Bulletin No. 2008-3 January 22, 2008 HIGHLIGHTS OF THIS ISSUE · 2012. 7. 17. · Bulletin No....

Bulletin No. 2008-3January 22, 2008

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2008–4, page 272.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for January 2008.

Rev. Rul. 2008–5, page 271.Loss from wash sales of stock or securities. This rulingprovides that if an individual sells stock or securities for a lossand causes his or her IRA or Roth IRA to purchase substantiallyidentical stock or securities within a specified period, the losson the sale of the stock or securities is disallowed under sec-tion 1091 of the Code, and the individual’s basis in the IRA orRoth IRA is not increased by virtue of section 1091(d).

Rev. Rul. 2008–6, page 271.Indian Housing Block Grant (IHBG) Program. This rul-ing advises taxpayers that certain rental assistance paymentsmade to a building owner on behalf or in respect of a tenantunder the Indian Housing Block Grant (IHBG) Program are notgrants made with respect to a building or its operation undersection 42(d)(5) of the Code.

Notice 2008–8, page 276.This notice clarifies that the information reporting requirementsunder section 6039 of the Code apply to certain stock trans-fers occurring on or after January 1, 2007. Because new regu-lations under section 6039 have not yet been issued, the IRS iswaiving the obligation to make an information return for 2007stock transfers governed by section 6039. This notice ex-plains, however, that corporations should continue to furnish toemployees the information, required by and in accordance with

existing section 1.6039–1, with respect to such stock trans-fers.

Notice 2008–9, page 277.Section 1502. This notice provides that final regulations un-der section 1.1502–36 will not apply to a transfer to an unre-lated person if the transfer is pursuant to an agreement that isbinding before the date the regulations are published and at alltimes thereafter.

Notice 2008–10, page 277.This notice announces the intention to issue regulations undersection 367(a) of the Code to clarify that certain outbound re-organizations that effectively repatriate earnings of foreign cor-porations to U.S. corporations will be subject to recognition ofgain under section 367(a)(1).

EMPLOYEE PLANS

Notice 2008–7, page 276.Diversification; transition rules; extension. This noticeprovides an extension of certain transitional rules with respectto the diversification requirements of publicly traded securitiesfor certain defined contribution plans. Notice 2006–107 mod-ified.

(Continued on the next page)

Finding Lists begin on page ii.

Notice 2008–8, page 276.This notice clarifies that the information reporting requirementsunder section 6039 of the Code apply to certain stock trans-fers occurring on or after January 1, 2007. Because new regu-lations under section 6039 have not yet been issued, the IRS iswaiving the obligation to make an information return for 2007stock transfers governed by section 6039. This notice ex-plains, however, that corporations should continue to furnish toemployees the information, required by and in accordance withexisting section 1.6039–1, with respect to such stock trans-fers.

Announcement 2008–2, page 307.Minimum funding standards; alternative funding sched-ule. This announcement describes how a commercial pas-senger airline may make an election for an alternative fundingschedule under section 402(a)(2) of the Pension Protection Actof 2006 as amended by section 6615 of the U.S. Troop Readi-ness, Veterans’ Care, Katrina Recovery, and Iraq AccountabilityAppropriations Act, 2007.

EXEMPT ORGANIZATIONS

Notice 2008–6, page 275.This notice provides transitional relief for certain trusts thathave become private foundations through failure to meet theresponsiveness test for Type III supporting organizations as aresult of the Pension Protection Act of 2006. It also providestiming and instructions for these trusts filing their first annualreturn as a private foundation.

ADMINISTRATIVE

Notice 2008–11, page 279.This notice clarifies Notice 2007–54, 2007–27 I.R.B. 12,which provided guidance and transitional relief for the taxreturn preparer penalty provisions under section 6694 of theCode. Notice 2007–54 clarified.

Notice 2008–12, page 280.This notice provides guidance to the public regarding imple-mentation of the tax return preparer signature requirementpenalty provisions under section 6695(b) of the Code, asamended by the Small Business and Work Opportunity Tax Actof 2007.

Notice 2008–13, page 282.This notice provides guidance regarding implementation of thetax return preparer penalty provisions under section 6694 andthe related definitional provisions under section 7701(a)(36)of the Code, as amended by the Small Business and WorkOpportunity Tax Act of 2007. The Service is also requestingcomments on the interim guidelines in this notice and on futurerules for the preparer penalty provisions.

Rev. Proc. 2008–10, page 290.Insurance companies; loss reserves; discounting unpaidlosses. The loss payment patterns and discount factors areset forth for the 2007 accident year. These factors will be usedfor computing discounted unpaid losses under section 846 ofthe Code.

Rev. Proc. 2008–11, page 301.Insurance companies; discounting estimated salvage re-coverable. The salvage discount factors are set forth for the2007 accident year. These factors will be used for computingdiscounted estimated salvage recoverable under section 832of the Code.

January 22, 2008 2008–3 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2008–3 I.R.B. January 22, 2008

January 22, 2008 2008–3 I.R.B.

Place missing child here.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof January 2008. See Rev. Rul. 2008-4, page 272.

26 CFR 1.42–16: Eligible basis reduced by federalgrants.

Indian Housing Block Grant (IHBG)Program. This ruling advises taxpayersthat certain rental assistance paymentsmade to a building owner on behalf or inrespect of a tenant under the Indian Hous-ing Block Grant (IHBG) Program are notgrants made with respect to a building orits operation under section 42(d)(5) of theCode.

Rev. Rul. 2008–6

Pursuant to § 1.42–16(b)(3) of theIncome Tax Regulations, the InternalRevenue Service has determined that cer-tain rental assistance payments made to abuilding owner on behalf or in respect ofa tenant under the Indian Housing BlockGrant Program authorized by the Na-tive American Housing Assistance andSelf-Determination Act of 1996 (25 U.S.C.4101 et seq.) are not grants made withrespect to a building or its operation under§ 42(d)(5) of the Internal Revenue Code.These rental assistance payments are pro-vided under 24 C.F.R. 1000.103(b).

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Christopher J. Wilson of the Officeof Assistant Chief Counsel (Passthroughsand Special Industries). For further infor-mation regarding this revenue ruling, con-tact Mr. Wilson at (202) 622–3040 (not atoll-free call).

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of January 2008. See Rev.Rul. 2008-4, page 272.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of January 2008. See Rev.Rul. 2008-4, page 272.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 832.—InsuranceCompany Taxable Income26 CFR 1.832–4: Gross income.

The salvage discount factors are set forth for 2007.These factors must be used to compute discountedestimated salvage recoverable for purposes of section832 of the Code. See Rev. Proc. 2008-11, page 301.

Section 846.—DiscountedUnpaid Losses Defined


26 CFR 1.846–1: Application of discount factors.

The salvage discount factors are set forth for 2007.These factors must be used to compute discountedestimated salvage recoverable for purposes of section832 of the Code. See Rev. Proc. 2008-11, page 301.

Section 1091.—Loss FromWash Sales of Stock orSecurities26 CFR 1.1091–1: Losses from wash sales of stockor securities.

Loss from wash sales of stock or se-curities. This ruling provides that if an in-dividual sells stock or securities for a lossand causes his or her IRA or Roth IRAto purchase substantially identical stock orsecurities within a specified period, theloss on the sale of the stock or securities isdisallowed under section 1091 of the Code,and the individual’s basis in the IRA orRoth IRA is not increased by virtue of sec-tion 1091(d).

2008–3 I.R.B. 271 January 22, 2008

Rev. Rul. 2008–5

ISSUE

If an individual sells stock or securitiesfor a loss and causes his or her individ-ual retirement account or Roth IRA to pur-chase substantially identical stock or se-curities within 30 days before or after thesale, is the loss on the sale of the stock orsecurities disallowed?

FACTS

A, an individual, owns 100 shares of XCompany stock with a basis of $1,000. OnDecember 20, 2007, A sells the 100 sharesof X Company stock for $600 (the “Sale”).

On December 21, 2007, A causes anindividual retirement account (within themeaning of § 408) or a Roth IRA (withinthe meaning of § 408A), established forthe exclusive benefit of A or A’s benefi-ciaries, to purchase 100 shares of X Com-pany stock for its then fair market value(the “Purchase”).

A executes the Sale and the Purchasewith different, unrelated market partici-pants.

A is not a dealer in stock or securities.

LAW AND ANALYSIS

Under § 408(a), the term “individual re-tirement account” means a trust created ororganized in the United States for the ex-clusive benefit of an individual or his ben-eficiaries, but only if the written governinginstrument creating the trust meets certainother requirements.

Under § 408(e)(1), generally, an indi-vidual retirement account is exempt fromtaxation.

Under §§ 408 and 72, any amountdistributed from an individual retirementaccount is includible in the distributee’sgross income for the year of the distri-bution unless it is properly allocable tothe account owner’s basis in the account.Under § 408A, a similar income inclusionrule applies to nonqualified distributionsfrom a Roth IRA. An individual has basisin an individual retirement account onlyto the extent that the account includesnondeductible contributions.

