Bulletin No. 2009-3January 21, 2009

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

Notice 2009–7, page 312.This notice designates a transaction of interest and disclosurerequirements when a domestic partnership is used to preventthe inclusion of subpart F income.

Rev. Proc. 2009–12, page 321.This procedure provides the maximum vehicle values for usewith the special valuation rules under regulations sections1.61–21(d) and (e) in 2009. These values are indexed forinflation and must be adjusted annually by referring to theConsumer Price Index.

EMPLOYMENT TAX

Rev. Proc. 2009–13, page 323.This document sets forth the procedures for employers to fol-low to request to receive notification of their qualification to fileForms 944, Employer’s ANNUAL Federal Tax Return. It alsosets forth the procedures for employers, who were notified thatthey should file Form 944, who wish to request to file Forms941, Employer’s QUARTERLY Federal Tax Return, instead fortax year 2009.

EXCISE TAX

Notice 2009–6, page 311.This notice provides a temporary safe harbor and a transi-tional rule to implement a statutory change in the amount of

denaturant that will be considered as “alcohol” for purposes ofcertain alcohol fuel credits.

ADMINISTRATIVE

T.D. 9436, page 268.Final regulations under sections 6694 and 6695 of the Codeand the related definitional provisions, implement the modifi-cations to the tax return preparer penalties as amended bythe Small Business and Work Opportunity Tax Act of 2007 andthe Tax Extenders and Alternative Minimum Tax Relief Act of2008. Notices 2007–54, 2008–11, 2008–12, 2008–13, and2008–46 obsoleted.

Notice 2009–5, page 309.This notice provides interim guidance regarding implementa-tion of the tax return preparer penalty under section 6694(a)of the Code as amended by the Tax Extenders and AlternativeMinimum Tax Relief Act of 2008. Notice 2008–13 modifiedand clarified.

Rev. Proc. 2009–11, page 313.This procedure describes the returns and claims for refund thatare subject to the penalties for understatement of a taxpayer’sliability by a tax return preparer under section 6694 of the Codeand for the tax return preparer’s failure to sign the return orclaim for refund under section 6695(b). Notices 2008–12 and2008–46 obsoleted. Notice 2008–13, list of forms, modifiedand superseded.

(Continued on the next page)

Finding Lists begin on page ii.

Rev. Proc. 2009–12, page 321.This procedure provides the maximum vehicle values for usewith the special valuation rules under regulations sections1.61–21(d) and (e) in 2009. These values are indexed forinflation and must be adjusted annually by referring to theConsumer Price Index.

Rev. Proc. 2009–14, page 324.This procedure, which supersedes Rev. Proc. 2007–17,2007–4 I.R.B. 368, provides guidance that makes the existingPre-Filing Agreement (PFA) program permanent. Rev. Proc.2007–17 superseded.

January 21, 2009 2009–3 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.

2009–3 I.R.B. January 21, 2009

January 21, 2009 2009–3 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 6011.—GeneralRequirement of Return,Statement, or List

A revenue procedure sets forth the procedures foremployers to follow to request to receive notificationof their qualification to file Forms 944, Employer’sANNUAL Federal Tax Return, and also sets forththe procedures for employers who were notified thatthey should file Form 944, Employer’s ANNUALFederal Tax Return, who wish to request to fileForms 941, Employer’s QUARTERLY Federal TaxReturn, instead for tax year 2009. See Rev. Proc.2009-13, page 323.

Section 6302.—Mode orTime of Collection

A revenue procedure sets forth the procedures foremployers to follow to request to receive notificationof their qualification to file Forms 944, Employer’sANNUAL Federal Tax Return, and also sets forththe procedures for employers who were notified thatthey should file Form 944, Employer’s ANNUALFederal Tax Return, who wish to request to fileForms 941, Employer’s QUARTERLY Federal TaxReturn, instead for tax year 2009. See Rev. Proc.2009-13, page 323.

Section 6694.—Understate-ment of Taxpayer’s Liabilityby Tax Return Preparer26 CFR 1.6694–1: Section 6694 penalties applicableto tax return preparers.26 CFR 1.6695–1: Other assessable penalties withrespect to the preparation of tax returns for other per-sons.

T.D. 9436

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1, 20, 25, 26,31, 40, 41, 44, 53, 54, 55,56, 156, 157, 301, and 602

Tax Return Preparer PenaltiesUnder Sections 6694 and6695

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations implementing amendments tothe tax return preparer penalties under sec-tions 6694 and 6695 of the Internal Rev-enue Code (Code) and related provisionsunder sections 6060, 6107, 6109, 6696,and 7701(a)(36) reflecting amendments tothe Code made by section 8246 of theSmall Business and Work Opportunity TaxAct of 2007 and section 506 of the Tax Ex-tenders and Alternative Minimum Tax Re-lief Act of 2008. The final regulations af-fect tax return preparers and provide guid-ance regarding the amended provisions.

DATES: Effective Date: These regulationsare effective on December 22, 2008.

Applicability Date: For dates of appli-cability, see §§1.6060–1(d), 1.6107–1(e),1.6109–2(d), 1.6694–1(g), 1.6694–2(f),1.6694–3(g), 1.6694–4(d), 1.6695–1(g),1.6695–2(d), 1.6696–1(k), 20.6060–1(b),20.6107–1(b), 20.6109–1(b), 20.6694–1(b), 20.6694–2(b), 20.6694–3(b),20.6694–4(b), 20.6695–1(b), 20.6696–1(b), 20.7701–1(b), 25.6060–1(b),25.6107–1(b), 25.6109–1(b), 25.6694–1(b), 25.6694–2(b), 25.6694–3(b),25.6694–4(b), 25.6695–1(b), 25.6696–1(b), 25.7701–1(b), 26.6060–1(b),26.6107–1(b), 26.6109–1(b), 26.6694–1(b), 26.6694–2(b), 26.6694–3(b),26.6694–4(b), 26.6695–1(b), 26.6696–1(b), 26.7701–1(b), 31.6060–1(b),31.6107–1(b), 31.6109–2(b), 31.6694–1(b), 31.6694–2(b), 31.6694–3(b),31.6694–4(b), 31.6695–1(b), 31.6696–1(b), 31.7701–1(b), 40.6060–1(b),40.6107–1(b), 40.6109–1(b), 40.6694–1(b), 40.6694–2(b), 40.6694–3(b),40.6694–4(b), 40.6695–1(b), 40.6696–1(b), 40.7701–1(b), 41.6060–1(b),41.6107–1(b), 41.6109–2(b), 41.6694–1(b), 41.6694–2(b), 41.6694–3(b),41.6694–4(b), 41.6695–1(b), 41.6696–1(b), 41.7701–1(b), 44.6060–1(b),44.6107–1(b), 44.6109–1(b), 44.6694–1(b), 44.6694–2(b), 44.6694–3(b),44.6694–4(b), 44.6695–1(b), 44.6696–1(b), 44.7701–1(b), 53.6060–1(b),53.6107–1(b), 53.6109–1(b), 53.6694–1(b), 53.6694–2(b), 53.6694–3(b),53.6694–4(b), 53.6695–1(b), 53.6696–1(b), 53.7701–1(b), 54.6060–1(b),

54.6107–1(b), 54.6109–1(b), 54.6694–1(b), 54.6694–2(b), 54.6694–3(b),54.6694–4(b), 54.6695–1(b), 54.6696–1(b), 54.7701–1(b), 55.6060–1(b),55.6107–1(b), 55.6109–1(b), 55.6694–1(b), 55.6694–2(b), 55.6694–3(b),55.6694–4(b), 55.6695–1(b), 55.6696–1(b), 55.7701–1(b), 56.6060–1(b),56.6107–1(b), 56.6109–1(b), 56.6694–1(b), 56.6694–2(b), 56.6694–3(b),56.6694–4(b), 56.6695–1(b), 56.6696–1(b), 56.7701–1(b), 156.6060–1(b),156.6107–1(b), 156.6109–1(b), 156.6694–1(b), 156.6694–2(b), 156.6694–3(b),156.6694–4(b), 156.6695–1(b), 156.6696–1(b), 156.7701–1(b), 157.6060–1(b),157.6107–1(b), 157.6109–1(b), 157.6694–1(b), 157.6694–2(b), 157.6694–3(b),157.6694–4(b), 157.6695–1(b), 157.6696–1(b), 157.7701–1(b), and 301.7701–15(g).

FOR FURTHER INFORMATIONCONTACT: Michael E. Hara, (202)622–4910, and Matthew S. Cooper, (202)622–4940 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information con-tained in these final regulations werepreviously reviewed and approved bythe Office of Management and Budgetin accordance with the Paperwork Re-duction Act of 1995 (44 U.S.C. 3507(d))under control number 1545–1231. Thecollections of information in this final reg-ulation are in §§1.6060–1(a)(1), 1.6107–1,1.6694–2(d)(3), 20.6060–1(a)(1),20.6107–1, 25.6060–1(a)(1), 25.6107–1, 26.6060–1(a)(1), 26.6107–1,31.6060–1(a)(1), 31.6107–1, 40.6060–1(a)(1), 40.6107–1, 41.6060–1(a)(1),41.6107–1, 44.6060–1(a)(1), 44.6107–1, 53.6060–1(a)(1), 53.6107–1,54.6060–1(a)(1), 54.6107–1, 55.6060–1(a)(1), 55.6107–1, 56.6060–1(a)(1),56.6107–1, 156.6060–1(a)(1), 156.6107–1, 157.6060–1(a)(1), and 157.6107–1.This information is necessary to make therecord of the name, taxpayer identificationnumber, and principal place of work ofeach tax return preparer, make each returnor claim for refund prepared available

2009–3 I.R.B. 268 January 21, 2009

for inspection by the Commissioner ofInternal Revenue, and to document that thetax return preparer advised the taxpayerof the penalty standards applicable tothe taxpayer in order for the tax returnpreparer to avoid penalties under section6694. The collection of information isrequired to comply with the provisionsof section 8246 of the Small Businessand Work Opportunity Tax Act of 2007and section 506 of the Tax Extendersand Alternative Minimum Tax Relief Actof 2008. The likely respondents are taxreturn preparers and their employers.

Estimated total annual reporting bur-den: 10,679,320 hours.

Estimated average annual burden perrespondent: 15.6 hours.

Estimated number of respondents:684,268.

Estimated frequency of responses:127,801,426.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Background

This document contains final amend-ments to the Income Tax Regula-tions (26 CFR part 1), the Estate TaxRegulations (26 CFR part 20), theGift Tax Regulations (26 CFR part25), the Generation-Skipping TransferTax Regulations (26 CFR part 26),the Employment Tax and Collectionof Income Tax at Source Regulations(26 CFR part 31), the Excise TaxProcedural Regulations (26 CFR part40), the Highway Use Tax Regulations,(26 CFR part 41), the WageringTax Regulations (26 CFR part 44),the Foundation and Similar ExciseTax Regulations (26 CFR part 53),the Pension Excise Tax Regulations(26 CFR part 54), the Excise Tax on RealEstate Investment Trusts and RegulatedInvestment Companies Regulations(26 CFR part 55), the Public CharityExcise Tax Regulations (26 CFR part56), the Excise Tax on GreenmailRegulations (26 CFR part 156), the ExciseTax on Structured Settlement FactoringTransactions Regulations (26 CFR part157), and the Regulations on Procedureand Administration (26 CFR part 301)

implementing the amendments to taxreturn preparer penalties under sections6694 and 6695 (and the related provisionsunder sections 6060, 6107, 6109, 6696,and 7701(a)(36)) made by section 8246 ofthe Small Business and Work OpportunityTax Act of 2007, Title VIII-B of PublicLaw 110–28 (121 Stat. 190) (May 25,2007) (the 2007 Act) and section 506 of theTax Extenders and Alternative MinimumTax Relief Act of 2008, Div. C of PublicLaw 110–343 (122 Stat. 3765) (October3, 2008) (the 2008 Act).

Section 8246 of the 2007 Act amendedsections 6694 and 7701(a)(36) and madeconforming changes to other Code provi-sions to make tax return preparer penaltiesapplicable to a broader range of tax returnsand claims for refund. The 2007 Act’samendments to section 6694 also changedthe standards of conduct that tax returnpreparers must meet in order to avoid im-position of penalties in the event that areturn prepared results in an understate-ment of tax. For undisclosed positions, the2007 Act replaced the “realistic possibil-ity” standard with a standard requiring thetax return preparer to have a “reasonablebelief that the position would more likelythan not be sustained on its merits.” Fordisclosed positions, the 2007 Act replacedthe “not-frivolous” standard with a stan-dard requiring the tax return preparer tohave a “reasonable basis” for the tax treat-ment of the position.

The 2007 Act also increased the first-tier penalty under section 6694(a) from$250 to the greater of $1,000 or 50 percentof the income derived (or to be derived)by the tax return preparer from the prepa-ration of a return or claim for refund withrespect to which the penalty was imposed.In addition, the 2007 Act increased thesecond-tier penalty under section 6694(b)from $1,000 to the greater of $5,000 or50 percent of the income derived (or to bederived) by the tax return preparer. Theamendments made by the 2007 Act wereeffective for tax returns prepared after thedate of enactment, May 25, 2007.

The Treasury Department and the IRSreleased Notice 2008–13, 2008–3 I.R.B.282, on December 31, 2007, to provide in-terim guidance under the 2007 Act. Ad-ditional guidance was simultaneously pro-vided in Notice 2008–12, 2008–3 I.R.B.280, with respect to the implementation ofthe tax return preparer signature require-

ment of section 6695(b), and in Notice2008–11, 2008–3 I.R.B. 279, which clari-fied the earlier transition relief provided inNotice 2007–54, 2007–27 I.R.B. 12 (July2, 2007). Notice 2008–46, 2008–18 I.R.B.868, was released on April 16, 2008, to addcertain returns and documents to Exhibits1, 2, and 3 of Notice 2008–13.

On June 17, 2008, the Treasury De-partment and the IRS published in theFederal Register (73 FR 34560) pro-posed amendments to the regulations(REG–129243–07, 2008–27 I.R.B. 32)reflecting amendments made by the 2007Act and comments received on the no-tices. A public hearing was held on theseproposals on August 18, 2008. Writtenpublic comments responding to the pro-posed regulations were received.

On October 3, 2008, section 506 ofthe 2008 Act modified the standards ofconduct that tax return preparers mustmeet in order to avoid imposition of thesection 6694(a) penalty. Specifically, the2008 Act changed the standard for undis-closed positions from “reasonable beliefthat the position more likely than not willbe sustained on the merits” to “substan-tial authority for the position.” The 2008Act maintained the “reasonable basis”standard for disclosed positions. If a po-sition is with respect to a tax shelter (asdefined in section 6662(d)(2)(C)(ii)) ora reportable transaction to which section6662A applies, it must be “reasonable tobelieve that the position more likely thannot will be sustained on the merits.” Theamendments made by the 2008 Act areretroactively effective for tax returns pre-pared after May 25, 2007, except that thespecial rules applicable to positions withrespect to tax shelters and reportable trans-actions to which section 6662A appliesare effective for tax returns or claims forrefund prepared for tax years ending afterOctober 3, 2008, the date of enactment ofthe 2008 Act.

After consideration of the public com-ments and the amendments made by the2008 Act, the proposed regulations areadopted as revised by this Treasury de-cision. Section 1.6694–2 of these finalregulations does not provide substantiveguidance reflecting amendments to theCode made by the 2008 Act. Rather,the Treasury Department and the IRS arereserving §1.6694–2(c) in these final reg-ulations and are simultaneously issuing

January 21, 2009 269 2009–3 I.R.B.

a notice in the Internal Revenue Bulletinproviding interim guidance on the amend-ments to the Code made by the 2008 Act.With these final regulations, the TreasuryDepartment and the IRS are also simulta-neously issuing a revenue procedure in theInternal Revenue Bulletin that specificallyidentifies the returns and claims for refundsubject to penalty under sections 6694 and6695.

Summary of Comments andExplanation of Revisions

Over 30 written comments were re-ceived in response to the notice of pro-posed rulemaking. All comments wereconsidered and are available for publicinspection upon request. A number ofthese comments are summarized in thispreamble. The changes included in thesefinal regulations are discussed in order ofthe Code sections to which they relate.

In accordance with the 2007 Act, thesefinal regulations amend existing regula-tions defining tax return preparers, whichwere previously limited to income tax re-turn preparers, to broaden the scope of thatdefinition to include preparers of estate,gift, and generation-skipping transfer taxreturns, employment tax returns, excise taxreturns, and returns of exempt organiza-tions. These final regulations also revisecurrent regulations to amend the standardsof conduct that must be met to avoid im-position of the tax return preparer penaltyunder section 6694. In addition, these finalregulations reflect changes to the computa-tion of the section 6694 tax return preparerpenalty made by the 2007 Act. These fi-nal regulations also amend current regula-tions under the penalty provisions of sec-tion 6695 to conform them with changesmade by the 2007 Act expanding the scopeof that statute beyond income tax returns.These final regulations are applicable toreturns and claims for refund filed (and ad-vice given) after December 31, 2008.

Furnishing of Copy of the Tax Return andRetaining Copy

The final regulations adopt the pro-posed amendments to §1.6107–1 regard-ing the requirement of a signing tax returnpreparer to furnish a copy of the completedtax return to the taxpayer and also to retaina copy, with modification.

One commentator requested that the fi-nal regulations make clear that a tax re-turn preparer may provide copies of tax re-turns to taxpayers in either hard copy orelectronic formats. The Treasury Depart-ment and the IRS recognize that becausemany returns are prepared and filed elec-tronically and consist of electronic data,it may be unclear what is an acceptablecopy of a return that must be furnishedto the taxpayer. Upon further considera-tion, the Treasury Department and the IRSagree that clarification is necessary. Un-der §1.6107–1(a) of the final regulations,the tax return preparer must provide a com-plete copy of the return filed with the IRSto the taxpayer in any medium, includ-ing electronic, that is acceptable to boththe taxpayer and the return preparer. Inthe case of an electronically-filed return, acomplete copy of a taxpayer’s return con-sists of the electronic portion of the return,including all schedules, forms, pdf attach-ments, and jurats, that was filed with theIRS. The copy provided to the taxpayermust include all information submitted tothe IRS to enable the taxpayer to determinewhich schedules, forms, electronic files,and other supporting materials have beenfiled with the return. The copy, however,need not contain the identification numberof the tax return preparer. The electronicportion of the return can be contained on areplica of an official form or on an unoffi-cial form. On an unofficial form, however,data entries must reference the line num-bers or descriptions on an official form.

The same commentator requested thatthe final regulations specifically providethat the copy of the tax return retained bytax return preparers may be retained elec-tronically. The Treasury Department andthe IRS, however, have concluded that re-vising the existing regulations to includethis rule is not necessary. Existing rev-enue procedures address the maintenanceof business records through use of elec-tronic storage systems. See, for example,Rev. Proc. 97–22, 1997–1 C.B. 652. Taxreturn preparers may retain copies of taxreturns in accordance with existing rev-enue procedures to comply with the finalregulations.

Another commentator agreed with thegeneral approach taken in §1.6107–1(c)but suggested clarification of the languageregarding who is a signing tax return pre-parer for purposes of the section 6107

requirements. Upon consideration, theTreasury Department and the IRS agreethat there is a potential for the proposedlanguage to be misconstrued. Section1.6107–1(c) of the final regulations clar-ifies that for purposes of complying withthe requirements of section 6107, a cor-poration, partnership or other organizationthat employs a signing tax return preparerto prepare for compensation (or in which asigning tax return preparer is compensatedas a partner or member to prepare) a returnof tax or claim for refund shall be treatedas the sole signing tax return preparer.

Furnishing Identification Number

A commentator requested that the finalregulations clarify whether the tax returnpreparer’s identifying number must be in-cluded on the taxpayer’s copy of the taxreturn as well as on the copy filed with theIRS. Section 6109(a)(4) provides that anyreturn or claim for refund prepared by atax return preparer shall bear an identifi-cation number for securing proper identi-fication of the tax return preparer, his em-ployer, or both as may be prescribed. Uponfurther consideration, the Treasury Depart-ment and the IRS agree that for identifica-tion purposes, it is only important for thetax return preparer identification numberto be included on the return that is filedwith the IRS. Section 1.6109–2(a) of thefinal regulations, therefore, is amended toprovide that each filed return or claim forrefund containing the identification num-ber of the tax return preparer required tosign the return (and the identification num-ber of the person who has an employmentarrangement or association with the indi-vidual tax return preparer, if applicable)will meet the needs of the IRS. This mod-ification will assist in maintaining the pri-vacy of the tax return preparer’s informa-tion. Additional guidance may be pro-vided in the future regarding tax return pre-parer identification numbers under section6109.

Defining the Preparer Within a Firm

The final regulations adopt the pro-posed amendments to §1.6694–1(b)(1),with modification. Accordingly, the finalregulations maintain a framework defininga “preparer per position within a firm”,with the focus of any penalty on the po-sition(s) giving rise to the understatement

2009–3 I.R.B. 270 January 21, 2009

on the return or claim for refund and anyresponsible parties with respect to suchposition(s).

Under this framework, an individualis a tax return preparer subject to section6694 if the individual is primarily respon-sible for the position on the return or claimfor refund giving rise to the understate-ment. Under §1.6694–1(b)(1), only oneperson within a firm will be considered pri-marily responsible for each position givingrise to an understatement and, accordingly,be subject to the penalty.

Three commentators questionedwhether this framework will lead to sig-nificant problems in return preparer firms,in particular whether the framework maydiscourage any particular person withinthe firm from looking at the return inwhole. These commentators also ques-tioned whether the IRS will be able toidentify the responsible party if individu-als at the firm attempt to identify othersat the firm who may be more responsiblefor the position. Two other commentators,however, agreed with this framework inlight of the high level of specialization thatexists in modern tax practice. The Trea-sury Department and the IRS continue toconclude that the expansion from a “onepreparer per firm” to a “one preparer perposition within a firm” will further com-pliance and will result in more equitableadministration of the tax return preparerpenalty regime. This framework, there-fore, is adopted in the final regulations.

Section 1.6694–1(b)(2) of the proposedregulations provided that the individualwho signs the return or claim for refundas the tax return preparer generally willbe considered the person within a firmwho is primarily responsible for all of thepositions on the return or claim for refundgiving rise to an understatement. Thislanguage is finalized as proposed exceptfor some minor conforming changes.

Proposed §1.6694–1(b)(3) establisheda similar rule for situations when there areone or more nonsigning tax return prepar-ers at the same firm and either no sign-ing tax return preparer within the firm, itis concluded that the signer is not primar-ily responsible for the position, or the IRScannot conclude which individual is pri-marily responsible for the position for pur-poses of section 6694. In these situations,the proposed regulations stated that the in-dividual within the firm with overall su-

pervisory responsibility for the position(s)giving rise to the understatement is the taxreturn preparer who is primarily responsi-ble for the position for purposes of section6694.

Several commentators requested thatthis rule for nonsigning tax return prepar-ers not be adopted as proposed because itwill lead to more harm than good. Specif-ically, one commentator requested thedeletion of the clause “or the IRS cannotconclude which individual (as betweenthe signing tax return preparer and otherpersons within the firm) is primarily re-sponsible for the position” from proposed§1.6694–1(b)(3) because a tax return pre-parer penalty is not appropriate when theIRS is not able to reach a conclusion as towho is primarily responsible for the con-duct giving rise to the position. The othercommentator recommended qualifyingthe rule in proposed §1.6694–1(b)(3) withthe requirement that the individual withoverall supervisory responsibility for theposition either possess actual knowledgeof the position or fail to exercise appropri-ate diligence in the review of the positionsubject to penalty through willfulness,recklessness, or gross indifference.

Upon consideration of these comments,the Treasury Department and the IRS haverevised §1.6694–1(b)(3) to provide thatif there is no signing tax return preparerfor the return or claim for refund withinthat firm or if, after the application of§1.6694–1(b)(2), it is concluded that thesigning tax return preparer is not primarilyresponsible for the position, the nonsign-ing tax return preparer within the firmwith overall supervisory responsibility forthe position(s) giving rise to the under-statement generally will be considered thetax return preparer who is primarily re-sponsible for the position for purposes ofsection 6694. Based upon credible infor-mation from any source, however, it maybe concluded that another nonsigning taxreturn preparer within the firm is primar-ily responsible for the position(s) on thereturn or claim for refund giving rise to anunderstatement.

In response to the commentators’ con-cerns that the default rule in proposed§1.6694–1(b)(3) assigning liability forthe penalty to the nonsigning tax returnpreparer may lead to more harm thangood, §1.6694–1(b)(4) of the final reg-ulations is added. The final regulations

in §1.6694–1(b)(4) provide that, if theinformation presented would support afinding that either the signing tax returnpreparer or a nonsigning tax return pre-parer within a firm is primarily responsiblefor the position(s) giving rise to the under-statement, the IRS may assess the penaltyagainst either one of the individuals withinthe firm, but not both, as the primarilyresponsible tax return preparer. This de-termination will be based upon all theevidence presented and will allow for cer-tainty regarding the identification of theprimarily responsible tax return preparerwithin the expiration of the period of lim-itations on making an assessment undersection 6694(a). It is expected that theIRS will assess the penalty under section6694 under these rules against the tax re-turn preparer with the greatest amount ofresponsibility for the position based uponthe best information available to the IRS.The rule adopted in §1.6694–1(b)(4) is nota rule reflecting joint and several liabil-ity for the penalty among the signing taxreturn preparer and nonsigning tax returnpreparer as the penalty may be assessedagainst one of these individuals, but notboth.

Reliance on Information Provided

The final regulations adopt the pro-posed amendments to §1.6694–1(e),with modification. Most commentatorssupported expanding the regulations in§1.6694–1(e) to provide that a tax returnpreparer may rely in good faith and with-out verification on information furnishedby another advisor, another tax return pre-parer, or other party (even if the advisor ortax return preparer is within the tax returnpreparer’s same firm) as long as the taxreturn preparer does not ignore the impli-cations of information furnished to the taxreturn preparer or actually known by thetax return preparer, and makes reasonableinquiries if the information as furnishedappears to be incorrect or incomplete.

Commentators, however, requested thatthe final regulations clarify that a tax returnpreparer may rely on “advice” furnishedby another advisor, another tax return pre-parer, or other party (even if the advisoror tax return preparer is within the tax re-turn preparer’s same firm.) This recom-mendation is adopted in §1.6694–1(e)(1)of the final regulations. The same changes

January 21, 2009 271 2009–3 I.R.B.

are made for conformity to the definitionsof “reasonable to believe that the positionwould more likely than not be sustainedon its merits” in §1.6694–2(b)(1), “reason-able basis” in §1.6694–2(d)(2) and “rea-sonable cause” in §1.6694–2(e)(5). Thesemodifications are consistent with the intentof the rules in the proposed regulations re-garding reliance given the heightened stan-dards imposed on tax return preparers bythe 2007 and 2008 Acts and the increasedcomplexity of the law.

