ii) A surname of a payee (i.e., the person required to be furnished
a copy of the information set forth on an information return); and
(iii) Any monetary amounts. The Internal Revenue Service may, by
administrative pronouncement, specify other types of errors or omissions
that are never inconsequential.
(3) Examples. The provisions of this paragraph (c) may be
illustrated by the following examples, which do not take into account
any possible application of the penalty for intentional disregard under
paragraph (f) of this section or the reasonable cause waiver under
paragraph (a) of 301.6724-1:
Example 1. A filer files a Form 1099-MISC (relating to miscellaneous
income) with the Internal Revenue Service. The Form 1099-MISC is
complete and correct except that the word ''street'' is misspelled in
the payee's address. The error does not prevent or hinder the Internal
Revenue Service from processing the return, from correlating the
information required to be shown on the return with the information
shown on the payee's tax return, or from otherwise putting the return to
its intended use. Therefore, no penalty is imposed under paragraph (a)
of this section.
Example 2. A filer files a Form 1099-MISC with the Internal Revenue
Service. The Form 1099-MISC is complete and correct except that the
payee's first name, William, is misspelled as ''Willaim.'' the error
does not prevent or hinder the Internal Revenue Service from processing
the return, from correlating the information required to be shown on the
return with the information shown on the payee's tax return, or from
otherwise putting the return to its intended use. See paragraph (c)(2)
of this section. Therefore, no penalty is imposed under paragraph (a)
of this section.
Example 3. A filer files a Form 1099-MISC with the Internal Revenue
Service. The Form 1099-MISC is complete and correct except that the
payee's name, ''John Doe,'' is misspelled as ''John Ode.'' Under
paragraph (c)(2) of this section, supplying an incorrect surname for a
payee is never considered an inconsequential error. Therefore, a
penalty is imposed under paragraph (a) of this section.
(d) Exception for a de minimis number of failures -- (1)
Requirements. The penalty under paragraph (a) of this section is not
imposed for a de minimis number of failures to include correct
information if the filer corrects such failures on or before August 1 of
the year in which the required filing date occurs. (See paragraph
(d)(4) of this section for special rules relating to returns that are
not due on February 28 or March 15.)
(2) Calculation of the de minimis exception. The number of returns
to which the de minimis exception applies for any calendar year shall
not exceed the greater of 10 or one-half of one percent of the total
number of all information returns the filer is required to file during
the year. If the number of returns on which the filer fails to include
correct information exceeds the number of returns to which the de
minimis exception applies, the de minimis exception applies to those
returns that will afford the filer the greatest reduction in penalty.
The de minimis exception applies to failures to include correct
information that exist after the application (if any) of the waiver for
reasonable cause under section 6724(a) and 301.6724-1. Returns to which
the de minimis exception applies are treated as having been originally
filed with correct information.
(3) Examples. The provisions of this paragraph (d) may be
illustrated by the following examples. In each of the examples, the
failures to file and to include correct information are subject to
penalty under paragraph (a) of this section. The examples do not take
into account any possible application of paragraph (f) of this section
or the reasonable cause waiver under paragraph (a) of 301.6724-1 of
this section.
Example 1. Corporation T files timely 10,000 Forms 1099-INT
(relating to payments of interest) for 1990 by February 28, 1991. The
10,000 returns are all the information returns that T is required to
file during the 1991 calendar year. Of the returns filed, 70 contained
incorrect information. T corrects the failures on July 12, 1991. No
penalty is imposed for 50 of the failures (i.e., the greater of 10 or
.005 x 10,000 = 50) even though the total failures, 70, exceed the
number to which the de minimis exception may apply. The $30 penalty
under paragraph (b)(2) of this section is imposed, in lieu of $50, for
the remaining 20 failures, which were corrected after 30 days but on or
before August 1, resulting in a total penalty of $600 ($30 x 20 = $600).
Example 2. Corporation U files timely 9,500 Forms 1099-INT for 1990
by February 28, 1991, the required filing date. Fifty of these returns
contain incorrect information with respect to which U files correct
information on August 1, 1991. U also files 500 Forms 1099-INT for 1990
on August 30, 1991, after the required filing date. The 10,000 returns
are all the information returns that U is required to file during the
1991 calendar year. The calculation of the de minimis exception is
based on the 10,000 returns required to be filed during the 1991
calendar year even though 500 of the returns filed during the year were
not filed timely. Therefore, the number of failures for which the de
minimis exception applies is 50, and accordingly no penalty is imposed
for the 50 Forms 1099-INT that were corrected on August 1, 1991.
However, the $50 penalty under paragraph (a)(1) of this section is
imposed for each failure to file timely, resulting in a total penalty of
$25,000 ($50 x 500 = $25,000).
Example 3. Corporation V files timely 9,950 Forms 1099-INT for 1990
by February 28, 1991. However, V fails to file timely 50 of its Forms
1099-INT. The 10,000 returns are all the information returns that V is
required to file during the 1991 calendar year. Upon discovering the
error, V files the 50 returns within 30 days of February 28, 1991. The
50 returns are complete and correct except that V fails to include the
taxpayer identification numbers of the payees on the returns. V files
corrected returns on August 1, 1991. Absent application of the de
minimis exception, the penalty imposed for the failure to include
correct information would be $1,500 ($30 x 50 = $1,500). Because the
incorrect returns are corrected on August 1, the 50 forms are treated
under the de minimis exception as originally filed with correct
information, and therefore no penalty is imposed under paragraph (a) of
this section for the failure to include correct information.
Nevertheless, the penalty under paragraph (a) of this section is imposed
for the failure to file timely the 50 returns because the de minimis
exception does not apply to the penalty for the failure to file timely.
Hence, a penalty of $750 ($15 x 50 = $750) is imposed.
Example 4. Corporation W files timely 100 Forms 1099-DIV and files
an additional 50 Forms 1099-DIV late, but within 30 days of February 28,
1991. These are all the information returns that W was required to file
during the 1991 calendar year. W discovers errors on 10 of the returns
that were filed timely, and on 5 of the returns that were filed late. W
corrects all the errors on August 1. The de minimis exception applies
to 10 of the corrected returns. The exception will be allocated to the
10 returns that were filed timely with incorrect information, because
that allocation is most favorable to W (i.e., applying the exception to
a return filed late with incorrect information would save W $15, by
reducing the penalty on that return from $30 to $15, but applying the
exception to a return filed timely would save W $30, by reducing the
penalty on that return from $30 to $0). (See paragraph (b)(4) of this
section.)
(4) Nonapplication to returns not due on February 28 or March 15.
The exception for a de minimis number of failures provided in paragraph
(d)(1) of this section does not apply to failures with respect to
returns that are not due on February 28 or March 15 (for example, Forms
8300 reporting certain cash payments of $10,000 or more). Nevertheless,
the returns that are not due on February 28 or March 15 are included in
the total number of all information returns that the filer is required
to file during a year for purposes of calculating the number of the
returns subject to the de minimis exception under paragraph (d)(2) of
this section.
(e) Lower limitations on the $250,000 maximum penalty amount with
respect to persons with gross receipts of not more than $5,000,000 --
(1) In general. If a person meets the gross receipts test (as defined
in paragraph (e)(2) of this section) for any calendar year, the total
amount of the penalty imposed on such person for all failures described
in section 6721(a)(2) and paragraph (a)(2) of this section during such
calendar year shall not exceed $100,000. The total amount of the
penalty imposed under paragraph (b)(1) of this section for failures
corrected within 30 days shall not exceed $25,000 for such calendar
year. The total amount of the penalty imposed under paragraph (b)(2) of
this section for failures corrected after 30 days but on or before
August 1 shall not exceed $50,000 for such calendar year.
(2) Gross receipts test. A person meets the gross receipts test for
any calendar year if the average annual gross receipts for such person
for the three most recent taxable years ending before such calendar year
do not exceed $5,000,000. For purposes of determining the amount of
gross receipts during the three most recent taxable years, the rules of
section 448(c) (2) and (3) shall apply.
(f) Higher penalty for intentional disregard of requirement to file
timely correct information returns -- (1) Application of section
6721(e). If a failure is due to intentional disregard of the
requirement to file timely or to include correct information on a return
as described in paragraph (g) of this section, the amount of the penalty
imposed under paragraph (a) of this section shall be determined under
paragraph (f)(4) of this section.
(2) Meaning of ''intentional disregard.'' A failure is due to
intentional disregard if it is a knowing or willful --
(i) Failure to file timely, or
(ii) Failure to include correct information. Whether a person
knowingly or willfully fails to file timely or fails to include correct
information is determined on the basis of all the facts and
circumstances in the particular case.
(3) Facts and circumstances considered. The facts and circumstances
that are considered in determining whether a failure is due to
intentional disregard include, but are not limited to --
(i) Whether the failure to file timely or the failure to include
correct information is part of a pattern of conduct by the person who
filed the return of repeatedly failing to file timely or repeatedly
failing to include correct information;
(ii) Whether correction was promptly made upon discovery of the
failure;
(iii) Whether the filer corrects a failure to file or a failure to
include correct information within 30 days after the date of any written
request from the Internal Revenue Service to file or to correct; and
(iv) Whether the amount of the information reporting penalties is
less than the cost of complying with the requirement to file timely or
to include correct information on an information return.