Section 1091(a) provides that in thecase of any loss claimed to have been sus-tained from any sale or other dispositionof shares of stock or securities where it

appears that, within a period beginning 30days before the date of such sale or dispo-sition and ending 30 days after such date,the taxpayer has acquired (by purchaseor by an exchange on which the entireamount of gain or loss was recognized bylaw), or has entered into a contract or op-tion so to acquire, substantially identicalstock or securities, then no deduction shallbe allowed under § 165 unless the taxpayeris a dealer in stock or securities and theloss is sustained in a transaction made inthe ordinary course of such business.

Section 1091(d) provides rules for de-termining the basis of stock or securitiesthe acquisition of which resulted in thenondeductibility under § 1091 (or corre-sponding provisions of prior law) of theloss from the sale or other disposition ofsubstantially identical stock or securities.

In Security First National Bank of LosAngeles, 28 BTA 289 (1933), the taxpayersold bonds (at a market price) to a corpo-ration of which the taxpayer was the soleshareholder. On the same day, in exchangefor land, the corporation transferred thesame bonds at the same price to a trust overwhich the taxpayer had absolute dominionand control. In finding that § 214(a)(5), thepredecessor to § 1091(a), applied to disal-low the loss, the court reasoned as follows:

The [taxpayer] did not personally reac-quire substantially identical propertyand, strictly construed, the languageof section 214(a)(5), above referred to,might not apply. However, the rule ofstrict construction should not be un-duly pressed to permit easy evasion ofa taxing statute. Carbon Steel Co. v.Lewellyn, 251 U.S. 501. Unless therespondent is right, a trust like this onecould be used deliberately to accom-plish the very thing which Congressintended to frustrate. ... Although titleto the bonds was acquired by the trust,actual command over the property wasstill in the [taxpayer]. ...The differencebetween acquisition by him personallyand acquisition by the trust amountsonly to a refinement of title and may bedisregarded so far as section 214(a)(5)is concerned.

Security First National Bank, 28 BTA at314 – 315.

Applying this reasoning to the facts ofthis ruling, even though an individual re-tirement account is a tax-exempt trust, Ahas nevertheless acquired, for purposes of

§ 1091(a), 100 shares of X Company stockon December 21, 2007, by virtue of thePurchase. See also Shoenberg v. Commis-sioner, 77 F.2d 446 (8th Cir. 1935).

HOLDING

The loss on the Sale of stock is disal-lowed under § 1091. A’s basis in the indi-vidual retirement account or Roth IRA isnot increased by virtue of § 1091(d). Thisruling does not address any issues otherthan those specifically addressed herein.In particular, this ruling does not address(and no inference should be drawn with re-spect to) any issue arising under § 4975.


The principal author of this revenue rul-ing is Roger E. Wade of the Office of As-sociate Chief Counsel (Financial Institu-tions & Products). For further informa-tion regarding this revenue ruling, con-tact Mr. Wade at (202) 622–3950 (not atoll-free call).

Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for January 2008.

Rev. Rul. 2008–4

This revenue ruling provides variousprescribed rates for federal income taxpurposes for January 2008 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described in

January 22, 2008 272 2008–3 I.R.B.

section 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Table5 contains the federal rate for determin-

ing the present value of an annuity, aninterest for life or for a term of years, ora remainder or a reversionary interest forpurposes of section 7520. Finally, Table6 contains the deemed rate of return fortransfers made during calendar year 2008

to pooled income funds described in sec-tion 642(c)(5) that have been in existencefor less than 3 taxable years immediatelypreceding the taxable year in which thetransfer was made.

REV. RUL. 2008–4 TABLE 1

Applicable Federal Rates (AFR) for January 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 3.18% 3.16% 3.15% 3.14%110% AFR 3.51% 3.48% 3.46% 3.46%120% AFR 3.83% 3.79% 3.77% 3.76%130% AFR 4.15% 4.11% 4.09% 4.08%

Mid-term

AFR 3.58% 3.55% 3.53% 3.52%110% AFR 3.95% 3.91% 3.89% 3.88%120% AFR 4.31% 4.26% 4.24% 4.22%130% AFR 4.67% 4.62% 4.59% 4.58%150% AFR 5.40% 5.33% 5.29% 5.27%175% AFR 6.31% 6.21% 6.16% 6.13%

Long-term

AFR 4.46% 4.41% 4.39% 4.37%110% AFR 4.91% 4.85% 4.82% 4.80%120% AFR 5.36% 5.29% 5.26% 5.23%130% AFR 5.81% 5.73% 5.69% 5.66%


Adjusted AFR for January 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

3.05% 3.03% 3.02% 3.01%

Mid-term adjusted AFR 3.39% 3.36% 3.35% 3.34%

Long-term adjustedAFR

4.25% 4.21% 4.19% 4.17%


Rates Under Section 382 for January 2008

Adjusted federal long-term rate for the current month 4.25%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.34%

2008–3 I.R.B. 273 January 22, 2008


Appropriate Percentages Under Section 42(b)(2) for January 2008Appropriate percentage for the 70% present value low-income housing credit 7.93%

Appropriate percentage for the 30% present value low-income housing credit 3.40%


Rate Under Section 7520 for January 2008

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 4.4%


Deemed Rate for Transfers to New Pooled Income Funds During 2008

Deemed rate of return for transfers during 2008 to pooled income funds that have been in existence forless than 3 taxable years 4.8%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


January 22, 2008 274 2008–3 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousTransitional Relief and FilingProcedures for CertainCharitable Trusts that Fail theResponsiveness Test for TypeIII Supporting Organizations

Notice 2008–6

PURPOSE

This notice provides transitional reliefand filing procedures for certain charitabletrusts that fail the responsiveness test forType III supporting organizations.

These procedures are intended for:

• charitable trusts that received a deter-mination recognizing their tax-exemptstatus under section 501(c)(3) andthat met the requirements of section509(a)(3) until August 17, 2007, and

• non-exempt charitable trusts describedin section 4947(a)(1), that are treatedfor certain purposes as organizationsdescribed in section 501(c)(3), andthat met the requirements of section509(a)(3) until August 17, 2007. SeeRev. Proc. 72–50, 1972–2 C.B. 830.

BACKGROUND

Section 1.509(a)–4(i) of the IncomeTax Regulations sets forth the require-ments for organizations to qualify assection 509(a)(3) supporting organizationsthat are “operated in connection with” oneor more publicly supported organizations(hereafter, “Type III” supporting organiza-tions). Type III supporting organizationsare required to meet a “responsivenesstest” to show that they are responsive tothe needs of the organizations they sup-port. See section 1.509(a)–4(i)(1), (i)(2).

Prior to passage of the Pension Protec-tion Act of 2006, Pub. L. No. 109–280,120 Stat. 708 (2006) (PPA), there weretwo alternative ways for Type III support-ing organizations to meet the responsive-ness test.

• The significant voice test. Section1.509(a)–4(i)(2)(ii) generally providesthat an organization meets the respon-siveness test if the officers, directors,or trustees of the publicly supported

organization have a significant voice inthe investment policies and grant-mak-ing of the supporting organization, andin otherwise directing the use of itsincome or assets.

• The charitable trust test. Section1.509(a)–4(i)(2)(iii) provides that cer-tain charitable trusts meet the respon-siveness test requirement of section1.509(a)–4(i)(2) if they are charitabletrusts under state law, each publiclysupported organization is a namedbeneficiary under the trust’s govern-ing instrument, and each beneficiaryorganization has the power to enforcethe trust and compel an accountingunder state law.

Section 1241(c) of the PPA eliminatedthe charitable trust test, effective August17, 2007. Consequently, as of August 17,2007, trusts previously classified as TypeIII supporting organizations may be clas-sified as private foundations as a result ofthe PPA. A trust will continue to qualifyas a section 509(a)(3) supporting organiza-tion if it meets the significant voice test forType III supporting organizations or if it isable to establish that it meets the require-ments of a Type I or Type II supporting or-ganization under section 1.509(a)–4(g) or(h).

DISCUSSION

Transitional Relief for Charitable Trusts

Because of the need for affected char-itable trusts to adjust record-keepingsystems to reflect private foundation sta-tus, and the administrative difficulties inprocessing returns reflecting a mid-yearchange of status, trusts that became privatefoundations during 2007 by virtue of sec-tion 1241(c) of the PPA may continue tofile Form 990, Return of Organization Ex-empt From Income Tax, for taxable yearsbeginning before January 1, 2008. Anorganization that is classified as a privatefoundation by virtue of section 1241(c)of the PPA will not be required to file aninformation return on Form 990–PF or payexcise taxes on investment income undersection 4940 until its first taxable yearbeginning on or after January 1, 2008.

Filing Procedures for Charitable Truststhat Became Private FoundationsTaxable years beginning before January1, 2008:

• Charitable trusts that became pri-vate foundations by virtue of section1241(c) of the PPA should file Form990 for taxable years beginning beforeJanuary 1, 2008.

• Normal due dates and submission rulesfor filing Form 990 apply.

Taxable years beginning on or afterJanuary 1, 2008

• Charitable trusts that became pri-vate foundations by virtue of section1241(c) of the PPA must file Form990–PF, Return of Private Foundation,for taxable years beginning on or afterJanuary 1, 2008.