Section 1.6694–1(e) of the proposedregulations also proposed a new rule pro-viding that a tax return preparer may notrely on legal conclusions regarding Fed-eral tax issues furnished by taxpayers.The purpose behind this proposal wasthe belief that in general, although it wasreasonable to allow a tax return preparerto rely on facts furnished by the taxpayerin good faith without verification, the taxreturn preparer should not be able to relyon legal conclusions on issues when thetaxpayer may not be an expert and lookedto the tax return preparer to determine thelegal issue for purposes of preparing thereturn or claim for refund.

Most commentators expressed concern,however, that tax return preparers havelong relied on information that involvemixed questions of fact and law furnishedby taxpayers, in addition to legal conclu-sions. Moreover, the commentators pointout that many large entity taxpayers havein-house tax departments staffed by taxprofessionals who are qualified to performresearch and analysis necessary to addressmany legal issues.

The Treasury Department and the IRSacknowledge that the proposed regula-tions may be unclear on how the “noreliance on legal conclusions by taxpay-ers” language in proposed §1.6694–1(e)interacts with the language in proposed§1.6694–2(b)(2) regarding unreasonableassumptions. Accordingly, the “no re-liance on legal conclusions by taxpayers”is removed from §1.6694–1(e) of the finalregulations. While this phrase is removedfrom the text of the final regulations, thetax return preparer nevertheless must meetthe diligence standards otherwise imposedby this regulation in order to rely properlyon information and advice provided bytaxpayers or other individuals. Tax returnpreparers must have no reason to believethat the taxpayer is incompetent to make

these conclusions, have no knowledge thatthe conclusions are incorrect or incom-plete, and make reasonable inquiries ifthe information as furnished appears to beincorrect or incomplete.

Use of Estimates

One commentator noted that the natureof accounting, upon which calculationsof taxable income are based, requiresthe use of estimates, and urged the Trea-sury Department and the IRS to includea specific reference to allow the use ofestimates in the final regulations. TheTreasury Department and the IRS recog-nize that there are some circumstanceswhen the use of reasonable estimates maybe appropriate in the preparation of taxreturns (see, for example, §§1.448–2(d),1.451–1(a), and 1.451–5(c)(1)(ii)), andthere are some circumstances in whichthere may be no practical alternative to theuse of reasonable estimates, for example,when the taxpayer’s records are destroyedaccidentally or through computer failure.The Treasury Department and the IRS,however, conclude that including a gen-eral rule regarding the use of estimates inthe preparer penalty regulations that couldimpact other substantive tax provisions isnot appropriate.

Income Derived Determination inComputing Penalty Amount

The final regulations adopt the pro-posed amendments to §1.6694–1(f), withminor modification. Section 1.6694–1(f)defines “income derived (or to be de-rived)” with respect to a return or claimfor refund as all compensation the taxreturn preparer receives or expects to re-ceive with respect to the engagement ofpreparing the return or claim for refund orproviding tax advice (including researchand consultation) with respect to the po-sition(s) taken on the return or claim forrefund that gave rise to the understate-ment.

Several commentators requested clari-fication on this definition of “income de-rived (or to be derived)” for purposes ofcomputing the section 6694 penalty be-cause it is not necessarily clear what com-pensation is captured by this definition,which could be interpreted broadly. Thefinal regulations maintain the same def-inition of “income derived (or to be de-

rived)” as proposed because the TreasuryDepartment and the IRS conclude that theother rules described in §1.6694–1(f) pro-vide appropriate limitations to this defini-tion.

In response to a commentator’s request,the final regulations in §1.6694–1(f)(4)also add an example illustrating how thepenalty will be computed in cases involv-ing employees and partners who spend aportion of their time on a particular posi-tion subject to the section 6694 penalty forwhich the firm earns a specific amount.

Firm Liability

The final regulations adopt the pro-posed amendments to §§1.6694–2(a)(2)and 1.6694–3(a)(2), without modification.One commentator requested examples ofa firm disregarding its review proceduresthrough willfulness, recklessness, or grossindifference in the formulation of the ad-vice, or the preparation of the return orclaim for refund, that included the positionfor which the penalty is imposed. Thedetermination as to whether a firm disre-gards its review procedures will be madebased upon all facts and circumstances.Because any example necessarily wouldbe limited to the facts of a particular firm’sreview procedures, additional exampleson this issue would not meaningfully addto the guidance provided in the proposedregulations.

Reasonable to Believe That More LikelyThan Not

Section 1.6694–2(b) of the final regu-lations defines the “reasonable to believethat the position would more likely thannot be sustained on its merits” standardthat now applies to positions that are taxshelters and reportable transactions towhich section 6662A applies. While the2008 Act amendment to section 6694includes a “reasonable to believe” stan-dard rather than the “reasonable belief”standard used in the 2007 Act, the Trea-sury Department and the IRS are of theview that the two standards have the samemeaning. Conforming changes are madethroughout the final regulations to reflectthe 2008 Act terminology.

Proposed §1.6694–2(b)(1) providedthat the “reasonable belief that the positionwould more likely than not be sustainedon its merits” standard will be satisfied

2009–3 I.R.B. 272 January 21, 2009

if the tax return preparer analyzes thepertinent facts and authorities and, inreliance upon that analysis, reasonablyconcludes in good faith that the positionhas a greater than 50 percent likelihoodof being sustained on its merits. The pro-posed regulations stated that whether a taxreturn preparer meets this standard willbe determined based upon all facts andcircumstances, including the tax returnpreparer’s due diligence. Moreover, indetermining the level of diligence in aparticular case, the proposed regulationsprovided that the IRS would take into ac-count the tax return preparer’s experiencewith the area of tax law and familiaritywith the taxpayer’s affairs, as well as thecomplexity of the issues and facts in thecase.

Several commentators requested thatthe final regulations specify that theamount of due diligence required on thepart of the tax return preparer should notbe disproportionate to the amount of thetax liability that would be affected by theposition at issue. There was also someconfusion on whether the due diligencerules in the proposed regulations alloweda less educated, sophisticated, or experi-enced tax return preparer to escape penaltyliability more easily than educated, so-phisticated, or experienced tax return pre-parers. This was not the intent of this rulein the proposed regulations. Due diligenceis only one of many factors to consider indetermining whether a tax return preparermeets the “reasonable to believe that theposition would more likely than not besustained on its merits” standard and allof the facts and circumstances of eachspecific case will need to be evaluated inmaking this determination.

Several commentators suggested thatthe provisions in §1.6694–2(d)(5) of theproposed regulations permitting tax returnpreparers to rely upon generally acceptedadministrative or industry practice in es-tablishing reasonable cause relief frompenalties under section 6694 should beextended to allow consideration of gen-erally accepted administrative or industrypractice in determining whether the “rea-sonable to believe that the position wouldmore likely than not be sustained on itsmerits” standard is satisfied. These com-ments are not adopted in the final regula-tions because the Treasury Department andthe IRS continue to conclude that the au-

thorities contained in §1.6662–4(d)(3)(iii)(or any successor provision) are the ap-propriate authorities to be considered indetermining whether it is reasonable tobelieve that the position would more likelythan not be sustained on its merits. The“reasonable to believe that the positionwould more likely than not be sustainedon its merits” standard relates to the taxreturn preparer’s evaluation of the meritsof a return position, and the merits of atax return position must be considered inlight of established relevant legal authori-ties. Generally accepted administrative orindustry practice are less relevant in con-sidering the merits of a tax return positionunder applicable law and guidance, al-though they may be appropriate factors toconsider in the context of a tax return pre-parer’s reasonable cause and good faith.

Based upon a comment received, the fi-nal regulations in §1.6694–2(b)(4) adoptthe same rule as in §1.6662–4(d)(3)(iv)(B)regarding the effect of the taxpayer’s ju-risdiction on meeting the appropriate stan-dard. The Treasury Department and theIRS are of the view that it is appropriatethat the same rule apply for purposes ofsatisfying the “reasonable to believe thatthe position more likely than not be sus-tained on its merits” standard. This ap-proach supports uniform disclosure by tax-payers and tax return preparers and pre-vents conflicts between taxpayers and taxreturn preparers in complying with the fed-eral tax laws.

Adequate Disclosure

The final regulations adopt the pro-posed amendments to §1.6694–2(d)(3),with modification based upon com-ments received and revisions made inthe 2008 Act. For a signing tax re-turn preparer within the meaning of§301.7701–15(b)(1), the final regulationsprovide that disclosure of a position forwhich there is a reasonable basis but forwhich there is not substantial authority isadequate in one of three ways. First, theposition may be disclosed on a properlycompleted and filed Form 8275, Disclo-sure Statement, or Form 8275–R, Regula-tion Disclosure Statement, as appropriate,or on the tax return in accordance withthe applicable annual revenue procedure.See Revenue Procedure 2008–14, 2008–7I.R.B. 435 (February 19, 2008). Second,

disclosure of the position is adequate if thetax return preparer provides the taxpayerwith a prepared tax return that includesthe appropriate disclosure in accordancewith §1.6662–4(f). Third, for tax returnsor claims for refund that are subject topenalties other than the accuracy-relatedpenalty for substantial understatementsunder sections 6662(b)(2) and (d), the taxreturn preparer advises the taxpayer of thepenalty standards applicable to the tax-payer under section 6662. This third rule isintended to address the situation when thepenalty standard applicable to the taxpayeris based on compliance with requirementsother than disclosure on the return (forexample, section 6662(e)). In the case ofa nonsigning tax return preparer withinthe meaning of §301.7701–15(b)(2), thefinal regulations in §1.6694–2(d)(3)(ii)maintain the same three disclosure rulesthat were in the proposed regulations.

Two commentators requested clarifica-tion of the prohibition against a boilerplatedisclaimer and recommended clarifyingthat a firm does not violate the prohi-bition simply by adopting a standardapproach to disclosure issues. Section1.6694–2(d)(3)(iii) of the final regula-tions is revised to provide that no generaldisclaimer is allowed with respect to thespecific facts and circumstances of thetaxpayer and the position for which thereis no substantial authority. Tax return pre-parers, and their firms, may use standardlanguage to describe applicable law andmay adopt a standard approach to disclo-sure issues.

One commentator stated that it isunclear what specifically must be doc-umented by the nonsigning tax returnpreparer in order to avoid imposition ofpenalties. The final regulations are revisedby clarifying that the documented advicethat would constitute adequate disclosurein §1.6694–2(d)(3)(ii)(A) with respect toa nonsigning tax return preparer’s adviceto a taxpayer, if the firm is advising thetaxpayer, should confirm that the affectedtaxpayer has been advised by a tax returnpreparer in the firm of the potential penal-ties and the opportunity, if any, to avoidpenalty through disclosure.

Similarly, in §1.6694–2(d)(3)(ii)(B)with respect to a nonsigning preparer’sadvice to another tax return preparer, ifproviding nonsigning preparer advice toanother preparer in the same firm, con-

January 21, 2009 273 2009–3 I.R.B.

temporaneous documentation should besatisfied if there is a single instance ofcontemporaneous documentation withinthe firm. If the firm is advising anotherpreparer outside of the firm, the final reg-ulations provide that this documentationshould confirm that the preparer outsidethe firm has been advised that disclosureunder section 6694(a) may be required.

Finally, the disclosure rules in§1.6694–3(c)(2) of the final regulationsare revised to clarify that a tax returnpreparer is not considered to have reck-lessly or intentionally disregarded a ruleor regulation if the position contrary tothe rule or regulation has a reasonablebasis as defined in §1.6694–2(d)(2) andis adequately disclosed in accordancewith §§1.6694–2(d)(3)(i)(A) or (C) or1.6694–2(d)(3)(ii). In the case of a posi-tion contrary to a revenue ruling or notice,a tax return preparer also is not consideredto have recklessly or intentionally disre-garded the ruling or notice if the positionmeets the substantial authority standarddescribed in §1.6662–4(d) and is not withrespect to a reportable transaction to whichsection 6662A applies. This modifica-tion ensures that tax return preparers mayadvise their clients to challenge an IRSruling or notice under the appropriate cir-cumstances.

Reasonable Cause

The final regulations in §1.6694–2(e)adopt the proposed amendments to§1.6694–2(e) regarding reasonable cause,with minor conforming changes.

Section 1.6694–2(e)(5) permits taxreturn preparers to rely upon generallyaccepted administrative or industry prac-tice in establishing reasonable cause relieffrom penalties under section 6694. Sev-eral commentators indicated that guidanceis necessary to explain how a tax returnpreparer should determine whether a prac-tice is “generally accepted” and “industrypractice.” The final regulations do notprovide further guidance regarding theseterms. An accepted administrative or in-dustry practice will be determined basedupon all facts and circumstances.

Burden of Proof

One commentator urged that the rulesregarding “burden of proof” in tax return

preparer penalty litigation cases shouldbe either eliminated or be substantiallyrevised to comport with section 7491. Sec-tion 7427 imposes upon the Secretary theburden of proof on the issue of whether atax return preparer has willfully attemptedin any manner to understate the liabilityfor tax. Section 7491(c) imposes uponthe Secretary the burden of production inany court proceeding with respect to theliability of any individual for a penalty.After consideration of the comment, pro-posed §§1.6694–2(f) and 1.6694–3(g) areremoved from the final regulations be-cause these other Code sections as wellas case law provide the substantive rulesregarding burden of proof and burden ofproduction for penalties.

Negotiation of Check

Section 6695(f) and §1.6695–1(f)(1)prohibit a tax return preparer from endors-ing or negotiating a refund check relatingto a return for which he or she is a preparer.One commentator recommended that theregulations be clarified to state specificallythat a tax return preparer is not prohibitedfrom affixing the taxpayer’s name on arefund check (typically accomplished viaa mechanical stamp) for the purpose ofdepositing the check into an account inthe name of the taxpayer. This commentis adopted in §1.6695–1(f)(1) of the finalregulations.

Due Diligence for Earned Income Credit

Section 1.6695–2(b)(3) of these finalregulations adopt the rules regarding asigning tax return preparer’s due diligencerequirements with respect to determiningeligibility for the earned income credit,with minor modification. Based upon theconcerns of a commentator about one ofthe examples in this section addressing therepresentation of married but separatedindividuals, Example 3 in the proposedregulations is removed. The TreasuryDepartment and the IRS agree that this ex-ample may raise conflict of interest issuesand, therefore, replace the example withanother example focusing on the needof the tax return preparer to ask relevantquestions if a taxpayer attempts to claim aniece or nephew as a qualifying child.

Definition of Tax Return Preparer

The final regulations adopt the pro-posed amendments to §301.7701–15(b)(1)and (2), with modification. Section301.7701–15(b)(1) and (2) of the finalregulations adds to the section 7701 reg-ulations the definitions of “signing taxreturn preparer” and “nonsigning tax re-turn preparer.”

Several commentators requested thatthe final regulations expressly state whois required to sign a tax return. Section301.7701–15(b)(1) of the final regula-tions is revised to provide that a signingtax return preparer is the individual taxreturn preparer who has the primary re-sponsibility for the overall substantiveaccuracy of the preparation of such returnor claim for refund. Conforming changesare additionally made to §1.6695–1(b).The definitions of nonsigning tax returnpreparer in §301.7701–15(b)(2) and sub-stantial portion in §301.7701–15(b)(3)are generally adopted as proposed. Ananti-abuse rule, however, is added in§301.7701–15(b)(2)(i) based upon sev-eral commentators’ suggestions. Theanti-abuse rule provides that time spent onadvice given after events have occurred,even if such time is less than 5 percentof the aggregate time incurred by suchindividual with respect to the position(s)giving rise to the understatement, willbe taken into account if all facts and cir-cumstances show that an individual isprimarily responsible for a position takenon a return, gave advice on that positionbefore events occurred primarily to avoidtreatment as a tax return preparer subject tosection 6694, and for purposes of prepar-ing a tax return the individual confirmedthe advice after events had occurred.

List of Returns Subject to Penalty

Several commentators contended thatproposed §301.7701–15(b)(4) and the ac-companying revenue procedure listing thereturns and claims for refund subject to thesection 6694 penalty should not includeinformation returns and should limit thedefinition of return to exclude documentsthat do not report a tax liability. Similarly,commentators requested excluding Form8038, Information Return for Tax-Ex-empt Private Activity Bond Issues, Form8038–G, Information Return for Tax-Ex-

2009–3 I.R.B. 274 January 21, 2009

empt Governmental Obligations, Form8038–GC, Information Return for SmallTax-Exempt Governmental Bond Issues,Leases, and Installment Sales, and Form5500, Annual Return/Report of EmployeeBenefit Plan. After consideration of thecomments, the Forms 8038, 8038–G, and8038–GC are classified in the contempo-raneously issued revenue procedure withforms that will not subject the preparer toa penalty under section 6694(a), but maysubject the preparer to a willful or recklessconduct penalty under section 6694(b)if the information reported on the formconstitutes a substantial portion of the taxreturn or claim for refund and is preparedwillfully in any manner to understate theliability of tax on a tax return or claimfor refund, or in reckless or intentionaldisregard of rules or regulations. Also,Form 8038–T, Arbitrage Rebate, Yield Re-duction and Penalty in Lieu of ArbitrageRebate, and Form 8038–R, Request for Re-covery of Overpayments Under ArbitrageRebate Provisions, are added to the listof forms of returns in the revenue proce-dure subject to the section 6694 penalties.Form 5500 remains in the same categoryas in Notice 2008–13.

The same commentators also raisedthe issue of whether the Treasury Depart-ment and the IRS should publish the listof returns and claims for refund subjectto penalty under sections 6694 and 6695in these final regulations, rather than inseparate guidance in the Internal RevenueBulletin. The Treasury Department andthe IRS continue to conclude that it is ap-propriate to publish a revenue procedurein the Internal Revenue Bulletin. Notices2008–12, –13, and –46, along with thepreviously issued proposed regulations,provided the public with notice of, andan opportunity to comment on, the formssubject to penalty.

Another commentator requestedthat the final regulations in both§301.7701–15(f) and Circular 230 specif-ically define the terms “in-house tax pro-fessional” and “employer” and provideother guidance on the applicability of thesereturn preparer rules to in-house counselin Circular 230. Section 7701(a)(36) and§301.7701–15(f)(ix) already except fromthe definition of tax return preparer anyperson who prepares a return or claim forrefund of the employer (or of an officer oremployee of the employer) by whom he

or she is regularly and continuously em-ployed. Additionally, §301.7701–15(f)(4)of the final regulations deems an employeeof a corporation owning more than 50percent of the voting power of another cor-poration, or the employee of a corporationmore than 50 percent of the voting powerof which is owned by another corporation,to be the employee of the other corporationas well. The Treasury Department and theIRS will consider if any other changes arenecessary on this issue in future revisionsto §10.34 of Circular 230.

Appraisers

Under Treasury Regulations in placesince 1977 and the proposed regulations,an appraiser might be subject to penal-ties under section 6694 as a nonsigningtax return preparer if the appraisal is asubstantial portion of the return or claimfor refund and the applicable standardsof care under section 6694 are not met.Several commentators have stated that ap-praisers should not be subject to penal-ties under section 6694 because they aresubject to new, higher standards of con-duct under section 6695A as set out in thePension Protection Act of 2006, Pub. L.No. 109–280. The commentators havealso urged that assessment of penalties un-der section 6694 against appraisers wouldresult in imposition of a gratuitous and un-necessary layer of requirements and sanc-tions without any additional public policybenefit.

After consideration of the comment, theTreasury Department and the IRS continueto include appraisers in the definition ofboth signing and non-signing preparers,thereby providing the IRS with discretionto impose the section 6694 and 6695Apenalties in the alternative against an ap-praiser depending on the facts and circum-stances of the appraiser’s conduct. TheIRS, however, will not stack the penaltiesunder sections 6694 and 6695A with re-spect to the same conduct. A separate reg-ulation will provide guidance under sec-tion 6695A.

Disclosure Under Section 6103

One commentator recommended thatthe Treasury Department and the IRS issueregulations under section 6103 authoriz-ing the disclosure of tax returns and returninformation to a tax return preparer at the

tax return preparer’s request upon initia-tion of an examination of the tax returnpreparer for tax return preparer penaltiesto the extent the returns and return infor-mation are relevant and material to the taxreturn preparer examination. The TreasuryDepartment and the IRS conclude thatno further guidance on this issue in theseregulations is necessary because section6103(h)(4) already authorizes the disclo-sure of returns and return information bythe Government in federal or state, judi-cial or administrative tax proceedings ifthe disclosure meets an item or transactiontest and the third-party return or returninformation is directly related to the reso-lution of an issue in the case.

Appeal Rights

A number of individual commentatorsquestioned whether the proposed regula-tions would remove the administrative ap-peal rights available to tax return prepar-ers who are subject to penalty under sec-tion 6694. Under Treasury Regulationsin place since 1991, the IRS will send a30-day letter to the tax return preparer no-tifying the tax return preparer of the pro-posed penalty or penalties and offering anopportunity to the tax return preparer torequest further administrative considera-tion and a final administrative determina-tion by the IRS concerning the proposedassessment prior to assessment of a penaltyunder section 6694 (unless the period oflimitations (if any) under section 6696(d)may expire without adequate opportunityfor assessment). If the tax return preparerthen makes a timely request, assessmentmay not be made until the IRS makes afinal administrative determination adverseto the tax return preparer. These appealrights are maintained in §1.6694–4(a) ofthe final regulations.

Applicability Dates

To eliminate any adverse impact thatthe adoption of these final regulationscould have on pending or recently filedreturns, these final regulations will applyto returns and claims for refund filed, andadvice provided, after December 31, 2008.

Availability of IRS Documents

The IRS notices referred to in thispreamble are published in the Internal

January 21, 2009 275 2009–3 I.R.B.

Revenue Bulletin and are available athttp://www.irs.gov.

Effect on Other Documents

The following publications are obsoleteas of January 1, 2009:

Notice 2007–54, 2007–27 I.R.B 12.Notice 2008–11, 2008–3 I.R.B. 279.Notice 2008–12, 2008–3 I.R.B. 280.Notice 2008–13, 2008–3 I.R.B. 282.Notice 2008–46, 2008–18 I.R.B. 868.

Special Analyses

It has been determined that this finalrule is not a significant regulatory action asdefined in Executive Order 12866. There-fore, a regulatory assessment is not re-quired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations.

When an agency issues a rulemak-ing, the Regulatory Flexibility Act(5 U.S.C. chapter 6) (RFA), requires theagency to “prepare and make availablefor public comment an initial regulatoryflexibility analysis” that will “describethe impact of the proposed rule on smallentities.” (5 U.S.C. 603(a)). Section 605of the RFA provides an exception to thisrequirement if the agency certifies that thefinal rulemaking will not have a significanteconomic impact on a substantial numberof small entities.

The final rules affect tax return prepar-ers. The IRS estimates there are 38,566 taxreturn preparation firms and 260,338 self-employed tax return preparers that qualifyas small entities. Therefore, the IRS hasdetermined that these final rules will havean impact on a substantial number of smallentities.

The IRS has determined, however, thatthe impact on entities affected by the fi-nal rule will not be significant. The statuteand final regulations would require enti-ties that employ tax return preparers to re-tain a record of the name, taxpayer iden-tification number and principal place ofwork of each tax return preparer employed.The IRS estimates that this would not re-quire purchase of additional software andwould take five minutes per tax return pre-parer employed. The statute and final reg-ulations would also require tax return pre-parers to retain a complete copy of a re-turn (or claim for refund) or a list of the

name, taxpayer identification number andtaxable year for each return (or claim forrefund) and the name of the tax return pre-parer required to sign the return or claimfor refund. Many tax return preparers havecopying machines or scanners and alreadymake copies of the returns prepared, andthe IRS estimates this would not requirethe purchase of additional equipment. TheIRS estimates that it would take an aver-age of five minutes to make copies or pre-pare a record of the returns or claims for re-fund prepared. Accordingly, the burden onemployers of tax return preparers to makea record of the name, taxpayer identifica-tion number, and principal place of workof each employed tax return preparer, anda copy of each return or claim for refundprepared, or a record, is insignificant.

The final regulations also conform thestandards of conduct for the tax return pre-parer penalties under section 6694(a) tothe provisions of the 2007 and 2008 Acts.Tax return preparers already enroll in ed-ucational seminars or training programs tokeep up to date with the latest changes tothe Code, and the provisions of the 2007and 2008 Acts and the regulations gener-ally will be part of that training.

Based on these facts, it is certified thatthe collection of information contained inthese final regulations will not have a sig-nificant economic impact on a substantialnumber of small entities. Accordingly, aRegulatory Flexibility Analysis is not re-quired.

Pursuant to section 7805(f) of the Code,the notice of proposed rulemaking preced-ing these regulations was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal authors of these finalregulations are Matthew S. Cooper andMichael E. Hara, Office of the AssociateChief Counsel (Procedure and Adminis-tration).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1, 20, 25,26, 31, 40, 41, 44, 53, 54, 55, 56, 156, 157,301, and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 1.6109–2 also issued under

26 U.S.C. 6109(a). * * *Section 1.6695–1 also issued under

26 U.S.C. 6695(b). * * *Section 1.6695–2 also issued under

26 U.S.C. 6695(g). * * *Par. 2. Section 1.6060–1 is amended

by revising the section heading and para-graphs (a) and (c) and adding paragraph (d)to read as follows:

§1.6060–1 Reporting requirements for taxreturn preparers.

(a) In general. (1) Each person whoemploys one or more signing tax returnpreparers to prepare any return of tax orclaim for refund of tax, other than for theperson, at any time during a return periodshall satisfy the requirements of section6060 of the Internal Revenue Code by—

(i) Retaining a record of the name, tax-payer identification number, and principalplace of work during the return period ofeach tax return preparer employed by theperson at any time during that period; and

(ii) Making that record available forinspection upon request by the Commis-sioner.

(2) The record described in this para-graph (a) must be retained and kept avail-able for inspection for the 3-year periodfollowing the close of the return period towhich that record relates.

(3) The person may choose any form ofdocumentation to be used under this sec-tion as a record of the signing tax returnpreparers employed during a return period.The record, however, must disclose on itsface which individuals were employed astax return preparers during that period.

(4) For the definition of the term“signing tax return preparer”, see§301.7701–15(b)(1) of this chapter. Forthe definition of the term “return period”,see paragraph (b) of this section.

(5)(i) For purposes of this section, anyindividual who, in acting as a signing taxreturn preparer, is not employed by anothertax return preparer shall be treated as his

2009–3 I.R.B. 276 January 21, 2009

or her own employer. Thus, a sole pro-prietor shall retain and make available arecord with respect to himself (or herself)as provided in this section.

(ii) A partnership shall, for purposes ofthis section, be treated as the employer ofthe partners of the partnership and shall re-tain and make available a record with re-spect to the partners and others employedby the partnership as provided in this sec-tion.

* * * * *(c) Penalty. For the civil penalty for

failure to retain and make available arecord of the tax return preparers em-ployed during a return period as requiredunder this section, or for failure to in-clude an item in the record required tobe retained and made available under thissection, see §1.6695–1(e).

(d) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 3. Section 1.6107–1 is revised toread as follows:

§1.6107–1 Tax return preparer mustfurnish copy of return or claim for refundto taxpayer and must retain a copy orrecord.

(a) Furnishing copy to taxpayer—(1) Aperson who is a signing tax return preparerof any return of tax or claim for refund oftax under the Internal Revenue Code shallfurnish a completed copy of the return orclaim for refund to the taxpayer (or non-taxable entity) not later than the time thereturn or claim for refund is presented forthe signature of the taxpayer (or nontax-able entity). The signing tax return pre-parer may, at its option, request a receipt orother evidence from the taxpayer (or non-taxable entity) sufficient to show satisfac-tion of the requirement of this paragraph(a).