(4) Amount of the penalty. If one or more failures to file timely or
to include correct information are due to intentional disregard of the
requirement to file timely or to include correct information, then, with
respect to each such failure determined under this paragraph (f) --
(i) Paragraphs (b), (d), and (e) of this section shall not apply;
(ii) The $250,000 limitation under paragraph (a) of this section
shall not apply, and the penalty under this paragraph (f) shall not be
taken into account in applying the $250,000 limitation (or any similar
limitation under paragraph (b) or (e) of this section) to penalties not
determined under this paragraph (f);
(iii) The penalty imposed under paragraph (a) of this section shall
be $100 or, if greater, the statutory percentage; and
(iv) The term ''statutory percentage'' means --
(A) In the case of a return other than a return required under
section 6045(a), 6041A(b), 6050H, 6050I (for amounts received after
November 5, 1990), 6050J, 6050K, or 6050L, 10 percent of the aggregate
dollar amount of the items required to be reported correctly,
(B) In the case of a return required to be filed by section 6045(a),
6050K, or 6050L, 5 percent of the aggregate dollar amount of the items
required to be reported correctly, or
(C) In the case of a return required to be filed under section
6050I(a) with respect to amounts received after November 5, 1990, for
any transaction (or related transactions), the greater of $25,000 or the
amount of cash (within the meaning of section 6050I(d)) received in such
transaction to the extent the amount of such cash does not exceed
$100,000.
(5) Computation of the penalty; aggregate dollar amount of the items
required to be reported correctly. The aggregate dollar amount used in
computing the penalty under this paragraph (f) is the amount that is not
reported or is reported incorrectly. If the intentional disregard
relates to a dollar amount, the statutory percentage is applied to the
difference between the dollar amount reported and the amount required to
be reported correctly. If the intentional disregard relates to any
other item on the return, the statutory percentage is applied to the
aggregate amount of items required to be reported correctly. In
determining the aggregate amount of items required to be reported
correctly, no item shall be taken into account more than once. For
example, if a filer willfully fails to file a Form 1099-INT on which
$800 of interest and $160 of Federal income tax withheld (i.e., backup
withholding) is required to be reported, only the $800 amount is taken
into account in computing the penalty.
(6) Examples. The provisions of this paragraph (f) may be
illustrated by the following examples:
Example 1. On December 1, 1990, Automobile dealer P receives $55,000
from an individual for the purchase of an automobile in a transaction
subject to reporting under section 6050I. The individual presents
documents to P that identify him as ''John Doe.'' However, P completes
the Form 8300 (relating to cash received in a trade or business) and
reflects the name of a cartoon character as the payor. Because P knew
at the time of filing the Form 8300 that the payor's name was not the
name of the cartoon character, he willfully failed to include correct
information as described under paragraph (f)(2) of this section.
Therefore, the penalty under paragraph (f)(4) of this section is imposed
for the intentional disregard of the requirement to include correct
information. The amount used in computing the penalty under paragraph
(f)(5) of this section is $55,000 (i.e., the amount required to be
reported on the return with respect to which the payee is not correctly
identified). The amount of the penalty determined under paragraph
(f)(4)(ii)(C) of this section is $55,000 (i.e., the greater of $25,000
or the amount of cash received in the transaction up to $100,000).
Example 2. On December 1, 1990, Individual B contacts his agent, F,
to act as his intermediary in the purchase of an automobile. B gives F
$20,000 and requests F to purchase the automobile in F's name, which F
does. F prepares the Form 8300 as required under section 6050I, but in
the area designated for the name of the payor, F writes
''confidential.'' Because F knew at the time the return was filed that
it contained incomplete information, the penalty under paragraph (f)(4)
of this section is imposed for the intentional disregard of the
requirement to include correct information. The amount used in
computing the penalty under paragraph (f)(5) of this section is $20,000
(i.e., the amount required to be reported on the return with respect to
which the payee is not correctly identified). The amount of the penalty
determined under paragraph (f)(4) (ii)(C) of this section is $25,000
(i.e., the greater of $25,000 or the amount of cash received in the
transaction up to $100,000).
Example 3. Corporation M deliberately does not include $5,000 of
dividends on a Form 1099-DIV (relating to payments of dividends) on
which a total of $200,000 (including the $5,000 dividends) is required
to be reported under section 6042(a). Because the failure was
deliberate, Corporation M's failure is due to intentional disregard of
the requirement to include correct information. Accordingly, the amount
of the penalty imposed under paragraph (a) is determined under paragraph
(f)(4) of this section. Because the Form 1099-DIV is required to be
filed under section 6042(a), under paragraph (f)(4)(ii)(A) the amount of
the penalty with respect to such failure is 10 percent of the aggregate
dollar amount of the items that were required to be but that were not
reported correctly. Under paragraph (f)(5) of this section, $5,000 is
the difference between the dollar amount reported and the amount
required to be reported correctly. Therefore, the amount of the penalty
is $500 ($5,000 .10 = $500).
Example 4. Form 8027 requires certain large food and beverage
establishments to report certain information with respect to tips. The
form requires (among other things) that the establishment report its
gross receipts from food and beverage operations. Establishment A, in
intentional disregard of the information reporting requirement, reported
gross receipts of $1,000,000, when the correct amount was $1,500,000.
The significance of the gross receipts reporting requirement is that
section 6053(c)(3)(A) requires an establishment to allocate as tips
among its employees the excess of 8 percent of its gross receipts over
the aggregate amount reported by employees to the establishment as tips
under section 6053(a). A's misstatement of its gross receipts caused A
to show $80,000 on the Form 8027 as 8 percent of its gross receipts,
rather than the correct amount of $120,000. A correctly reported the
amount of tips reported to it by employees under section 6053(a) as
$80,000. Thus A reported the excess of 8 percent of its gross receipts
over tips reported to it as zero, rather than as the correct amount of
$40,000. The requirement of reporting gross receipts is considered
merely a step in the computation of the excess of 8 percent of gross
receipts over tips reported to A under section 6053(a), so that the
penalty for intentional disregard will be $4,000 (i.e., 10 percent of
the difference between the $40,000 required to be reported as the excess
of 8 percent of gross receipts over tips reported under section 6053(a),
and the zero amount actually reported).
(g) Definitions -- (1) Information return. For purposes of this
section the term ''information return'' means any statement described in
paragraph (g)(2) of this section, any return described in paragraph
(g)(3) of this section, and any other items described in paragraph
(g)(4) of this section.
(2) Statements. The statements subject to this section are the
statements required by --
(i) Section 6041 (a) or (b) (relating to certain information at
source, generally reported on Form 1099-MISC, Form W-2G, Form W-2, and
Form 1099-INT),
(ii) Section 6042(a)(1) (relating to payments of dividends, generally
reported on Form 1099-DIV),
(iii) Section 6044(a)(1) (relating to payments of patronage
dividends, generally reported on Form 1099-PATR),
(iv) Section 6049(a) (relating to payments of interest, generally
reported on Form 1099-INT),
(v) Section 6050A(a) (relating to reporting requirements of certain
fishing boat operators, generally reported on Form 1099-MISC),
(vi) Section 6050N(a) (relating to payments of royalties, generally
reported on Form 1099-INT), or
(vii) Section 6051(d) (relating to information returns with respect
to income tax withheld, generally reported on Form W-2).
(3) Returns. The returns subject to this section are the returns
required by --
(i) Section 6041A(a) or (b) (relating to returns of direct sellers,
generally reported on Form 1099-MISC),
(ii) Section 6045(a) or (d) (relating to returns of brokers generally
reported on Form 1099-B for broker transactions, Form 1099-S for gross
proceeds from the sale or exchange of real estate, and Form 1099-MISC
for certain substitute payments),
(iii) Section 6050H(a) (relating to mortgage interest received in
trade or business from individuals, generally reported on Form 1098),
(iv) Section 6050I(a) (relating to cash received in trade or
business, generally reported on Form 8300),
(v) Section 6050J(a) (relating to foreclosures and abandonments of
security, generally reported on Form 1099-A),
(vi) Section 6050K(a) (relating to exchanges of certain partnership
interests, generally reported on Form 8308),
(vii) Section 6050L(a) (relating to returns relating to certain
dispositions of donated property, generally reported on Form 8282),
(viii) Section 6052(a) (relating to reporting payment of wages in the
form of group-life insurance, generally reported on Form W-2),
(ix) Section 6053(c)(1) (relating to reporting with respect to
certain tips, generally reported on Form 8027),
(x) Section 1060(b) (relating to reporting requirements of
transferors and transferees in certain asset acquisitions, generally
reported on Form 8594), or section 1060(e) (relating to information
required in the case of certain transfers of interests in entities
(effective for acquisitions after October 9, 1990, except any
acquisition pursuant to a written binding contract in effect on October
9, 1990, and at all times thereafter before such acquisition)),
(xi) Section 4093(c)(4)(A) or (C) or, effective for information
returns required to be filed after December 31, 1989, and before
December 1, 1990, section 4093(e) (relating to information reporting
with respect to tax on diesel and aviation fuels),
(xii) Section 4101(d) (relating to information reporting with respect
to fuel oils (effective for information returns required to be filed
after November 30, 1990)), or
(xiii) Section 338(h)(10)(C) (relating to information required to be
furnished to the Secretary in case of elective recognition of gain or
loss (effective for acquisitions after October 9, 1990, except any
acquisition pursuant to a written binding contract in effect on October
9, 1990, and at all times thereafter before such acquisition)).