• For the first taxable year beginning onor after January 1, 2008, file paperForm 990–PF. Write “Notice 2008–6status change” at the top of Form990–PF.

• Normal due dates and submission rulesfor filing Form 990–PF otherwise ap-ply.

Filing Procedures for Charitable Truststhat Did Not Become Private Foundations

A charitable trust that meets the signif-icant voice test for Type III supporting or-ganizations (section 1.509(a)–4(i)(2)(ii)),or that can establish that it meets therequirements of a Type I or Type IIsupporting organization under section1.509(a)–4(g) or (h), should continue tofile Form 990 under currently applicableprocedures for taxable years beginningon or after January 1, 2008. Such a trustshould not file Form 990–PF.


The principal author of this notice isRobert Fontenrose of the Exempt Or-ganizations, Tax Exempt and Govern-ment Entities Division. For further in-formation regarding this notice, contactMr. Ronald Shoemaker at (202) 283–9475(not a toll-free call).

2008–3 I.R.B. 275 January 22, 2008

Extension of TransitionalRelief for DiversificationRequirements for CertainDefined Contribution Plans

Notice 2008–7

I. PURPOSE

This notice extends the transitionalguidance and transitional relief providedto certain defined contribution plans hold-ing publicly traded employer securitiesunder Notice 2006–107, 2006–51 I.R.B.1114, until the regulations being issuedunder § 401(a)(35) of the Internal RevenueCode become effective.

II. BACKGROUND

Section 401(a)(35), added by section901 of the Pension Protection Act of 2006,Public Law 109–280, 120 Stat. 780, pro-vides diversification rights with respect topublicly traded employer securities heldby a defined contribution plan. Section401(a)(35) provides that, to remain quali-fied under § 401(a), a defined contributionplan (other than certain employee stockownership plans) must provide applicableindividuals with the right to divest em-ployer securities in their accounts and rein-vest those amounts in certain diversifiedinvestments, and generally prohibits a planfrom imposing restrictions or conditionswith respect to the investment of employersecurities that are not imposed on the in-vestment of other assets of the plan.

Notice 2006–107 provides transitionalguidance with respect to § 401(a)(35). Forexample, Part III.D of Notice 2006–107provides that a restriction or condition withrespect to employer securities generally in-cludes: (1) a restriction on an applicableindividual’s rights to divest an investmentin employer securities that is not imposedon an investment that is not in employersecurities; and (2) a benefit that is condi-tioned on investment in employer securi-ties. Notice 2006–107 also provides cer-tain transitional relief with respect to therequirements of Part III.D of the notice.The relief set forth in paragraph 4 of PartIII.D of Notice 2006–107 is limited to theperiod prior to January 1, 2008.

Notice 2006–107 also states that Trea-sury and the Service expect to issue regu-lations under § 401(a)(35) that will be con-

sistent with the guidance in the notice andthat will incorporate the transitional reliefin the notice.

III. EXTENSION OF TRANSITIONALRELIEF UNDER NOTICE 2006–107

The Treasury and the Service areissuing proposed regulations under§ 401(a)(35). It is expected that theseregulations, when finalized, will not beeffective before plan years beginning onor after January 1, 2009. Except as oth-erwise provided in the proposed or finalregulations, plans must continue to applyNotice 2006–107 until the regulations gointo effect. For this purpose, the transi-tional relief provided for the period priorto January 1, 2008, in paragraph 4 of PartIII.D of Notice 2006–107 will continue toapply after 2007 until the regulations gointo effect.

IV. EFFECT ON OTHER DOCUMENTS

Notice 2006–107 is modified.


The principal author of this notice isRobert M. Walsh of the Employee Plans,Tax Exempt and Government Entities Di-vision. For further information regard-ing this notice, please call the EmployeePlans taxpayer assistance number between8 a.m. and 4:30 p.m. Eastern time, Mon-day through Friday at (877) 829–5500 (atoll-free number) or email Mr. Walsh [email protected].

Information ReportingRequirements Under InternalRevenue Code § 6039

Notice 2008–8

SECTION 1. PURPOSE

This notice provides interim guidancewith respect to the information returns re-quired by § 6039 of the Internal RevenueCode.

SECTION 2. BACKGROUND

Section 403 of the Tax Relief andHealth Care Act of 2006 (Act) amendedthe information reporting requirements of§ 6039. Prior to its amendment, § 6039

required corporations to furnish a writtenstatement to each employee, in a mannerprescribed by the Secretary in regulations,regarding: (i) the corporation’s transfer ofstock pursuant to the employee’s exerciseof an incentive stock option describedin § 422(b); and (ii) transfers of stockby the employee where the stock wasacquired pursuant to the exercise of anoption described § 423(c). Corporationsmust furnish the statements required by§ 6039 on or before January 31 of the yearfollowing the year for which the statementis required.

As amended by the Act, § 6039 requirescorporations to make an information returnwith the IRS, in addition to providing em-ployees with an information statement, fol-lowing a stock transfer. The time and man-ner for making a return with the IRS, aswell as the information to be contained inthe return and furnished to employees, is tobe set forth in regulations. Section 6039, asamended by the Act, applies to stock trans-fers occurring on or after January 1, 2007.

Prior to the amendment made by theAct, the Treasury Department and the IRSissued regulation § 1.6039–1 effective onAugust 3, 2004. Section 1.6039–1(a) enu-merates the information that must be fur-nished to employees with respect to stocktransfers relating to the employee’s exer-cise of an incentive stock option. It pro-vides that the statement the corporationfurnishes to the employee must include thefollowing information —

(1) The name, address, and employeridentification number of the corporationtransferring the stock;

(2) The name, address, and identifyingnumber of the person to whom the share orshares of stock were transferred;

(3) The name and address of the cor-poration the stock of which is the subjectof the option (if other than the corporationtransferring the stock);

(4) The date the option was granted;(5) The date the shares were transferred

to the person exercising the option;(6) The fair market value of the stock at

the time the option was exercised;(7) The number of shares of stock trans-

ferred pursuant to the option;(8) The type of option under which the

transferred shares were acquired; and(9) The total cost of all the shares.Section 1.6039–1(b) lists the informa-

tion that must be furnished to employees

January 22, 2008 276 2008–3 I.R.B.

who transfer stock acquired pursuant to anoption granted under an employee stockpurchase plan. It provides that the state-ment the corporation furnishes to the em-ployee must include the following infor-mation —

(1) The name and address of the corpo-ration whose stock is being transferred;

(2) The name, address, and identifyingnumber of the transferor;

(3) The date such stock was transferredto the transferor;

(4) The number of shares to which titleis being transferred; and

(5) The type of option under which thetransferred shares were acquired.

SECTION 3. ISSUANCE OFREGULATIONS AND INTERIMREPORTING

The Treasury Department and the IRSintend to issue regulations that prescriberules relating to the information returnrequirements contained in § 6039, asamended by the Act. The Treasury De-partment and the IRS expect that the forth-coming regulations generally will retainthe existing rules contained in § 1.6039–1,relating to the information statements tobe provided to employees, and generallyrequire that the same information be in-cluded in the information returns madewith the IRS. The Treasury Departmentand the IRS also expect that the new § 6039regulations will be effective retroactivelyto January 1, 2007.

Because regulations under § 6039 havenot yet been issued, the IRS is waivingthe obligation to make an information re-turn for 2007 stock transfers governed by§ 6039. However, corporations shouldcontinue to furnish to employees the in-formation required by, and in accordancewith, existing § 1.6039–1, with respect tosuch stock transfers.

SECTION 4. DRAFTINGINFORMATION

The principal author of this notice isTom Scholz of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt & Government Entities). Forfurther information regarding this notice,contact Mr. Scholz at (202) 622–6030 (nota toll-free call).

Effective Date Relief forUnified Rule for Loss onSubsidiary Stock

Notice 2008–9

On January 23, 2007, the IRS andTreasury Department issued a notice ofproposed rulemaking (REG–157711–02,2007–8 I.R.B. 537 [72 FR 2964]) under§1.1502–36. The proposed regulations setforth rules applicable to transfers of lossshares of subsidiary stock by members ofa consolidated group. The IRS and Trea-sury Department have received, and areconsidering, comments on the proposedregulations.

While most comments will be ad-dressed in the final regulations, there isone concern that the IRS and TreasuryDepartment believe appropriate to ad-dress immediately. The concern relates tothe proposed effective date, which wouldmake the regulations applicable to alltransfers on or after the date such regula-tions are published as final regulations inthe Federal Register.

Practitioners have observed that theproposed effective date presents a signif-icant burden on taxpayers attempting tonegotiate transactions prior to the publi-cation of the final regulations. The IRSand Treasury Department recognize thatit is inappropriate to impose this level ofuncertainty on taxpayers negotiating thesetransactions.