(2) The tax return preparer must providea complete copy of the return or claim forrefund filed with the IRS to the taxpayerin any media, including electronic media,that is acceptable to both the taxpayer andthe tax return preparer. In the case of anelectronically filed return, a complete copyof a taxpayer’s return or claim for refundconsists of the electronic portion of thereturn or claim for refund, including allschedules, forms, pdf attachments, and ju-rats, that was filed with the IRS. The copy

provided to the taxpayer must include allinformation submitted to the IRS to enablethe taxpayer to determine what schedules,forms, electronic files, and other support-ing materials have been filed with the re-turn. The copy, however, need not con-tain the identification number of the paidtax return preparer. The electronic portionof the return or claim for refund may becontained on a replica of an official formor on an unofficial form. On an unofficialform, however, data entries must referencethe line numbers or descriptions on an of-ficial form.

(3) For electronically filed Forms1040EZ, “Income Tax Return for Singleand Joint Filers With No Dependents,”and Form 1040A, “U.S. Individual IncomeTax Return,” filed for the 2009, 2010 and2011 taxable years, the information maybe provided on a replica of a Form 1040,“U.S. Individual Income Tax Return”, thatprovides all of the information. For otherelectronically filed returns, the informa-tion may be provided on a replica of anofficial form that provides all of the infor-mation.

(b) Copy or record to be retained. (1) Aperson who is a signing tax return preparerof any return or claim for refund shall—

(i)(A) Retain a completed copy of thereturn or claim for refund; or

(B) Retain a record, by list, card file, orotherwise of the name, taxpayer identifi-cation number, and taxable year of the tax-payer (or nontaxable entity) for whom thereturn or claim for refund was prepared,and the type of return or claim for refundprepared;

(ii) Retain a record, by retention of acopy of the return or claim for refund,maintenance of a list, card file, or other-wise, for each return or claim for refundpresented to the taxpayer (or nontaxableentity), of the name of the individual tax re-turn preparer required to sign the return orclaim for refund pursuant to §1.6695–1(b);and

(iii) Make the copy or record of returnsand claims for refund and record of theindividuals required to sign available forinspection upon request by the Commis-sioner.

(2) The material described in this para-graph (b) shall be retained and kept avail-able for inspection for the 3-year periodfollowing the close of the return periodduring which the return or claim for re-

fund was presented for signature to the tax-payer (or nontaxable entity). In the caseof a return that becomes due (with exten-sions, if any) during a return period follow-ing the return period during which the re-turn was presented for signature, the ma-terial shall be retained and kept availablefor inspection for the 3-year period fol-lowing the close of the later return periodin which the return became due. For thedefinition of “return period,” see section6060(c). If the person subject to the recordretention requirement of this paragraph (b)is a corporation or a partnership that is dis-solved before completion of the 3-year pe-riod, then all persons who are responsi-ble for the winding up of the affairs of thecorporation or partnership under state lawshall be subject, on behalf of the corpora-tion or partnership, to these record reten-tion requirements until completion of the3-year period. If state law does not spec-ify any person or persons as responsiblefor winding up, then, collectively, the di-rectors or general partners shall be subject,on behalf of the corporation or partnership,to the record retention requirements of thisparagraph (b). For purposes of the penaltyimposed by section 6695(d), such desig-nated persons shall be deemed to be the taxreturn preparer and will be jointly and sev-erally liable for each failure.

(c) Tax return preparer. For the defini-tion of “signing tax return preparer,” see§301.7701–15(b)(1) of this chapter. Forpurposes of applying this section, a cor-poration, partnership or other organizationthat employs a signing tax return preparerto prepare for compensation (or in which asigning tax return preparer is compensatedas a partner or member to prepare) a returnof tax or claim for refund shall be treatedas the sole signing tax return preparer.

(d) Penalties. (1) For the civil penaltyfor failure to furnish a copy of the return orclaim for refund to the taxpayers (or non-taxable entity) as required under paragraph(a) of this section, see section 6695(a) and§1.6695–1(a).

(2) For the civil penalty for failure toretain a copy of the return or claim for re-fund, or to retain a record as required underparagraph (b) of this section, see section6695(d) and §1.6695–1(d).

(e) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

January 21, 2009 277 2009–3 I.R.B.

Par. 4. Section 1.6109–2 is amendedby revising the section heading and para-graphs (a) and (d) to read as follows:

§1.6109–2 Tax return preparers furnishingidentifying numbers for returns or claimsfor refund filed after December 31, 2008.

(a) Furnishing identifying number. (1)Each filed return of tax or claim for refundof tax under the Internal Revenue Codeprepared by one or more tax return pre-parers must include the identifying num-ber of the tax return preparer required by§1.6695–1(b) to sign the return or claim forrefund. In addition, if there is an employ-ment arrangement or association betweenthe individual tax return preparer and an-other person (except to the extent the re-turn prepared is for the person), the identi-fying number of the other person must alsoappear on the filed return or claim for re-fund. For the definition of the term “tax re-turn preparer,” see section 7701(a)(36) and§301.7701–15 of this chapter.

(2) The identifying number of an in-dividual tax return preparer is that indi-vidual’s social security account number orsuch alternative number as may be pre-scribed by the Internal Revenue Servicein forms, instructions, or other appropriateguidance.

(3) The identifying number of a per-son (whether an individual or entity) whoemploys or associates with an individualtax return preparer described in paragraph(a)(2) of this section to prepare the returnor claim for refund (other than a return pre-pared for the person) is the person’s em-ployer identification number.

* * * * *(d) Effective/applicability date. Para-

graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008. For returns or claims forrefund filed before January 1, 2000, see§1.6109–2A(a).

Par. 5. Section 1.6694–0 is revised toread as follows:

§1.6694–0 Table of contents.

This section lists the captions that ap-pear in §§1.6694–1 through 1.6694–4.

§1.6694–1 Section 6694 penaltiesapplicable to tax return preparers.

(a) Overview.

(1) In general.(2) Date return is deemed prepared.(b) Tax return preparer.(1) In general.(2) Responsibility of signing tax return

preparer.(3) Responsibility of nonsigning tax re-

turn preparer.(4) Responsibility of signing and non-

signing tax return preparer.(5) Tax return preparer and firm respon-

sibility.(6) Examples.(c) Understatement of liability.(d) Abatement of penalty where tax-

payer’s liability not understated.(e) Verification of information fur-

nished by taxpayer or other third party.(1) In general.(2) Verification of information on pre-

viously filed returns.(3) Examples.(f) Income derived (or to be derived)

with respect to the return or claim for re-fund.

(1) In general.(2) Compensation.(i) Multiple engagements.(ii) Reasonable allocation.(iii) Fee refunds.(iv) Reduction of compensation.(3) Individual and firm allocation.(4) Examples.(g) Effective/applicability date.

§1.6694–2 Penalty for understatement dueto an unreasonable position.

(a) In general.(1) Proscribed conduct.(2) Special rule for corporations, part-

nerships, and other firms.(b) Reasonable to believe that the po-

sition would more likely than not be sus-tained on its merits.

(1) In general.(2) Authorities.(3) Written determinations.(4) Taxpayer’s jurisdiction.(5) When “more likely than not” stan-

dard must be satisfied.(c) Substantial authority.(d) Exception for adequate disclosure of

positions with a reasonable basis.(1) In general.(2) Reasonable basis.(3) Adequate disclosure.(i) Signing tax return preparers.

(ii) Nonsigning tax return preparers.(A) Advice to taxpayers.(B) Advice to another tax return pre-

parer.(iii) Requirements for advice.(iv) Pass-through entities.(v) Examples.(e) Exception for reasonable cause and

good faith.(1) Nature of the error causing the un-

derstatement.(2) Frequency of errors.(3) Materiality of errors.(4) Tax return preparer’s normal office

practice.(5) Reliance on advice of others.(6) Reliance on generally accepted ad-

ministrative or industry practice.(f) Effective/applicability date.

§1.6694–3 Penalty for understatement dueto willful, reckless, or intentional conduct.

(a) In general.(1) Proscribed conduct.(2) Special rule for corporations, part-

nerships, and other firms.(b) Willful attempt to understate liabil-

ity.(c) Reckless or intentional disregard.(d) Examples.(e) Rules or regulations.(f) Section 6694(b) penalty reduced by

section 6694(a) penalty.(g) Effective/applicability date.

§1.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general.(b) Tax return preparer must bring suit

in district court to determine liability forpenalty.

(c) Suspension of running of period oflimitations on collection.

(d) Effective/applicability date.Par. 6. Section 1.6694–1 is revised to

read as follows:

§1.6694–1 Section 6694 penaltiesapplicable to tax return preparers.

(a) Overview—(1) In general. Sections6694(a) and (b) impose penalties on tax re-turn preparers for conduct giving rise to

2009–3 I.R.B. 278 January 21, 2009

certain understatements of liability on a re-turn (including an amended or adjusted re-turn) or claim for refund. For positionsother than those with respect to tax shelters(as defined in section 6662(d)(2)(C)(ii))and reportable transactions to which sec-tion 6662A applies, the section 6694(a)penalty is imposed in an amount equal tothe greater of $1,000 or 50 percent of theincome derived (or to be derived) by thetax return preparer for an understatementof tax liability that is due to an undisclosedposition for which the tax return preparerdid not have substantial authority or dueto a disclosed position for which there isno reasonable basis. For positions withrespect to tax shelters (as defined in sec-tion 6662(d)(2)(C)(ii)) or reportable trans-actions to which section 6662A applies,the section 6694(a) penalty is imposed inan amount equal to the greater of $1,000or 50 percent of the income derived (or tobe derived) by the tax return preparer foran understatement of tax liability for whichit is not reasonable to believe that the po-sition would more likely than not be sus-tained on its merits. The section 6694(b)penalty is imposed in an amount equal tothe greater of $5,000 or 50 percent of theincome derived (or to be derived) by thetax return preparer for an understatementof liability with respect to tax that is dueto a willful attempt to understate tax liabil-ity or that is due to reckless or intentionaldisregard of rules or regulations. Refer to§1.6694–2 for rules relating to the penaltyunder section 6694(a). Refer to §1.6694–3for rules relating to the penalty under sec-tion 6694(b).

(2) Date return is deemed prepared.For purposes of the penalties under sec-tion 6694, a return or claim for refund isdeemed prepared on the date it is signedby the tax return preparer. If a signingtax return preparer within the meaning of§301.7701–15(b)(1) of this chapter fails tosign the return, the return or claim for re-fund is deemed prepared on the date thereturn or claim is filed. See §1.6695–1of this section. In the case of a nonsign-ing tax return preparer within the mean-ing of §301.7701–15(b)(2) of this chapter,the relevant date is the date the nonsigningtax return preparer provides the tax advicewith respect to the position giving rise tothe understatement. This date will be de-termined based on all the facts and circum-stances.

(b) Tax return preparer—(1) In gen-eral. For purposes of this section, “tax re-turn preparer” means any person who isa tax return preparer within the meaningof section 7701(a)(36) and §301.7701–15of this chapter. An individual is a tax re-turn preparer subject to section 6694 if theindividual is primarily responsible for theposition(s) on the return or claim for re-fund giving rise to an understatement. See§301.7701–15(b)(3). There is only one in-dividual within a firm who is primarily re-sponsible for each position on the returnor claim for refund giving rise to an un-derstatement. In the course of identifyingthe individual who is primarily responsi-ble for the position, the Internal RevenueService (IRS) may advise multiple individ-uals within the firm that it may be con-cluded that they are the individual withinthe firm who is primarily responsible. Insome circumstances, there may be morethan one tax return preparer who is primar-ily responsible for the position(s) givingrise to an understatement if multiple tax re-turn preparers are employed by, or associ-ated with, different firms.

(2) Responsibility of signing tax re-turn preparer. If there is a signing taxreturn preparer within the meaning of§301.7701–15(b)(1) of this chapter withina firm, the signing tax return preparergenerally will be considered the personwho is primarily responsible for all ofthe positions on the return or claim forrefund giving rise to an understatementunless, based upon credible informationfrom any source, it is concluded that thesigning tax return preparer is not primar-ily responsible for the position(s) on thereturn or claim for refund giving rise to anunderstatement. In that case, a nonsigningtax return preparer within the signing taxreturn preparer’s firm (as determined inparagraph (b)(3) of this section) will beconsidered the tax return preparer who isprimarily responsible for the position(s)on the return or claim for refund givingrise to an understatement.

(3) Responsibility of nonsigning taxreturn preparer. If there is no signingtax return preparer within the meaning of§301.7701–15(b)(1) of this chapter for thereturn or claim for refund within the firmor if, after the application of paragraph(b)(2) of this section, it is concluded thatthe signing tax return preparer is not pri-marily responsible for the position, the

nonsigning tax return preparer within themeaning of §301.7701–15(b)(2) of thischapter within the firm with overall su-pervisory responsibility for the position(s)giving rise to the understatement generallywill be considered the tax return preparerwho is primarily responsible for the posi-tion for purposes of section 6694 unless,based upon credible information from anysource, it is concluded that another non-signing tax return preparer within that firmis primarily responsible for the position(s)on the return or claim for refund givingrise to the understatement.

(4) Responsibility of signing and non-signing tax return preparer. If the infor-mation presented would support a findingthat, within a firm, either the signing taxreturn preparer or a nonsigning tax returnpreparer is primarily responsible for theposition(s) giving rise to the understate-ment, the penalty may be assessed againsteither one of the individuals, but not both,as the primarily responsible tax return pre-parer.

(5) Tax return preparer and firm re-sponsibility. To the extent provided in§§1.6694–2(a)(2) and 1.6694–3(a)(2), anindividual and the firm that employs theindividual, or the firm of which the indi-vidual is a partner, member, shareholder,or other equity holder, both may be subjectto penalty under section 6694 with respectto the position(s) on the return or claim forrefund giving rise to an understatement. Ifan individual (other than the sole propri-etor) who is employed by a sole propri-etorship is subject to penalty under section6694, the sole proprietorship is considereda “firm” for purposes of this paragraph (b).

(6) Examples. The provisions of para-graph (b) of this section are illustrated bythe following examples:

Example 1. Attorney A provides advice to ClientC concerning the proper treatment of an item with re-spect to which all events have occurred on C’s taxreturn. In preparation for providing that advice, Aseeks advice regarding the proper treatment of theitem from Attorney B, who is within the same firmas A, but A is the attorney who signs C’s return as atax return preparer. B provides advice on the treat-ment of the item upon which A relies. B’s advice isreflected on C’s tax return but no disclosure was madein accordance with §1.6694–2(d)(3). The advice con-stitutes preparation of a substantial portion of the re-turn within the meaning of §301.7701–15(b)(3). TheIRS later challenges the position taken on the tax re-turn, giving rise to an understatement of liability. Forpurposes of the regulations under section 6694, A isinitially considered the tax return preparer with re-spect to C’s return, and the IRS advises A that A may

January 21, 2009 279 2009–3 I.R.B.

be subject to the penalty under section 6694 with re-spect to C’s return. Based upon information receivedfrom A or another source, it may be concluded that B,rather than A, had primary responsibility for the po-sition taken on the return that gave rise to the under-statement and may be subject to penalty under section6694 instead of A.

Example 2. Same as Example 1, except that nei-ther Attorney A nor any other source produce credi-ble information that Attorney B had primary respon-sibility for the position on the return giving rise toan understatement. Attorney A is the tax return pre-parer who may be subject to penalty under section6694 with respect to C’s return.

Example 3. Same as Example 1, except that nei-ther Attorney A nor any other attorney within A’s firmsigns Client C’s return as a tax return preparer. Attor-ney B is the nonsigning tax return preparer within thefirm with overall supervisory responsibility for theposition giving rise to an understatement. Accord-ingly, B is the tax return preparer who is primarilyresponsible for the position on C’s return giving riseto an understatement and may be subject to penaltyunder section 6694.

Example 4. Same as Example 1, except AttorneyD, who works for a different firm than A, also pro-vides advice on the same position upon which A re-lies. It may be concluded that D is also primarily re-sponsible for the position on the return and may besubject to penalty under section 6694.

Example 5. Same as Example 1, except AttorneyB is able to present credible information that A isalso responsible for the position on C’s return givingrise to an understatement. The IRS may concludebetween A and B, the two responsible persons for theposition, who is primarily responsible and may assessa section 6694 penalty against A or B, but not both,as the primarily responsible tax return preparer.

(c) Understatement of liability. For pur-poses of this section, an “understatementof liability” exists if, viewing the returnor claim for refund as a whole, there is anunderstatement of the net amount payablewith respect to any tax imposed by the In-ternal Revenue Code (Code), or an over-statement of the net amount creditable orrefundable with respect to any tax imposedby the Code. The net amount payable ina taxable year with respect to the returnfor which the tax return preparer engagedin conduct proscribed by section 6694 isnot reduced by any carryback. Tax im-posed by the Code does not include addi-tions to the tax, additional amounts, andassessable penalties imposed by subchap-ter 68 of the Code. Except as provided inparagraph (d) of this section, the determi-nation of whether an understatement of li-ability exists may be made in a proceed-ing involving the tax return preparer thatis separate and apart from any proceedinginvolving the taxpayer.

(d) Abatement of penalty where tax-payer’s liability not understated. If a

penalty under section 6694(a) or (b) con-cerning a return or claim for refund hasbeen assessed against one or more taxreturn preparers, and if it is established atany time in a final administrative deter-mination or a final judicial decision thatthere was no understatement of liabilityrelating to the position(s) on the return orclaim for refund, then—

(1) The assessment shall be abated; and(2) If any amount of the penalty was

paid, that amount shall be refunded tothe person or persons who so paid, as ifthe payment were an overpayment of tax,without consideration of any period oflimitations.

(e) Verification of information fur-nished by taxpayer or other party—(1) Ingeneral. For purposes of sections 6694(a)and (b) (including demonstrating that aposition complied with relevant standardsunder section 6694(a) and demonstratingreasonable cause and good faith under§1.6694–2(e)), the tax return preparergenerally may rely in good faith withoutverification upon information furnishedby the taxpayer. A tax return prepareralso may rely in good faith and withoutverification upon information and advicefurnished by another advisor, another taxreturn preparer or other party (includinganother advisor or tax return preparer atthe tax return preparer’s firm). The taxreturn preparer is not required to audit,examine or review books and records,business operations, documents, or otherevidence to verify independently infor-mation provided by the taxpayer, advisor,other tax return preparer, or other party.The tax return preparer, however, may notignore the implications of information fur-nished to the tax return preparer or actuallyknown by the tax return preparer. Thetax return preparer must make reasonableinquiries if the information as furnishedappears to be incorrect or incomplete. Ad-ditionally, some provisions of the Code orregulations require that specific facts andcircumstances exist (for example, that thetaxpayer maintain specific documents) be-fore a deduction or credit may be claimed.The tax return preparer must make appro-priate inquiries to determine the existenceof facts and circumstances required by aCode section or regulation as a conditionof the claiming of a deduction or credit.

(2) Verification of information on previ-ously filed returns. For purposes of section

6694(a) and (b) (including meeting the rea-sonable to believe that the position wouldmore likely than not be sustained on itsmerits and reasonable basis standards in§§1.6694–2(b) and (d)(2), and demonstrat-ing reasonable cause and good faith under§1.6694–2(e)), a tax return preparer mayrely in good faith without verification upona tax return that has been previously pre-pared by a taxpayer or another tax returnpreparer and filed with the IRS. For exam-ple, a tax return preparer who prepares anamended return (including a claim for re-fund) need not verify the positions on theoriginal return. The tax return preparer,however, may not ignore the implicationsof information furnished to the tax returnpreparer or actually known by the tax re-turn preparer. The tax return preparer mustmake reasonable inquiries if the informa-tion as furnished appears to be incorrect orincomplete. The tax return preparer mustconfirm that the position being relied uponhas not been adjusted by examination orotherwise.

(3) Examples. The provisions of thisparagraph (e) are illustrated by the follow-ing examples:

Example 1. During an interview conducted byPreparer E, a taxpayer stated that he had made a char-itable contribution of real estate in the amount of$50,000 during the tax year, when in fact he had notmade this charitable contribution. E did not inquireabout the existence of a qualified appraisal or com-plete a Form 8283, Noncash Charitable Contribu-tions, in accordance with the reporting and substan-tiation requirements under section 170(f)(11). E re-ported a deduction on the tax return for the charitablecontribution, which resulted in an understatement ofliability for tax, and signed the tax return as the taxreturn preparer. E is subject to a penalty under sec-tion 6694.

Example 2. While preparing the 2008 tax returnfor an individual taxpayer, Preparer F realizes that thetaxpayer did not provide a Form 1099–INT, “Inter-est Income”, for a bank account that produced signif-icant taxable income in 2007. When F inquired aboutany other income, the taxpayer furnished the Form1099–INT to F for use in preparation of the 2008 taxreturn. F did not know that the taxpayer owned an ad-ditional bank account that generated taxable incomefor 2008, and the taxpayer did not reveal this infor-mation to the tax return preparer notwithstanding F’sgeneral inquiry about any other income. F signed thetaxpayer’s return as the tax return preparer. F is notsubject to a penalty under section 6694.

Example 3. In preparing a tax return, for purposesof determining the deductibility of a contribution byan employer for a qualified pension plan, AccountantG relies on a computation of the section 404 limit ondeductible amounts made by the enrolled actuary forthe plan. On the basis of this calculation, G com-pleted and signed the tax return. It is later determinedthat there is an understatement of liability for tax that

2009–3 I.R.B. 280 January 21, 2009

resulted from the overstatement of the section 404limit on deductible amounts made by the actuary. Ghad no reason to believe that the actuary’s calculationof the limit on deductible contributions was incorrector incomplete, and the calculation appeared reason-able on its face. G was also not aware at the time thereturn was prepared of any reason why the actuary didnot know all of the relevant facts or that the calcula-tion of the limit on deductible contributions was nolonger reliable due to developments in the law sincethe time the calculation was given. G is not subject toa penalty under section 6694. The actuary, however,may be subject to penalty under section 6694 if thecalculation provided by the actuary constitutes a sub-stantial portion of the tax return within the meaningof §301.7701–15(b)(3) of this chapter.

(f) Income derived (or to be derived)with respect to the return or claim for re-fund—(1) In general. For purposes of sec-tions 6694(a) and (b), income derived (orto be derived) means all compensation thetax return preparer receives or expects toreceive with respect to the engagement ofpreparing the return or claim for refund orproviding tax advice (including researchand consultation) with respect to the posi-tion(s) taken on the return or claim for re-fund that gave rise to the understatement.In the situation of a tax return preparerwho is not compensated directly by thetaxpayer, but rather by a firm that employsthe tax return preparer or with which thetax return preparer is associated, incomederived (or to be derived) means all com-pensation the tax return preparer receivesfrom the firm that can be reasonably allo-cated to the engagement of preparing thereturn or claim for refund or providing taxadvice (including research and consulta-tion) with respect to the position(s) takenon the return or claim for refund that gaverise to the understatement. In the situationwhere a firm that employs the individualtax return preparer (or the firm of whichthe individual tax return preparer is a part-ner, member, shareholder, or other equityholder) is subject to a penalty under section6694(a) or (b) pursuant to the provisionsin §§1.6694–2(a)(2) or 1.6694–3(a)(2), in-come derived (or to be derived) means allcompensation the firm receives or expectsto receive with respect to the engagementof preparing the return or claim for refundor providing tax advice (including researchand consultation) with respect to the posi-tion(s) taken on the return or claim for re-fund that gave rise to the understatement.

(2) Compensation—(i) Multiple en-gagements. For purposes of applyingparagraph (f)(1) of this section, if the tax

return preparer or the tax return preparer’sfirm has multiple engagements related tothe same return or claim for refund, onlythose engagements relating to the posi-tion(s) taken on the return or claim forrefund that gave rise to the understatementare considered for purposes of calculatingthe income derived (or to be derived) withrespect to the return or claim for refund.

(ii) Reasonable allocation. For pur-poses of applying paragraph (f)(1) of thissection, only compensation for tax advicethat is given with respect to events thathave occurred at the time the advice is ren-dered and that relates to the position(s) giv-ing rise to the understatement will be takeninto account for purposes of calculating thesection 6694(a) and (b) penalties. If a lumpsum fee is received that includes amountsnot taken into account under the precedingsentence, the amount of income derivedwill be based on a reasonable allocation ofthe lump sum fee between the tax advicegiving rise to the penalty and the advicethat does not give rise to the penalty.

(iii) Fee refunds. For purposes of ap-plying paragraph (f)(1) of this section, arefund to the taxpayer of all or part ofthe amount paid to the tax return prepareror the tax return preparer’s firm will notreduce the amount of the section 6694penalty assessed. A refund in this contextdoes not include a discounted fee or alter-native billing arrangement for the servicesprovided.

(iv) Reduction of compensation. Forpurposes of applying paragraph (f)(1) ofthis section, it may be concluded basedupon information provided by the tax re-turn preparer or the tax return preparer’sfirm that an appropriate allocation of com-pensation attributable to the position(s)giving rise to the understatement on thereturn or claim for refund is less than thetotal amount of compensation associatedwith the engagement. For example, thenumber of hours of the engagement spenton the position(s) giving rise to the under-statement may be less than the total hoursassociated with the engagement. If this isconcluded, the amount of the penalty willbe calculated based upon the compensa-tion attributable to the position(s) givingrise to the understatement. Otherwise, thetotal amount of compensation from theengagement will be the amount of incomederived for purposes of calculating thepenalty under section 6694.

(3) Individual and firm allocation. Ifboth an individual within a firm and a firmthat employs the individual (or the firmof which the individual is a partner, mem-ber, shareholder, or other equity holder)are subject to a penalty under section6694(a) or (b) pursuant to the provisions in§§1.6694–2(a)(2) or 1.6694–3(a)(2), theamount of penalties assessed against theindividual and the firm shall not exceed50 percent of the income derived (or tobe derived) by the firm from the engage-ment of preparing the return or claim forrefund or providing tax advice (includingresearch and consultation) with respect tothe position(s) taken on the return or claimfor refund that gave rise to the understate-ment. The portion of the total amount ofthe penalty assessed against the individualtax return preparer shall not exceed 50percent of the individual’s compensationas determined under paragraphs (f)(1) and(2) of this section.

(4) Examples. The provisions of thisparagraph (f) are illustrated by the follow-ing examples:

Example 1. Signing Tax Return Preparer H is en-gaged by a taxpayer and paid a total of $21,000. Ofthis amount, $20,000 relates to research and consul-tation regarding a transaction that is later reported ona return, and $1,000 is for the activities relating to thepreparation of the return. Based on H’s hourly rates,a reasonable allocation of the amount of compensa-tion related to the advice rendered prior to the occur-rence of events that are the subject of the advice is$5,000. The remaining compensation of $16,000 isconsidered to be compensation related to the advicerendered after the occurrence of events that are thesubject of the advice and return preparation. The in-come derived by H with respect to the return for pur-poses of computing the penalty under section 6694(a)is $16,000, and the amount of the penalty imposed un-der section 6694(a) is $8,000.