(4) Other items. The term ''information return'' also includes any
form, statement, or schedule required to be filed with the Internal
Revenue Service with respect to any amount from which tax is required to
be deducted and withheld under chapter 3 of the Code (or from which tax
would be required to be so deducted and withheld but for an exemption
under the Code or any treaty obligation of the United States), generally
the Form 1042S.
(5) Payee. For purposes of section 6721 the term ''payee'' means any
person who is required to receive a copy of the information set forth on
an information return by the filer of the return as defined in section
6724(d)(1).
(6) Filer. For purposes of this section the term ''filer'' means a
person that is required to file an information return as defined in
paragraph (g)(1) of this section under the applicable information
reporting section described in paragraph (g) (2) through (4) of this
section.
(T.D. 8386, 56 FR 67182, Dec. 30, 1991)
26 CFR 301.6722-1 Failure to furnish correct payee statements.
(a) Imposition of penalty -- (1) General rule. A penalty of $50 is
imposed for each payee statement (as defined in section 6724(d)(2)) with
respect to which a failure (as defined in section 6722(a) and paragraph
(a)(2) of this section) occurs. No more than one penalty will be
imposed under this paragraph (a) with respect to a single payee
statement even though there may be more than one failure with respect to
such statement. However, the penalty shall apply to failures on
composite substitute payee statements as though each type of payment and
other required information were furnished on separate statements. A
''composite substitute payee statement'' is a single document created by
a filer to reflect several types of payments made to the same payee.
The total amount imposed on any person for all failures during any
calendar year with respect to all payee statements shall not exceed
$100,000. See section 6722(c) and paragraph (c) of this section for
higher penalties when a failure is due to intentional disregard of the
requirement to furnish timely correct payee statements. See paragraph
(a)(1) of 301.6724-1 for a waiver of the penalty for a failure that is
due to reasonable cause.
(2) Failures subject to the penalty. The failures to which section
6722(a) and paragraph (a)(1) of this section apply are --
(i) A failure to furnish a payee statement on or before the
prescribed date therefore to the person to whom such statement is
required to be furnished (''failure to furnish timely''), and
(ii) A failure to include all of the information required to be shown
on a payee statement or the inclusion of incorrect information
(''failure to include correct information''). A failure to furnish
timely includes a failure to furnish a written statement to the payee in
a statement mailing as required under sections 6042(c), 6044(e),
6049(c), and 6050N(b), as well as a failure to furnish the statement on
a form acceptable to the Internal Revenue Service. Except as provided
in paragraph (b) of this section, a failure to include correct
information encompasses a failure to include the information required by
applicable information reporting statutes or by any administrative
pronouncements issued thereunder (such as regulations, revenue rulings,
revenue procedures, or information reporting forms).
(b) Exception for inconsequential errors or omissions -- (1) In
general. An inconsequential error or omission is not considered a
failure to include correct information. For purposes of this paragraph
(b), the term ''inconsequential error or omission'' means any failure
that cannot reasonably be expected to prevent or hinder the payee from
timely receiving correct information and reporting it on his or her
return or from otherwise putting the statement to its intended use.
(2) Errors or omissions that are never inconsequential. Errors or
omissions relating to the following are never inconsequential:
(i) A dollar amount,
(ii) The significant items in the address of a payee, which is the
address provided by the payee to the filer,
(iii) The appropriate form for the information provided (i.e.,
whether or not the form is an acceptable substitute for an official form
of the Internal Revenue Service), and
(iv) The manner of furnishing a statement required under sections
6042(c), 6044(e), 6049(e), and 6050N(b). The Internal Revenue Service
may, by administrative pronouncement, specify other types of errors or
omissions that are never inconsequential.
(3) Examples. The provisions of this paragraph (b) may be
illustrated by the following examples which do not take into account any
possible application of the penalty for intentional disregard under
paragraph (c) of this section or the reasonable cause waiver under
paragraph (a) of 301.6724-1:
Example 1. A payor furnishes a statement with respect to a Form
1099-MISC (relating to miscellaneous income). The payee statement is
complete and correct, except the word ''boulevard'' is misspelled in the
payee's address. The error cannot reasonably be expected to prevent or
hinder the payee from timely receiving correct information and reporting
it on his or her tax return or from otherwise putting the statement to
its intended use. Therefore, no penalty is imposed under paragraph (a)
of this section.
Example 2. Assume the same facts in Example 1, except that the only
error on the payee statement is that the payee's street address, 4821
Grant Boulevard, is reported incorrectly as 8421 Grant Boulevard. A
penalty is imposed under paragraph (a) of this section with respect to
the payee statement because the error can reasonably be expected to
prevent or hinder the payee from timely receiving correct information
and reporting it on his or her tax return or from otherwise putting the
statement to its intended use.
(c) Higher penalty for intentional disregard of requirement to
furnish timely correct payee statements -- (1) Application of section
6722(c). If a failure is due to intentional disregard of the
requirement to furnish timely correct payee statements, the amount of
the penalty shall be determined under paragraph (c)(2) of this section.
Whether a failure is due to intentional disregard of the requirement to
furnish timely correct payee statements is based upon the facts and
circumstances surrounding the failure. The facts and circumstances
considered include those under 301.6721-1(f)(3), which shall apply in
determining whether a failure under this section is due to intentional
disregard.
(2) Amount of the penalty. If one or more failures under paragraph
(a) of this section are due to intentional disregard of the requirement
to furnish timely payee statements or of the requirement to include
correct information, then, with respect to each such failure determined
under this paragraph (c)(2) --
(1) The $100,000 limitation under paragraph (a) of this section shall
not apply and the penalty under this paragraph (c)(2) shall not be taken
into account in applying the $100,000 limitation to penalties not
determined under this paragraph (c)(2);
(ii) The penalty imposed under paragraph (a) of this section shall be
$100 or, if greater, the statutory percentage; and
(iii) The term ''statutory percentage'' means --
(A) In the case of a payee statement other than a statement required
under section 6045(b), 6041A(e) (in respect of a return required under
section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6060L(c), 10 percent
of the aggregate dollar amount of the items required to be reported
correctly, or
(B) In the case of a payee statement required under section 6045(b),
6050K(b), or 6050L(c), 5 percent of the aggregate dollar amount of the
items required to be reported correctly.
(3) Computation of the penalty; aggregate dollar amount of items
required to be shown correctly. The aggregate dollar amount used in
computing the penalty under this paragraph (c) is the amount that is not
reported or is reported incorrectly. If the intentional disregard
relates to a dollar amount, the statutory percentage is applied to the
difference between the dollar amount reported and the amount required to
be reported correctly. If the intentional disregard relates to any
other item on the return, the statutory percentage is applied to the
aggregate amount of items required to be reported correctly. In
determining such amount the same item shall be counted only once. For
example, if a filer willfully fails to furnish a Form 1099-INT on which
$800 of interest and $160 of Federal income tax withheld (i.e., backup
withholding) is required to be shown, only the $800 amount is taken into
account in computing the penalty.
(d) Definitions -- (1) Payee. See 301.6721-1(g)(5) for the
definition of ''payee.''
(2) Payee statement. The term ''payee statement'' means any
statement required to be furnished under --
(i) Section 6031(b) or (c), 6034A, or 6037(b) (relating to statements
furnished by certain pass-thru entities, generally a Schedule K-1 (Form
1065) for section 6031(b) or (c), a copy of the Schedule K-1 (Form 1041)
for section 6034A, and a copy of Schedule K-1 (Form 1120S) for section
6037(b)),
(ii) Section 6039(a) (relating to information required in connection
with certain options),
(iii) Section 6041(d) (relating to information at source, generally
the recipient copy of Form 1099-MISC, Form W-2, Form 1099-INT, and the
winner's copies of Form W-2G),
(iv) Section 6041A(e) (relating to returns regarding payments of
remuneration for services and direct sales, generally the recipient copy
of Form 1099-MISC),
(v) Section 6042(c) (relating to returns regarding payments of
dividends and corporate earnings and profits, generally the recipient
copy of Form 1099-DIV),
(vi) Section 6044(e) (relating to returns regarding payments of
patronage dividends, generally the recipient copy of Form 1099-PATR),
(vii) Section 6045(b) or (d) (relating to returns of brokers,
generally the recipient copy of Form 1099-B for broker transactions, the
transferor copy of Form 1099-S for reporting proceeds from real estate
transactions, and the recipient copy of Form 1099-MISC for certain
substitute payments),
(viii) Section 6049(c) (relating to returns regarding payments of
interest, generally the recipient copy of Form 1099-INT),
(ix) Section 6050A(b) (relating to reporting requirements of certain
fishing boat operators, generally the recipient copy of Form 1099-MISC),
(x) Section 6050H(d) (relating to returns relating to mortgage
interest received in trade or business from individuals, generally the
payor copy of Form 1098),
(xi) Section 6050I(e) (relating to returns relating to cash received
in trade or business, generally a copy of Form 8300),
(xii) Section 6050J(e) (relating to returns relating to foreclosures
and abandonments of security, generally the borrower copy of Form
1099-A),
(xiii) Section 6050K(b) (relating to returns relating to exchanges of
certain partnership interests, generally a copy of Form 8308),
(xiv) Section 6050L(c) (relating to returns relating to certain
dispositions of donated property, generally a copy of Form 8282),
(xv) Section 6050N(b) (relating to returns regarding payments of
royalties, generally the recipient copy of Form 1099-MISC),
(xvi) Section 6051 (relating to receipts for employees, generally the
employee copy of Form W-2),
(xvii) Section 6052(b) (relating to returns regarding payment of
wages in the form of group-term life insurance, generally the employee
copy of Form W-2),
(xviii)( Section 6053(b) or (c) (relating to reports of tips,
generally the employee copy of Form W-2), and
(xix) Section 4093(c)(4)(B) (relating to certain purchasers of diesel
and aviation fuels).