Accordingly, the IRS and Treasury De-partment have concluded that the regula-tions will generally apply to transfers onor after the date they are published as finalregulations in the Federal Register, but willnot apply to a transfer to an unrelated per-son if the transfer is pursuant to an agree-ment that is binding before the date the reg-ulations are so published and at all timesthereafter. The IRS and Treasury Depart-ment expect that the rule will incorporatethe provisions of section 267(b) in deter-mining whether persons are related for thispurpose.

The principal author of this notice isSean P. Duffley of the Office of AssociateChief Counsel (Corporate). For furtherinformation regarding this notice, contactSean P. Duffley at (202) 622–7770 (not atoll-free call).

Regulations Under Section367(a) Applicable to CertainOutbound Reorganizationsand Section 351 Exchanges

Notice 2008–10

SECTION 1. OVERVIEW

The Internal Revenue Service (IRS)and the Treasury Department (Treasury)will issue regulations under section 367(a)of the Internal Revenue Code (Code) toclarify how the two exceptions to the rulein §1.367(a)–3(d)(2)(vi) of the Income TaxRegulations (coordination rule) providedby §1.367(a)–3(d)(2)(vi)(B) apply to cer-tain outbound reorganizations describedin section 368(a) and certain successivetransfers to which section 351 applies.This notice is issued in response to certaintransactions designed to avoid U.S. in-come tax. The regulations issued pursuantto this notice will apply to transactionsoccurring on or after December 28, 2007.

SECTION 2. TRANSACTIONS ATISSUE

The IRS and Treasury are aware thatcertain taxpayers are engaging in transac-tions intended to repatriate cash or otherproperty from foreign subsidiaries withoutthe recognition of gain or a dividend inclu-sion. In one such transaction, for example,USP, a domestic corporation, owns 100percent of the stock of FA, a foreign cor-poration, and USP’s basis in its FA stockis $100x. USP also owns 100 percent ofthe stock of UST, a domestic corporation,and USP’s basis in its UST stock equals itsfair market value of $100x. UST’s prop-erty consists of property with zero tax ba-sis, such as self-created intangibles or fullydepreciated tangible property. UST sellsits property to FA in exchange for $100xcash and, in connection with the transac-tion, UST liquidates and FA transfers allof the property acquired from UST to U.S.Newco, a newly formed domestic corpo-ration, in exchange for 100 percent of theU.S. Newco stock (the Transaction). Othervariations of the Transaction may be avail-able. For example, FA may purchase thestock of UST from USP for $100x and,in connection with the acquisition, USTmerges into a domestic limited liability

2008–3 I.R.B. 277 January 22, 2008

company (LLC) wholly owned by FA thatis disregarded as separate from FA for U.S.tax purposes. FA then contributes all ofits LLC interests to U.S. Newco, a newlyformed domestic corporation, in exchangefor 100 percent of the U.S. Newco stock.

Taxpayers take the position that, pur-suant to §1.367(a)–3(d)(2)(vi)(B)(1)(i),UST’s transfer of property to FA is notsubject to section 367(a) or (d) because thebasis adjustment requirement of section367(a)(5) is satisfied if USP reduces by$100x its basis in the FA stock that it heldprior to the Transaction.

SECTION 3. BACKGROUND

Section 367(a)(1) provides that if, inconnection with an exchange describedin section 332, 351, 354, 356, or 361, aUnited States person transfers propertyto a foreign corporation, such foreigncorporation shall not, for purposes of de-termining the extent to which gain shall berecognized on such transfer, be consideredto be a corporation. Section 367(a)(2) pro-vides that, except to the extent providedin regulations, section 367(a)(1) shall notapply to the transfer of stock or securitiesof a foreign corporation that is a party toa reorganization. Section 367(a)(3) pro-vides that, except to the extent providedin regulations, section 367(a)(1) shall notapply to the transfer of property used in anactive foreign trade or business. Section367(a)(6) grants regulatory authority toprovide additional exceptions to the gen-eral rule of section 367(a)(1).

Section 367(a)(5) provides that in thecase of an exchange described in section361(a) or (b) (section 361 exchange), theexceptions to section 367(a)(1) providedunder sections 367(a)(2) and (a)(3) shallnot apply. Therefore, the general rule un-der section 367(a)(5) is that a transfer ofproperty by a domestic corporation (U.S.transferor) to a foreign corporation in asection 361 exchange is subject to sec-tion 367(a)(1). Section 367(a)(5) also pro-vides, however, that subject to basis ad-justments and other conditions to be pro-vided in regulations, the general rule willnot apply (and the transfer may thereforebe eligible for the exceptions under sec-tions 367(a)(2) and (a)(3)) if the U.S. trans-feror is controlled (within the meaning ofsection 368(c)) by five or fewer domesticcorporations.

Regulations have not been issued undersection 367(a)(5). However, the legisla-tive history of section 367(a)(5) explainshow the required basis adjustments wouldhave to be made:

It is expected that regulations will pro-vide this relief only if the U.S. corpo-rate shareholders in the transferor agreeto take a basis in the stock they receivein a foreign corporation that is a partyto the reorganization equal to the lesserof (a) the U.S. corporate shareholders’basis in such stock received pursuant tosection 358, or (b) their proportionateshare of the basis in the property of thetransferor corporation transferred to theforeign corporation.

S. Rep. No. 100–445, 100th Cong., 2dSess. at 62 (Aug. 3, 1988). Thus, thegain realized, but not recognized, by theU.S. transferor in connection with the sec-tion 361 exchange must be preserved in thestock received by certain corporate share-holders of the U.S. transferor in the reor-ganization.

The rules regarding the treatment oftransfers of stock or securities to foreigncorporations are contained in §1.367(a)–3.Certain outbound reorganizations fol-lowed by transfers to controlled corpo-rations and certain successive transfersof property to which section 351 ap-plies constitute “indirect stock transfers”and are subject to §1.367(a)–3. See§1.367(a)–3(d)(1). Such indirect stocktransfers are subject to gain recogni-tion under section 367(a)(1), unless theyqualify for the exceptions contained in§1.367(a)–3(b) (for transfers of foreignstock) or –3(c) (for transfers of domesticstock). See §1.367(a)–3(d)(1).

The general coordination rule of§1.367(a)–3(d)(2)(vi)(A) provides, ingeneral, that if, pursuant to an indirectstock transfer, a U.S. person transfers (oris deemed to transfer) property to a for-eign corporation in an exchange describedin sections 351 or 361, such transfer issubject to sections 367(a) and (d), priorto the application of the indirect stocktransfer rules of §1.367(a)–3(d). Section1.367(a)–3(d)(2)(vi)(A). This general co-ordination rule, however, is subject to twoexceptions (Exception One and ExceptionTwo).

Exception One is available for certainsection 361 transfers of property madepursuant to a reorganization to the extent

the foreign acquiring corporation transfersthe acquired property (re-transferred prop-erty) to a domestic corporation controlledwithin the meaning of section 368(c) (do-mestic controlled corporation) as part ofthe same transaction. However, ExceptionOne applies only if the domestic controlledcorporation’s basis in the re-transferredproperty is no greater than the basis theU.S. transferor had in such property andeither (i) the domestic acquired corpora-tion is controlled (within the meaning ofsection 368(c)) by five or fewer domes-tic corporate shareholders, appropriatebasis adjustments as provided in section367(a)(5) are made to the stock of the for-eign acquiring corporation, and any otherconditions provided in regulations undersection 367(a)(5) are satisfied; or (ii) theindirect transfer of stock of the domesticacquired corporation satisfies the require-ments of §1.367(a)–3(c)(1)(i), (ii), and(iv), and (c)(6), and the domestic acquiredcorporation attaches a statement to its taxreturn for the taxable year of the transfer.Section 1.367(a)–3(d)(2)(vi)(B)(1)(i) and(ii).

Exception Two is available for trans-fers described in §1.367(a)–3(d)(1)(vi)where a U.S. person transfers propertyto a foreign corporation in a section 351exchange, to the extent that such propertyis transferred by such foreign corpora-tion to a domestic corporation in anothersection 351 exchange, but only if thedomestic transferee’s basis in the prop-erty is no greater than the basis that theU.S. transferor had in such property. See§1.367(a)–3(d)(2)(vi)(B)(2).

SECTION 4. REGULATIONS TO BEISSUED UNDER SECTION 367(a)

The IRS and Treasury will issue regu-lations under section 367(a) to clarify howthe two exceptions to the general coordina-tion rule of §1.367(a)–3(d)(2)(vi)(A) are tobe applied.

The rule of Exception One containedin §1.367(a)–3(d)(2)(vi)(B)(1)(i) will bemodified to clarify that the basis ad-justment required as provided in section367(a)(5) must be made to the stock ofthe foreign acquiring corporation receivedby domestic corporate shareholders ofthe U.S. transferor in the reorganizationsuch that the appropriate amount of un-recognized gain in the U.S. transferor’s

January 22, 2008 278 2008–3 I.R.B.

property is reflected in such stock. Thus,the basis adjustment requirement cannotbe satisfied by adjusting the basis in stockof the foreign acquiring corporation heldby such shareholders prior to the reorga-nization. The regulations will clarify thatto the extent the appropriate amount ofunrecognized gain in the U.S. transferor’sproperty cannot be preserved in the stockof the foreign acquiring corporation re-ceived in the reorganization, then the U.S.transferor’s transfer of property to the for-eign acquiring corporation shall be subjectto sections 367(a) and (d).