Example 2. Accountants I, J, and K are employedby Firm L. I is a principal manager of Firm L andprovides corporate tax advice for the taxpayer afterall events have occurred subject to an engagement forcorporate tax advice. J provides international tax ad-vice for the taxpayer after all events have occurredsubject to a different engagement for international taxadvice. K prepares and signs the taxpayer’s return un-der a general tax services engagement. I’s advice isthe source of an understatement on the return and theadvice constitutes preparation of a substantial portionof the return within the meaning of §301.7701–15(b)of this chapter. I is the nonsigning tax return preparerwithin the firm with overall supervisory responsibil-ity for the position on the taxpayer’s return givingrise to an understatement. Thus, I is the tax returnpreparer who is primarily responsible for the positionon the taxpayer’s return giving rise to the understate-ment. Because K’s signature as the signing tax re-turn preparer is on the return, the IRS advises K thatK may be subject to the section 6694(a) penalty. K

January 21, 2009 281 2009–3 I.R.B.

provides credible information that I is the tax returnpreparer with primary responsibility for the positionthat gave rise to the understatement. The IRS, there-fore, assesses the section 6694 penalty against I. Theportion of the total amount of the penalty allocable toI does not exceed 50 percent of that part of I’s com-pensation that is attributable to the corporate tax ad-vice engagement. In the event that Firm L is alsoliable under the provisions in §1.6694–2(a)(2), theIRS assesses the section 6694 penalty in an amountnot exceeding 50 percent of Firm L’s firm compensa-tion based on the engagement relating to the corpo-rate tax advice services provided by I where there isno applicable reduction in compensation pursuant to§1.6694–1(f)(2)(iii).

Example 3. Same facts as Example 2, except that Iprovides the advice on the corporate matter when theevents have not yet occurred. I’s advice is the cause ofan understatement position on the return, but I is nota tax return preparer pursuant to §301.7701–15(b)(2)or (3) of this chapter. K is not limited to reliance onpersons who provide post-transactional advice if suchreliance is reasonable and in good faith. Further, Khas reasonable cause because K relied on I for theadvice on the corporate tax matter. I, K and Firm Lare not liable for the section 6694 penalty.

Example 4. Attorney M is an employee of FirmN with a salary of $75,000 per year. M performs taxpreparation work for Client O. Client O’s return con-tains a position that results in an understatement sub-ject to the section 6694 penalty. M spent 100 hourson the position (out of a total 2,000 billed duringthe year). The total fees earned by Firm N with re-spect to the position reflected on Client O’s return are$50,000. If M is subject to the penalty, the penaltyamount computed under the 50 percent of incomestandard is .5 X (100/2000) X $75,000 = $1,875. IfFirm N is subject to the penalty, the penalty amountcomputed under the 50% of income standard is .5 X$50,000 = $25,000, less any penalty amount imposedagainst M. If a penalty of $1,875 was assessed againstM and Firm N was subject to the penalty, a penaltyof $23,125 would be the amount of penalty assessedagainst Firm N.

(g) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 7. Section 1.6694–2 is revised toread as follows:

§1.6694–2 Penalty for understatement dueto an unreasonable position.

(a) In general—(1) Proscribed conduct.Except as otherwise provided in this sec-tion, a tax return preparer is liable for apenalty under section 6694(a) equal to thegreater of $1,000 or 50 percent of the in-come derived (or to be derived) by the taxreturn preparer for any return or claim forrefund that it prepares that results in an un-derstatement of liability due to a position ifthe tax return preparer knew (or reasonably

should have known) of the position and ei-ther—

(i) The position is with respect toa tax shelter (as defined in section6662(d)(2)(C)(ii)) or a reportable transac-tion to which section 6662A applies, andit was not reasonable to believe that theposition would more likely than not besustained on its merits;

(ii) The position was not disclosed asprovided in this section, the position is notwith respect to a tax shelter (as defined insection 6662(d)(2)(C)(ii)) or a reportabletransaction to which section 6662A ap-plies, and there was not substantial author-ity for the position; or

(iii) The position (other than a positionwith respect to a tax shelter or a reportabletransaction to which section 6662A ap-plies) was disclosed as provided in thissection but there was no reasonable basisfor the position.

(2) Special rule for corporations, part-nerships, and other firms. A firm that em-ploys a tax return preparer subject to apenalty under section 6694(a) (or a firmof which the individual tax return prepareris a partner, member, shareholder or otherequity holder) is also subject to penalty if,and only if—

(i) One or more members of the princi-pal management (or principal officers) ofthe firm or a branch office participated inor knew of the conduct proscribed by sec-tion 6694(a);

(ii) The corporation, partnership, orother firm entity failed to provide reason-able and appropriate procedures for reviewof the position for which the penalty isimposed; or

(iii) The corporation, partnership, orother firm entity disregarded its reason-able and appropriate review proceduresthrough willfulness, recklessness, or grossindifference (including ignoring facts thatwould lead a person of reasonable pru-dence and competence to investigate orascertain) in the formulation of the advice,or the preparation of the return or claimfor refund, that included the position forwhich the penalty is imposed.

(b) Reasonable to believe that theposition would more likely than not besustained on its merits—(1) In general. Ifa position is with respect to a tax shelter(as defined in section 6662(d)(2)(C)(ii)) ora reportable transaction to which section6662A applies, it is “reasonable to believe

that a position would more likely than notbe sustained on its merits” if the tax re-turn preparer analyzes the pertinent factsand authorities and, in reliance upon thatanalysis, reasonably concludes in goodfaith that the position has a greater than50 percent likelihood of being sustainedon its merits. In reaching this conclusion,the possibility that the position will notbe challenged by the Internal RevenueService (IRS) (for example, because thetaxpayer’s return may not be audited orbecause the issue may not be raised onaudit) is not to be taken into account. Theanalysis prescribed by §1.6662–4(d)(3)(ii)(or any successor provision) for purposesof determining whether substantial au-thority is present applies for purposes ofdetermining whether the more likely thannot standard is satisfied. Whether a taxreturn preparer meets this standard willbe determined based upon all facts andcircumstances, including the tax returnpreparer’s diligence. In determining thelevel of diligence in a particular situa-tion, the tax return preparer’s experiencewith the area of Federal tax law and fa-miliarity with the taxpayer’s affairs, aswell as the complexity of the issues andfacts, will be taken into account. A taxreturn preparer may reasonably believethat a position more likely than not wouldbe sustained on its merits despite the ab-sence of other types of authority if theposition is supported by a well-reasonedconstruction of the applicable statutoryprovision. For purposes of determiningwhether it is reasonable to believe thatthe position would more likely than notbe sustained on the merits, a tax returnpreparer may rely in good faith withoutverification upon information furnished bythe taxpayer and information and advicefurnished by another advisor, another taxreturn preparer, or other party (includinganother advisor or tax return preparer atthe tax return preparer’s firm), as providedin §§1.6694–1(e) and 1.6694–2(e)(5).

(2) Authorities. The authorities con-sidered in determining whether a positionsatisfies the more likely than not stan-dard are those authorities provided in§1.6662–4(d)(3)(iii) (or any successorprovision).

(3) Written determinations. The taxreturn preparer may avoid the section6694(a) penalty by taking the positionthat the tax return preparer reasonably

2009–3 I.R.B. 282 January 21, 2009

believed that the taxpayer’s position sat-isfies the “more likely than not” stan-dard if the taxpayer is the subject of a“written determination” as provided in§1.6662–4(d)(3)(iv)(A).

(4) Taxpayer’s jurisdiction. The ap-plicability of court cases to the taxpayerby reason of the taxpayer’s residence ina particular jurisdiction is not taken intoaccount in determining whether it is rea-sonable to believe that the position wouldmore likely than not be sustained on themerits. Notwithstanding the precedingsentence, the tax return preparer may rea-sonably believe that the position wouldmore likely than not be sustained on themerits if the position is supported by con-trolling precedent of a United States Courtof Appeals to which the taxpayer has aright of appeal with respect to the item.

(5) When “more likely than not” stan-dard must be satisfied. For purposes ofthis section, the requirement that a positionsatisfies the “more likely than not” stan-dard must be satisfied on the date the re-turn is deemed prepared, as prescribed by§1.6694–1(a)(2).

(c) [Reserved].(d) Exception for adequate disclosure

of positions with a reasonable basis—(1)In general. The section 6694(a) penaltywill not be imposed on a tax return pre-parer if the position taken (other than aposition with respect to a tax shelter ora reportable transaction to which section6662A applies) has a reasonable basis andis adequately disclosed within the mean-ing of paragraph (c)(3) of this section. Foran exception to the section 6694(a) penaltyfor reasonable cause and good faith, seeparagraph (e) of this section.

(2) Reasonable basis. For purposesof this section, “reasonable basis” hasthe same meaning as in §1.6662–3(b)(3)or any successor provision of the ac-curacy-related penalty regulations. Forpurposes of determining whether the taxreturn preparer has a reasonable basis fora position, a tax return preparer may relyin good faith without verification uponinformation furnished by the taxpayerand information and advice furnished byanother advisor, another tax return pre-parer, or other party (including anotheradvisor or tax return preparer at the taxreturn preparer’s firm), as provided in§§1.6694–1(e) and 1.6694–2(e)(5).

(3) Adequate disclosure—(i) Signingtax return preparers. In the case of a sign-ing tax return preparer within the meaningof §301.7701–15(b)(1) of this chapter,disclosure of a position (other than a po-sition with respect to a tax shelter or areportable transaction to which section6662A applies) for which there is a rea-sonable basis but for which there is notsubstantial authority is adequate if the taxreturn preparer meets any of the followingstandards:

(A) The position is disclosed in accor-dance with §1.6662–4(f) (which permitsdisclosure on a properly completed andfiled Form 8275, “Disclosure Statement,”or Form 8275–R, “Regulation DisclosureStatement,” as appropriate, or on the tax re-turn in accordance with the annual revenueprocedure described in §1.6662–4(f)(2));

(B) The tax return preparer provides thetaxpayer with the prepared tax return thatincludes the disclosure in accordance with§1.6662–4(f); or

(C) For returns or claims for refundthat are subject to penalties pursuant tosection 6662 other than the accuracy-re-lated penalty attributable to a substantialunderstatement of income tax under sec-tion 6662(b)(2) and (d), the tax return pre-parer advises the taxpayer of the penaltystandards applicable to the taxpayer undersection 6662. The tax return preparer mustalso contemporaneously document the ad-vice in the tax return preparer’s files.

(ii) Nonsigning tax return preparers. Inthe case of a nonsigning tax return preparerwithin the meaning of §301.7701–15(b)(2)of this chapter, disclosure of a position(other than a position with respect to atax shelter or a reportable transaction towhich section 6662A applies) that satisfiesthe reasonable basis standard but does notsatisfy the substantial authority standardis adequate if the position is disclosed inaccordance with §1.6662–4(f) (which per-mits disclosure on a properly completedand filed Form 8275 or Form 8275–R,as applicable, or on the return in accor-dance with an annual revenue proceduredescribed in §1.6662–4(f)(2)). In addition,disclosure of a position is adequate in thecase of a nonsigning tax return preparer if,with respect to that position, the tax returnpreparer complies with the provisions ofparagraph (d)(3)(ii)(A) or (B) of this sec-tion, whichever is applicable.

(A) Advice to taxpayers. If a nonsign-ing tax return preparer provides adviceto the taxpayer with respect to a position(other than a position with respect to a taxshelter or a reportable transaction to whichsection 6662A applies) for which there is areasonable basis but for which there is notsubstantial authority, disclosure of that po-sition is adequate if the tax return prepareradvises the taxpayer of any opportunityto avoid penalties under section 6662 thatcould apply to the position, if relevant, andof the standards for disclosure to the extentapplicable. The tax return preparer mustalso contemporaneously document the ad-vice in the tax return preparer’s files. Thecontemporaneous documentation shouldreflect that the affected taxpayer has beenadvised by a tax return preparer in the firmof the potential penalties and the opportu-nity to avoid penalty through disclosure.

(B) Advice to another tax return pre-parer. If a nonsigning tax return pre-parer provides advice to another tax re-turn preparer with respect to a position(other than a position with respect to atax shelter or a reportable transaction towhich section 6662A applies) for whichthere is a reasonable basis but for whichthere is not substantial authority, disclo-sure of that position is adequate if the taxreturn preparer advises the other tax re-turn preparer that disclosure under sec-tion 6694(a) may be required. The taxreturn preparer must also contemporane-ously document the advice in the tax re-turn preparer’s files. The contemporane-ous documentation should reflect that thetax return preparer outside the firm hasbeen advised that disclosure under section6694(a) may be required. If the adviceis to another nonsigning tax return pre-parer within the same firm, contemporane-ous documentation is satisfied if there is asingle instance of contemporaneous docu-mentation within the firm.

(iii) Requirements for advice. Forpurposes of satisfying the disclosure stan-dards of paragraphs (d)(3)(i)(C) and (ii) ofthis section, each return position for whichthere is a reasonable basis but for whichthere is not substantial authority must beaddressed by the tax return preparer. Theadvice to the taxpayer with respect to eachposition, therefore, must be particular tothe taxpayer and tailored to the taxpayer’sfacts and circumstances. The tax returnpreparer is required to contemporaneously

January 21, 2009 283 2009–3 I.R.B.

document the fact that the advice wasprovided. There is no general pro formalanguage or special format required for atax return preparer to comply with theserules. A general disclaimer will not satisfythe requirement that the tax return preparerprovide and contemporaneously documentadvice regarding the likelihood that a posi-tion will be sustained on the merits and thepotential application of penalties as a re-sult of that position. Tax return preparers,however, may rely on established formsor templates in advising clients regardingthe operation of the penalty provisions ofthe Internal Revenue Code. A tax returnpreparer may choose to comply with thedocumentation standard in one documentaddressing each position or in multipledocuments addressing all of the positions.

(iv) Pass-through entities. Disclosurein the case of items attributable to a pass-through entity is adequate if made at theentity level in accordance with the rulesin §1.6662–4(f)(5) or at the entity levelin accordance with the rules in paragraphs(d)(3)(i) or (ii) of this section.

(v) Examples. The provisions of para-graph (d)(3) of this section are illustratedby the following examples:

Example 1. An individual taxpayer hires Accoun-tant R to prepare its income tax return. A particularposition taken on the tax return does not have sub-stantial authority although there is a reasonable basisfor the position. The position is not with respect to atax shelter or a reportable transaction to which section6662A applies. R prepares and signs the tax returnand provides the taxpayer with the prepared tax re-turn that includes the Form 8275, “Disclosure State-ment,” disclosing the position taken on the tax return.The individual taxpayer signs and files the tax returnwithout disclosing the position. The IRS later chal-lenges the position taken on the tax return, resultingin an understatement of liability. R is not subject to apenalty under section 6694.

Example 2. Attorney S advises a large corporatetaxpayer concerning the proper treatment of complexentries on the corporate taxpayer’s tax return. S hasreason to know that the tax attributable to the en-tries is a substantial portion of the tax required tobe shown on the tax return within the meaning of§301.7701–15(b)(3). When providing the advice, Sconcludes that one position does not have substantialauthority, although the position meets the reasonablebasis standard. The position is not with respect to atax shelter or a reportable transaction to which section6662A applies. S advises the corporate taxpayer thatthe position lacks substantial authority and the tax-payer may be subject to an accuracy-related penaltyunder section 6662 unless the position is disclosed ina disclosure statement included in the return. S alsodocuments the fact that this advice was contempora-neously provided to the corporate taxpayer at the timethe advice was provided. Neither S nor any other at-

torney within S’s firm signs the corporate taxpayer’sreturn as a tax return preparer, but the advice by Sconstitutes preparation of a substantial portion of thetax return, and S is the individual with overall super-visory responsibility for the position giving rise to theunderstatement. Thus, S is a tax return preparer forpurposes of section 6694. S, however, will not be sub-ject to a penalty under section 6694.

(e) Exception for reasonable cause andgood faith. The penalty under section6694(a) will not be imposed if, consider-ing all the facts and circumstances, it isdetermined that the understatement wasdue to reasonable cause and that the tax re-turn preparer acted in good faith. Factorsto consider include:

(1) Nature of the error causing the un-derstatement. The error resulted from aprovision that was complex, uncommon,or highly technical, and a competent taxreturn preparer of tax returns or claims forrefund of the type at issue reasonably couldhave made the error. The reasonable causeand good faith exception, however, doesnot apply to an error that would have beenapparent from a general review of the re-turn or claim for refund by the tax returnpreparer.

(2) Frequency of errors. The under-statement was the result of an isolated er-ror (such as an inadvertent mathematical orclerical error) rather than a number of er-rors. Although the reasonable cause andgood faith exception generally applies toan isolated error, it does not apply if theisolated error is so obvious, flagrant, ormaterial that it should have been discov-ered during a review of the return or claimfor refund. Furthermore, the reasonablecause and good faith exception does notapply if there is a pattern of errors on a re-turn or claim for refund even though anyone error, in isolation, would have qual-ified for the reasonable cause and goodfaith exception.

(3) Materiality of errors. The under-statement was not material in relation tothe correct tax liability. The reasonablecause and good faith exception generallyapplies if the understatement is of a rel-atively immaterial amount. Nevertheless,even an immaterial understatement maynot qualify for the reasonable cause andgood faith exception if the error or er-rors creating the understatement are suffi-ciently obvious or numerous.

(4) Tax return preparer’s normal officepractice. The tax return preparer’s normaloffice practice, when considered together

with other facts and circumstances, such asthe knowledge of the tax return preparer,indicates that the error in question wouldoccur rarely and the normal office prac-tice was followed in preparing the return orclaim for refund in question. Such a nor-mal office practice must be a system forpromoting accuracy and consistency in thepreparation of returns or claims for refundand generally would include, in the caseof a signing tax return preparer, checklists,methods for obtaining necessary informa-tion from the taxpayer, a review of theprior year’s return, and review procedures.Notwithstanding these rules, the reason-able cause and good faith exception doesnot apply if there is a flagrant error on areturn or claim for refund, a pattern of er-rors on a return or claim for refund, or arepetition of the same or similar errors onnumerous returns or claims for refund.

(5) Reliance on advice of others. Forpurposes of demonstrating reasonablecause and good faith, a tax return pre-parer may rely without verification uponadvice and information furnished by thetaxpayer and information and advice fur-nished by another advisor, another taxreturn preparer or other party, as providedin §1.6694–1(e). The tax return preparermay rely in good faith on the advice of, orschedules or other documents prepared by,the taxpayer, another advisor, another taxreturn preparer, or other party (includinganother advisor or tax return preparer atthe tax return preparer’s firm), who the taxreturn preparer had reason to believe wascompetent to render the advice or otherinformation. The advice or informationmay be written or oral, but in either casethe burden of establishing that the adviceor information was received is on the taxreturn preparer. A tax return preparer isnot considered to have relied in good faithif—

(i) The advice or information is unrea-sonable on its face;

(ii) The tax return preparer knew orshould have known that the other partyproviding the advice or information wasnot 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 return or claim for refund was pre-pared, that the advice or information wasno longer reliable due to developments

2009–3 I.R.B. 284 January 21, 2009

in the law since the time the advice wasgiven.

(6) Reliance on generally accepted ad-ministrative or industry practice. The taxreturn preparer reasonably relied in goodfaith on generally accepted administrativeor industry practice in taking the positionthat resulted in the understatement. A taxreturn preparer is not considered to haverelied in good faith if the tax return pre-parer knew or should have known (giventhe nature of the tax return preparer’s prac-tice), at the time the return or claim forrefund was prepared, that the administra-tive or industry practice was no longer re-liable due to developments in the law orIRS administrative practice since the timethe practice was developed.

(f) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 8. Section 1.6694–3 is amended byrevising paragraphs (a), (c)(2) and (3), (d),(e), (f), and (g) to read as follows:

§1.6694–3 Penalty for understatement dueto willful, reckless, or intentional conduct.

(a) In general—(1) Proscribed conduct.A tax return preparer is liable for a penaltyunder section 6694(b) equal to the greaterof $5,000 or 50 percent of the income de-rived (or to be derived) by the tax returnpreparer if any part of an understatementof liability for a return or claim for refundthat is prepared is due to—

(i) A willful attempt by a tax return pre-parer to understate in any manner the lia-bility for tax on the return or claim for re-fund; or

(ii) Any reckless or intentional disre-gard of rules or regulations by a tax returnpreparer.

(2) Special rule for corporations, part-nerships, and other firms. A firm that em-ploys a tax return preparer subject to apenalty under section 6694(b) (or a firmof which the individual tax return prepareris a partner, member, shareholder or otherequity holder) is also subject to penalty if,and only if—

(i) One or more members of the princi-pal management (or principal officers) ofthe firm or a branch office participated inor knew of the conduct proscribed by sec-tion 6694(b);

(ii) The corporation, partnership, orother firm entity failed to provide reason-able and appropriate procedures for reviewof the position for which the penalty isimposed; or

(iii) The corporation, partnership, orother firm entity disregarded its reason-able and appropriate review proceduresthrough willfulness, recklessness, or grossindifference (including ignoring facts thatwould lead a person of reasonable pru-dence and competence to investigate orascertain) in the formulation of the advice,or the preparation of the return or claimfor refund, that included the position forwhich the penalty is imposed.

* * * * *(c) * * *(2) A tax return preparer is not

considered to have recklessly or in-tentionally disregarded a rule or reg-ulation if the position contrary to therule or regulation has a reasonable ba-sis as defined in §1.6694–2(d)(2) andis adequately disclosed in accordancewith §§1.6694–2(d)(3)(i)(A) or (C) or1.6694–2(d)(3)(ii). In the case of aposition contrary to a regulation, theposition must represent a good faithchallenge to the validity of the regula-tion and, when disclosed in accordancewith §§1.6694–2(d)(3)(i)(A) or (C) or1.6694–2(d)(3)(ii), the tax return pre-parer must identify the regulation beingchallenged. For purposes of this section,disclosure on the return in accordancewith an annual revenue procedure under§1.6662–4(f)(2) is not applicable.

(3) In the case of a position contraryto a revenue ruling or notice (other than anotice of proposed rulemaking) publishedby the Internal Revenue Service in theInternal Revenue Bulletin, a tax returnpreparer also is not considered to haverecklessly or intentionally disregarded theruling or notice if the position meets thesubstantial authority standard described in§1.6662–4(d) and is not with respect toa reportable transaction to which section6662A applies.

(d) Examples. The provisions of para-graphs (b) and (c) of this section are illus-trated by the following examples:

Example 1. A taxpayer provided Preparer T withdetailed check registers reflecting personal and busi-ness expenses. One of the expenses was for domes-tic help, and this expense was identified as personalon the check register. T knowingly deducted the ex-

penses of the taxpayer’s domestic help as wages paidin the taxpayer’s business. T is subject to the penaltyunder section 6694(b).

Example 2. A taxpayer provided Preparer U withdetailed check registers to compute the taxpayer’sexpenses. U, however, knowingly overstated theexpenses on the return. After adjustments by theexaminer, the tax liability increased significantly.Because U disregarded information provided in thecheck registers, U is subject to the penalty undersection 6694(b).

Example 3. Preparer V prepares a taxpayer’s re-turn in 2009 and encounters certain expenses incurredin the purchase of a business. Final regulations pro-vide that such expenses incurred in the purchase ofa business must be capitalized. One U.S. Tax Courtcase decided in 2006 has expressly invalidated thatportion of the regulations. There are no courts thatruled favorably with respect to the validity of that por-tion of the regulations and there are no other author-ities existing on the issue. Under these facts, V willhave a reasonable basis for the position as defined in§1.6694–2(d)(2) and will not be subject to the section6694(b) penalty if the position is adequately disclosedin accordance with paragraph (c)(2) of this section be-cause the position represents a good faith challenge tothe validity of the regulations.

(e) Rules or regulations. The term rulesor regulations includes the provisions ofthe Internal Revenue Code (Code), tem-porary or final Treasury regulations issuedunder the Code, and revenue rulings or no-tices (other than notices of proposed rule-making) issued by the Internal RevenueService and published in the Internal Rev-enue Bulletin.

(f) Section 6694(b) penalty reduced bysection 6694(a) penalty. The amount ofany penalty to which a tax return preparermay be subject under section 6694(b) for areturn or claim for refund is reduced by anyamount assessed and collected against thetax return preparer under section 6694(a)for the same position on a return or claimfor refund.

(g) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 9. Section 1.6694–4 is revised toread as follows:

§1.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. (1) The Internal Rev-enue Service (IRS) will investigate thepreparation by a tax return preparer ofa return of tax under the Internal Rev-

January 21, 2009 285 2009–3 I.R.B.

enue Code (Code) or claim for refundof tax under the Code as described in§301.7701–15(b)(4) of this chapter, andwill send a report of the examination to thetax return preparer before the assessmentof either—

(i) A penalty for understating tax liabil-ity due to a position for which either it wasnot reasonable to believe that the positionwould more likely than not be sustainedon its merits under section 6694(a) or nosubstantial authority, as applicable (or nota reasonable basis for disclosed positions);or

(ii) A penalty for willful understatementof liability or reckless or intentional disre-gard of rules or regulations under section6694(b).

(2) Unless the period of limitations(if any) under section 6696(d) may ex-pire without adequate opportunity forassessment, the IRS will also send, beforeassessment of either penalty, a 30-day let-ter to the tax return preparer notifying himof the proposed penalty or penalties andoffering an opportunity to the tax returnpreparer to request further administrativeconsideration and a final administrativedetermination by the IRS concerning theassessment. If the tax return preparer thenmakes a timely request, assessment maynot be made until the IRS makes a finaladministrative determination adverse tothe tax return preparer.

(3) If the IRS assesses either of the twopenalties described in section 6694(a) andsection 6694(b), it will send to the tax re-turn preparer a statement of notice and de-mand, separate from any notice of a taxdeficiency, for payment of the amount as-sessed.

(4) Within 30 days after the day onwhich notice and demand of either of thetwo penalties described in section 6694(a)and section 6694(b) is made against thetax return preparer, the tax return preparermust either—

(i) Pay the entire amount assessed (andmay file a claim for refund of the amountpaid at any time not later than 3 years afterthe date of payment); or

(ii) Pay an amount which is not less than15 percent of the entire amount assessedwith respect to each return or claim forrefund and file a claim for refund of theamount paid.

(5) If the tax return preparer pays anamount and files a claim for refund under

paragraph (a)(4)(ii) of this section, the IRSmay not make, begin, or prosecute a levyor proceeding in court for collection of theunpaid remainder of the amount assesseduntil the later of—

(i) A date which is more than 30 daysafter the earlier of—

(A) The day on which the tax returnpreparer’s claim for refund is denied; or

(B) The expiration of 6 months after theday on which the tax return preparer filedthe claim for refund; and

(ii) Final resolution of any proceedingbegun as provided in paragraph (b) of thissection.

(6) The IRS may counterclaim in anyproceeding begun as provided in para-graph (b) of this section for the unpaidremainder of the amount assessed. Finalresolution of a proceeding includes anysettlement between the IRS and the taxreturn preparer, any final determination bya court (for which the period for appeal, ifany, has expired) and, generally, the typesof determinations provided under section1313(a) (relating to taxpayer deficien-cies). Notwithstanding section 7421(a)(relating to suits to restrain assessmentor collection), the beginning of a levy orproceeding in court by the IRS in contra-vention of paragraph (a)(5) of this sectionmay be enjoined by a proceeding in theproper court.