(3) Other items. The term ''payee statement'' also includes any
form, statement, or schedule required to be furnished to the recipient
of any amount from which tax is required to be deducted and withheld
under chapter 3 of the Code (or from which tax would be required to be
so deducted and withheld but for an exemption under the Code or any
treaty obligation of the United States), generally the recipient copy of
Form 1042S.
(T.D. 8386, 56 FR 67182, Dec. 30, 1991)
26 CFR 301.6723-1 Failure to comply with other information reporting
requirements.
(a) Imposition of penalty -- (1) General rule. A penalty of $50 is
imposed for each failure to comply timely with a specified information
reporting requirement (as defined in paragraph (a)(4) of this section)
or for each failure to include correct specified information. Multiple
penalties are imposed with respect to a document with failures to comply
with more than one of the requirements set forth in paragraph (a)(4) of
this section or multiple instances of failures to comply with any one of
these requirements. Nonetheless, if a failure that occurs with respect
to any requirement defined in paragraph (a)(4) of this section would be
subject to a penalty under both paragraph (a)(2)(i) and paragraph
(a)(2)(ii) of this section, no more than one penalty is imposed for such
failure. The total amount imposed on any person for all failures during
any calendar year with respect to all specified information reporting
requirements shall not exceed $100,000. See paragraph (a) of
301.6724-1 for the waiver of the penalty for a failure that is due to
reasonable cause.
(2) Failures subject to the penalty. The failures to which paragraph
(a)(1) of this section apply are --
(i) A failure to comply timely with a specified information reporting
requirement on or before the date prescribed therefor (''failure to
comply timely''), and
(ii) A failure to include all the information required by a specified
information reporting requirement or the inclusion of incorrect
information (''failure to include correct information'').
(3) Exception for inconsequential errors or omissions. An
inconsequential error or omission is not considered a failure to comply
with a specified information reporting requirement. For purposes of
paragraph (a)(3) of this section, an error or omission is considered
inconsequential if it does not frustrate the purpose or use for which
the information is intended.
(4) Specified information reporting requirement defined. For
purposes of section 6723 and this section, a ''specified information
reporting requirement'' means --
(i) The requirement to provide the notice under section 6050K(c)(1)
(relating to the requirement that a transferor notify the partnership of
an exchange of a partnership interest);
(ii) Any requirement contained in the regulations under section 6109
that a person --
(A) Include his or her taxpayer identification number (''TIN'') on
any return, statement, or other document (other than an information
return or payee statement),
(B) Include on any return, statement, or other document (other than
an information return or payee statement) made with respect to another
person the TIN of such person, or
(C) Furnish his or her TIN to another person;
(iii) Any requirement contained in the regulations under section 215
that a person --
(A) Furnish his or her TIN to another person, or
(B) Include on his or her return the TIN of another person; and
(iv) The requirement under section 6109(e) that a person include the
TIN of any dependent on his or her return.
(b) Examples. The provisions of paragraph (a) of this section may be
illustrated by the following examples which do not take into account the
reasonable cause waiver under section 6724(a) and paragraph (a)(1) of
301.6724-1.
Example 1. Individual A, who has two dependents ages 7 and 9, files
his 1990 Form 1040 in 1991. The Form 1040 requires him to provide the
TINs of his two dependents, which A fails to do. Because A fails to
comply timely with two requirements to include on his return the TIN of
another person, a $50 penalty under paragraph (a) of this section is
imposed on A for each of the two failures, for a total penalty of $100.
Example 2. In 1991 Individual B opens with Bank X an account which
pays reportable interest under section 6049. When B opens the account,
Bank X requests that B provide his TIN on a Form W-9. B does not
provide his TIN as required by 301.6109-1(b). As a result B fails to
comply timely with a specified information reporting requirement under
paragraph (a) of this section for furnishing his TIN to another person.
Therefore, a $50 penalty is imposed on B under paragraph (a) of this
section for the failure. See section 6721(a) for the penalty to which X
may be subject if X files a Form 1099-INT (relating to payments of
interest) for calendar year 1991 without B's TIN. See section
3406(a)(1)(A) which requires X to impose backup withholding on
reportable payments of interest to B's account.
Example 3. In 1991 Individual C is a nonresident alien with an
account inside the U.S. with Bank Z. The account pays interest that
would be reportable under section 6049 but for the fact that it is paid
to a nonresident alien. Under section 6109 and 301.6109-1(b), Bank Z
is required to request the TIN from C. C claims that he is a
nonresident alien and that his account is not subject to information
reporting under section 6049. Because of this, C contends he is not
required to provide any TIN information. As a result of this
discussion, Bank Z then requests C to provide it with a Form W-8 in
order for C to certify that he is a nonresident alien which C fails to
do. C fails to comply timely with a specified information reporting
requirement under paragraph (a) of this section to furnish his TIN to
another person. Therefore, a penalty is imposed on C under paragraph
(a) of this section for the failure. See section 6721(a) for the
penalty that may be imposed on Z if Z files a Form 1099-INT for calendar
year 1991 without C's TIN. See section 3406(a)(1)(A) under which Z is
required to impose backup withholding on reportable payment of interest
to C's account.
Example 4. In 1991 Partnership D opens with Bank Y an account that
pays reportable interest under section 6049. When D opens the account,
Y requests the partnership's employer identification number (EIN) on a
Form W-9 as required under 301.6109-1(b). The partnership provides its
EIN on the Form W-9. Y files an information return with respect to D
for the 1991 calendar year. Subsequently, the Internal Revenue Service
later notifies Y that D's EIN is incorrect as defined under section 3406
and 35a.3406-1(a)(6). D fails to comply timely with a specified
reporting requirement under paragraph (a) of this section of furnishing
its correct EIN to another person. Therefore, a penalty is imposed on D
under paragraph (a) of this section for the failure. See section
6721(a) for the penalty to which Y may be subject if Y files a Form
1099-INT for calendar year 1991 without D's correct EIN. See section
3406(a)(1)(B), which requires Y to impose backup withholding on
reportable payments of interest to B's account when the Internal Revenue
Service or a broker has notified Y that the EIN is incorrect.
(T.D. 8386, 56 FR 67182, Dec. 30, 1991)
26 CFR 301.6724-1 Reasonable cause.
(a) Waiver of the penalty -- (1) General rule. The penalty for a
failure relating to an information reporting requirement (as defined in
paragraph (j) of this section) is waived if the failure is due to
reasonable cause and is not due to willful neglect.
(2) Reasonable cause defined. The penalty is waived for reasonable
cause only if the filer establishes that either --
(i) There are significant mitigating factors with respect to the
failure, as described in paragraph (b) of this section; or
(ii) The failure arose from events beyond the filer's control
(''impediment''), as described in paragraph (c) of this section.
Moreover, the filer must establish that the filer acted in a
responsible manner, as described in paragraph (d) of this section, both
before and after the failure occurred. Thus, if the filer establishes
that there are significant mitigating factors for a failure but is
unable to establish that the filer acted in a responsible manner, the
mitigating factors will not be sufficient to obtain a waiver of the
penalty. Similarly, if the filer establishes that a failure arose from
an impediment but is unable to establish that the filer acted in a
responsible manner, the impediment will not be sufficient to obtain a
waiver of the penalty. See paragraph (g) of this section for the
reasonable cause safe harbor for persons who exercise due diligence.
(b) Significant mitigating factors. In order to establish reasonable
cause under this paragraph (b), the filer must satisfy paragraph (d) of
this section and must show that there are significant mitigating factors
for the failure. The mitigating factors include, but are not limited to
--
(1) The fact that prior to the failure the filer was never required
to file the particular type of return or furnish the particular type of
statement with respect to which the failure occurred, or
(2) The fact that the filer has an established history of complying
with the information reporting requirement with respect to which the
failure occurred. In determining whether the filer has such an
established history, significant consideration is given to --
(i) Whether the filer has incurred any penalty under 301.6721-1,
301.6722-1, or 301.6723-1 in prior years for the failure (or under
parallel provisions of prior law), and
(ii) If the filer has incurred any such penalty in prior years, the
extent of the filer's success in lessening its error rate from year to
year.
A filer may treat as a penalty not incurred any penalty under
sections 6721 through 6723 that was self-assessed under section
6724(c)(3) and any penalty under section 6676(b) that was self-assessed
under section 6676(d), prior to amendment or repeal by the Omnibus
Budget Reconciliation Act of 1989. See paragraph (c)(5) of this section
for the application of this paragraph (b) to failures attributable to
the actions of a filer's agent.