Section 1.367(a)–3(d)(2)(vi)(B)(2) willbe modified to clarify that Exception Twoshall not apply to a section 351 transfer thatis also a section 361 exchange. Thus, asection 351 transfer that is also a section361 exchange may only qualify, if at all,for Exception One.

SECTION 5. EFFECTIVE DATE

The regulations described in this noticewill apply to transactions occurring on orafter December 28, 2007. No inferenceis intended as to the treatment of transac-tions described herein under current law,and the IRS may, where appropriate, chal-lenge such transactions under applicableprovisions or judicial doctrines.

SECTION 6. COMMENTS

The IRS and Treasury are studyingother transactions and structures that havethe effect of repatriating earnings of for-eign corporations without the recognitionof gain or a dividend inclusion. Commentsare requested in this regard. Commentsare also requested regarding more funda-mental changes that can be made in thisarea, including possible changes to thecoordination rule.

SECTION 7. DRAFTINGINFORMATION

The principal authors of this notice areJohn Seibert and Daniel McCall of theOffice of Associate Chief Counsel (Inter-national). However, other personnel fromthe IRS and Treasury Department par-ticipated in its development. For furtherinformation regarding this notice, con-tact Mr. Seibert or Mr. McCall at (202)622–3860 (not a toll-free call).

Clarification of Notice2007–54 Providing Guidanceand Transitional ReliefUnder the PreparerPenalty Provisions of theSmall Business and WorkOpportunity Tax Act of 2007

Notice 2008–11

This notice clarifies Notice 2007–54,2007–27 I.R.B. 12, which provided guid-ance and transitional relief for the tax re-turn preparer penalty provisions under sec-tion 6694 of the Internal Revenue Code, asamended by the Small Business and WorkOpportunity Tax Act of 2007.

BACKGROUND

The Small Business and Work Oppor-tunity Tax Act of 2007 (the Act), Pub. L.No. 110–28, 121 Stat. 190, was enactedon May 25, 2007. Section 8246 of the Actamended several provisions of the Code toextend the application of the income taxreturn preparer penalties to all tax returnpreparers, alter the standards of conductthat must be met to avoid imposition ofthe penalties for preparing a return whichreflects an understatement of liability, andincrease applicable penalties. The amend-ments are effective for tax returns preparedafter the date of the enactment, May 25,2007.

In order to provide sufficient time to ad-dress issues pertaining to the implemen-tation of the Act, the Treasury Depart-ment and the IRS issued Notice 2007–54on June 11, 2007, and which provided thefollowing transitional relief: For incometax returns, amended returns, and refundclaims, the standards set forth under theprevious law and current regulations undersection 6694 will be applied in determin-ing whether the IRS will impose a penaltyunder section 6694(a), as amended by theAct. Notice 2007–54 provided that gener-ally, in applying transitional relief for in-come tax returns, amended returns, or re-fund claims, disclosure would be adequateif made on a Form 8275, Disclosure State-ment, or Form 8275–R, Regulation Dis-closure Statement, attached to the return,amended return, or refund claim, or pur-suant to the annual revenue procedure au-

thorized in Treasury Regulation sections1.6694–2(c)(3) and 1.6662–4(f)(2).

Notice 2007–54 further provided thatfor all other returns, amended returns, andclaims for refund, including estate, gift,and generation-skipping transfer tax re-turns, employment tax returns, and excisetax returns, the reasonable basis standardset forth in the regulations issued undersection 6662, without regard to the dis-closure requirements contained therein,will be applied in determining whether theIRS will impose a penalty under section6694(a).

Notice 2007–54 provided that thetransitional relief applies to all returns,amended returns, and refund claims dueon or before December 31, 2007 (deter-mined with regard to any extension of timefor filing), and to 2007 employment andexcise tax returns due on or before January31, 2008. Notice 2007–54 also providedthat no transitional relief was providedunder section 6694(b) as transitional reliefis not appropriate for tax return preparerswho exhibit willful or reckless conduct,regardless of the type of return prepared.

TRANSITIONAL RELIEFCLARIFICATIONS

Questions have arisen regarding the ex-tent to which amended returns or claimsfor refund qualify for transitional relief un-der Notice 2007–54. There is no set duedate for such returns and claims other thanprior to the expiration of the period pro-scribed by the applicable statute of limita-tions. The transitional relief described inNotice 2007–54 applies to timely amendedreturns or claims for refund (other than2007 employment and excise tax returns)filed on or before December 31, 2007, andto timely amended employment and excisetax returns or claims for refund filed on orbefore January 31, 2008.

Questions have arisen regarding the ex-tent to which original tax returns due onextension after December 31, 2007, butfiled on or before December 31, 2007,qualify for transitional relief. The transi-tional relief described in Notice 2007–54applies to original returns (other than 2007employment and excise tax returns) filedon or before December 31, 2007, and tooriginal employment and excise tax re-turns filed on or before January 31, 2008.

2008–3 I.R.B. 279 January 22, 2008

Questions have also arisen regardingthe extent to which advice rendered bynonsigning preparers qualifies for transi-tional relief under Notice 2007–54. Thetransitional relief described in Notice2007–54, as clarified by this notice, ap-plies to nonsigning preparers for adviceprovided on or before December 31, 2007.

In future guidance, the Treasury De-partment and the IRS intend to providetransitional rules to address amended re-turns filed after the expiration of the tran-sitional relief period described in Notice2007–54 that relate to original returns filedunder previous law or during the transi-tional relief period, as clarified by this no-tice.

EFFECTIVE DATE

This notice is effective as of May 25,2007.

EFFECT ON OTHER DOCUMENTS

Notice 2007–54, 2007–27 I.R.B. 12, isclarified.

CONTACT INFORMATION

The principal authors of this notice areMatthew S. Cooper and Michael E. Haraof the Office of the Associate Chief Coun-sel (Procedure and Administration). Forfurther information regarding this notice,contact Mr. Cooper at (202) 622–4940 orMr. Hara at (202) 622–4910 (not toll-freecalls).

Preparer SignatureRequirements Under Section6695(b), as Amended by theSmall Business and WorkOpportunity Tax Act of 2007

Notice 2008–12

This notice provides guidance to thepublic regarding implementation of thetax return preparer signature requirementpenalty provisions under section 6695(b)of the Internal Revenue Code, as amendedby the Small Business and Work Opportu-nity Tax Act of 2007.

BACKGROUND

The Small Business and Work Oppor-tunity Tax Act of 2007 (the Act), Pub. L.No. 110–28, 121 Stat. 190, was enactedon May 25, 2007. Section 8246 of the Actamended several provisions of the Code,including section 6695(b), to extend theapplication of the income tax return pre-parer penalties to all tax return preparers.As amended by the Act, section 6695(b)imposes a penalty on a tax return preparerof any return or claim for refund who failsto sign a return when required by regula-tions prescribed by the Secretary, unless itis shown that the failure is due to reason-able cause and not due to willful neglect.The penalty under section 6695(b) is $50for each failure to sign, with a maximum of$25,000 per person imposed with respectto each calendar year. The amendmentsto section 6695(b) made by section 8246of the Act are effective for tax returns andclaims for refund prepared after May 25,2007.

INTERIM AND PLANNED GUIDANCE

The Treasury Department and the Inter-nal Revenue Service intend to issue reg-ulations that implement the signature re-quirements under section 6695(b) for cer-tain 2008 tax year returns and claims forrefund. In advance of these regulations,guidance is being issued to (1) identify thereturns and claims for refund required tobe signed by a tax return preparer in or-der to avoid a section 6695(b) penalty un-der current regulations, and (2) identify thereturns and claims for refund that will berequired to be signed by a tax return pre-parer in order to avoid a section 6695(b)penalty under future regulations publishedby the Treasury Department and IRS. Thisinterim guidance will apply until furtherguidance is issued and tax return prepar-ers may rely on the interim guidance in thisnotice.

A. Signing Tax Return Preparer

For purposes of section 6695(b), an in-dividual who is a tax return preparer withrespect to a return of tax or claim for refundof tax listed below in paragraph (B)(1) ofthis notice shall sign the return or claim forrefund after it is completed and before itis presented to the taxpayer (or nontaxable

entity) for signature. If the tax return pre-parer is unavailable for signature, anothertax return preparer shall review the entirepreparation of the return or claim for re-fund, and then shall sign the return or claimfor refund.

If more than one tax return prepareris involved in the preparation of the re-turn or claim for refund, the individual taxreturn preparer who has the primary re-sponsibility as between or among the pre-parers for the overall substantive accuracyof the preparation of such return or claimfor refund shall be considered to be thetax return preparer for purposes of section6695(b).