(b) Preparer must bring suit in districtcourt to determine liability for penalty.The IRS may proceed with collection ofthe amount of the penalty not paid underparagraph (a)(4)(ii) of this section if thepreparer fails to begin a proceeding for re-fund in the appropriate United States dis-trict court within 30 days after the earlierof—

(1) The day on which the preparer’sclaim for refund filed under paragraph(a)(4)(ii) of this section is denied; or

(2) The expiration of 6 months after theday on which the preparer filed the claimfor refund.

(c) Suspension of running of periodof limitations on collection. The runningof the period of limitations provided insection 6502 on the collection by levy orby a proceeding in court of the unpaidamount of a penalty or penalties describedin section 6694(a) or section 6694(b) issuspended for the period during which theIRS, under paragraph (a)(5) of this sec-tion, may not collect the unpaid amount

of the penalty or penalties by levy or aproceeding in court.

(d) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 10. Section 1.6695–1 is revised toread as follows:

§1.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) Failure to furnish copy to tax-payer. (1) A person who is a sign-ing tax return preparer as described in§301.7701–15(b)(1) of this chapter ofany return of tax or claim for refundof tax under the Internal Revenue Code(Code), and who fails to satisfy the re-quirements imposed by section 6107(a)and §1.6107–1(a) to furnish a copy of thereturn or claim for refund to the taxpayer(or nontaxable entity), shall be subject toa penalty of $50 for such failure, with amaximum penalty of $25,000 per personimposed with respect to each calendaryear, unless it is shown that the failure isdue to reasonable cause and not due towillful neglect.

(2) No penalty may be imposed undersection 6695(a) and paragraph (a)(1) ofthis section upon a tax return preparer whofurnishes a copy of the return or claim forrefund to taxpayers who—

(i) Hold an elected or politically ap-pointed position with the government ofthe United States or a state or political sub-division thereof; and

(ii) In order faithfully to carry out theirofficial duties, have so arranged their af-fairs that they have less than full knowl-edge of the property that they hold or of thedebts for which they are responsible, if in-formation is deleted from the copy in orderto preserve or maintain this arrangement.

(b) Failure to sign return. (1) An indi-vidual who is a signing tax return prepareras described in §301.7701–15(b)(1) of thischapter with respect to a return of tax orclaim for refund of tax under the Codeas described in §301.7701–15(b)(4) that isnot signed electronically shall sign the re-turn or claim for refund after it is com-pleted and before it is presented to the tax-payer (or nontaxable entity) for signature.For rules covering electronically signed re-turns, see paragraph (b)(2) of this section.

2009–3 I.R.B. 286 January 21, 2009

If the signing tax return preparer is un-available for signature, another tax returnpreparer shall review the entire preparationof the return or claim for refund, and thenshall sign the return or claim for refund.The tax return preparer shall sign the re-turn in the manner prescribed by the Com-missioner in forms, instructions, or otherappropriate guidance.

(2) In the case of electronically signedtax returns, the signing tax return pre-parer need not sign the return prior topresenting a completed copy of the returnto the taxpayer. The signing tax returnpreparer, however, must furnish all of theinformation that will be transmitted asthe electronically signed tax return to thetaxpayer contemporaneously with furnish-ing the Form 8879, “IRS e-file SignatureAuthorization,” or other similar InternalRevenue Service (IRS) e-file signatureform. The information may be furnishedon a replica of an official form. The sign-ing tax return preparer shall electronicallysign the return in the manner prescribed bythe Commissioner in forms, instructions,or other appropriate guidance.

(3) An individual required by this para-graph (b) to sign a return or claim for re-fund shall be subject to a penalty of $50for each failure to sign, with a maximum of$25,000 per person imposed with respectto each calendar year, unless it is shownthat the failure is due to reasonable causeand not due to willful neglect. If the tax re-turn preparer asserts reasonable cause forfailure to sign, the IRS will require a writ-ten statement to substantiate the tax returnpreparer’s claim of reasonable cause. Forpurposes of this paragraph (b), reasonablecause is a cause that arises despite ordinarycare and prudence exercised by the indi-vidual tax return preparer.

(4) Examples. The application of thisparagraph (b) is illustrated by the follow-ing examples:

Example 1. Law Firm A employs B, a lawyer,to prepare for compensation estate tax returns andclaims for refund of taxes. Firm A is engaged byC to prepare a Federal estate tax return. Firm A as-signs B to prepare the return. B obtains the informa-tion necessary for completing the return from C andmakes determinations with respect to the proper ap-plication of the tax laws to such information in orderto determine the estate’s tax liability. B then forwardssuch information to D, a computer tax service thatperforms the mathematical computations and printsthe return by means of computer processing. D thensends the completed estate tax return to B who re-views the accuracy of the return. B is the individual

tax return preparer who is primarily responsible forthe overall accuracy of the estate tax return. B mustsign the return as tax return preparer in order to notbe subject to the section 6695(b) penalty.

Example 2. Partnership E is a national account-ing firm that prepares returns and claims for refund oftaxes for compensation. F and G, employees of Part-nership E, are involved in preparing the Form 990–T,Exempt Organization Business Income Tax Return,for H, a tax exempt organization. After they com-plete the return, including the gathering of the nec-essary information, analyzing the proper applicationof the tax laws to such information, and the perfor-mance of the necessary mathematical computations,I, a supervisory employee of Partnership E, reviewsthe return. As part of this review, I reviews the infor-mation provided and the application of the tax lawsto this information. The mathematical computationsand carried-forward amounts are reviewed by J, anemployee of Partnership E. The policies and practicesof Partnership E require that K, a partner, finally re-view the return. The scope of K’s review includesreviewing the information provided and applying tothis information his knowledge of H’s affairs, observ-ing that Partnership E’s policies and practices havebeen followed, and making the final determinationwith respect to the proper application of the tax lawsto determine H’s tax liability. K may or may not ex-ercise these responsibilities, or may exercise them toa greater or lesser extent, depending on the degree ofcomplexity of the return, his confidence in I (or F andG), and other factors. K is the individual tax returnpreparer who is primarily responsible for the overallaccuracy of H’s return. K must sign the return as taxreturn preparer in order to not be subject to the sec-tion 6695(b) penalty.

Example 3. L corporation maintains an officein Seattle, Washington, for the purpose of prepar-ing partnership returns for compensation. L makescompensatory arrangements with individuals (butprovides no working facilities) in several states tocollect information from partners of a partnershipand to make decisions with respect to the properapplication of the tax laws to the information in orderto prepare the partnership return and calculate thepartnership’s distributive items. M, an individual,who has such an arrangement in Los Angeles with L,collects information from N, the general partner of apartnership, and completes a worksheet kit suppliedby L that is stamped with M’s name and an identifi-cation number assigned to M by L. In this process, Mclassifies this information in appropriate categoriesfor the preparation of the partnership return. Thecompleted worksheet kit signed by M is then mailedto L. O, an employee in L’s office, reviews the work-sheet kit to make sure it was properly completed. Odoes not review the information obtained from N forits validity or accuracy. O may, but did not, make thefinal decision with respect to the proper applicationof tax laws to the information provided. The datafrom the worksheet is entered into a computer andthe return form is completed. The return is preparedfor submission to N with filing instructions. M is theindividual tax return preparer primarily responsiblefor the overall accuracy of the partnership return. Mmust sign the return as tax return preparer in order tonot be subject to the section 6695(b) penalty.

Example 4. P employs R, S, and T to prepare gifttax returns for taxpayers. After R and S have col-

lected the information from a taxpayer and appliedthe tax laws to the information, the return form iscompleted by a computer service. On the day the re-turns prepared by R and S are ready for their signa-tures, R is away from the city for 1 week on anotherassignment and S is on detail to another office in thesame city for the day. T may sign the gift tax returnsprepared by R, provided that T reviews the informa-tion obtained by R relative to the taxpayer, and T re-views the preparation of each return prepared by R. Tmay not sign the returns prepared by S because S isavailable.

(5) Effective/applicability date. Thisparagraph (b) is applicable to returns andclaims for refund filed after December 31,2008.

(c) Failure to furnish identifyingnumber. (1) A person who is a sign-ing tax return preparer as described in§301.7701–15(b)(1) of this chapter of anyreturn of tax under the Code or claimfor refund of tax under the Code, andwho fails to satisfy the requirement ofsection 6109(a)(4) and §1.6109–2(a) tofurnish one or more identifying numbersof signing tax return preparers or personsemploying the signing tax return preparer(or with which the signing tax return pre-parer is associated) on a return or claim forrefund after it is completed and before itis presented to the taxpayer (or nontaxableentity) for signature shall be subject toa penalty of $50 for each failure, with amaximum of $25,000 per person imposedwith respect to each calendar year, unlessit is shown that the failure is due to reason-able cause and not due to willful neglect.

(2) No more than one penalty of $50may be imposed under section 6695(c) andparagraph (c)(1) of this section with re-spect to a single return or claim for refund.

(d) Failure to retain copy or record. (1)A person who is a signing tax return pre-parer as described in §301.7701–15(b)(1)of this chapter of any return of tax un-der the Code or claim for refund of taxunder the Code, and who fails to satisfythe requirements imposed upon him or herby section 6107(b) and §1.6107–1(b) and(c) (other than the record requirement de-scribed in both §1.6107–1(b)(2) and (3)) toretain and make available for inspection acopy of the return or claim for refund, orto include the return or claim for refund ina record of returns and claims for refundand make the record available for inspec-tion, shall be subject to a penalty of $50 forthe failure, unless it is shown that the fail-

January 21, 2009 287 2009–3 I.R.B.

ure is due to reasonable cause and not dueto willful neglect.

(2) A person may not, for returns orclaims for refund presented to the taxpay-ers (or nontaxable entities) during eachcalendar year, be subject to more than$25,000 in penalties under section 6695(d)and paragraph (d)(1) of this section.

(e) Failure to file correct informationreturns. A person who is subject to the re-porting requirements of section 6060 and§1.6060–1 and who fails to satisfy theserequirements shall pay a penalty of $50for each such failure, with a maximum of$25,000 per person imposed for each cal-endar year, unless such failure was due toreasonable cause and not due to willful ne-glect.

(f) Negotiation of check. (1) No personwho is a tax return preparer as described in§301.7701–15 of this chapter may endorseor otherwise negotiate, directly or throughan agent, a check (including an electronicversion of a check) for the refund of taxunder the Code that is issued to a taxpayerother than the tax return preparer if the per-son was a tax return preparer of the returnor claim for refund which gave rise to therefund check. A tax return preparer willnot be considered to have endorsed or oth-erwise negotiated a check for purposes ofthis paragraph (f)(1) solely as a result ofhaving affixed the taxpayer’s name to a re-fund check for the purpose of depositingthe check into an account in the name ofthe taxpayer or in the joint names of thetaxpayer and one or more other persons(excluding the tax return preparer) if au-thorized by the taxpayer or the taxpayer’srecognized representative.

(2) Section 6695(f) and paragraphs(f)(1) and (3) of this section do not applyto a tax return preparer-bank that—

(i) Cashes a refund check and remits allof the cash to the taxpayer or accepts arefund check for deposit in full to a tax-payer’s account, so long as the bank doesnot initially endorse or negotiate the check(unless the bank has made a loan to thetaxpayer on the basis of the anticipated re-fund); or

(ii) Endorses a refund check for depositin full to a taxpayer’s account pursuant toa written authorization of the taxpayer (un-less the bank has made a loan to the tax-payer on the basis of the anticipated re-fund).

(3) A tax return preparer-bank may alsosubsequently endorse or negotiate a re-fund check as a part of the check-clearingprocess through the financial system afterinitial endorsement or negotiation.

(4) The tax return preparer shall be sub-ject to a penalty of $500 for each endorse-ment or negotiation of a check prohibitedunder section 6695(f) and paragraph (f)(1)of this section.

(g) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 11. Section 1.6695–2 is amendedby revising the section heading and para-graphs (a), (b)(3), (c) and (d) to read as fol-lows:

§1.6695–2 Tax return preparer duediligence requirements for determiningearned income credit eligibility.

(a) Penalty for failure to meet due dili-gence requirements. A person who is asigning tax return preparer of a tax returnor claim for refund under the Internal Rev-enue Code with respect to determining theeligibility for, or the amount of, the earnedincome credit (EIC) under section 32 andwho fails to satisfy the due diligence re-quirements of paragraph (b) of this sectionwill be subject to a penalty of $100 for eachsuch failure.

(b) * * *(3) Knowledge—(i) In general. The tax

return preparer must not know, or have rea-son to know, that any information used bythe tax return preparer in determining thetaxpayer’s eligibility for, or the amount of,the EIC is incorrect. The tax return pre-parer may not ignore the implications ofinformation furnished to, or known by, thetax return preparer, and must make rea-sonable inquiries if the information fur-nished to the tax return preparer appears tobe incorrect, inconsistent, or incomplete.A tax return preparer must make reason-able inquiries if a reasonable and well-in-formed tax return preparer knowledgeablein the law would conclude that the infor-mation furnished to the tax return preparerappears to be incorrect, inconsistent, or in-complete. The tax return preparer mustalso contemporaneously document in thefiles the reasonable inquiries made and theresponses to these inquiries.

(ii) Examples. The provisions of para-graph (b)(3)(i) of this section are illus-trated by the following examples:

Example 1. A 22 year-old taxpayer wants to claimtwo sons, ages 10 and 11, as qualifying children forpurposes of the EIC. Preparer A must make addi-tional reasonable inquiries regarding the relationshipbetween the taxpayer and the children as the age ofthe taxpayer appears inconsistent with the ages of thechildren claimed as sons.

Example 2. An 18 year-old female taxpayer withan infant has $3,000 in earned income and states thatshe lives with her parents. Taxpayer wants to claimthe infant as a qualifying child for the EIC. This infor-mation appears incomplete and inconsistent becausethe taxpayer lives with her parents and earns very lit-tle income. Preparer B must make additional reason-able inquires to determine if the taxpayer is the quali-fying child of her parents and, therefore, ineligible toclaim the EIC.

Example 3. Taxpayer asks Preparer C to preparehis tax return and wants to claim his niece and nephewas qualifying children for the EIC. Preparer C shouldmake reasonable inquiries to determine whether thechildren meet EIC qualifying child requirements andensure possible duplicate claim situations involvingthe parents or other relatives are properly considered.

Example 4. Taxpayer asks Preparer D to prepareher tax return and tells D that she has a Schedule Cbusiness, that she has two qualifying children and thatshe wants to claim the EIC. Taxpayer indicates thatshe earned $10,000 from her Schedule C business, butthat she has no expenses. This information appearsincomplete because it is very unlikely that someonewho is self-employed has no business expenses. Dmust make additional reasonable inquiries regardingtaxpayer’s business to determine whether the infor-mation regarding both income and expenses is cor-rect.

(c) Exception to penalty. The section6695(g) penalty will not be applied withrespect to a particular tax return or claimfor refund if the tax return preparer candemonstrate to the satisfaction of the In-ternal Revenue Service that, consideringall the facts and circumstances, the tax re-turn preparer’s normal office proceduresare reasonably designed and routinely fol-lowed to ensure compliance with the duediligence requirements of paragraph (b) ofthis section, and the failure to meet the duediligence requirements of paragraph (b) ofthis section with respect to the particularreturn or claim for refund was isolated andinadvertent.

(d) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 12. Section 1.6696–1 is revised toread as follows:

2009–3 I.R.B. 288 January 21, 2009

§1.6696–1 Claims for credit or refund bytax return preparers or appraisers.

(a) Notice and demand. (1) The Inter-nal Revenue Service (IRS) shall issue toeach tax return preparer or appraiser one ormore statements of notice and demand forpayment for all penalties assessed againstthe tax return preparer or appraiser undersection 6694 and §1.6694–1, under sec-tion 6695 and §1.6695–1, or under section6695A (and any subsequently issued regu-lations).

(2) For the definition of the term “taxreturn preparer”, see section 7701(a)(36)and §301.7701–15 of this chapter. A per-son who prepares a claim for credit or re-fund under this section for another person,however, is not, with respect to that prepa-ration, a tax return preparer as defined insection 7701(a)(36) and §301.7701–15 ofthis chapter.

(b) Claim filed by tax return prepareror appraiser. A claim for credit or re-fund of a penalty (or penalties) assessedagainst a tax return preparer or appraiserunder section 6694 and §1.6694–1, undersection 6695 and §1.6695–1, or under sec-tion 6695A (and any subsequently issuedregulations) may be filed under this sectiononly by the tax return preparer or the ap-praiser (or the tax return preparer’s or ap-praiser’s estate) against whom the penalty(or penalties) is assessed and not by, forexample, the tax return preparer’s or ap-praiser’s employer. This paragraph (b) isnot intended, however, to impose any re-strictions on the preparation of this claimfor credit or refund. The claim may be pre-pared by the tax return preparer’s or ap-praiser’s employer or by other persons. Inall cases, however, the claim for credit orrefund shall contain the information speci-fied in paragraph (d) of this section and, asrequired by paragraph (d) of this section,shall be verified by a written declarationby the tax return preparer or appraiser thatthe information is provided under penaltyof perjury.

(c) Separation and consolidation ofclaims. (1) Unless paragraph (c)(2) ofthis section applies, a tax return preparershall file a separate claim for each penaltyassessed in each statement of notice anddemand issued to the tax return preparer.

(2) A tax return preparer may file oneor more consolidated claims for any orall penalties imposed on the tax return

preparer by a single IRS campus or officeunder section 6695(a) and §1.6695–1(a)(relating to failure to furnish copy of re-turn to taxpayer), section 6695(b) and§1.6695–1(b) (relating to failure to sign),section 6695(c) and §1.6695–1(c) (relatingto failure to furnish identifying number),or under section 6695(d) and §1.6695–1(d)(relating to failure to retain copy of returnor record), whether the penalties are as-serted on a single or on separate statementsof notice and demand. In addition, a taxreturn preparer may file one consolidatedclaim for any or all penalties imposed onthe tax return preparer by a single IRScampus or office under section 6695(e)and §1.6695–1(e) (relating to failure tofile correct information return), which areasserted on a single statement of noticeand demand.

(d) Content of claim. Each claim forcredit or refund for any penalty (or penal-ties) paid by a tax return preparer undersection 6694 and §1.6694–1, or under sec-tion 6695 and §1.6695–1, or paid by anappraiser under section 6695A (and anysubsequently issued regulations) shall in-clude the following information, verifiedby a written declaration by the tax returnpreparer or appraiser that the informationis provided under penalty of perjury:

(1) The tax return preparer’s or ap-praiser’s name.

(2) The tax return preparer’s or ap-praiser’s identification number. If the taxreturn preparer or appraiser is—

(i) An individual (not described in para-graph (d)(2)(iii) of this section) who is acitizen or resident of the United States, thetax return preparer’s or appraiser’s socialsecurity account number (or such alterna-tive number as may be prescribed by theIRS in forms, instructions, or other appro-priate guidance) shall be provided;

(ii) An individual who is not a citizen orresident of the United States and also wasnot employed by another tax return pre-parer or appraiser to prepare the document(or documents) with respect to which thepenalty (or penalties) was assessed, the taxreturn preparer’s or appraiser’s employeridentification number shall be provided; or

(iii) A person (whether an individual,corporation, or partnership) that employedone or more persons to prepare the docu-ment (or documents) with respect to whichthe penalty (or penalties) was assessed,the tax return preparer’s or appraiser’s em-

ployer identification number shall be pro-vided.

(3) The tax return preparer’s or ap-praiser’s address where the IRS mailedthe statement (or statements) of notice anddemand and, if different, the tax returnpreparer’s or appraiser’s address shown onthe document (or documents) with respectto which the penalty (or penalties) wasassessed.

(4)(i) The address of the IRS campus oroffice that issued the statement (or state-ments) of notice and demand for paymentof the penalty (or penalties).

(ii) The date (or dates) and identifyingnumber (or numbers) of the statement (orstatements) of notice and demand.

(5)(i) The identification, by amount,type, and document to which related, ofeach penalty included in the claim. Eachdocument referred to in the preceding sen-tence shall be identified by the form title ornumber, by the taxpayer’s (or nontaxableentity’s) name and taxpayer identificationnumber, and by the taxable year to whichthe document relates.

(ii) The date (or dates) of payment ofthe amount (or amounts) of the penalty (orpenalties) included in the claim.

(iii) The total amount claimed.(6) A statement setting forth in detail—(i) Each ground upon which each

penalty overpayment claim is based; and(ii) Facts sufficient to apprise the IRS of

the exact basis of each such claim.(e) Form for filing claim. Notwithstand-

ing §301.6402–2(c) of this chapter, Form6118, “Claim for Refund of Income TaxReturn Preparer and Promoter Penalties,”is the form prescribed for making a claimas provided in this section with respect topenalties under sections 6694 and 6695.Form 843, Claim for Refund and Requestfor Abatement, is the form prescribed formaking a claim as provided in this sec-tion with respect to a penalty under section6695A.

(f) Place for filing claim. A claim filedunder this section shall be filed with theIRS campus or office that issued to the taxreturn preparer or appraiser the statement(or statements) of notice and demand forpayment of the penalty (or penalties) in-cluded in the claim.

(g) Time for filing claim. (1)(i) Ex-cept as provided in section 6694(c)(1) and§1.6694–4(a)(4)(ii) and (5), and in section6694(d) and §1.6694–1(d):

January 21, 2009 289 2009–3 I.R.B.

(A) A claim for a penalty paid by atax return preparer under section 6694and §1.6694–1, or under section 6695 and§1.6695–1, or by an appraiser under sec-tion 6695A (and any subsequently issuedregulations) shall be filed within threeyears from the date the payment was made.

(B) A consolidated claim, permitted un-der paragraph (c)(2) of this section, shallbe filed within three years from the firstdate of payment of any penalty included inthe claim.

(ii) For purposes of this paragraph(g)(1), payment is considered made onthe date payment is received by the IRSor, if applicable, on the date an amount iscredited in satisfaction of the penalty.

(2) For purposes of determiningwhether a claim is timely filed, the rulesunder sections 7502 and 7503 and theprovisions of §§1.7502–1, 1.7502–2, and1.7503–1 apply.

(h) Application of refund to outstand-ing liability of tax return preparer or ap-praiser. The IRS may, within the applica-ble period of limitations, credit any amountof an overpayment by a tax return prepareror appraiser of a penalty (or penalties) paidunder section 6694 and §1.6694–1, undersection 6695 and §1.6695–1, or under sec-tion 6695A (and any subsequently issuedregulations) against any outstanding liabil-ity for any tax (or for any interest, addi-tional amount, addition to the tax, or as-sessable penalty) owed by the tax returnpreparer or appraiser making the overpay-ment. If a portion of an overpayment is socredited, only the balance will be refundedto the tax return preparer or appraiser.

(i) Interest. (1) Section 6611 and§301.6611–1 of this chapter apply to thepayment by the IRS of interest on anoverpayment by a tax return preparer orappraiser of a penalty (or penalties) paidunder section 6694 and §1.6694–1, undersection 6695 and §1.6695–1, or under sec-tion 6695A (and any subsequently issuedregulations).

(2) Section 6601 and §301.6601–1 ofthis chapter apply to the payment of inter-est by a tax return preparer or appraiser tothe IRS on any penalty (or penalties) as-sessed against the tax return preparer undersection 6694 and §1.6694–1, under sec-tion 6695 and §1.6695–1, or under section6695A (and any subsequently issued regu-lations).

(j) Suits for refund of penalty. (1) Atax return preparer or appraiser may notmaintain a civil action for the recoveryof any penalty paid under section 6694and §1.6694–1, under section 6695 and§1.6695–1, or under section 6695A (andany subsequently issued regulations), un-less the tax return preparer or appraiser haspreviously filed a claim for credit or refundof the penalty as provided in this section(and the court has jurisdiction of the pro-ceeding). See sections 6694(c) and 7422.

(2)(i) Except as provided in section6694(c)(2) and §1.6694–4(b), the periodsof limitation contained in section 6532 and§301.6532–1 of this chapter apply to a taxreturn preparer’s or appraiser’s suit for therecovery of any penalty paid under section6694 and §1.6694–1, under section 6695and §1.6695–1, or under section 6695A(and any subsequently issued regulations).

(ii) The rules under section 7503 and§301.7503–1 of this chapter apply to thetimely commencement by a tax return pre-parer or appraiser of a suit for the recov-ery of any penalty paid under section 6694and §1.6694–1, under section 6695 and§1.6695–1, or under section 6695A (andany subsequently issued regulations).

(k) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 20—ESTATE TAX; ESTATESOF DECEDENTS DYING AFTERAUGUST 16, 1954

Par. 13. The authority citation for part20 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 20.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 20.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 20.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 14. Section 20.6060–1 is added to

read as follows:

§20.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of estatetax under chapter 11 of subtitle B of the

Internal Revenue Code, other than for theperson, at any time during a return period,shall satisfy the recordkeeping and inspec-tion requirements in the manner stated in§1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 15. Section 20.6107–1 is added toread as follows:

§20.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of estate tax under chap-ter 11 of subtitle B of the Internal Rev-enue Code shall furnish a completed copyof the return or claim for refund to thetaxpayer and retain a completed copy orrecord in the manner stated in §1.6107–1of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 16. Section 20.6109–1 is added toread as follows:

§20.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each estate tax return orclaim for refund prepared by one or moresigning tax return preparers must includethe identifying number of the preparer re-quired by §1.6695–1(b) of this chapter tosign the return or claim for refund in themanner stated in §1.6109–2 of this chap-ter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 17. Section 20.6694–1 is added toread as follows:

§20.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of estate tax returns orclaims for refund see §1.6694–1 of thischapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-

2009–3 I.R.B. 290 January 21, 2009

turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 18. Section 20.6694–2 is added toread as follows:

§20.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of estate tax under chapter 11 ofsubtitle B of the Internal Revenue Code(Code) shall be subject to penalties undersection 6694(a) of the Code in the mannerstated in §1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 19. Section 20.6694–3 is added toread as follows:

§20.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of estate tax under chapter 11 ofsubtitle B of the Internal Revenue Code(Code) shall be subject to penalties undersection 6694(b) of the Code in the mannerstated in §1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 20. Section 20.6694–4 is added toread as follows:

§20.6694–4 Extension of period ofcollection when preparer pays 15 percentof a penalty for understatement oftaxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of the period of collection whena tax return preparer who prepared a re-turn or claim for refund for estate tax underchapter 11 of subtitle B of the Internal Rev-enue Code pays 15 percent of a penalty forunderstatement of the taxpayer’s liability,and procedural matters relating to the in-vestigation, assessment and collection ofthe penalties under sections 6694(a) and(b), the rules under §1.6694–4 of this chap-ter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 21. Section 20.6695–1 is added toread as follows:

§20.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of estate tax under chapter 11 ofsubtitle B of the Internal Revenue Code(Code) shall be subject to penalties for fail-ure to furnish a copy to the taxpayer un-der section 6695(a) of the Code, failure tosign the return under section 6695(b) ofthe Code, failure to furnish an identifica-tion number under section 6695(c) of theCode, failure to retain a copy or list undersection 6695(d) of the Code, failure to filea correct information return under section6695(e) of the Code, and negotiation of acheck under section 6695(f) of the Code,in the manner stated in §1.6695–1 of thischapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 22. Section 20.6696–1 is added toread as follows:

§20.6696–1 Claims for credit or refund bytax return preparers or appraisers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor estate tax under chapter 11 of subtitleB of the Internal Revenue Code, or by anappraiser that prepared an appraisal in con-nection with such a return or claim for re-fund under section 6695A, the rules under§1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 23. Section 20.7701–1 is added toread as follows:

§20.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 25—GIFT TAX; GIFTS MADEAFTER DECEMBER 31, 1954

Par. 24. The authority citation for part25 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 25.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 25.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 25.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 25. Section 25.6060–1 is added to

read as follows:

§25.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of gifttax under chapter 12 of subtitle B of theInternal Revenue Code, other than for theperson, at any time during a return period,shall satisfy the recordkeeping and inspec-tion requirements in the manner stated in§1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 26. Section 25.6107–1 is added toread as follows:

§25.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of gift tax under chap-ter 12 of subtitle B of the Internal Rev-enue Code shall furnish a completed copyof the return or claim for refund to thetaxpayer, and retain a completed copy orrecord in the manner stated in §1.6107–1of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 27. Section 25.6109–1 is added toread as follows:

January 21, 2009 291 2009–3 I.R.B.