(c) Events beyond the filer's control -- (1) In general. In order to
establish reasonable cause under this paragraph (c)(1), the filer must
satisfy paragraph (d) of this section and must show that the failure was
due to events beyond the filer's control. Events which are generally
considered beyond the filer's control include but are not limited to --
(i) The unavailability of the relevant business records (as described
in paragraph (c)(2) of this section),
(ii) An undue economic hardship relating to filing on magnetic media
(as described in paragraph (c)(3) of this section),
(iii) Certain actions of the Internal Revenue Service (as described
in paragraph (c)(4) of this section),
(iv) Certain actions of an agent (as described in paragraph (c)(5) of
this section), and
(v) Certain actions of the payee or any other person providing
necessary information with respect to the return or payee statement (as
described in paragraph (c)(6) of this section).
(2) Unavailability of the relevant business records. In order to
establish reasonable cause under paragraph (c)(1) of this section due to
the unavailability of the relevant business records, the filer's
business records must have been unavailable under such conditions, in
such manner, and for such period as to prevent timely compliance
(ordinarily at least a 2-week period prior to the due date (with regard
to extensions) of the required return or the required date (with regard
to extensions) for furnishing the payee statement), and the
unavailability must have been caused by a supervening event. A
''supervening event'' includes, but is not limited to --
(i) A fire or other casualty that damages or impairs the filer's
relevant business records or the filer's system for processing and
filing such records;
(ii) A statutory or regulatory change that has a direct impact upon
data processing and that is made so close to the time that the return or
payee statement is required that, for all practical purposes, the change
cannot be complied with; or
(iii) The unavoidable absence (e.g., due to death or serious illness)
of the person with the sole responsibility for filing a return or
furnishing a payee statement.
(3) Undue economic hardship relating to filing on magnetic media. In
order to establish reasonable cause under paragraph (c)(1) of this
section due to an undue economic hardship for filing on magnetic media,
the filer must show that it failed to file on magnetic media because the
filer lacked the necessary hardware. For purposes of this paragraph
(c)(3), the filer will not be considered to have acted in a responsible
manner under paragraph (d) of this section unless --
(i) The filer attempted on a timely basis to contract out the
magnetic media filing;
(ii) The cost of filing on magnetic media was prohibitive as
determined at least 45 days before the due date of the returns (without
regard to extensions) (90 days for information returns the due date for
which (without regard to extensions) is after December 31, 1989, and by
or before February 28, 1991 (March 15, 1991, for Forms 1042S));
(iii) The cost was supported by a minimum of two cost estimates from
unrelated parties; and
(iv) The filer filed the returns on paper. Reasonable cause will not
ordinarily be established under this paragraph (c)(3) if a filer
received a reasonable cause waiver in any prior year under paragraph
(c)(1) of this section due to an undue economic hardship relating to
filing on magnetic media.
(4) Actions of the Internal Revenue Service. In order to establish
reasonable cause under paragraph (c)(1) of this section due to certain
actions of the Internal Revenue Service, a filer must show that the
failure was due to the filer's reasonable reliance on erroneous written
information from the Internal Revenue Service. Reasonable reliance
means that the filer relied in good faith on the information. The filer
shall not be considered to have relied in good faith if the Internal
Revenue Service was not aware of all the facts when it provided the
information to the filer. In order to substantiate reasonable cause
under this paragraph (c)(4), the filer must provide a copy of the
written information provided by the Internal Revenue Service and, if
applicable, the filer's written request for the information.
(5) Actions of agent -- imputed reasonable cause. In order to
establish reasonable cause under paragraph (c)(1) of this section due to
actions of an agent, the filer must show the following:
(i) The filer exercised reasonable business judgment in contracting
with the agent to file timely correct returns or furnish timely correct
payee statements with respect to which the failure occurred. This
includes contracting with the agent and providing the proper information
sufficiently in advance of the due date of the return or statement to
permit timely filing of correct returns or timely furnishing of correct
payee statements; and
(ii) The agent satisfied the reasonable cause criteria set forth in
paragraph (b) or one of the reasonable cause criteria set forth in
paragraph (c) (2) through (6) of this section.
(6) Actions of the payee or any other person. In order to establish
reasonable cause under paragraph (c)(1) of this section due to actions
of the payee or any other person, such as a broker as defined in section
6045(c), providing information with respect to the return or payee
statement, the filer must show either --
(i) That the failure resulted from the failure of the payee, or any
other person required to provide information necessary for the filer to
comply with the information reporting requirements (''any other
person''), to provide information to the filer, or
(ii) That the failure resulted from incorrect information provided by
the payee (or any other person) upon which information the filer relied
in good faith. To substantiate reasonable cause under this paragraph
(c)(6), the filer must provide documentary evidence upon request of the
Internal Revenue Service showing that the failure was attributable to
the payee (or any other person). See paragraph (d)(2) of this section
for special rules relating to the availability of a waiver where the
filer's failure relates to a taxpayer identification number (TIN), and
the failure is attributable to actions of the payee described in
paragraph (c)(6) (i) or (ii) of this section.
(d) Responsible manner -- (1) In general. Acting in a responsible
manner means --
(i) That the filer exercised reasonable care, which is that standard
of care that a reasonably prudent person would use under the
circumstances in the course of its business in determining its filing
obligations and in handling account information such as account numbers
and balances, and
(ii) That the filer undertook significant steps to avoid or mitigate
the failure, including, where applicable --
(A) Requesting appropriate extensions of time to file, when
practicable, in order to avoid the failure,
(B) Attempting to prevent an impediment or a failure, if it was
foreseeable,
(C) Acting to remove an impediment or the cause of a failure, once it
occurred, and
(D) Rectifying the failure as promptly as possible once the
impediment was removed or the failure was discovered. Ordinarily, a
rectification is considered prompt if it is made within 30 days after
the date the impediment is removed or the failure is discovered or on
the earliest date thereafter on which a regular submission of
corrections is made. Submissions will be considered regular only if
made at intervals of 30 days or less. A failure may be rectified by
filing or correcting the information return, furnishing or correcting
the payee statement, or by providing or correcting the information to
satisfy the specified information reporting requirement with respect to
which the failure occurs. Paragraph (d)(ii)(D) of this section does not
apply with respect to information the filer is prohibited from altering
under specific information reporting rules. See 1.6045-4(i)(5) of this
chapter.
(2) Special rule for filers seeking a waiver pursuant to paragraph
(c)(6) of this section. A filer seeking a waiver for reasonable cause
pursuant to paragraph (c)(6) of this section with respect to a failure
resulting from a missing or an incorrect TIN will be deemed to have
acted in a responsible manner in compliance with this paragraph (d) only
if the filer satisfies the requirements of paragraph (e) of this section
(relating to missing TINs) or paragraph (f) of this section (relating to
incorrect TINs), whichever is applicable.
(e) Acting in a responsible manner -- special rules for missing TINs
-- (1) In general. A filer that is seeking a waiver for reasonable
cause under paragraph (c)(6) of this section will satisfy paragraph
(d)(2) of this section with respect to establishing that a failure to
include a TIN or an information return resulted from the failure of the
payee to provide information to the filer (i.e., a missing TIN) only if
the filer makes the initial and, if required, the annual solicitations
described in this paragraph (e) (required solicitations). For purposes
of this section, a number is treated as a ''missing TIN'' if the number
does not contain nine digits or includes one or more alpha characters (a
character or symbol other than an Arabic numeral) as one of the nine
digits. A solicitation means a request by the filer for the payee to
furnish a correct TIN. See paragraph (f) of this section for the rules
that a filer must follow to establish that the filer acted in a
responsible manner with respect to providing incorrect TINs on
information returns. See paragraph (e)(1)(vi)(A) of this section for
alternative solicitation requirements. See paragraph (g) of this
section for the safe harbor due diligence rules. See paragraph (h) of
this section for the rule applicable to failures with respect to
information returns the due date for which (without regard to
extensions) is after December 31, 1989, and on or before April 22, 1991.
(i) Initial solicitation. An initial solicitation for a payee's
correct TIN must be made at the time an account is opened. The term
''account'' includes accounts, relationships, and other transactions.
However, a filer is not required to make an initial solicitation under
this paragraph (e)(1)(i) with respect to a new account if the filer has
the payee's TIN and uses that TIN for all accounts of the payee. For
example, see 31.3406(h)-3(a) of this chapter. Further, a filer is not
required to make an initial solicitation under this paragraph (e)(1)(i)
with respect to accounts for which the filer filed an information return
subject to paragraph (h) of this section. For purposes of this section,
the initial solicitation requirement is deemed to have been met with
respect to accounts opened after December 31, 1989, and on or before
April 22, 1991. If the account is opened in person, the initial
solicitation may be made by oral or written request, such as on an
account creation document. If the account is opened by mail, telephone,
or other electronic means, the TIN may be requested through such
communications. If the account is opened by the payee's completing and
mailing an application furnished by the filer that requests the payee's
TIN, the initial solicitation requirement is considered met. If a TIN
is not received as a result of an initial solicitation, the filer may be
required to make additional solicitations (''annual solicitations'').
(ii) First annual solicitation. Except as provided in paragraph
(e)(1)(vi) of this section, a filer must undertake an annual
solicitation if a TIN is not received as a result of an initial
solicitation (or if the filer was not required to make an initial
solicitation under paragraph (e)(1)(i) of this section and the filer has
not received a payee's TIN). The first annual solicitation must be made
on or before December 31 of the year in which the account is opened (for
accounts opened before December) or January 31 of the following year
(for accounts opened in the preceding December) (''annual solicitation
period'').