B. Forms Requiring Signature of TaxReturn Preparer

(1) Consistent with existing regula-tions, in order to avoid the imposition ofa penalty under section 6695(b), a sign-ing tax return preparer described above inparagraph (A) of this notice must providea signature on any income tax returns orclaims for refund of income tax that arefiled after December 31, 2007, includingbut not limited to the following:

• Form 990–T, Exempt OrganizationBusiness Income Tax Return

• Form 990–PF, Return of Private Foun-dation or Section 4947(a)(1) Nonex-empt Charitable Trust Treated as a Pri-vate Foundation

• Form 1040, U.S. Individual IncomeTax Return

• Form 1040A, U.S. Individual IncomeTax Return

• Form 1040–C, U.S. Departing AlienIncome Tax Return

• Form 1040EZ, Income Tax Return forSingle and Joint Filers With No Depen-dents

• Form 1040NR, U.S. Nonresident AlienIncome Tax Return

• Form 1040NR–EZ, U.S. Income TaxReturn for Certain Nonresident AliensWith No Dependents

• Form 1040–PR, Planilla para laDeclaración de la Contribución Fed-eral sobre el Trabajo por CuentaPropia (Incluyendo el Crédito Tribu-tario Adicional por Hijos para Resi-dentes Bona fide de Puerto Rico)

• Form 1040–SS, U.S. Self-EmploymentTax Return (Including the Additional

January 22, 2008 280 2008–3 I.R.B.

Child Tax Credit for Bona Fide Resi-dents of Puerto Rico)

• Form 1040X, Amended U.S. IndividualIncome Tax Return

• Form 1041, U.S. Income Tax Return forEstates and Trusts

• Form 1041–N, U.S. Income Tax Returnfor Electing Alaska Native SettlementTrusts

• Form 1041–QFT, U.S. Income Tax Re-turn for Qualified Funeral Trusts

• Form 1042, Annual Withholding TaxReturn for U.S. Source Income of For-eign Persons

• Form 1065, U.S. Return of PartnershipIncome

• Form 1065–B, U.S. Return of Incomefor Electing Large Partnerships

• Form 1066, U.S. Real Estate MortgageInvestment Conduit (REMIC) IncomeTax Return

• Form 1120, U.S. Corporation IncomeTax Return

• Form 1120–C, U.S. Income Tax Returnfor Cooperative Associations

• Form 1120–F, U.S. Income Tax Returnof a Foreign Corporation

• Form 1120–FSC, U.S. Income Tax Re-turn of a Foreign Sales Corporation

• Form 1120–H, U.S. Income Tax Returnfor Homeowners Associations

• Form 1120IC–DISC, Interest ChargeDomestic International Sales Corpo-ration Return

• Form 1120–L, U.S. Life InsuranceCompany Income Tax Return

• Form 1120–ND, Return for NuclearDecommissioning Funds and CertainRelated Persons

• Form 1120–PC, U.S. Property and Ca-sualty Insurance Company Income TaxReturn

• Form 1120–POL, U.S. Income TaxReturn for Certain Political Organiza-tions

• Form 1120–REIT, U.S. Income Tax Re-turn for Real Estate Investment Trusts

• Form 1120–RIC, U.S. Income Tax Re-turn for Regulated Investment Compa-nies

• Form 1120S, U.S. Income Tax Returnfor an S Corporation

• Form 1120–SF, U.S. Income Tax Re-turn for Settlement Funds (Under Sec-tion 468B)

• Form 1120X, Amended U.S. Corpora-tion Income Tax Return

• Form 2438, Undistributed CapitalGains Tax Return

(2) In the absence of Treasury regula-tions requiring signature, a signing tax re-turn preparer described above in paragraph(A) of this notice will not be subject to thepenalty under section 6695(b) with respectto tax returns or refund claims for taxesother than income taxes that are filed af-ter December 31, 2007, but on or beforeDecember 31, 2008, including the filing ofthe following returns:

• Form CT–1, Employer’s Annual Rail-road Retirement Tax Return

• Form CT–2, Employee Representa-tive’s Quarterly Railroad Tax Return

• Form 11–C, Occupational Tax andRegistration Return for Wagering

• Form 706, United States Estate (andGeneration-Skipping Transfer) TaxReturn

• Form 706–A, United States AdditionalEstate Tax Return

• Form 706–D, United States AdditionalEstate Tax Return Under Code Section2057

• Form 706–GS(D), Generation-Skip-ping Transfer Tax Return For Distri-butions

• Form 706–GS(T), Generation-Skip-ping Transfer Tax Return For Termi-nations

• Form 706–NA, United States Estate(and Generation-Skipping Transfer)Tax Return — Estate of nonresidentnot a citizen of the United States

• Form 706–QDT, United States EstateTax Return for Qualified DomesticTrusts

• Form 709, United States Gift (andGeneration-Skipping Transfer) TaxReturn

• Form 720, Quarterly Federal ExciseTax Return

• Form 720X, Amended Quarterly Fed-eral Excise Tax Return

• Form 730, Monthly Tax Return for Wa-gers

• Form 843, Claim for Refund and Re-quest for Abatement

• Form 940, Employer’s Annual FederalUnemployment (FUTA) Tax Return

• Form 940–PR, Planilla para laDeclaración Federal ANUAL del Pa-trono de la Contribución Federal parael Desempleo (FUTA)

• Form 941, Employer’s QUARTERLYFederal Tax Return

• Form 941–PR, Planilla para laDeclaración Federal TRIMESTRALdel Patrono

• Form 941–SS, Employer’s QUAR-TERLY Federal Tax Return

• Form 941–M, Employer’s MONTHLYFederal Tax Return

• Form 943, Employer’s Annual FederalTax Return for Agricultural Employees

• Form 943(PR), Planilla Para laDeclaración ANUAL De La Contribu-ción Del Patrono De Empleados Agrí-colas

• Form 944, Employer’s ANNUAL Fed-eral Tax Return

• Form 944–PR, Planilla para laDeclaración ANUAL de la Contribu-ción Federal del Patrono 944(SP),Declaración Federal ANUAL de Im-puestos del Patrono o Empleador

• Form 944–SS, Employer’s ANNUALFederal Tax Return

• Form 945, Annual Return of WithheldFederal Income Tax

• Form 1040 (Schedule H), HouseholdEmployment Taxes

• Form 1040–PR (Anexo H-PR), Con-tribuciones sobre el Empleo de Em-pleados Domesticos

• Form 2290, Heavy Highway VehicleUse Tax Return

• Form 2290(FR), Declaration d’Impotsur L’utilisation des Vehicules Lourdssur les Routes

• Form 2290(SP), Declaración del Im-puesto sobre el Uso de Vehículos Pe-sados en las Carreteras

• Form 4720, Return of Certain ExciseTaxes Under Chapters 41 and 42 of theInternal Revenue Code

• Form 5330, Return of Excise Taxes Re-lated to Employee Benefit Plans

• Form 8612, Return of Excise Tax onUndistributed Income of Real EstateInvestment Trusts

• Form 8613, Return of Excise Tax onUndistributed Income of Regulated In-vestment Companies

• Form 8725, Excise Tax on Greenmail• Form 8831, Excise Taxes on Excess In-

clusions of REMIC Residual Interests• Form 8849, Claim for Refund of Excise

Taxes• Form 8876, Excise Tax on Structured

Settlement Factoring Transactions

2008–3 I.R.B. 281 January 22, 2008

• Form 8924, Excise Tax on CertainTransfers of Qualifying Geothermal orMineral Interests

The tax return preparer shall sign the re-turn in the manner prescribed by the Com-missioner in forms, instructions, or otherappropriate guidance.

The Treasury Department and IRS in-tend to issue regulations on or before De-cember 31, 2008, requiring signatures un-der section 6695(b) for all the above listedforms that are filed after December 31,2008.

Information on the preparer signaturerequirement for electronically filed returnswill be announced in IRS publications, in-structions, and information posted elec-tronically on the IRS.gov website.

EFFECTIVE DATE

This notice is effective as of January 1,2008.

CONTACT INFORMATION

The principal authors of this notice areMatthew S. Cooper and Michael E. Haraof the Office of the Associate Chief Coun-sel (Procedure and Administration). Forfurther information regarding this notice,contact Mr. Cooper at (202) 622–4940 orMr. Hara at (202) 622–4910 (not toll-freecalls).

Guidance Under the PreparerPenalty Provisions of theSmall Business and WorkOpportunity Tax Act of 2007

Notice 2008–13

This notice provides guidance regard-ing implementation of the tax return pre-parer penalty provisions under section6694 and the related definitional provi-sions under section 7701(a)(36) of the In-ternal Revenue Code (Code), as amendedby the Small Business and Work Oppor-tunity Tax Act of 2007 (the Act), Pub. L.No. 110–28, 121 Stat. 190.

In 2008, the Treasury Department andthe IRS intend to revise the regulatoryscheme governing tax return preparerpenalties, which has remained substan-tially unchanged since the late 1970’s.Until then, this notice provides interim

guidance on the application of the taxreturn preparer penalties as amended bythe Act. This notice also solicits publiccomments regarding the revision of theregulatory scheme governing tax returnpreparer penalties in order to enable theTreasury Department and the IRS to com-plete their work on the overhaul of theserules by the end of 2008.