§25.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each gift tax return orclaim for refund prepared by one or moresigning tax return preparers must includethe identifying number of the preparer re-quired by §1.6695–1(b) of this chapter tosign the return or claim for refund in themanner stated in §1.6109–2 of this chap-ter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 28. Section 25.6694–1 is added toread as follows:

§25.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of gift tax returns or claimsfor refund, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 29. Section 25.6694–2 is added toread as follows:

§25.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of gift tax under chapter 12 of subti-tle B of the Internal Revenue Code (Code)shall be subject to penalties under section6694(a) of the Code in the manner statedin §1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 30. Section 25.6694–3 is added toread as follows:

§25.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of gift tax under chapter 12 of subti-tle B of the Internal Revenue Code (Code)shall be subject to penalties under section

6694(b) of the Code in the manner statedin §1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 31. Section 25.6694–4 is added toread as follows:

§25.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules for the ex-tension of period of collection when a taxreturn preparer who prepared a return orclaim for refund for gift tax under chap-ter 12 of subtitle B of the Internal Rev-enue Code pays 15 percent of a penaltyfor understatement of taxpayer’s liability,and procedural matters relating to the in-vestigation, assessment and collection ofthe penalties under section 6694(a) and (b),the rules under §1.6694–4 of this chapterwill apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 32. Section 25.6695–1 is added toread as follows:

§25.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of gift tax under chapter 12 of subti-tle B of the Internal Revenue Code (Code)shall be subject to penalties for failure tofurnish a copy to the taxpayer under sec-tion 6695(a) of the Code, failure to sign thereturn under section 6695(b) of the Code,failure to furnish an identification numberunder section 6695(c) of the Code, fail-ure to retain a copy or list under section6695(d) of the Code, failure to file a correctinformation return under section 6695(e)of the Code, and negotiation of a checkunder section 6695(f) of the Code, in themanner stated in §1.6695–1 of this chap-ter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 33. Section 25.6696–1 is added toread as follows:

§25.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor gift tax under chapter 12 of subtitle Bof the Internal Revenue Code, or by an ap-praiser that prepared an appraisal in con-nection with such a return or claim for re-fund under section 6695A, the rules under§1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 34. Section 25.7701–1 is added toread as follows:

§25.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 26—GENERATION-SKIPPINGTRANSFER TAX REGULATIONSUNDER THE TAX REFORM ACT OF1986

Par. 35. The authority citation for part26 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 26.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 26.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 26.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 36. Section 26.6060–1 is added to

read as follows:

§26.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of genera-tion-skipping transfer tax under chapter 13of subtitle B of the Internal Revenue Code,

2009–3 I.R.B. 292 January 21, 2009

other than for the person, at any time dur-ing a return period, shall satisfy the record-keeping and inspection requirements in themanner stated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 37. Section 26.6107–1 is added toread as follows:

§26.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of generation-skippingtransfer tax under chapter 13 of subtitle Bof the Internal Revenue Code shall furnisha completed copy of the return or claimfor refund to the taxpayer, and retain acompleted copy or record in the mannerstated in §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 38. Section 26.6109–1 is added toread as follows:

§26.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each generation-skip-ping transfer tax return or claim for re-fund prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 39. Section 26.6694–1 is added toread as follows:

§26.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties appli-cable to preparers of generation-skippingtransfer tax returns or claims for refundsee §1.6694–1 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-

turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 40. Section 26.6694–2 is added toread as follows:

§26.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of generation-skipping transfer taxunder chapter 13 of subtitle B of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(a) of theCode in the manner stated in §1.6694–2 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 41. Section 26.6694–3 is added toread as follows:

§26.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of generation-skipping transfer taxunder chapter 13 of subtitle B of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(b) of theCode in the manner stated in §1.6694–3 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 42. Section 26.6694–4 is added toread as follows:

§26.6694–4 Extension of period ofcollection when preparer pays 15 percentof a penalty for understatement oftaxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for generation-skippingtransfer tax under chapter 13 of subtitle Bof the Internal Revenue Code pays 15 per-cent of a penalty for understatement of tax-payer’s liability, and procedural matters re-lating to the investigation, assessment andcollection of the penalties under section

6694(a) and (b), the rules under §1.6694–4of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 43. Section 26.6695–1 is added toread as follows:

§26.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of generation-skipping transfer taxunder chapter 13 of subtitle B of the Inter-nal Revenue Code (Code) shall be subjectto penalties for failure to furnish a copy tothe taxpayer under section 6695(a) of theCode, failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 44. Section 26.6696–1 is added toread as follows:

§26.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor generation-skipping transfer tax underchapter 13 of subtitle B of the Internal Rev-enue Code, or by an appraiser that pre-pared an appraisal in connection with sucha return or claim for refund under section6695A, the rules under §1.6696–1 of thischapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 45. Section 26.7701–1 is added toread as follows:

January 21, 2009 293 2009–3 I.R.B.

§26.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT THE SOURCE

Par. 46. The authority citation for part31 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 31.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 31.6109–2 also issued under

26 U.S.C. 6109(a). * * *Section 31.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 47. Section 31.6060–1 is added to

read as follows:

§31.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund of employmenttax under chapters 21 through 25 of subti-tle C of the Internal Revenue Code, otherthan for the person, at any time during a re-turn period, shall satisfy the recordkeepingand inspection requirements in the mannerstated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 48. Section 31.6107–1 is added toread as follows:

§31.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of employment tax un-der chapters 21 through 25 of subtitle C ofthe Internal Revenue Code shall furnish acompleted copy of the return or claim forrefund to the taxpayer and retain a com-pleted copy or record in the manner statedin §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 49. Section 31.6109–2 is added toread as follows:

§31.6109–2 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each employment taxreturn or claim for refund of employmenttax under chapters 21 through 25 of subtitleC of the Internal Revenue Code preparedby one or more signing tax return prepar-ers must include the identifying number ofthe preparer required by §1.6695–1(b) ofthis chapter to sign the return or claim forrefund in the manner stated in §1.6109–2of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 50. Section 31.6694–1 is added toread as follows:

§31.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of employment tax returnsor claims for refund of employment tax un-der chapters 21 through 25 of subtitle C ofthe Internal Revenue Code, see §1.6694–1of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 51. Section 31.6694–2 is added toread as follows:

§31.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of employment tax under chapters21 through 25 of subtitle C of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(a) of theCode in the manner stated in §1.6694–2 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 52. Section 31.6694–3 is added toread as follows:

§31.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of employment tax under chapters21 through 25 of subtitle C of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(b) of theCode in the manner stated in §1.6694–3 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 53. Section 31.6694–4 is added toread as follows:

§31.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for employment tax un-der chapters 21 through 25 of subtitle Cof the Internal Revenue Code pays 15 per-cent of a penalty for understatement of tax-payer’s liability and procedural matters re-lating to the investigation, assessment andcollection of the penalties under section6694(a) and (b), the rules under §1.6694–4of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 54. Section 31.6695–1 is added toread as follows:

§31.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of employment tax under chapters21 through 25 of subtitle C of the InternalRevenue Code (Code) shall be subject topenalties for failure to furnish a copy tothe taxpayer under section 6695(a) of the

2009–3 I.R.B. 294 January 21, 2009

Code, failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 55. Section 31.6696–1 is added toread as follows:

§31.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claimsfor credit or refund by a tax return pre-parer who prepared a return or claim forrefund for employment tax under chapters21 through 25 of subtitle C of the InternalRevenue Code, the rules under §1.6696–1of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 56. Section 31.7701–1 is added toread as follows:

§31.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 40—EXCISE TAXPROCEDURAL REGULATIONS

Par. 57. The authority citation for part40 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 40.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 40.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 40.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 58. Section 40.6060–1 is added to

read as follows:

§40.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund of any tax towhich this part 40 applies other than for theperson, at any time during a return period,shall satisfy the recordkeeping and inspec-tion requirements in the manner stated in§1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 59. Section 40.6107–1 is added toread as follows:

§40.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of any tax to which thispart 40 applies shall furnish a completedcopy of the return or claim for refund to thetaxpayer and retain a completed copy orrecord in the manner stated in §1.6107–1of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 60. Section 40.6109–1 is added toread as follows:

§40.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each return or claim forrefund of any tax to which this part 40 ap-plies prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 61. Section 40.6694–1 is added toread as follows:

§40.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-

ble to preparers of returns or claims for re-fund of any tax to which this part 40 ap-plies, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 62. Section 40.6694–2 is added toread as follows:

§40.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of any tax to which this part 40applies shall be subject to penalties un-der section 6694(a) in the manner stated in§1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 63. Section 40.6694–3 is added toread as follows:

§40.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of any tax to which this part 40applies shall be subject to penalties un-der section 6694(b) in the manner stated in§1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 64. Section 40.6694–4 is added toread as follows:

§40.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund of any tax to which thispart 40 applies pays 15 percent of a penaltyfor understatement of taxpayer’s liabilityand procedural matters relating to the in-vestigation, assessment and collection ofthe penalties under section 6694(a) and (b),

January 21, 2009 295 2009–3 I.R.B.

the rules under §1.6694–4 of this chapterwill apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 65. Section 40.6695–1 is added toread as follows:

§40.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons..

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of any tax to which this part 40 ap-plies shall be subject to penalties for failureto furnish a copy to the taxpayer under sec-tion 6695(a) of the Internal Revenue Code(Code), failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 66. Section 40.6696–1 is added toread as follows:

§40.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. The rules under§1.6696–1 of this chapter will apply forclaims for credit or refund by a tax returnpreparer who prepared a return or claimfor refund of any tax to which this part 40applies.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 67. Section 40.7701–1 is added toread as follows:

§40.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claims

for refund filed, and advice provided, afterDecember 31, 2008.

PART 41—EXCISE TAX ON USEOF CERTAIN HIGHWAY MOTORVEHICLES

Par. 68. The authority citation for part41 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 41.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 41.6109–2 also issued under

26 U.S.C. 6109(a). * * *Section 41.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 69. Section 41.6060–1 is added to

read as follows:

§41.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of excisetax under section 4481, other than for theperson, at any time during a return period,shall satisfy the recordkeeping and inspec-tion requirements in the manner stated in§1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 70. Section 41.6107–1 is added toread as follows:

§41.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of excise tax under sec-tion 4481 shall furnish a completed copyof the return or claim for refund to thetaxpayer and retain a completed copy orrecord in the manner stated in §1.6107–1of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 71. Section 41.6109–2 is added toread as follows:

§41.6109–2 Tax return preparersfurnishing identifying numbers for returns

or claims for refund filed after December31, 2008.

(a) In general. Each excise tax returnor claim for refund under section 4481prepared by one or more signing tax re-turn preparers must include the identify-ing number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 72. Section 41.6694–1 is added toread as follows:

§41.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims forrefund, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 73. Section 41.6694–2 is added toread as follows:

§41.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under section 4481shall be subject to penalties under section6694(a) in the manner stated in §1.6694–2of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 74. Section 41.6694–3 is added toread as follows:

§41.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under section 4481shall be subject to penalties under section6694(b) in the manner stated in §1.6694–3of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claims

2009–3 I.R.B. 296 January 21, 2009

for refund filed, and advice provided, afterDecember 31, 2008.

Par. 75. Section 41.6694–4 is added toread as follows:

§41.6694–4 Extension of period ofcollection when preparer pays 15 percentof a penalty for understatement oftaxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for excise tax undersection 4481 pays 15 percent of a penaltyfor understatement of taxpayer’s liability,and procedural matters relating to the in-vestigation, assessment and collection ofthe penalties under section 6694(a) and (b),the rules under §1.6694–4 of this chapterwill apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 76. Section 41.6695–1 is added toread as follows:

§41.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under section 4481 ofthe Internal Revenue Code (Code) shall besubject to penalties for failure to furnish acopy to the taxpayer under section 6695(a)of the Code, failure to sign a return undersection 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 77. Section 41.6696–1 is added toread as follows:

§41.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor excise tax under section 4481, the rulesunder §1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 78. Section 41.7701–1 is added toread as follows:

§41.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 44—TAXES ON WAGERING;EFFECTIVE JANUARY 1, 1955

Par. 79. The authority citation for part44 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 44.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 44.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 44.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 80. Section 44.6060–1 is added to

read as follows:

§44.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of tax onwagers under sections 4401 or 4411, otherthan for the person, at any time during a re-turn period, shall satisfy the recordkeepingand inspection requirements in the mannerstated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 81. Section 44.6107–1 is added toread as follows:

§44.6107–1 Tax return preparer mustfurnish copy of return to taxpayer andmust retain a copy or record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax on wagers undersections 4401 or 4411 shall furnish a com-pleted copy of the return or claim for re-fund to the taxpayer, and retain a com-pleted copy or record in the manner statedin §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 82. Section 44.6109–1 is added toread as follows:

§44.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each tax return or claimfor refund of tax under sections 4401 or4411 prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable for returns and claimsfor refund filed after December 31, 2008.

Par. 83. Section 44.6694–1 is added toread as follows:

§44.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of wagering tax returns orclaims for refund under sections 4401 or4411, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 84. Section 44.6694–2 is added toread as follows:

§44.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax on wagers under sections 4401

January 21, 2009 297 2009–3 I.R.B.

or 4411 shall be subject to penalties un-der section 6694(a) in the manner stated in§1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 85. Section 44.6694–3 is added toread as follows:

§44.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax on wagers under sections 4401or 4411 shall be subject to penalties un-der section 6694(b) in the manner stated in§1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 86. Section 44.6694–4 is added toread as follows:

§44.6694–4 Extension of period ofcollection when preparer pays 15 percentof a penalty for understatement oftaxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for tax on wagers undersections 4401 or 4411 pays 15 percent ofa penalty for understatement of taxpayer’sliability and procedural matters relating tothe investigation, assessment and collec-tion of the penalties under section 6694(a)and (b), the rules under §1.6694–4 of thischapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 87. Section 44.6695–1 is added toread as follows:

§44.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax on wagers under sections

4401 or 4411 of the Internal Revenue Code(Code) shall be subject to penalties for fail-ure to furnish a copy to the taxpayer un-der section 6695(a) of the Code, failure tosign the return under section 6695(b) ofthe Code, failure to furnish an identifica-tion number under section 6695(c) of theCode, failure to retain a copy or list undersection 6695(d) of the Code, failure to filea correct information return under section6695(e) of the Code, and negotiation of acheck under section 6695(f) of the Code,in the manner stated in §1.6695–1 of thischapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 88. Section 44.6696–1 is added toread as follows:

§44.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor tax on wagers under sections 4401 or4411, the rules under §1.6696–1 of thischapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 89. Section 44.7701–1 is added toread as follows:

§44.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 53—FOUNDATION ANDSIMILAR EXCISE TAXES

Par. 90. The authority citation for part53 is amended by adding entries in numer-ical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 53.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 53.6109–1 also issued under

26 U.S.C. 6109(a). * * *

Section 53.6695–1 also issued under26 U.S.C. 6695(b). * * *

Par. 91. Section 53.6060–1 is added toread as follows:

§53.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund of tax underChapter 42 of the Internal Revenue Code,other than for the person, at any time dur-ing a return period, shall satisfy the record-keeping and inspection requirements in themanner stated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 92. Section 53.6107–1 is added toread as follows:

§53.6107–1 Tax return preparer mustfurnish copy of return or claim for refundto taxpayer and must retain a copy orrecord.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under Chapter 42 ofthe Internal Revenue Code shall furnish acompleted copy of the return or claim forrefund to the taxpayer and retain a com-pleted copy or record in the manner statedin §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 93. Section 53.6109–1 is added toread as follows:

§53.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund filed.

(a) In general. Each tax return or claimfor refund under Chapter 42 of the Inter-nal Revenue Code prepared by one or moresigning tax return preparers must includethe identifying number of the preparer re-quired by §1.6695–1(b) of this chapter tosign the return or claim for refund in themanner stated in §1.6109–2 of this chap-ter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

2009–3 I.R.B. 298 January 21, 2009

Par. 94. Section 53.6694–1 is added toread as follows:

§53.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claimsfor refund under Chapter 42 of the Inter-nal Revenue Code, see §1.6694–1 of thischapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 95. Section 53.6694–2 is added toread as follows:

§53.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under Chapter 42 of the In-ternal Revenue Code (Code) shall be sub-ject to penalties under section 6694(a) ofthe Code in the manner stated in §1.6694–2of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 96. Section 53.6694–3 is added toread as follows:

§53.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under Chapter 42 of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(b) of theCode in the manner stated in §1.6694–3 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 97. Section 53.6694–4 is added toread as follows:

§53.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatement

of taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund of tax under Chapter 42of the Internal Revenue Code pays 15 per-cent of a penalty for understatement of tax-payer’s liability and procedural matters re-lating to the investigation, assessment andcollection of the penalties under section6694(a) and (b), the rules under §1.6694–4of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 98. Section 53.6695–1 is added toread as follows:

§53.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns or claims for refund for otherpersons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under Chapter 42 of the Inter-nal Revenue Code (Code) shall be subjectto penalties for failure to furnish a copy tothe taxpayer under section 6695(a) of theCode, failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 99. Section 53.6696–1 is added toread as follows:

§53.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor tax under Chapter 42 of the InternalRevenue Code, the rules under §1.6696–1of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claims

for refund filed, and advice provided, afterDecember 31, 2008.

Par. 100. Section 53.7701–1 is addedto read as follows:

§53.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 54—PENSION EXCISE TAXES

Par. 101. The authority citation forpart 54 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 54.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 54.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 54.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 102. Section 54.6060–1 is added

to read as follows:

§54.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund under Chap-ter 43 of subtitle D of the Internal Rev-enue Code, other than for the person, at anytime during a return period, shall satisfythe recordkeeping and inspection require-ments in the manner stated in §1.6060–1 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 103. Section 54.6107–1 is addedto read as follows:

§54.6107–1 Tax return preparer mustfurnish copy of return or claims for refundto taxpayer and must retain a copy orrecord.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under Chapter 43of subtitle D of the Internal Revenue Code,shall furnish a completed copy of the re-turn or claim for refund to the taxpayer,and retain a completed copy or record in

January 21, 2009 299 2009–3 I.R.B.

the manner stated in §1.6107–1 of thischapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 104. Section 54.6109–1 is addedto read as follows:

§54.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund filed.

(a) In general. Each tax return or claimfor refund of tax under Chapter 43 of sub-title D prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 105. Section 54.6694–1 is addedto read as follows:

§54.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims forrefund of tax under Chapter 43 of subtitleD, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 106. Section 54.6694–2 is addedto read as follows:

§54.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 43 of subtitleD of the Internal Revenue Code (Code)shall be subject to penalties under section6694(a) of the Code in the manner statedin §1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 107. Section 54.6694–3 is addedto read as follows:

§54.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under chapter 43 ofsubtitle D of the Internal Revenue Code(Code) shall be subject to penalties undersection 6694(b) of the Code in the mannerstated in §1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 108. Section 54.6694–4 is addedto read as follows:

§54.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for tax under chap-ter 43 of subtitle D of the Internal Rev-enue Code pays 15 percent of a penaltyfor understatement of taxpayer’s liability,and procedural matters relating to the in-vestigation, assessment and collection ofthe penalties under section 6694(a) and (b),the rules under §1.6694–4 of this chapterwill apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 109. Section 54.6695–1 is addedto read as follows:

§54.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns for other persons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 43 of subti-tle D of the Internal Revenue Code (Code)shall be subject to penalties for failure tofurnish a copy to the taxpayer under sec-tion 6695(a) of the Code, failure to sign thereturn under section 6695(b) of the Code,failure to furnish an identification numberunder section 6695(c) of the Code, fail-ure to retain a copy or list under section6695(d) of the Code, failure to file a correct

information return under section 6695(e)of the Code, and negotiation of a checkunder section 6695(f) of the Code, in themanner stated in §1.6695–1 of this chap-ter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 110. Section 54.6696–1 is addedto read as follows:

§54.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor excise tax under chapter 43 of subtitleD of the Internal Revenue Code, the rulesunder §1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 111. Section 54.7701–1 is addedto read as follows:

§54.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 55—EXCISE TAX ON REALESTATE INVESTMENT TRUSTSAND REGULATED INVESTMENTCOMPANIES

Par. 112. The authority citation forpart 55 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 55.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 55.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 55.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 113. Section 55.6060–1 is added

to read as follows:

§55.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to prepare

2009–3 I.R.B. 300 January 21, 2009

a return or claim for refund under chap-ter 44 of subtitle D of the Internal Rev-enue Code, other than for the person, at anytime during a return period, shall satisfythe recordkeeping and inspection require-ments in the manner stated in §1.6060–1 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 114. Section 55.6107–1 is addedto read as follows:

§55.6107–1 Tax return preparer mustfurnish copy of return or claim for refundto taxpayer and must retain a copy orrecord.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under Chapter 44of subtitle D of the Internal Revenue Codeshall furnish a completed copy of the re-turn or claim for refund to the taxpayer,and retain a completed copy or record inthe manner stated in §1.6107–1 of thischapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 115. Section 55.6109–1 is addedto read as follows:

§55.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each tax return or claimfor refund of tax under chapter 44 of Sub-title D prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 116. Section 55.6694–1 is addedto read as follows:

§55.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims for

refund of tax under chapter 44 of SubtitleD, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 117. Section 55.6694–2 is addedto read as follows:

§55.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under chapter 44 ofsubtitle D of the Internal Revenue Code(Code) shall be subject to penalties undersection 6694(a) of the Code in the mannerstated in §1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 118. Section 55.6694–3 is addedto read as follows:

§55.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 44 of subtitleD of the Internal Revenue Code (Code)shall be subject to penalties under section6694(b) of the Code in the manner statedin §1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 119. Section 55.6694–4 is addedto read as follows:

§55.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating tothe extension of period of collection whena tax return preparer who prepared a re-turn or claim for refund for excise tax un-der chapter 44 of subtitle D of the InternalRevenue Code pays 15 percent of a penaltyfor understatement of taxpayer’s liabilityand procedural matters relating to the in-vestigation, assessment and collection of

the penalties under section 6694(a) and (b),the rules under §1.6694–4 of this chapterwill apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 120. Section 55.6695–1 is addedto read as follows:

§55.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns or claims for refund for otherpersons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 44 of subti-tle D of the Internal Revenue Code (Code)shall be subject to penalties for failure tofurnish a copy to the taxpayer under sec-tion 6695(a) of the Code, failure to sign thereturn under section 6695(b) of the Code,failure to furnish an identification numberunder section 6695(c) of the Code, fail-ure to retain a copy or list under section6695(d) of the Code, failure to file a correctinformation return under section 6695(e)of the Code, and negotiation of a checkunder section 6695(f) of the Code, in themanner stated in §1.6695–1 of this chap-ter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 121. Section 55.6696–1 is addedto read as follows:

§55.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor tax under chapter 44 of subtitle D ofthe Internal Revenue Code, the rules under§1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 122. Section 55.7701–1 is addedto read as follows:

§55.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

January 21, 2009 301 2009–3 I.R.B.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 56—PUBLIC CHARITY EXCISETAXES

Par. 123. The authority citation forpart 56 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 56.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 56.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 56.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 124. Section 56.6060–1 is added

to read as follows:

§56.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to pre-pare a return or claim for refund of tax un-der chapter 41 of subtitle D of the Inter-nal Revenue Code, other than for the per-son, at any time during a return period,shall satisfy the recordkeeping and inspec-tion requirements in the manner stated in§1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 125. Section 56.6107–1 is addedto read as follows:

§56.6107–1 Tax return preparer mustfurnish copy of return and claim forrefund to taxpayer and must retain a copyor record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under Chapter 41of subtitle D of the Internal Revenue Codeshall furnish a completed copy of the re-turn or claim for refund to the public char-ity and retain a completed copy or recordin the manner stated in §1.6107–1 of thischapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 126. Section 56.6109–1 is addedto read as follows:

§56.6109–1 Tax return preparers fur-nishing identifying numbers for returns orclaims for refund.

(a) In general. Each tax return or claimfor refund for tax under chapter 41 of sub-title D prepared by one or more signing taxreturn preparers must include the identi-fying number of the preparer required by§1.6695–1(b) of this chapter to sign thereturn or claim for refund in the mannerstated in §1.6109–2 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 127. Section 56.6694–1 is addedto read as follows:

§56.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims forrefund of tax under chapter 41 of subtitleD, see §1.6694–1 of this chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 128. Section 56.6694–2 is addedto read as follows:

§56.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of excise tax under chapter 41 ofsubtitle D of the Internal Revenue Code(Code) shall be subject to penalties undersection 6694(a) of the Code in the mannerstated in §1.6694–2 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 129. Section 56.6694–3 is addedto read as follows:

§56.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 41 of subtitleD of the Internal Revenue Code (Code)shall be subject to penalties under section

6694(b) of the Code in the manner statedin §1.6694–3 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 130. Section 56.6694–4 is addedto read as follows:

§56.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for tax under chapter 41of subtitle D of the Internal Revenue Codepays 15 percent of a penalty for under-statement of taxpayer’s liability and proce-dural matters relating to the investigation,assessment and collection of the penaltiesunder section 6694(a) and (b), the rules un-der §1.6694–4 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 131. Section 56.6695–1 is addedto read as follows:

§56.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns or claims for refund for otherpersons.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under chapter 41 of subti-tle D of the Internal Revenue Code (Code)shall be subject to penalties for failure tofurnish a copy to the taxpayer under sec-tion 6695(a) of the Code, failure to sign thereturn under section 6695(b) of the Code,failure to furnish an identification numberunder section 6695(c) of the Code, fail-ure to retain a copy or list under section6695(d) of the Code, failure to file a correctinformation return under section 6695(e)of the Code, and negotiation of a checkunder section 6695(f) of the Code, in themanner stated in §1.6695–1 of this chap-ter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

2009–3 I.R.B. 302 January 21, 2009

Par. 132. Section 56.6696–1 is addedto read as follows:

§56.6696–1 Claims for credit or refund bytax return preparers.