(iii) Second annual solicitation. If the TIN is not received as a
result of the first annual solicitation, the filer must undertake a
second annual solicitation. The second annual solicitation must be made
after the expiration of the annual solicitation period and on or before
December 31 of the year immediately succeeding the calendar year in
which the account is opened.
(iv) Additional requirements. After receiving a TIN, a filer must
include that TIN on any information returns the original due date of
which (with regard to extensions) is after the date that the filer
receives the TIN.
(v) Failures to which a solicitation relates. The initial and first
annual solicitations relate to failures on returns filed for the year in
which an account is opened. The second annual solicitation relates to
failures on returns filed for the year immediately following the year in
which an account is opened and for succeeding calendar years.
(vi) Exceptions and limitations. (A) The solicitation requirements
under this paragraph (e) do not apply to the extent an information
reporting provision under which a return, as defined in paragraph (g) of
301.6721-1, is filed provides specific requirements relating to the
manner or the time period in which a TIN must be solicited. In that
event, the requirements of this paragraph (e) will be satisfied only if
the filer complies with the manner and time period requirements of the
specific information reporting provision and the provisions of this
paragraph (e) to the extent applicable. Also, see section 3406(e) which
provides rules on the manner and time period in which a TIN must be
provided for certain accounts with respect to interest, dividends,
patronage dividends, and amounts subject to broker reporting.
(B) An annual solicitation is not required to be made for a year
under this paragraph (e) with respect to an account if no payments are
made to the account for such year or if no return as defined in
paragraph (g) of 301.6721-1 is required to be filed for the account for
the year.
(C) If a filer fails to make one (or more) of the required
solicitations under paragraphs (e)(1) (i), (ii), and (iii) of this
section, the filer may satisfy the requirements of this section by --
(1) Making two consecutive annual solicitations in subsequent years
(''make-up solicitations''), and
(2) Satisfying paragraph (e)(1)(iv) of this section.
For example, a filer who has made none of the required solicitations
may satisfy the requirements of this section by making two consecutive
solicitations. In determining whether a filer has made two consecutive
solicitations, years to which paragraph (e)(1)(vi)(B) of this section
applies shall be disregarded. If a filer fails to make the initial
solicitation under paragraph (e)(1)(i) of this section, the make-up
solicitations described in this paragraph (e)(1)(vi)(C) may be made in
the years in which the first and second annual solicitations are
required to be made; however, the penalty will apply with respect to
the year in which the filer failed to make the initial solicitation.
The penalty will apply to failures with respect to years for which a
required solicitation is not made and to failures with respect to all
subsequent years until the filer conducts its make-up solicitations.
The penalty will not apply with respect to the year in which the first
make-up solicitation is made (unless it is also the year in which the
filer fails to make its initial solicitation) if the second make-up
solicitation is made in the following year.
(D) A financial institution is not required to make an annual
solicitation by mail on accounts with ''stop-mail'' or ''hold-mail''
instructions, provided the filer furnishes the solicitation material to
the payee in the same manner as it furnishes other mail.
(E) A filer is not required to make annual solicitations on accounts
with respect to which the filer undertook two consecutive annual
mailings by December 31, 1989, under Q/A-5 through Q/A-7B or under
Q/A-56 of 35a.9999-1 of the Temporary Employment Tax Regulations under
the Interest and Dividend Tax Compliance Act of 1983, as provided under
section 6676(b) (prior to its amendment by the Omnibus Budget
Reconciliation Act of 1989).
(F) A filer is not required to make annual solicitations by mail on
accounts with respect to which the filer has an undeliverable address,
i.e., where other mailings to that address have been returned to the
filer because the address was incorrect and no new address has been
provided to the filer.
(G) Except as provided in paragraph (e)(1)(vi) (A) and (C) of this
section, no more than two annual solicitations are required under this
paragraph (e) in order for a filer to establish reasonable cause.
(2) Manner of making annual solicitations -- by mail or telephone --
(i) By mail. A mail solicitation must include --
(A) A letter informing the payee that he or she must provide his or
her TIN and that he or she is subject to a $50 penalty imposed by the
Internal Revenue Service under section 6723 if he or she fails to
furnish his or her TIN,
(B) A Form W-9 or an acceptable substitute form, as defined in
31.3406 (h)-3 (a), (b), or (c) of this chapter, on which the payee may
provide the TIN, and
(C) A return envelope for the payee to provide the TIN which may be,
but is not required to be, postage prepaid.
(ii) By telephone. An annual solicitation may be made by telephone
if the solicitation procedure is reasonably designed and carried out in
a manner that is conducive to obtaining the TIN. An annual solicitation
is made pursuant to this paragraph (e)(2)(ii) for a failure if the filer
--
(A) Completes a call to each person with a missing TIN and speaks to
an adult member of the household, or to an officer of the business or
the organization,
(B) Requests the TIN of the payee,
(C) Informs the payee that he or she is subject to a $50 penalty
imposed by the Internal Revenue Service under section 6723 if he or she
fails to furnish his or her TIN,
(D) Maintains contemporaneous records showing that the solicitation
was properly made, and
(E) Provides such contemporaneous records to the Internal Revenue
Service upon request.
(f) Acting in a responsible manner -- special rules for incorrect
TINS -- (1) In general. A filer that is seeking a waiver for reasonable
cause under paragraph (c)(6) of this section will satisfy paragraph
(d)(2) of this section with respect to establishing that a failure
resulted from incorrect information provided by the payee or any other
person (i.e., inclusion of an incorrect TIN) on an information return
only if the filer makes the initial and annual solicitations described
in this paragraph (f). See paragraph (e)(1) of this section for the
definition of the term ''solicitation.'' See paragraph (f)(5)(i) of this
section for alternative solicitation requirements. See paragraph (g) of
this section for the safe harbor due diligence rules. See paragraph (h)
of this section for the rule applicable to failures with respect to
information returns the due date for which (without regard to
extensions) is after December 31, 1989, and on or before April 22, 1991.
(i) Initial solicitation. An initial solicitation for a payee's
correct TIN must be made at the time the account is opened. The term
''account'' includes accounts, relationships, and other transactions.
However, a filer is not required to make an initial solicitation under
this paragraph (f)(1)(i) with respect to a new account if the filer has
the payee's TIN and uses that TIN for all accounts of the payee. For
example, see 31.3406(h)-3(a) of this chapter. Further, a filer is not
required to make an initial solicitation under this paragraph (f)(1)(i)
with respect to accounts for which the filer filed an information return
subject to paragraph (h) of this section. For purposes of this section,
the initial solicitation requirement is deemed to have been met with
respect to accounts opened after December 31, 1989, and on or before
April 22, 1991. No additional solicitation is required after the filer
receives the TIN unless the Internal Revenue Service or, in some cases,
a broker notifies the filer that the TIN is incorrect. Following such
notification the filer may be required to make an annual solicitation to
obtain the correct TIN as provided in paragraph (f)(1) (ii) and (iii) of
this section.
(ii) First annual solicitation. Except as provided in paragraph
(f)(5) of this section, a filer must undertake an annual solicitation
only if the payor has been notified of an incorrect TIN and such account
contains the incorrect TIN at the time of the notification. The first
annual solicitation must be made as required by paragraph (f) (2) or (3)
of this section, whichever applies. An account contains an incorrect
TIN at the time of notification if the name and number combination on
the account matches the name and number combination set forth on the
notice from the Internal Revenue Service or a broker. A filer may be
notified of an incorrect TIN by the Internal Revenue Service or by a
broker pursuant to section 3406(a)(1)(B) or by a penalty notice issued
by the Internal Revenue Service pursuant to section 6721(n). Except as
otherwise provided in this section, the annual solicitation required by
this paragraph (f) must be made on or before December 31 of the year in
which the filer is notified of the incorrect TIN or by January 31 of the
following year if the filer is notified of an incorrect TIN in the
preceding December.
(iii) Second annual solicitation. A filer must undertake a second
annual solicitation as required by paragraph (f) (2) or (3) of this
section, whichever applies, if the filer is notified in any year
following the year of the notification described in paragraph (f)(1)(ii)
of this section that the account of a payee contains an incorrect TIN,
as described in paragraph (f)(1)(ii) of this section.
(iv) Additional requirements. Upon receipt of a TIN, a filer must
include that TIN on any information returns the original due date of
which (with regard to extensions) is after the date that the filer
receives the TIN.
(2) Manner of making annual solicitation if notified pursuant to
section 3406(a)(1)(B). A filer that has been notified of an incorrect
name/TIN combination pursuant to section 3406(a)(1)(B) (except filers to
which 31.3406(d)-5(b)(4)(i)(A) of this chapter applies) will satisfy
the solicitation requirement of this paragraph (f) only if it makes a
solicitation in the manner and within the time period required under
31.3406(d)-5(d)(2) (i) or (g)(1)(ii) of this chapter, whichever applies.
Section 31.3406(d)-5(d)(2) (i) and (g)(1)(ii) of this chapter generally
requires that filer to notify a payee that the payee's account contains
an incorrect taxpayer identification number within 15 business days
after the date of the notice from the Internal Revenue Service or a
broker.