BACKGROUND

Section 8246 of the Act amended sev-eral provisions of the Code to extend theapplication of the income tax return pre-parer penalties to all tax return preparers,alter the standards of conduct that mustbe met to avoid imposition of the sec-tion 6694(a) penalty for preparing a returnwhich reflects an understatement of liabil-ity, and increase applicable penalties undersection 6694(a) and (b). The amendmentsmade by the Act to section 6694 are effec-tive for tax returns and claims for refundprepared after May 25, 2007. The Trea-sury Department and the IRS issued Notice2007–54, 2007–27 I.R.B. 12, on June 11,2007, which provided transitional reliefunder section 6694(a). Concurrent withthe issuance of this notice, the TreasuryDepartment and the IRS are issuing addi-tional guidance clarifying Notice 2007–54.See Notice 2008–11.

Prior to amendment by the Act, section7701(a)(36) defined income tax return pre-parer as any person who prepared for com-pensation an income tax return or claim forrefund, or a substantial portion of an in-come tax return or claim for refund. Asamended by the Act, section 7701(a)(36)now defines tax return preparer as any per-son that prepares for compensation a taxreturn or claim for refund, or a substan-tial portion of a tax return or claim for re-fund, and is no longer limited to personswho prepare income tax returns.

Section 301.7701–15 of the currentProcedure and Administration Regula-tions defines the term income tax returnpreparer to include any person who pre-pares for compensation all or a substantialportion of a tax return or claim for refundunder Subtitle A of the Code. Operationof the current regulations brings into thepreparer penalty regime a wide range ofactivities performed by persons who donot sign the tax return or claim for refund,who may have no knowledge of how their

work is ultimately reported on the tax re-turn or claim for refund, or who may haveno knowledge of the size or complexity ofthe schedule, entry, or other portion of atax return or claim for refund relative tothe entire tax return. For example, cur-rent regulations broadly define the termsubstantial portion using a facts and cir-cumstances test that compares the relativelength, complexity, and tax liability of aparticular schedule, entry, or other portionof a tax return or claim for refund to thelength, complexity, and tax liability of thetax return or claim for refund as a whole.Case law, including Goulding v. UnitedStates, 717 F. Supp. 545 (N.D. Ill. 1989),aff’d, 957 F.2d 1420 (7th Cir. 1992), sup-ports the current regulations which deemthe preparer of a Schedule K–1 for a part-nership to be the preparer of a partner’sincome tax return on which the partner-ship items were reported, if the ScheduleK–1 constitutes a substantial portion ofthe partner’s tax return.

The Act also amended section 6694(a)by raising the standards of conduct fortax return preparers. For undisclosedpositions, the Act replaced the realisticpossibility standard with a requirementthat there be a reasonable belief that thetax treatment of the position would morelikely than not be sustained on its merits.For disclosed positions, the Act replacedthe nonfrivolous standard with the require-ment that there be a reasonable basis forthe tax treatment of the position.

The amendments made by the Act didnot modify the exception to liability un-der section 6694 that is applicable when itis shown, considering all the facts and cir-cumstances, that the tax return preparer hasacted in good faith and there is reasonablecause for the understatement.

As part of the regulatory rulemakingprocess, the Treasury Department and theIRS will determine the appropriate modi-fications to the existing regulatory frame-work, given the complexities and anoma-lies created by the inter-relationship of theamendments to section 6694 applicable totax return preparers and the various accu-racy-related penalty provisions applicableto taxpayers, as well as the inter-relation-ship of the amendments to section 6694and the regulations governing the practicebefore the IRS in Circular 230 (31 CFRpart 10). In advance of publication of reg-ulations in 2008, this notice provides in-

January 22, 2008 282 2008–3 I.R.B.

terim guidance to tax return preparers re-garding the definitions and standards ofconduct that must be met by a tax returnpreparer to avoid a penalty under section6694(a). Tax return preparers may rely onthe interim guidance in this notice until fur-ther guidance is issued. It is important tonote that the regulations expected to be fi-nalized in 2008 may be substantially dif-ferent from the rules described in this no-tice, and in some cases more stringent.

Section 7805(a) provides the TreasuryDepartment and the IRS with authorityto issue regulations and other publishedguidance interpreting the Code, includingsections 6694 and 7701(a)(36). Consis-tent with the legislative history of section6694, the Treasury Department and theIRS promulgated regulations dating backto 1977 that interpreted the statutory termdisclosed in section 6694(a)(3), as appliedto nonsigning preparers, to include mak-ing statements, either orally or in writing.See Treas. Reg. § 1.6694–2(c)(3)(ii)(A)and (B). Section 6694(a)(3) provides theTreasury Department and the IRS with au-thority to grant relief from penalty liabilityif a tax return preparer has acted in goodfaith and there is reasonable cause for anyunderstatement of tax that may result froma position taken on a return. In addition, inthe past, reasonable cause relief (such as insection 6694(a)) has been provided to im-plement appropriate transitional rules for anew or revised statutory provision.

This interim guidance discusses the fol-lowing issues: (1) relevant categories oftax returns or claims for refund for pur-poses of section 6694; (2) the definitionof tax return preparer under sections 6694and 7701(a)(36); (3) standards of conductapplicable to tax return preparers for dis-closed and undisclosed positions taken ontax returns; and (4) interim penalty com-pliance obligations applicable to tax returnpreparers. It is the IRS’s intent to adminis-ter these provisions in a fair and equitablemanner that will promote compliance withthe requirements of the Code and effectivetax administration.

INTERIM GUIDANCE UNDER SECTION6694

Except to the extent modified by theinterim guidance in this notice, and untilfurther guidance is issued, existing regu-

lations and guidance under sections 6694and 7701(a)(36) will remain in effect.

A. Returns and Claims for Refund Subjectto the Section 6694 Penalty

Interim guidance discussed below de-scribes categories of returns to which sec-tion 6694 could apply and includes associ-ated exhibits to this notice. The TreasuryDepartment and the IRS may choose to addor remove documents from any of the cat-egories or exhibits to this notice in futureguidance as they gain experience in imple-menting the provisions of the Act and re-ceive public comments.

1. Tax Returns Reporting Tax LiabilityUntil further guidance is issued, solely

for purposes of section 6694, a return orclaim for refund includes the tax returnslisted on Exhibit 1 or a claim for refundwith respect to any such return. A claimfor refund of tax includes a claim for creditagainst any tax. A person who for com-pensation prepares all or a substantial por-tion of a tax return listed on Exhibit 1, ora claim for refund with respect to any suchtax return, is a tax return preparer who issubject to section 6694.

2. Information Returns and Other Doc-uments

Under current regulations, a personwho for compensation prepares infor-mation returns or other documents thatinclude information that is or may be re-ported on a taxpayer’s tax return is subjectto section 6694 if the information reportedon the information return or other docu-ment constitutes a substantial portion ofthe taxpayer’s tax return, notwithstand-ing the fact that the information returnor other document may not be reportingthe liability of the taxpayer. The currentregulatory definitions of substantial por-tion and substantial preparation require afacts and circumstances analysis of eachdocument prepared and a comparison ofthe items included on that document withthe tax return that actually reports a taxliability. Section 301.7701–15(b). Thus,for example, under current regulations, thepreparer of a Form 1065, U.S. Return ofPartnership Income, may be deemed to bethe preparer of any of the partners’ indi-vidual income tax return (e.g., Form 1040,U.S. Individual Income Tax Return), if theitems on the partnership return constitute a

substantial portion of that partner’s incometax return. Section 301.7701–15(b)(3).

(a) Information Returns Constituting aSubstantial Portion of a Taxpayer’s TaxReturn

Until further guidance is issued, solelyfor purposes of section 6694, an infor-mation return listed on Exhibit 2 that in-cludes information that is or may be re-ported on a taxpayer’s tax return or claimfor refund is a return to which section6694 could apply if the information re-ported constitutes a substantial portion ofthat taxpayer’s tax return or claim for re-fund. A person who for compensation pre-pares any of the forms listed on Exhibit 2,which form does not report a tax liabilitybut affects an entry or entries on a tax re-turn and constitutes a substantial portion ofthe tax return or claim for refund that doesreport a tax liability, is a tax return preparerwho is subject to section 6694.

(b) Other Documents Constituting aSubstantial Portion of a Taxpayer’s TaxReturn

Until further guidance is issued, solelyfor purposes of section 6694, a documentthat includes information that is or may bereported on a taxpayer’s tax return or claimfor refund is treated as a return to whichsection 6694 could apply if the informa-tion reported constitutes a substantial por-tion of that taxpayer’s tax return or claimfor refund. For example, a person who forcompensation prepares documents, such asdepreciation schedules or cost, expense orincome allocation studies, that do not re-port a tax liability but which will affect anentry or entries on a tax return that doesreport a tax liability, and that constitute asubstantial portion of such tax return, is atax return preparer who is subject to sec-tion 6694.