(a) In general. For rules relating toclaims for credit or refund by a tax returnpreparer who prepared a return or claim forrefund for tax under chapter 41 of subtitleD of the Internal Revenue Code, the rulesunder §1.6696–1 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 133. Section 56.7701–1 is addedto read as follows:

§56.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 156—EXCISE TAX ONGREENMAIL

Par. 134. The authority citation forpart 156 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 156.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 156.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 156.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 135. Section 156.6060–1 is added

to read as follows:

§156.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund under section5881 of the Internal Revenue Code, otherthan for the person, at any time during a re-turn period, shall satisfy the recordkeepingand inspection requirements in the mannerstated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 136. Section 156.6107–1 is addedto read as follows:

§156.6107–1 Tax return preparer mustfurnish copy of return and claim forrefund to taxpayer and must retain a copyor record.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under section 5881of the Internal Revenue Code shall furnisha completed copy of the return or claim forrefund to the taxpayer and retain a com-pleted copy or record in the manner statedin §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 137. Section 156.6109–1 is addedto read as follows:

§156.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each tax return or claimfor refund for tax under section 5881 ofthe Internal Revenue Code prepared byone or more signing tax return preparersmust include the identifying number of thepreparer required by §1.6695–1(b) of thischapter to sign the return or claim for re-fund in the manner stated in §1.6109–2 ofthis chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 138. Section 156.6694–1 is addedto read as follows:

§156.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims forrefund for tax under section 5881 of theInternal Revenue Code, see §1.6694–1 ofthis chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 139. Section 156.6694–2 is addedto read as follows:

§156.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under section 5881 of the In-ternal Revenue Code (Code) shall be sub-ject to penalties under section 6694(a) ofthe Code in the manner stated in §1.6694–2of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 140. Section 156.6694–3 is addedto read as follows:

§156.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax under section 5881 of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(b) of theCode in the manner stated in §1.6694–3 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 141. Section 156.6694–4 is addedto read as follows:

§156.6694–4 Extension of period ofcollection when tax return preparer pays15 percent of a penalty for understatementof taxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for tax under section5881 of the Internal Revenue Code pays15 percent of a penalty for understatementof taxpayer’s liability and procedural mat-ters relating to the investigation, assess-ment and collection of the penalties un-der section 6694(a) and (b), the rules under§1.6694–4 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 142. Section 156.6695–1 is addedto read as follows:

January 21, 2009 303 2009–3 I.R.B.

§156.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns or claims for refund for otherpersons.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax under section 5881 of the Inter-nal Revenue Code (Code) shall be subjectto penalties for failure to furnish a copy tothe taxpayer under section 6695(a) of theCode, failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 143. Section 156.6696–1 is addedto read as follows:

§156.6696–1 Claims for credit or refundby tax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor tax under section 5881 of the InternalRevenue Code, the rules under §1.6696–1of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 144. Section 156.7701–1 is addedto read as follows:

§156.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 157—EXCISE TAX ONSTRUCTURED SETTLEMENTFACTORING TRANSACTIONS

Par. 145. The authority citation forpart 157 is amended by adding entries innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 157.6060–1 also issued under

26 U.S.C. 6060(a). * * *Section 157.6109–1 also issued under

26 U.S.C. 6109(a). * * *Section 157.6695–1 also issued under

26 U.S.C. 6695(b). * * *Par. 146. Section 157.6060–1 is added

to read as follows:

§157.6060–1 Reporting requirements fortax return preparers.

(a) In general. A person that employsone or more tax return preparers to preparea return or claim for refund for tax undersection 5891 of the Internal Revenue Code,other than for the person, at any time dur-ing a return period, shall satisfy the record-keeping and inspection requirements in themanner stated in §1.6060–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 147. Section 157.6107–1 is addedto read as follows:

§157.6107–1 Tax return preparer mustfurnish copy of return or claim for refundto taxpayer and must retain a copy orrecord.

(a) In general. A person who is a sign-ing tax return preparer of any return orclaim for refund of tax under section 5891of the Internal Revenue Code shall furnisha completed copy of the return or claim forrefund to the taxpayer and retain a com-pleted copy or record in the manner statedin §1.6107–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 148. Section 157.6109–1 is addedto read as follows:

§157.6109–1 Tax return preparersfurnishing identifying numbers for returnsor claims for refund.

(a) In general. Each tax return or claimfor refund for tax under section 5891 of

the Internal Revenue Code prepared byone or more signing tax return preparersmust include the identifying number of thepreparer required by §1.6695–1(b) of thischapter to sign the return or claim for re-fund in the manner stated in §1.6109–2 ofthis chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed after De-cember 31, 2008.

Par. 149. Section 157.6694–1 is addedto read as follows:

§157.6694–1 Section 6694 penaltiesapplicable to tax return preparer.

(a) In general. For general definitionsregarding section 6694 penalties applica-ble to preparers of tax returns or claims forrefund for tax under section 5891 of theInternal Revenue Code, see §1.6694–1 ofthis chapter.

(b) Effective/applicability date. Para-graph (a) of this section is applicable to re-turns and claims for refund filed, and ad-vice provided, after December 31, 2008.

Par. 150. Section 157.6694–2 is addedto read as follows:

§157.6694–2 Penalties for understatementdue to an unreasonable position.

(a) In general. A person who is a taxreturn preparer of any return or claim forrefund of tax under section 5891 of the In-ternal Revenue Code (Code) shall be sub-ject to penalties under section 6694(a) ofthe Code in the manner stated in §1.6694–2of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 151. Section 157.6694–3 is addedto read as follows:

§157.6694–3 Penalty for understatementdue to willful, reckless, or intentionalconduct.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax under section 5891 of the Inter-nal Revenue Code (Code) shall be subjectto penalties under section 6694(b) of theCode in the manner stated in §1.6694–3 ofthis chapter.

2009–3 I.R.B. 304 January 21, 2009

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 152. Section 157.6694–4 is addedto read as follows:

§157.6694–4 Extension of period ofcollection when preparer pays 15 percentof a penalty for understatement oftaxpayer’s liability and certain otherprocedural matters.

(a) In general. For rules relating to theextension of period of collection when atax return preparer who prepared a returnor claim for refund for tax under section5891 of the Internal Revenue Code pays15 percent of a penalty for understatementof taxpayer’s liability and procedural mat-ters relating to the investigation, assess-ment and collection of the penalties un-der section 6694(a) and (b), the rules under§1.6694–4 of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 153. Section 157.6695–1 is addedto read as follows:

§157.6695–1 Other assessable penaltieswith respect to the preparation of taxreturns or claims for refund for otherpersons.

(a) In general. A person who is a tax re-turn preparer of any return or claim for re-fund of tax under section 5891 of the Inter-nal Revenue Code (Code) shall be subjectto penalties for failure to furnish a copy tothe taxpayer under section 6695(a) of theCode, failure to sign the return under sec-tion 6695(b) of the Code, failure to fur-nish an identification number under sec-tion 6695(c) of the Code, failure to retaina copy or list under section 6695(d) of theCode, failure to file a correct informationreturn under section 6695(e) of the Code,and negotiation of a check under section6695(f) of the Code, in the manner statedin §1.6695–1 of this chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed after December 31, 2008.

Par. 154. Section 157.6696–1 is addedto read as follows:

§157.6696–1 Claims for credit or refundby tax return preparers.

(a) In general. For rules for claims forcredit or refund by a tax return preparerwho prepared a return or claim for refundfor tax under section 5891 of the InternalRevenue Code, the rules under §1.6696–1of this chapter will apply.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

Par. 155. Section 157.7701–1 is addedto read as follows:

§157.7701–1 Tax return preparer.

(a) In general. For the definition of atax return preparer, see §301.7701–15 ofthis chapter.

(b) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 301—PROCEDURE ANDADMINISTRATION

Par. 156. The authority citation for part301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 157. Section 301.7701–15 is

amended to read as follows:

§301.7701–15 Tax return preparer.

(a) In general. A tax return prepareris any person who prepares for compensa-tion, or who employs one or more personsto prepare for compensation, all or a sub-stantial portion of any return of tax or anyclaim for refund of tax under the InternalRevenue Code (Code).

(b) Definitions—(1) Signing tax returnpreparer. A signing tax return preparer isthe individual tax return preparer who hasthe primary responsibility for the overallsubstantive accuracy of the preparation ofsuch return or claim for refund.

(2) Nonsigning tax return preparer—(i)In general. A nonsigning tax return pre-parer is any tax return preparer who is nota signing tax return preparer but who pre-pares all or a substantial portion of a re-turn or claim for refund within the mean-ing of paragraph (b)(3) of this section withrespect to events that have occurred at the

time the advice is rendered. In determin-ing whether an individual is a nonsigningtax return preparer, time spent on advicethat is given after events have occurred thatrepresents less than 5 percent of the ag-gregate time incurred by such individualwith respect to the position(s) giving riseto the understatement shall not be takeninto account. Notwithstanding the preced-ing sentence, time spent on advice beforethe events have occurred will be taken intoaccount if all facts and circumstances showthat the position(s) giving rise to the under-statement is primarily attributable to theadvice, the advice was substantially givenbefore events occurred primarily to avoidtreating the person giving the advice as atax return preparer, and the advice givenbefore events occurred was confirmed af-ter events had occurred for purposes ofpreparing a tax return. Examples of non-signing tax return preparers are tax returnpreparers who provide advice (written ororal) to a taxpayer (or to another tax returnpreparer) when that advice leads to a posi-tion or entry that constitutes a substantialportion of the return within the meaning ofparagraph(b)(3) of this section.

(ii) Examples. The provisions of thisparagraph (b)(2) are illustrated by the fol-lowing examples:

Example 1. Attorney A, an attorney in a law firm,provides legal advice to a large corporate taxpayer re-garding a completed corporate transaction. The ad-vice provided by A is directly relevant to the deter-mination of an entry on the taxpayer’s return, and thisadvice leads to a position(s) or entry that constitutesa substantial portion of the return. A, however, doesnot prepare any other portion of the taxpayer’s returnand is not the signing tax return preparer of this return.A is considered a nonsigning tax return preparer.

Example 2. Attorney B, an attorney in a law firm,provides legal advice to a large corporate taxpayer re-garding the tax consequences of a proposed corporatetransaction. Based upon this advice, the corporatetaxpayer enters into the transaction. Once the trans-action is completed, the corporate taxpayer does notreceive any additional advice from B with respect tothe transaction. B did not provide advice with respectto events that have occurred and is not considered atax return preparer.

Example 3. The facts are the same as Example2, except that Attorney B provides supplemental ad-vice to the corporate taxpayer on a phone call afterthe transaction is completed. Attorney B did not pro-vide advice before the corporate transaction occurredwith the primary intent to avoid being treated as a taxreturn preparer. The time incurred on this supplemen-tal advice by B represented less than 5 percent of theaggregate amount of time spent by B providing taxadvice on the position. B is not considered a tax re-turn preparer.

January 21, 2009 305 2009–3 I.R.B.

(3) Substantial portion. (i) Only a per-son who prepares all or a substantial por-tion of a return or claim for refund shallbe considered to be a tax return preparerof the return or claim for refund. A per-son who renders tax advice on a positionthat is directly relevant to the determina-tion of the existence, characterization, oramount of an entry on a return or claim forrefund will be regarded as having preparedthat entry. Whether a schedule, entry, orother portion of a return or claim for refundis a substantial portion is determined basedupon whether the person knows or reason-ably should know that the tax attributableto the schedule, entry, or other portion ofa return or claim for refund is a substan-tial portion of the tax required to be shownon the return or claim for refund. A singletax entry may constitute a substantial por-tion of the tax required to be shown on areturn. Factors to consider in determiningwhether a schedule, entry, or other portionof a return or claim for refund is a substan-tial portion include but are not limited to—

(A) the size and complexity of the itemrelative to the taxpayer’s gross income;and

(B) the size of the understatement at-tributable to the item compared to the tax-payer’s reported tax liability.

(ii)(A) For purposes of applying therules of paragraph (b)(3)(i) of this sectionto a nonsigning tax return preparer withinthe meaning of paragraph (b)(2) of thissection only, the schedule or other portionis not considered to be a substantial por-tion if the schedule, entry, or other portionof the return or claim for refund involvesamounts of gross income, amounts of de-ductions, or amounts on the basis of whichcredits are determined that are—

(1) Less than $10,000; or(2) Less than $400,000 and also less

than 20 percent of the gross income asshown on the return or claim for refund (or,for an individual, the individual’s adjustedgross income).

(B) If more than one schedule, entry orother portion is involved, all schedules, en-tries or other portions shall be aggregatedin applying the de minimis rule in para-graph (b)(3)(ii)(A) of this section.

(C) The de minimis rule in paragraph(b)(3)(ii)(A) of this section shall not applyto a signing tax return preparer within themeaning of paragraph (b)(1) of this sec-tion.

(iii) A tax return preparer with respectto one return is not considered to be a taxreturn preparer of another return merelybecause an entry or entries reported on thefirst return may affect an entry reported onthe other return, unless the entry or entriesreported on the first return are directly re-flected on the other return and constitute asubstantial portion of the other return. Forexample, the sole preparer of a partnershipreturn of income or small business corpo-ration income tax return is considered a taxreturn preparer of a partner’s or a share-holder’s return if the entry or entries on thepartnership or small business corporationreturn reportable on the partner’s or share-holder’s return constitute a substantial por-tion of the partner’s or shareholder’s re-turn.

(iv) Examples. The provisions of thisparagraph (b)(3) are illustrated by the fol-lowing examples:

Example 1. Accountant C prepares a Form 8886,“Reportable Transaction Disclosure Statement”, thatis used to disclose reportable transactions. C does notprepare the tax return or advise the taxpayer regard-ing the tax return reporting position of the transac-tion to which the Form 8886 relates. The prepara-tion of the Form 8886 is not directly relevant to thedetermination of the existence, characterization, oramount of an entry on a tax return or claim for refund.Rather, the Form 8886 is prepared by C to disclose areportable transaction. C has not prepared a substan-tial portion of the tax return and is not considered atax return preparer under section 6694.

Example 2. Accountant D prepares a schedule foran individual taxpayer’s Form 1040, “U.S. IndividualIncome Tax Return”, reporting $4,000 in dividend in-come and gives oral or written advice about Sched-ule A, which results in a claim of a medical expensededuction totaling $5,000, but does not sign the taxreturn. D is not a nonsigning tax return preparer be-cause the total aggregate amount of the deductions isless than $10,000.

(4) Return and claim for refund—(i)Return. For purposes of this section, areturn of tax is a return (including anamended or adjusted return) filed by or onbehalf of a taxpayer reporting the liabilityof the taxpayer for tax under the Code,if the type of return is identified in pub-lished guidance in the Internal RevenueBulletin. A return of tax also includesany information return or other documentidentified in published guidance in theInternal Revenue Bulletin and that reportsinformation that is or may be reported onanother taxpayer’s return under the Codeif the information reported on the informa-tion return or other document constitutes asubstantial portion of the taxpayer’s return

within the meaning of paragraph (b)(3) ofthis section.

(ii) Claim for refund. For purposes ofthis section, a claim for refund of tax in-cludes a claim for credit against any taxthat is included in published guidance inthe Internal Revenue Bulletin. A claim forrefund also includes a claim for paymentunder section 6420, 6421, or 6427.

(c) Mechanical or clerical assistance.A person who furnishes to a taxpayer orother tax return preparer sufficient infor-mation and advice so that completion ofthe return or claim for refund is largelya mechanical or clerical matter is consid-ered a tax return preparer, even though thatperson does not actually place or reviewplacement of information on the return orclaim for refund. See also paragraph (b)(3)of this section.

(d) Qualifications. A person may be atax return preparer without regard to ed-ucational qualifications and professionalstatus requirements.

(e) Outside the United States. A personwho prepares a return or claim for refundoutside the United States is a tax returnpreparer, regardless of the person’s nation-ality, residence, or the location of the per-son’s place of business, if the person oth-erwise satisfies the definition of tax returnpreparer. Notwithstanding the provisionsof §301.6109–1(g), the person shall securean employer identification number if theperson is an employer of another tax returnpreparer, is a partnership in which one ormore of the general partners is a tax returnpreparer, is a firm in which one or moreof the equity holders is a tax return pre-parer, or is an individual not employed byanother tax return preparer.

(f) Persons who are not tax return pre-parers. (1) The following persons are nottax return preparers:

(i) An official or employee of the Inter-nal Revenue Service (IRS) performing of-ficial duties.

(ii) Any individual who provides taxassistance under a Volunteer Income TaxAssistance (VITA) program established bythe IRS, but only with respect to those re-turns prepared as part of the VITA pro-gram.

(iii) Any organization sponsoring or ad-ministering a VITA program establishedby the IRS, but only with respect to thatsponsorship or administration.

2009–3 I.R.B. 306 January 21, 2009

(iv) Any individual who provides taxcounseling for the elderly under a programestablished pursuant to section 163 of theRevenue Act of 1978, but only with respectto those returns prepared as part of thatprogram.

(v) Any organization sponsoring or ad-ministering a program to provide tax coun-seling for the elderly established pursuantto section 163 of the Revenue Act of 1978,but only with respect to that sponsorship oradministration.

(vi) Any individual who provides taxassistance as part of a qualified Low-In-come Taxpayer Clinic (LITC), as definedby section 7526, subject to the require-ments of paragraphs (f)(2) and (3) of thissection, but only with respect to those re-turns and claims for refund prepared aspart of the LITC program.

(vii) Any organization that is a qualifiedLITC, as defined by section 7526, subjectto the requirements of paragraphs (f)(2)and (3) of this section.

(viii) An individual providing only typ-ing, reproduction, or other mechanical as-sistance in the preparation of a return orclaim for refund.

(ix) An individual preparing a returnor claim for refund of a taxpayer, or anofficer, a general partner, member, share-holder, or employee of a taxpayer, bywhom the individual is regularly and con-tinuously employed or compensated or inwhich the individual is a general partner.

(x) An individual preparing a return orclaim for refund for a trust, estate, or otherentity of which the individual either is afiduciary or is an officer, general partner,or employee of the fiduciary.

(xi) An individual preparing a claim forrefund for a taxpayer in response to—

(A) A notice of deficiency issued to thetaxpayer; or

(B) A waiver of restriction on assess-ment after initiation of an audit of the tax-payer or another taxpayer if a determina-tion in the audit of the other taxpayer af-fects, directly or indirectly, the liability ofthe taxpayer for tax.

(xii) A person who prepares a return orclaim for refund for a taxpayer with no ex-plicit or implicit agreement for compensa-tion, even if the person receives an insub-stantial gift, return service, or favor.

(2) Paragraphs (f)(1)(vi) and (vii) of thissection apply only if any assistance with areturn of tax or claim for refund is directlyrelated to a controversy with the IRS forwhich the qualified LITC is providing as-sistance or is an ancillary part of a LITCprogram to inform individuals for whomEnglish is a second language about theirrights and responsibilities under the Code.

(3) Notwithstanding paragraph (f)(2)of this section, paragraphs (f)(1)(vi) and(f)(1)(vii) of this section do not apply ifan LITC charges a separate fee or varies afee based on whether the LITC providesassistance with a return of tax or claimfor refund under the Code or if the LITCcharges more than a nominal fee for itsservices.

(4) For purposes of paragraph (f)(1)(ix)of this section, the employee of a corpo-ration owning more than 50 percent of thevoting power of another corporation, or theemployee of a corporation more than 50percent of the voting power of which isowned by another corporation, is consid-ered the employee of the other corporationas well.

(5) For purposes of paragraph (f)(1)(x)of this section, an estate, guardianship,conservatorship, committee, or any simi-lar arrangement for a taxpayer under a le-gal disability (such as a minor, an incom-

petent, or an infirm individual) is consid-ered a trust or estate.

(6) Examples. The mechanical assis-tance exception described in paragraph(f)(1)(viii) of this section is illustrated bythe following examples:

Example 1. A reporting agent received employ-ment tax information from a client from the client’sbusiness records. The reporting agent did not renderany tax advice to the client or exercise any discre-tion or independent judgment on the client’s under-lying tax positions. The reporting agent processedthe client’s information, signed the return as autho-rized by the client pursuant to Form 8655, ReportingAgent Authorization, and filed the client’s return us-ing the information supplied by the client. The re-porting agent is not a tax return preparer.

Example 2. A reporting agent rendered tax ad-vice to a client on determining whether its workersare employees or independent contractors for Fed-eral tax purposes. For compensation, the reportingagent received employment tax information from theclient, processed the client’s information and filed theclient’s return using the information supplied by theclient. The reporting agent is a tax return preparer.

(g) Effective/applicability date. Thissection is applicable to returns and claimsfor refund filed, and advice provided, afterDecember 31, 2008.

PART 602—OMB CONTROLNUMBERS UNDER THE PAPERWORKREDUCTION ACT

Par. 158. The authority citation for part602 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 159. In §602.101, paragraph (b) is

amended by adding the following entriesto the table in numerical order to read inpart as follows:

§602.101 OMB Control numbers.

* * * * *(b) * * *

January 21, 2009 307 2009–3 I.R.B.

CFR part or section whereidentified and described

Current OMBcontrol No.

* * * * *1.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–12311.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–12311.6694–2(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123120.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123120.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123125.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123125.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123126.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123126.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123131.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123131.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123140.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123140.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123141.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123141.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123144.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123144.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123153.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123153.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123154.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123154.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123155.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123155.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123156.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–123156.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1231156.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1231156.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1231157.6060–1(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1231157.6107–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1231

* * * * *

Linda M. Kroening,Acting Deputy Commissioner for

Services and Enforcement.

Approved December 10, 2008.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on December 15,2008, 4:15 p.m., and published in the issue of the FederalRegister for December 22, 2008, 73 F.R. 78429)

Section 6695.—OtherAssessable Penalties WithRespect to the Preparationof Tax Returns for OtherPersons

Final regulations implement amendments to thetax return preparer penalties under sections 6694 and6695 of the Internal Revenue Code (Code) and relatedprovisions under sections 6060, 6107, 6109, 6696,and 7701(a)(36) reflecting amendments to the Codemade by section 8246 of the Small Business and WorkOpportunity Tax Act of 2007 and section 506 of the

Tax Extenders and Alternative Minimum Tax ReliefAct of 2008. See T.D. 9436, page 268.

2009–3 I.R.B. 308 January 21, 2009

Part III. Administrative, Procedural, and MiscellaneousGuidance Under the PreparerPenalty Modification in theTax Extenders and AlternativeMinimum Tax Relief Act of2008

Notice 2009–5

This notice provides guidance regard-ing implementation of the tax return pre-parer penalty under section 6694(a) of theInternal Revenue Code, as amended by theTax Extenders and Alternative MinimumTax Relief Act of 2008, Div. C. of Pub. L.No. 110–343, 122 Stat. 3765 (October 3,2008) (the 2008 Act).

With this notice, the Treasury Depart-ment and the IRS are simultaneously issu-ing final regulations revising the regula-tory scheme governing tax return preparerpenalties in accordance with the amend-ments to sections 6694 and 6695 (andrelated provisions under sections 6060,6107, 6109, 6696, and 7701(a)(36)) inboth the 2008 Act and the Small Businessand Work Opportunity Tax Act of 2007,Title VIII-B of Pub. L. No. 110–28 (121Stat. 190) (May 25, 2007) (the 2007 Act).Section 1.6694–2 of the final regulations,however, does not provide substantiveguidance reflecting certain amendmentsto section 6694(a) made by the 2008 Act.Rather, the Treasury Department and theIRS are reserving §1.6694–2(c) in those fi-nal regulations and are issuing this notice.This notice provides interim guidance onthe 2008 Act’s changes to section 6694(a)and solicits public comments on this guid-ance.

BACKGROUND

Section 6694(a) imposes a penalty ona tax return preparer who prepares a re-turn or claim for refund reflecting an un-derstatement of liability due to an “unrea-sonable position” if the tax return preparerknew (or reasonably should have known)of the position. No penalty is imposed,however, if it is shown that there is rea-sonable cause for the understatement andthe tax return preparer acted in good faith.Immediately prior to the 2008 Act, un-der the standards of conduct implemented

by the 2007 Act’s amendment to section6694(a), a position would be treated asunreasonable unless (i) there was a rea-sonable belief that it would more likelythan not be sustained on the merits, or(ii) the position was properly disclosedand had a reasonable basis. The Trea-sury Department and the IRS issued No-tice 2007–54, 2007–27 I.R.B. 12, on June11, 2007, which provided transitional re-lief under section 6694(a). On December31, 2007, the Treasury Department and theIRS released both Notice 2008–11, 2008–3I.R.B. 279, which clarified the earlier tran-sition relief provided in Notice 2007–54,and Notice 2008–13, 2008–3 I.R.B. 282,which provided interim penalty compli-ance rules under the 2007 Act version ofsection 6694. On June 17, 2008, the Trea-sury Department and the IRS published inthe Federal Register (REG–129243–07,2008–27 I.R.B. 32 [73 F.R. 34560]) pro-posed amendments to the section 6694 reg-ulations reflecting amendments made bythe 2007 Act.

After the issuance of the proposedregulations, the 2008 Act revised section6694(a) to provide that a position wouldbe treated as unreasonable unless (i) thereis or was substantial authority for the po-sition or (ii) the position was properlydisclosed and had a reasonable basis. The2008 Act also enacted a special rule if theposition is with respect to a tax shelter (asdefined in section 6662(d)(2)(C)(ii)) ora reportable transaction to which section6662A applies (including both reportabletransactions with a significant purposeof Federal tax avoidance or evasion andlisted transactions), under which a posi-tion is treated as unreasonable unless itis reasonable to believe that the positionwould more likely than not be sustained onthe merits. The 2008 Act did not modifythe section 6694(b) penalty for understate-ments due to willful or reckless conduct.

The 2008 Act’s change in the generalstandard under section 6694(a) to substan-tial authority is retroactively effective fortax returns and claims for refund preparedafter May 25, 2007. The special rule appli-cable to tax shelters and reportable trans-actions to which section 6662A applies iseffective for tax returns and claims for re-fund prepared for taxable years ending af-

ter October 3, 2008, the 2008 Act’s date ofenactment.

This notice provides interim guidanceto tax return preparers regarding the ap-plication of section 6694(a) as revised bythe 2008 Act in order to provide immediateguidance for signing and nonsigning taxreturn preparers. Specifically, this interimguidance discusses the following issues:(1) the effect of the 2008 Act’s changes toNotices 2007–54, 2008–11, and 2008–13,which provide guidance on the applicationof section 6694(a) under the 2007 Act; (2)the definition of substantial authority forpurposes of section 6694(a)(2)(A); and (3)the interim penalty compliance rules for“tax shelter” transactions as defined in sec-tion 6662(d)(2)(C)(ii). Tax return prepar-ers may rely on the interim guidance in thisnotice with respect to these issues until fur-ther guidance is issued. The final regula-tions under section 6694 govern all otherissues with respect to this penalty.