(3) Manner of making annual solicitation if notified pursuant to
section 6721. A filer that has been notified of an incorrect TIN by a
penalty notice or other notification issued pursuant to section 6721 and
that has received no effective notice pursuant to section 3406(a)(1)(B)
during the same calendar year (or is a filer to which
31.3406(d)-5(b)(4)(i)(A) of this chapter applies) may satisfy the
solicitation requirement of this paragraph (f) either by mail, in the
manner set forth in paragraph (e)(2)(i) of this section, or by
telephone, in the manner set forth in paragraph (e)(2)(ii) of this
section, or by requesting the TIN in person.
(4) Failures to which a solicitation relates. The initial
solicitation relates to failures on returns filed for the year an
account is opened and for any succeeding year that precedes the year in
which the filer receives a notification of an incorrect TIN. The first
and second annual solicitations relate to failures on returns filed for
the year in which a notification of an incorrect TIN is received. The
second solicitation also relates to failures on returns filed for
succeeding calendar years.
(5) Exceptions and limitations. -- (i) The solicitation requirements
under this paragraph (f) do not apply to the extent that an information
reporting provision under which a return, as defined in paragraph (g) of
301.6721-1, is filed provides specific requirements relating to the
manner or the time period in which a TIN must be solicited. In that
event, the requirements of this paragraph (f) will be satisfied only if
the filer complies with the manner and time period requirement under the
specific information reporting provisions and this paragraph (f), to the
extent applicable.
(ii) An annual solicitation is not required to be made for a year
under this paragraph (f) with respect to an account if no payments are
made to the account for such year or if no return as defined in
paragraph (g) of 301.6721-1 is required to be filed for the account for
such year.
(iii) If a filer fails to make one (or more) of the required
solicitations under paragraph (f)(1) (i), (ii), and (iii) of this
section, the filer may satisfy the requirements of this section by:
(A) Making two consecutive annual solicitations in subsequent years
(''make-up solicitations''), and
(B) Satisfying paragraph (f)(1)(iv) of this section.
For example, a filer who has made none of the required solicitations
may satisfy the requirements of this section by making two consecutive
solicitations. In determining whether a filer has made two consecutive
solicitations, years to which paragraph (f)(5)(ii) of this section
applies are disregarded. If a filer fails to make the initial
solicitation under paragraph (f)(1)(i) of this section, the make-up
solicitations described in this paragraph (f)(5)(iii) may be made in the
years in which the first and second annual solicitations are required to
be made; however, the penalty will apply with respect to the year in
which the filer failed to make the initial solicitation. The penalty
will apply to failures in years in which a required solicitation is not
made and to failures with respect to all subsequent years until the
filer conducts its make-up solicitations. The penalty will not apply
with respect to the year in which the first make-up solicitation is made
(unless it is also the year in which the filer fails to make the initial
solicitation) if the second make-up solicitation is made in the
following year.
(iv) A financial institution is not required to make an annual
solicitation by mail on accounts with ''stop-mail'' or ''hold-mail''
instructions, provided the filer furnishes the solicitation material to
the payee in the same manner as it furnishes other mail.
(v) A filer is not required to make annual solicitations by mail on
accounts with respect to which the filer has an undeliverable address,
i.e., where other mailings to that address have been returned to the
filer because the address was incorrect and no new address has been
provided to the filer.
(vi) In general, except as provided in paragraph (f)(5) (i) and (iii)
of this section, no more than two annual solicitations are required
under this paragraph (f) in order for a filer to establish reasonable
cause. However, a filer who complies with this paragraph (f) during a
calendar year after receiving a notice under section 6721 and who later
during the same calendar year receives a notice pursuant to section 3406
may be required to undertake additional annual mailings in such calendar
year pursuant to section 3406(a)(1)(B) in order to satisfy the annual
solicitation requirement in paragraph (f)(2) of this section.
(g) Due diligence safe harbor. A filer may establish reasonable
cause with respect to a failure relating to an information reporting
requirement as described in paragraph (j) of this section for any return
defined in paragraph (g) of 301.6721-1 if the filer exercises due
diligence as provided under section 6724(c)(1) with respect to failures
described in sections 6721 through 6723 and under section 6676(b) and
the Temporary Employment Tax Regulations related thereto issued under
the Interest and Dividend Tax Compliance Act of 1983 (with respect to a
failure to provide a correct TIN) ( 35a.9999-1 of this chapter et seq.)
as in effect on December 31, 1989 (prior to amendment or repeal of these
sections by the Omnibus Budget Reconciliation Act of 1989).
(h) Transitional rules for information returns required to be filed
(or payee statements required to be furnished) after December 31, 1989
(without regard to extensions), and on or before April 22, 1991 -- (1)
In general. With respect to information returns required to be filed
(or payee statements required to be furnished) after December 31, 1989
(without regard to extensions), and on or before April 22, 1991, a filer
will be deemed to have satisfied reasonable cause if, with respect to
the failure, the filer would have satisfied reasonable cause under
sections 6721, 6722, or 6723 (prior to their amendment by the Omnibus
Budget Reconciliation Act of 1989) and the regulations thereunder.
(2) Special rule on TINs. With respect to information returns
required to be filed after December 31, 1989 (without regard to
extensions), and on or before April 22, 1991, which contain a missing or
an incorrect TIN, a filer will be deemed to have satisfied reasonable
cause if, at the time the account was opened, the filer --
(i) Exercised due diligence or fulfilled the requirements of Q/A-56
of 35a.9999-1 of this chapter, as in effect on December 31, 1989, as
provided under section 6676(b) (prior to its repeal by the Omnibus
Budget Reconciliation Act of 1989),
(ii) Requested the TIN according to the regulations under the section
requiring the filing of the information return, but if none, under
section 6109, or
(iii) Would have satisfied reasonable cause under section 6676(a)
(prior to its repeal by the Omnibus Budget Reconciliation Act of 1989).
(i) (Reserved)
(j) Failures to which this section relates. For purposes of this
section, a failure relating to an information reporting requirement
means --
(1) A failure described under 301.6721-1(a)(2) relating to the
failure to file timely correct information returns as defined in section
6724(d)(1),
(2) A failure described under 301.6722-1(a)(2) relating to the
failure to furnish timely a correct payee statement as defined in
section 6724(d)(2), and
(3) A failure described under 301.6723-1(a)(2) relating to the
failure to timely comply with and to include correct specified
information as defined in section 6724(d)(3).
(k) Examples. The provisions of this section may be illustrated by
the following examples:
Example 1. (i) On August 1, 1991, Individual A, an independent
contractor, establishes a relationship (''an account'') with Institution
L, which pays A amounts reportable under section 6041. When A opens the
account L requests that A supply his TIN on the account creation
document. A fails to provide his TIN. On October 1, 1991, L mails a
solicitation for A's TIN that satisfies the requirement of paragraph
(e)(1)(ii) of this section. A does not provide a TIN to L during 1991.
L timely files an information return subject to section 6721, that does
not contain A's TIN, for payments made during the 1991 calendar year
with respect to A's account. A penalty is imposed on L pursuant to
paragraph (a)(2) of 301.6721-1 for L's failure to file a correct
information return because A's TIN was not shown on the return. The
penalty will be waived, however, if L establishes that the failure was
due to reasonable cause as defined in this section.
(ii) To establish reasonable cause under this section, L must satisfy
both paragraphs (c) (6) and (d) of this section. The criteria for
obtaining a waiver under these paragraphs are as follows:
(A) L acted in a responsible manner in attempting to satisfy the
information reporting requirement as described in paragraph (d) of this
section, and
(B) L demonstrates that the failure arose from events beyond L's
control, as described in paragraph (c) (6) of this section.
(iii) Pursuant to paragraph (d) (2) of this section, L may
demonstrate that it acted in a responsible manner only by complying with
paragraph (e) of this section. Paragraph (e) of this section requires a
filer to request a TIN at the time the account is opened (the initial
solicitation) and, if the filer does not receive the TIN at that time,
to solicit the TIN on or before December 31 of the year the account is
opened (for accounts opened before December) or January 31 of the
following year (for accounts in the preceding December) (the annual
solicitation). Because L has performed these solicitations within the
time and in the manner prescribed by paragraph (e) of this section, L
has acted in a responsible manner as described in paragraph (d) of this
section. L satisfies paragraph (c) (6) of this section because under
the facts, L can show that the failure was caused by A's failure to
provide a TIN, an event beyond L's control. As a result, L has
established reasonable cause under paragraph (a) (2) of this section.
Therefore, the penalty imposed under paragraph (a) (2) of 301.6721-1
for the failure on the 1991 information return is waived. See section
3406 (a) (1) (A) which requires L to impose backup withholding on
reportable payments to A if L has not received A's TIN.
Example 2. (i) On August 1, 1991, Individual B opens an account with
Bank M, which pays B interest reportable under section 6049. When B
opens the account, M requests that B supply his TIN on the account
creation document. B provides his TIN to M. On February 28, 1992, M
includes the TIM that B provided on the Form 1099-INT for the 1991
calendar year. In October 1992 the Internal Revenue Service, pursuant
to section 3406 (a) (1) (B), notifies M that the 1991 return filed for B
contains an incorrect TIN. In April 1993 a penalty is imposed on M
pursuant to paragraph (a) (2) of 301.6721-1 for M's failure to file a
correct information return for the 1991 calendar year, i.e., the return
did not contain B's correct TIN. The penalty will be waived, however,
if M establishes that the failure was due to reasonable cause as defined
in this section.