(c) Other Documents Not Constitutinga Substantial Portion of a Taxpayer’s TaxReturn Unless Prepared Willfully to Un-derstate Tax or in Reckless or IntentionalDisregard of the Rules or Regulations

Until further guidance is issued, solelyfor purposes of section 6694, a documentlisted on Exhibit 3 that includes infor-mation that is or may be reported on ataxpayer’s tax return or claim for refund(and that constitutes a substantial portionof such tax return or claim for refund) willnot subject the preparer to a penalty undersection 6694(a). A document listed on Ex-hibit 3, however, may subject the preparer

2008–3 I.R.B. 283 January 22, 2008

to a willful or reckless conduct penaltyunder section 6694(b) if the informationreported on the document constitutes asubstantial portion of the tax return orclaim for refund and is prepared willfullyin any manner to understate the liability oftax on a tax return or claim for refund, orin reckless or intentional disregard of rulesor regulations. For example, preparationof a Form W–2, Wage and Tax Statement,reporting certain executive compensationmay constitute preparation of a substan-tial portion of the Form 1040 return onwhich the compensation is reported if it isprepared willfully in a manner to under-state the liability of tax. A person who forcompensation prepares all or a substan-tial portion of any of the forms or otherdocuments listed on Exhibit 3 is not a taxreturn preparer subject to section 6694(a)unless the form or document was preparedwillfully in any manner to understate theliability of tax on a tax return or claim forrefund or in reckless or intentional disre-gard of rules or regulations.

B. Definition of Tax Return Preparer

Until further guidance is issued, solelyfor purposes of section 6694, the termtax return preparer in section 7701(a)(36)is defined by using the definitions in§§ 1.6694–1, 1.6694–3 and 301.7701–15,with the following modifications:

1. Eliminating the word income asa modifier to tax return preparerthroughout §§ 1.6694–1, 1.6694–3,and 301.7701–15. This modificationconforms the current regulations toamendments made by the Act.

2. Expanding the definition of returnsand claims for refund from returns oftax under subtitle A, claims for refundunder subtitle A, or similar language,to include returns of tax and claimsfor refund under subtitles A through Eof the Code throughout §§ 1.6694–1,1.6694–3, and 301.7701–15. Thismodification conforms the currentregulations to amendments made bythe Act.

3. Interpreting the term substantial por-tion in § 301.7701–15(b)(1) to mean aschedule, entry, or other portion of atax return or claim for refund that, ifadjusted or disallowed, could result ina deficiency determination (or disal-lowance of a claim for refund) that the

preparer knows or reasonably shouldknow is a significant portion of the taxliability reported on the tax return (or,in the case of a claim for refund, a sig-nificant portion of the tax originallyreported or previously adjusted). Thisclarifies that any determination as towhether a person has prepared a sub-stantial portion of a tax return and thusis considered a tax return preparer willdepend on the relative size of the defi-ciency attributable to the schedule, en-try, or other portion.

For examples illustrating the provisionsof this section B, see section H below.

C. Date Return is Prepared

Until further guidance is issued, solelyfor purposes of section 6694, a return orclaim for refund is deemed prepared on thedate reflected by the tax return preparer’ssignature. If a signing preparer fails to signthe tax return, the tax return is deemed pre-pared on the date the tax return is filed. Inthe case of a nonsigning preparer, the rel-evant date is the date the person providesthe advice, which date will be determinedbased on all the facts and circumstances.For purposes of this interim guidance, therules described in this section will applyinstead of § 1.6694–2(b)(5).

D. Reasonable Belief that the TaxTreatment of the Position Would MoreLikely Than Not Be Sustained on theMerits

Until further guidance is issued, solelyfor purposes of section 6694, a tax re-turn preparer is considered to reasonablybelieve that the tax treatment of an itemis more likely than not the proper taxtreatment (without taking into accountthe possibility that the tax return willnot be audited, that an issue will not beraised on audit, or that an issue will besettled) if the tax return preparer analyzesthe pertinent facts and authorities in themanner described in § 1.6662–4(d)(3)(ii)and, in reliance upon that analysis, rea-sonably concludes in good faith that thereis a greater than fifty percent likelihoodthat the tax treatment of the item will beupheld if challenged by the IRS. For pur-poses of interim guidance, the standarddescribed in this section will apply insteadof § 1.6694–2(b).

For purposes of determining whetherthe tax return preparer has a reasonablebelief that the position would more likelythan not to be sustained on the merits,a tax return preparer may rely in goodfaith without verification upon informa-tion furnished by the taxpayer, as providedin § 1.6694–1(e). In addition, a tax re-turn preparer may rely in good faith andwithout verification upon information fur-nished by another advisor, tax return pre-parer or other third party. Thus, a tax returnpreparer is not required to independentlyverify or review the items reported on taxreturns, schedules or other third party doc-uments to determine if the items meet thestandard requiring a reasonable belief thatthe position would more likely than not besustained on the merits. The tax return pre-parer, however, may not ignore the impli-cations of information furnished to the taxreturn preparer or actually known to thetax return preparer. The tax return prepareralso must make reasonable inquiries if theinformation furnished by another tax re-turn preparer or a third party appears to beincorrect or incomplete.

For examples illustrating the provisionsof this section D, see section H below.

E. Reasonable Basis

Until further guidance is issued, solelyfor purposes of section 6694, reasonablebasis will be interpreted in accordancewith § 1.6662–3(b)(3). For purposes ofthis interim guidance, the standards de-scribed in this section will apply insteadof § 1.6694–2(c). The reasonable basisstandard will also apply for purposes of§ 1.6694–3(c)(2).

For purposes of determining whetherthe tax return preparer has a reasonable ba-sis for a position, a tax return preparer mayrely in good faith without verification uponinformation furnished by the taxpayer, asprovided in § 1.6694–1(e). In addition, atax return preparer may rely in good faithand without verification upon informationfurnished by another tax return preparer orother third party. Thus, a tax return pre-parer is not required to independently ver-ify or review the items reported on tax re-turns, schedules or other third party docu-ments to determine if the items meet thestandard requiring a reasonable basis fora position. The tax return preparer, how-ever, may not ignore the implications of in-

January 22, 2008 284 2008–3 I.R.B.

formation furnished to the tax return pre-parer or actually known to the tax returnpreparer. The tax return preparer also mustmake reasonable inquiries if the informa-tion furnished by another tax return pre-parer or a third party appears to be incor-rect or incomplete.

For examples illustrating the provisionsof this section E, see section H below.

F. Reasonable Cause and Good Faith

Until further guidance is issued, solelyfor purposes of section 6694, the IRS willcontinue to consider the factors describedin §§ 1.6694–2(d)(1) to -2(d)(4), but thefactor regarding reliance on advice foundin § 1.6694–2(d)(5) is replaced by the rulesdescribed in this section F. For purposesof this interim guidance, a tax return pre-parer will be found to have acted in goodfaith when the tax return preparer reliedon the advice of a third party who is notin the same firm as the tax return preparerand who the tax return preparer had reasonto believe was competent to render the ad-vice. The advice may be written or oral,but in either case the burden of establish-ing that the advice was received is on thetax return preparer. A tax return preparer isnot considered to have relied in good faithif—

(i) The advice is unreasonable on itsface;

(ii) The tax return preparer knew orshould have known that the third party ad-visor was not aware of all relevant facts; or

(iii) The tax return preparer knew orshould have known (given the nature ofthe tax return preparer’s practice), at thetime the tax return or claim for refund wasprepared, that the advice was no longerreliable due to developments in the lawsince the time the advice was given.

For examples illustrating the provisionsof this section F, see section H below.

G. Interim Penalty Compliance Rules

Until further guidance is issued, solelyfor purposes of section 6694, a signing taxreturn preparer shall be deemed to meetthe requirements of section 6694 with re-spect to a position for which there is a rea-sonable basis but for which the tax returnpreparer does not have a reasonable beliefthat the position would more likely thannot be sustained on the merits, if the tax

return preparer meets any of the followingrequirements:

1. The position is disclosed in accor-dance with § 1.6662–4(f) (whichpermits disclosure on a properly com-pleted and filed Form 8275, Disclo-sure Statement, or Form 8275–R,Regulation Disclosure Statement, asappropriate, or on the tax return in ac-cordance with the annual revenue pro-cedure described in § 1.6662–4(f)(2));

2. If the position would not meet thestandard for the taxpayer to avoid apenalty under section 6662(d)(2)(B)without disclosure, the tax returnpreparer provides the taxpayer withthe prepared tax return that includesthe disclosure in accordance with§ 1.6662–4(f);

3. If the position would otherwise meetthe requirement for nondisclosure un-der section 6662(d)(2)(B)(i), the taxreturn preparer advises the taxpayerof the difference between the penaltystandards applicable to the taxpayerunder section 6662 and the penaltystandards applicable to the tax returnpreparer under section 6694, and con-temporaneously documents in the taxreturn preparer’s files that this advicewas provided; or

4. If section 6662(d)(2)(B) does notapply because the position may bedescribed in section 6662(d)(

Bulletin No. 2008-3 January 22, 2008 HIGHLIGHTS OF THIS ISSUE · 2012. 7. 17. · Bulletin No....

Documents

Transcript of Bulletin No. 2008-3 January 22, 2008 HIGHLIGHTS OF THIS ISSUE · 2012. 7. 17. · Bulletin No....