(ii) To establish reasonable cause under this section, M must satisfy
the criteria in both paragraphs (c) (6) and (d) of this section.
Pursuant to paragraph (d) (2) of this section, M can demonstrate that it
acted in a responsible manner only if M complies with paragraph (f) of
this section. Paragraph (f) of this section requires a filer to request
a TIN at the time the account is opened, an initial solicitation. Under
paragraph (f) (4) of this section the initial solicitation relates to
failures on returns filed for the year an account is opened. Because M
performed the initial solicitation in 1991 in the time and manner
prescribed in paragraph (f) (1) (i) of this section and reflected the
TIM received from B on the 1991 return as required by paragraph (f) (1)
(iv) of this section, M has acted in a responsible manner as described
in paragraph (d) of this section. M satisfies paragraph (c) (6) of this
section because, under the facts, M can show that the failure was caused
by B's failure to provide a correct TIN, an event beyond M's control.
As a result, M has established reasonable cause under paragraph (a) (2)
of this section. Therefore, the penalty imposed under paragraph (a) (2)
of 301.6721-1 for the failure on the 1991 information return is waived.
See section 3406 (a) (1) (B) which requires M to impose backup
withholding on reportable payments to B if M has not received B's
correct TIN.
Example 3. (i) Table.
(ii) The facts are the same as in Example 2. Under 35a.3406-1(c)(1)
of this paragraph and paragraph (f)(2) of this section, within 15 days
of the October 1992 notification of the incorrect TIN from the Internal
Revenue Service, M solicits the correct TIN from B. B fails to respond.
M timely files the return for 1992 with respect to the account setting
forth B's incorrect TIN. In October 1993 the Internal Revenue Service
notifies M pursuant to section 3406(a)(1)(B) that the 1992 return
contains an incorrect TIN. In April 1994, a penalty is imposed on M
pursuant to paragraph (a)(1)(2) of 301.6721-1T for M's failure to
include B's correct TIN on the return for 1992. The penalty will be
waived, if M establishes that the failure was due to reasonable cause as
defined in this section.
(iii) M must satisfy the reasonable cause criteria in paragraphs
(c)(6) and (d) of this section. M may demonstrate that it acted in a
responsible manner as required under paragraph (d) of this section only
by complying with paragraph (f) of this section. Paragraph (f) of this
section requires a filer to make an initial solicitation for a TIN when
an account is opened. Further, a filer must make an annual solicitation
for a TIN by mail within 15 business days after the date that the
Internal Revenue Service notifies the filer of an incorrect TIN pursuant
to section 3406(a)(1)(B). M made the initial solicitation for the TIN
in 1991 and, after being notified of the incorrect TIN in October 1992,
the first annual solicitation within the time and manner prescribed by
section 35a.3406-1(c)(1) of this chapter and paragraph (f) (1)(ii) and
(2) of this section. M acted in a responsible manner. M satisfies
paragraph (c)(6) of this section because, under the facts, M can show
that the failure was caused by B's failure to provide his correct TIN,
an event beyond M's control. As a result M has established reasonable
cause under paragraph (a)(2) of this section. Therefore, the penalty
imposed under paragraph (a)(2) of 301.6721-1T for the failure on the
1992 return is waived due to reasonable cause.
Example 4. (i) Table.
(ii) The facts are the same as in Example 3. M timely solicits B's
TIN in October 1993, which B fails to provide. M files the return for
1993 with the incorrect TIN. In April 1995 the Internal Revenue Service
informs M that the 1993 return contains an incorrect TIN. M does not
solicit a TIN from B in 1994 and files a return for 1994 with B's
incorrect TIN. M seeks a waiver of the penalty under paragraph (a)(2)
of 301.6721-1 for reasonable cause. M must satisfy the reasonable
cause criteria in paragraphs (c)(6) and (d) of this section. Because M
made the initial and two annual solicitations as required by paragraph
(f) of this section, M has demonstrated that it acted in a responsible
manner and is not required to solicit B's TIN in 1994. See paragraph
(f)(5)(iv) of this section. M satisfies paragraph (c)(6) of this
section because, under the facts, M can show that the failure was caused
by B's failure to provide his correct TIN, an event beyond M's control.
Therefore, M has established reasonable cause under paragraph (a)(2) of
this section.
Example 5. In 1992, Mortgage Finance Company N lends money to C to
purchase property in a transaction subject to reporting under section
6050H and to section 6721. As part of the transaction, C gives N a
promissory note providing for repayment of principal and the payment of
interest. At the time C incurs the obligation N requests C's TIN, as
required under 1.6050H-2(f) of this chapter. C fails to provide the
TIN as required by 1.6050H-2(f) of this chapter. N sends solicitations
by mail in 1992 and 1993 for the missing TIN, which C fails to provide.
However, for 1994 M fails to send the solicitation required by
1.6050H-2(f) of this chapter. N files returns for the 1992, 1993, and
1994 calendar years pursuant to section 6050H without C's TIN. Although
N made the initial and the first annual solicitations in 1992 and the
second annual solicitation in 1993, N did not solicit the TIN in 1994 as
required under section 6050H, which requires continued annual
solicitations until the TIN is obtained. Therefore, under paragraph
(e)(1)(vi)(A) of this section the penalty imposed under paragraph (a) of
301.6721-1T for the 1994 information return is not wavied.
Example (6). (i) Table.
(ii) On October 1, 1991, Individual E opens an account with
Institution R, which pays E amounts reportable under section 6049. When
E opens the account, R requests that E supply his TIN on an account
creation document, which E does. Pursuant to paragraph (f)(1)(iv) of
this section, R uses the TIN furnished by E on the information return
filed for the 1991 calendar year. In October 1992 the Internal Revenue
Service notifies R pursuant to section 3406(a)(1)(B) that the
information return filed for E for the 1991 calendar year contained an
incorrect TIN. At the time R receives this notification, E's account
contains the incorrect TIN. On December 31, 1992, R telephones E
pursuant to paragraphs (f)(3) and (e)(2)(ii) of this section and
receives different TIN information from E. R uses this information on
the return that it files timely for E for the 1992 calendar year, i.e.,
in February 1993.
(iii) In April 1993, the Internal Revenue Service notifies R pursuant
to paragraph (a)(2) of 301.6721-1 that the information return filed for
the 1991 calendar year contains an incorrect TIN. The penalty will be
waived, however, if R establishes the failure was due to reasonable
cause as defined in this section.
(iv) To establish reasonable cause under this section, R must satisfy
the criteria in both paragraphs (c)(6) and (d)(2) of this section.
Pursuant to paragraph (d)(2) of this section, R can demonstrate that it
acted in a responsible manner only if it complies with paragraph (f) of
this section. R solicited E's TIN at the time the account was opened
(initial solicitation). Under paragraphs (d)(2) and (f)(4) of this
section, the initial solicitation relates to failures on returns filed
for the year in which an account is opened (i.e., 1991) and for
subsequent years until the calendar year in which the filer receivers a
notification of an incorrect TIN pursuant to section 3406. Because E
failed to provide the correct TIN upon request, the failure arose from
events beyond R's control as described in paragraph (c)(6) of this
section. Therefore, the penalty with respect to the failure on the 1991
calendar year information return is waived due to reasonable cause.
Example (7). (i) The facts are the same as in Example 6. In April
1994 the Internal Revenue Service notifies R pursuant to paragraph
(a)(2) of 301.6721-1 that the information return filed for the 1992
calendar year for E contained an incorrect TIN.
(ii) To establish reasonable cause for the failure under this
section, R must satisfy the criteria in both paragraphs (c)(6) and
(d)(2) of this section. Pursuant to paragraph (d)(2) of this section R
may establish that it acted in a responsible manner only by complying
with paragraph (f) of this section. Pursuant to paragraph (f)(1)(ii) of
this section, R must make an annual solicitation after being notified of
an incorrect TIN if the payee's account contains the incorrect TIN at
the time of the notification. Paragraph (f)(2) of this section provides
that if the filer is notified pursuant to section 3406(a)(1)(B) the time
and manner of making an annual solicitation is that required under
35a.3406-(c)(1) of this chapter. Section 35a.3406-1 (c)(1) of this
chapter requires R to notify E by mail within 15 business days after the
date of the notice from the Internal Revenue Service, which R failed to
do. As a result, R has failed to act in a responsible manner with
respect to the failure on the 1992 information return, and the penalty
will not be waived due to reasonable cause.
(l) (Reserved.)
(m) Procedure for seeking a waiver. In seeking an administrative
determination that the failure was due to reasonable cause and not
willful neglect, the filer must submit a written statement to the
district director or the director of the Internal Revenue Service Center
where the returns, as defined in section
6724(d), are required to be filed. The statement must --
(1) State the specific provision under which the waiver is being
requested, i.e., paragraph (b) or under paragraph (c) (2) through (6),
(2) Set forth all the facts alleged as the basis for reasonable
cause,
(3) Contain the signature of the person required to file the return,
and
(4) Contain a declaration that it is made under penalties of perjury.
See 1.6061-1 of the Income Tax Regulations for the rules on the
signing of returns.
(n) Manner of payment. The penalty due under sections 6721 through
6723 shall be paid upon notice and demand by Internal Revenue Service,
and in the same manner as a tax liability is paid.
(T.D. 8386, 56 FR 67182, Dec. 30, 1991, and amended by T.D. 8409, 57
FR 13035, Apr. 15, 1992)