The guidance regarding effective datesaddresses the retroactive effect of the 2008Act’s revisions to section 6694 and alsoaddresses the different effective dates forthe 2008 Act’s general standard (which ap-plies retroactively) and the special rule fortax shelters and reportable transactions towhich section 6662A applies (which doesnot apply retroactively). The guidancealso clarifies the interaction between the2008 Act’s effective dates and the effec-tive dates for Notices 2007–54, 2008–11,and 2008–13.

The interim guidance regarding sub-stantial authority generally adopts theanalysis provided under existing sub-stantial authority regulations under sec-tion 6662. The interim guidance clari-fies certain aspects of the application ofthe substantial authority regulations in§ 1.6662–4(d) in the context of section6694.

This interim guidance addresses theapplication of section 6694 while theTreasury Department and IRS considerfurther guidance for tax return preparersand taxpayers on the definition of taxshelter for purposes of sections 6694 and6662(d)(2)(C). A broad interpretation oftax shelter for purposes of section 6694could be inconsistent with the 2008 Act’schanges to section 6694 by requiring tax

January 21, 2009 309 2009–3 I.R.B.

return preparers to comply with the gen-eral standard previously imposed underthe 2007 Act (a reasonable belief that theposition would more likely than not besustained on the merits) rather than thenew general standard under the 2008 Act(substantial authority).

INTERIM GUIDANCE UNDER SECTION6694(a)

A. Effect of the 2008 Act on Applicabilityof Notices 2007–54, 2008–11, and2008–13

Notices 2007–54 and 2008–11 pro-vided transitional relief for (1) all taxreturns, amended tax returns, and claimsfor refund (other than employment andexcise tax returns) filed on or after May25, 2007, and on or before December 31,2007; (2) all employment and excise taxreturns filed on or after May 25, 2007, andon or before January 31, 2008; and (3)advice provided on or after May 25, 2007,and on or before December 31, 2007. Taxreturn preparers may continue to rely uponthe transitional relief rules provided in No-tices 2007–54 and 2008–11 for returns orclaims for refund for the periods coveredby those notices.

Notice 2008–13 provided interim guid-ance on, among other issues, the standardsof conduct applicable to tax return pre-parers under section 6694(a) and interimpenalty compliance obligations applicableto tax return preparers. Notice 2008–13 iseffective for (1) all tax returns, amendedtax returns, and claims for refund (otherthan 2007 employment and excise tax re-turns) filed on or after January 1, 2008,and before January 1, 2009 (the effectivedate of the final regulations under section6694(a)); (2) all 2007 employment and ex-cise tax returns filed on or after February1, 2008, and before January 1, 2009; and(3) advice provided on or after January 1,2008 and before January 1, 2009.

Consistent with the 2007 Act, theinterim guidance provided by Notice2008–13 generally held tax return pre-parers to a more stringent standard undersection 6694(a) than the substantial au-thority standard imposed by the 2008Act’s revisions to section 6694. Accord-ingly, for positions other than with re-spect to tax shelters (as defined in section6662(d)(2)(C)(ii)) and reportable transac-

tions to which section 6662A applies, taxreturn preparers may apply the substantialauthority standard consistent with the 2008Act or may rely upon the interim guidanceprovided in Notice 2008–13 when prepar-ing returns or claims for refund for theperiods covered by that notice.

The 2008 Act’s special rule fortax shelters (as defined in section6662(d)(2)(C)(ii)) and reportable trans-actions to which section 6662A appliesdoes not apply retroactively, and thereforethe provisions of Notice 2008–13 willapply to tax shelter and section 6662Areportable transaction positions on re-turns or claims for refund for tax yearsending prior to the date of enactment ofthe 2008 Act and otherwise covered byNotice 2008–13, as set forth above. Theinterim guidance provided in this noticewith respect to tax shelters (as defined insection 6662(d)(2)(C)(ii)) and reportabletransactions to which section 6662A ap-plies is effective for returns or claims forrefund for tax years ending after the dateof enactment of the 2008 Act.

B. Definition of Substantial Authority

Until further guidance is issued, solelyfor purposes of section 6694(a), “sub-stantial authority” has the same meaningas in § 1.6662–4(d)(2) (or any successorprovision) of the accuracy-related penaltyregulations. The analysis prescribed by§ 1.6662–4(d)(3)(i) through (ii) (or anysuccessor provisions) applies for purposesof determining whether substantial author-ity is present. The authorities consideredin determining whether there is substantialauthority for a position are those authori-ties described in § 1.6662–4(d)(3)(iii) (orany successor provision).

There is substantial authority for aposition for purposes of section 6694if the taxpayer is the subject of a“written determination” as provided in§ 1.6662–4(d)(3)(iv)(A). In the case ofa tax return preparer, however, a writ-ten determination with a misstatement oromission of material fact is substantialauthority unless the tax return preparerknew or should have known of the mis-statement or omission of material factwhen the return or claim for refund wasfiled. The applicability of court casesto the taxpayer’s situation by reason ofthe taxpayer’s residence in a particular

jurisdiction is not taken into account indetermining whether there is substantialauthority for a position in accordance with§ 1.6662–4(d)(3)(iv)(B). Notwithstandingthe preceding sentence, there is substantialauthority for a position if the position issupported by controlling precedent of aUnited States Court of Appeals to whichthe taxpayer has a right of appeal withrespect to the position. Finally, there issubstantial authority for a position only ifthere is substantial authority on the date thereturn or claim for refund is deemed pre-pared, as prescribed by § 1.6694–1(a)(2),or there was substantial authority on thelast day of the taxable year to which thereturn relates.

Conclusions reached in treatises, legalperiodicals, legal opinions, or opinionsrendered by tax professionals (includingtax return preparers) are not authority. Theauthorities underlying such expressionsof opinion, if applicable to the facts of aparticular case, however, may give riseto substantial authority for the position.Solely for purposes of section 6694(a), atax return preparer nevertheless will beconsidered to have met the standard insection 6694(a)(2)(A) if the tax returnpreparer relies in good faith and with-out verification on the advice of anotheradvisor, another tax return preparer, orother party. Factors used in evaluating atax return preparer’s good faith relianceon the advice of another are found in§ 1.6694–2(e)(5).

C. Interim Penalty Compliance Rules forTax Shelter Transactions

Until further guidance is issued, solelyfor purposes of section 6694(a), a posi-tion with respect to a tax shelter (as de-fined in section 6662(d)(2)(C)(ii)) will notbe deemed an “unreasonable position” de-scribed in section 6694(a)(2)(A) through(C) if there is substantial authority for theposition and the tax return preparer advisesthe taxpayer of the penalty standards ap-plicable to the taxpayer in the event thatthe transaction is deemed to have a sig-nificant purpose of Federal tax avoidanceor evasion. This advice to the taxpayermust explain that, if the position has a sig-nificant purpose of tax avoidance or eva-sion, then there needs to be at a mini-mum substantial authority for the position,the taxpayer must possess a reasonable be-

2009–3 I.R.B. 310 January 21, 2009

lief that the tax treatment was more likelythan not the proper treatment in order toavoid a penalty under section 6662(d) asapplicable, and disclosure in accordancewith § 1.6662–4(f) will not protect the tax-payer from assessment of an accuracy-re-lated penalty if section 6662(d)(2)(C) ap-plies to the position. The tax return pre-parer must contemporaneously documentthe advice in the tax return preparer’s files.

If a nonsigning tax return preparerprovides advice to another tax return pre-parer regarding a position with respectto a tax shelter (as defined in section6662(d)(2)(C)(ii)), the position will notbe deemed an “unreasonable position” de-scribed in section 6694(a)(2)(A) through(C) if there is substantial authority forthe position and the nonsigning tax returnpreparer provides a statement to the othertax return preparer about the penalty stan-dards applicable to the tax return preparerunder section 6694. Contemporaneouslyprepared documentation in the nonsigningtax return preparer’s files is sufficient toestablish that the statement was given tothe other tax return preparer. If a nonsign-ing tax return preparer and other tax returnpreparer are employed by the same firm,then contemporaneous documentation ofadvice provided by any tax return preparerin that firm to the taxpayer regarding ap-plicable penalty standards, as described inthe immediately preceding paragraph, isalso sufficient to establish that the state-ment was given by a nonsigning tax returnpreparer to the other tax return preparerswithin the firm.

The above interim penalty compliancerules do not apply to a position describedin section 6662A (a reportable transactionwith a significant purpose of Federal taxavoidance or evasion or a listed transac-tion).

REQUESTS FOR COMMENTS

Interested parties are invited to sub-mit comments on this notice by Mon-day, March 16, 2009. Commentsshould be submitted to: Internal Rev-enue Service, CC:PA:LPD:PR (Notice2009–5), Room 5203, P.O. Box 7604,Ben Franklin Station, Washington, DC20224. Alternatively, comments maybe hand-delivered Monday through Fri-day between the hours of 8:00 a.m. to4:00 p.m. to: CC:PA:LPD:PR (No-

tice 2009–5), Courier’s Desk, InternalRevenue Service, 1111 Constitution Av-enue, N.W., Washington, DC. Com-ments may also be submitted electron-ically via the following e-mail address:Notice.Comments@irscounsel.treas.gov.Please include Notice 2009–5 in thesubject line of any electronic submissions.

Effect on Other Documents

This notice modifies and clarifies No-tice 2008–13, 2008–3 I.R.B. 282.

EFFECTIVE DATE

For positions other than tax shelters andreportable transaction positions, this no-tice is effective for all advice renderedor returns, amended returns, and claimsfor refund prepared after May 25, 2007.The interim guidance in this notice fortax shelters (within the meaning of section6662(d)(2)(C)(ii)) and reportable transac-tions to which section 6662A applies is ef-fective for tax shelter and reportable trans-action positions on tax returns for taxableyears ending after the 2008 Act’s date ofenactment, October 3, 2008.

CONTACT INFORMATION

The principal authors of this notice areMatthew S. Cooper and Michael E. Haraof the Office of 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).

Calculation of Volume ofAlcohol for Fuel Credits;Denaturants

Notice 2009–6

SECTION 1. PURPOSE

This notice provides a temporary safeharbor and a transitional rule to implementrecent statutory changes relating to the vol-ume of denaturants that will be treated asalcohol for purposes of certain credits andpayments related to the fuel use of alco-hol and alcohol fuel mixtures (§§ 34, 40(a),6426(a), and 6427(e) of the Internal Rev-enue Code). These changes were made by

section 15332 of the Food, Conservation,and Energy Act of 2008 (Pub. L. 110–234)(the Food Act). This notice affects alco-hol producers, persons that use alcohol asa fuel in a trade or business, persons thatsell alcohol at retail for delivery into ve-hicles, and producers of alcohol fuel mix-tures that sell or use the mixture as a fuelin their trade or business.

SECTION 2. BACKGROUND

(a) Overview. Sections 34, 40(a),6426(a), and 6427(e) provide tax incen-tives for alcohol and alcohol fuel mixturesthat are sold for use or used as a fuelin certain specified transactions. Forthese purposes, § 2(b) of Notice 2005–4,2005–1 C.B. 289, provides that alcoholhas the meaning given to the term in§ 48.4081–6(b)(1) of the Manufacturersand Retailers Excise Tax Regulations ex-cept that, for purposes of the credit allowedby § 40, alcohol also includes alcohol witha proof of at least 150.

(b) Calculation of the volume of alco-hol—(1) Before January 1, 2009. BeforeJanuary 1, 2009, § 40(d)(4) provides thatfor purposes of determining the number ofgallons of alcohol with respect to which acredit is allowable, the volume of alcoholshall include the volume of any denaturant(including gasoline) which is added underany formulas approved by the Secretary tothe extent that such denaturants do not ex-ceed 5 percent of the volume of such al-cohol (including denaturants). A similarrule applies to alcohol fuel mixtures. See§ 48.4081–6(b)(1) and Notice 2005–4.

(2) After December 31, 2008. Effec-tive for fuel sold or used after December31, 2008, the Food Act amended § 40(d)(4)to provide that denaturants included in thevolume of alcohol may not exceed 2 per-cent of the volume of such alcohol (includ-ing denaturants). The Food Act also addedsection 6426(b)(5) to apply the same 2-per-cent limit to claims related to alcohol fuelmixtures under § 34, 6426, or 6427.

(c) Proof. Except as provided in section2(a) of this notice, alcohol with a proof ofless than 190 does not qualify for a creditor payment. The determination of proof ismade without regard to added denaturants.See § 40(d)(1)(B) and 6426(b)(4)(A)(ii).Under the 5-percent limit, the amount ofpure alcohol contained in each gallon qual-ifying as 190-proof alcohol may be as little

January 21, 2009 311 2009–3 I.R.B.

as 90.25 percent of its total volume. Underthe 2-percent limit, the amount of pure al-cohol contained in each gallon qualifyingas 190-proof alcohol is increased to 93.1percent of its total volume.

(d) TTB Requirements. Regulationspromulgated by the Alcohol and TobaccoTax and Trade Bureau of the Departmentof Treasury (TTB) in 27 CFR § 19.1005provide that alcohol eligible for with-drawal as fuel alcohol must contain 2gallons of denaturant for each 100 gallonsof distilled spirits. To satisfy the TTB rule,denaturants included in the volume of fuelalcohol must exceed 1.96 percent of thevolume of the fuel alcohol.

(e) Public comments—(1) Commenta-tors have expressed concern about the abil-ity to meet TTB’s 1.96-percent minimumrequirement while not exceeding the FoodAct’s maximum 2-percent denaturant al-lowance. The commentators indicate thatexisting denaturing equipment does not al-low for denaturing within this 0.04-percentrange on a consistent basis. They also in-dicate that there is no test procedure to ac-curately measure the amount of denaturantin alcohol after it has been denatured. Asa result, ethanol producers and blenderswill have no reliable means of determin-ing when denaturants exceed the 2-percentlimit. Concerns have also been expressedabout alcohol containing 5 percent dena-turant that is in transit or stored by alcoholfuel blenders on January 1, 2009.

(2) Because of concerns regarding theaccurate measurement of denaturants inalcohol, this notice adopts a temporarysafe harbor to allow time to study the prob-lem and determine if there are effectivemeans to test the volume of denaturantin alcohol. Under this safe harbor, theService will not challenge a claim withrespect to denaturants included in alcoholunless the denaturants clearly exceed theFood Act limit. For this purpose, the Ser-vice will treat denaturants as not clearlyexceeding the Food Act limit unless thereis clear evidence establishing that dena-turants exceed 2.5 percent of volume(including denaturants). The safe harbor isavailable only if no more than 2 percent ofthe alcohol’s volume is disregarded underthe rule providing that proof is determinedwithout regard to added denaturants. Thiswill ensure that the amount of pure alcoholprovided for fuel use is increased in theamount required by the reduced denaturant

limit. This notice also adopts a transitionrule for January 2009 to provide relief foralcohol already produced and shipped.

SECTION 3. TEMPORARY SAFEHARBOR AND TRANSITIONALRULE

(a) Safe harbor. If a credit or paymentis allowable with respect to alcohol on ac-count of an event (such as a mixture pro-ducer’s sale of an alcohol fuel mixture foruse as a fuel) occurring after December 31,2008, and before the date specified in fur-ther guidance on this issue, the followingrules apply:

(1) The Service will not challenge aclaim to a credit or payment with respectto the approved denaturants included in thevolume of such alcohol if—

(i) In determining the proof of the alco-hol, not more than 2 percent of its volumeis disregarded as an added denaturant; and

(ii) There is no clear evidence establish-ing that added denaturants are more than2.5 percent of the volume of such alcohol(including added denaturants).

(2) Approved denaturants are any dena-turants (including gasoline and nonalcoholfuel denaturants) that reduce the purity ofthe alcohol and do not exceed the amountof denaturants that may be added to suchalcohol under a formula approved by theSecretary.

(b) Nonproducer rule for January 2009.The volume of alcohol for which a credit orpayment is allowable may be determinedunder the rules in effect before January 1,2009, if—

(1) The credit or payment is allowableto a person other than the producer of thealcohol; and

(2) The credit or payment is allowableon account of an event (such as a mixtureproducer’s sale of an alcohol fuel mixturefor use as a fuel) occurring before February1, 2009.

SECTION 4. EFFECTIVE DATE

This notice is effective on and after Jan-uary 1, 2009.

SECTION 5. DRAFTINGINFORMATION

The principal author of this notice isTaylor Cortright of the Office of Associate

Chief Counsel (Passthroughs & Special In-dustries). For further information regard-ing this notice, contact Taylor Cortright at(202) 622–3130 (not a toll-free call).

Transaction of Interest —Subpart F Income PartnershipBlocker

Notice 2009–7

The Internal Revenue Service (IRS)and the Treasury Department are awareof a type of transaction, described morefully below, in which a U.S. taxpayerthat owns controlled foreign corporations(CFCs) that hold stock of a lower-tierCFC through a domestic partnership takesthe position that subpart F income of thelower-tier CFC or an amount determinedunder section 956(a) of the Internal Rev-enue Code (Code) related to holdings ofUnited States property by the lower-tierCFC does not result in income inclusionsunder section 951(a) for the U.S. taxpayer.The IRS and Treasury Department believethis transaction (which includes takingthe position that the U.S. taxpayer has noincome inclusion under section 951(a))has the potential for tax avoidance orevasion, but lack enough information todetermine whether the transaction shouldbe identified specifically as a tax avoid-ance transaction. This notice identifiesthis transaction and substantially similartransactions as transactions of interest forpurposes of § 1.6011–4(b)(6) of the In-come Tax Regulations and sections 6111and 6112 of the Code. This notice alsoalerts persons involved in these transac-tions to certain responsibilities that mayarise from their involvement with thesetransactions.

FACTS

In a typical transaction, a U.S. taxpayer(Taxpayer) wholly owns two CFCs, (CFC1and CFC2). CFC1 and CFC2 are partnersin a domestic partnership (USPartnership).USPartnership owns 100 percent of thestock of another CFC (CFC3). Some orall of the income of CFC3 is subpart Fincome (as defined in section 952). Aspart of the transaction, Taxpayer takesthe position that the subpart F income

2009–3 I.R.B. 312 January 21, 2009

of CFC3 is currently included in the in-come of USPartnership (which is notsubject to U.S. tax) and is not includedin the income of Taxpayer. The resultof the claimed tax treatment is thatincome that would otherwise be taxablecurrently to Taxpayer under subpart Fof the Code is not taxable to Taxpayerbecause of the interposition of a domesticpartnership in the CFC structure. Withoutthe interposition of USPartnership, thesection 951(a) inclusion resulting fromthe subpart F income of CFC3 would betaxable currently to Taxpayer. In somevariations of the transaction, there may bemore than one person that owns the stockof CFC1 and/or CFC2, USPartnership mayown less than all of the stock of CFC3,a domestic trust may be used instead ofa domestic partnership, or the section951(a) inclusion amount may result froman amount determined under section 956.

The IRS and Treasury Department areconcerned that taxpayers are taking the po-sition that structures described in this no-tice result in no income inclusion to Tax-payer under section 951. Therefore theIRS and Treasury Department are identi-fying as transactions of interest such struc-tures with respect to which the Taxpayertakes the position that there is no incomeinclusion to Taxpayer under section 951, aswell as substantially similar transactions.The IRS and Treasury Department believethat the position there is no income inclu-sion to Taxpayer under section 951 is con-trary to the purpose and intent of the pro-visions of subpart F of the Code.

TRANSACTION OF INTEREST

Effective Date

Transactions that are the same as, orsubstantially similar to, the transactionsdescribed in this notice are identified astransactions of interest for purposes of§ 1.6011–4(b)(6) and sections 6111 and6112 effective December 29, 2008, thedate this notice was released to the public.Persons entering into these transactions onor after November 2, 2006, must disclosethe transaction as described in 1.6011–4.Material advisors who make a tax state-ment on or after November 2, 2006, withrespect to transactions entered into on orafter November 2, 2006, have disclosureand list maintenance obligations under

sections 6111 and 6112. See § 1.6011–4(h)and §§ 301.6111–3(i) and 301.6112–1(g)of the Procedure and Administration Reg-ulations.

Independent of their classification astransactions of interest, transactions thatare the same as, or substantially similarto, the transaction described in this noticemay already be subject to the requirementsof sections 6011, 6111, or 6112, or theregulations thereunder. When the IRSand Treasury Department have gatheredenough information to make an informeddecision as to whether these transactionsare a tax avoidance type of transaction,the IRS and Treasury Department maytake one or more administrative actions,including removing the transactions fromthe transactions of interest category inpublished guidance, designating the trans-actions as a listed transaction, or providinga new category of reportable transactions.In the interim, in appropriate situations,the IRS may challenge the taxpayer’s po-sition taken as part of these transactionsunder subpart F, subchapter K, or otherprovisions of the Code or under judicialdoctrines such as sham transaction, sub-stance over form, and economic substance.

Participation

Under § 1.6011–4(c)(3)(i)(E), Taxpayerand USPartnership are participants in thistransaction for each year in which theirrespective returns reflect tax consequencesor a tax strategy described in this notice.

Time for Disclosure

See § 1.6011–4(e) and § 301.6111–3(e).

Material Advisor Threshold Amount

The threshold amounts are the sameas those for listed transactions. See§ 301.6111–3(b)(3)(i)(B).

Penalties

Persons required to disclose these trans-actions under § 1.6011–4 who fail to do somay be subject to the penalty under section6707A. Persons required to disclose thesetransactions under section 6111 who fail todo so may be subject to the penalty undersection 6707(a). Persons required to main-tain lists of advisees under section 6112who fail to do so (or who fail to provide

such lists when requested by the Service)may be subject to the penalty under sec-tion 6708(a). In addition, the Service mayimpose other penalties on parties involvedin these transactions or substantially simi-lar transactions, including the accuracy-re-lated penalty under section 6662 or section6662A.

DRAFTING INFORMATION

The principal author of this notice isJohn H. Seibert of the Office of AssociateChief Counsel (International). For furtherinformation regarding this notice, contactMr. Seibert at (202) 622–3860 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions.(Also: Part 1, §§ 6061, 6694, 6695, 7701.)

Rev. Proc. 2009–11

SECTION 1. PURPOSE

This revenue procedure identifies therelevant categories of tax returns andclaims for refund for purposes of the taxreturn preparer penalty under section 6694of the Internal Revenue Code (Code), andidentifies the returns and claims for re-fund required to be signed by a tax returnpreparer under regulations published bythe Treasury Department and the IRS inorder to avoid a penalty under Code sec-tion 6695(b). For other penalties that maybe imposed on tax return preparers, see,for example, the regulations issued undersection 6695.

SECTION 2. BACKGROUND

The Small Business and Work Opportu-nity Tax Act of 2007, Pub. L. No. 110–28,121 Stat. 190 (the 2007 Act), was enactedon May 25, 2007. Section 8246 of the Actamended several sections of the Code byextending the application of the income taxreturn preparer penalties to all tax returnpreparers. The 2007 Act heightened thestandards that must be met by preparersto avoid a penalty under section 6694(a)for understatements due to unreasonablepositions from nonfrivolous to reasonablebasis (if the position is disclosed), andfrom realistic possibility of success on the

January 21, 2009 313 2009–3 I.R.B.

merits to reasonable belief that the posi-tion would more likely than not be sus-tained on the merits (if the position is notdisclosed). The 2007 Act also increasedthe section 6694(a) penalty for understate-ments due to unreasonable positions from$250 to the greater of $1,000 or 50 percentof the income derived by the preparer, andincreased the section 6694(b) penalty forwillful or reckless conduct from $1,000 tothe greater of $5,000 or 50% of the incomederived by the preparer.

By extending the application of the in-come tax return preparer penalties to alltax return preparers, the 2007 Act amendedsection 6695(b) to impose a penalty on alltax return preparers of any return or claimfor refund who fails to sign a return orclaim for refund 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 amendments tosection 6695(b) are effective for tax returnsand claims for refund prepared after May25, 2007.

The Department of Treasury and theIRS released Notice 2008–13, 2008–3I.R.B. 282, on December 31, 2007 to pro-vide interim guidance under section 6694.Additional guidance was provided in No-tice 2008–12, 2008–3 I.R.B. 280, also re-leased on December 31, 2007, with respect

to the implementation of the tax returnpreparer signature requirement of section6695(b). Notice 2008–46, 2008–18 I.R.B.868, was released on April 16, 2008 andadded certain returns and documents toExhibits 1, 2, and 3 of Notice 2008–13. OnJune 17, 2008, the Treasury Departmentand the IRS published REG–129243–07,2008–27 I.R.B. 32, in the Federal Reg-ister, 73 F.R. 34560, which providesproposed amendments to the regulationsreflecting amendments made by the 2007Act.

Section 506 of the Tax Extenders andAlternative Minimum Tax Relief Act of2008, Div. C of Pub. L. No. 110–343, 122Stat. 3765 (October 3, 2008) (the 2008Act), amended the standards that mustbe met by preparers to avoid a penaltyunder section 6694(a) for understatementsdue to unreasonable positions from rea-sonable belief that the position wouldmore likely than not be sustained on themerits to substantial authority for the po-sition (for undisclosed positions). The2008 Act did not change the standard inthe 2007 Act applicable to disclosed po-sitions. The 2008 Act also provided aspecial rule for tax shelters (as defined in§ 6662(d)(1)(C)(ii)) and reportable trans-actions to which § 6662A applies, underwhich a position is treated as unreasonableunless it is reasonable to believe that thepositions would more likely than not besustained on the merits.

With this revenue procedure, the Trea-sury Department and the IRS are simul-taneously issuing final regulations that re-vise the definitions of “return” and “claimfor refund” in § 301.7701–15(b)(4) to onlyinclude tax return preparers of returns andclaims for refund that are specifically iden-tified in published guidance in the InternalRevenue Bulletin.

SECTION 3. RETURNS AND CLAIMSFOR REFUND SUBJECT TO THESECTION 6694 PENALTY

.01 This Section identifies categories ofreturns to which the penalty under section6694 could apply. The Treasury Depart-ment and the IRS may choose to add orremove documents from any of the cate-gories in this revenue procedure in futureguidance as they gain experience in imple-menting the provisions of the 2008 Act andthe final regulations.

.02 Tax Returns Reporting Tax LiabilitySolely for purposes of section 6694, a

return or claim for refund includes the taxreturns listed in this subsection enumer-ated below, or a claim for refund with re-spect to any such return. A claim forrefund of tax includes a claim for creditagainst any tax and a request for abate-ment. A person who for compensation pre-pares all or a substantial portion of a taxreturn listed in this subsection, or a claimfor refund with respect to any such tax re-turn, is a tax return preparer who is subjectto section 6694.

(1) Income Tax Returns — Subtitle A

Form 990T, Exempt Organization Business Income Tax Return;

Form 1040, U.S. Individual Income Tax Return;

Form 1040A, U.S. Individual Income Tax Return;

Form 1040–C, U.S. Departing Alien Income Tax Return;

Form 1040–EZ, Income Tax Return for Single and Joint Filers With No Dependents;

Form 1040EZ–T, Request for Refund of Federal Telephone Excise Tax;

Form 1040NR, U.S. Nonresident Alien Income Tax Return;

Form 1040NR–EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents;

Form 1040–PR, Planilla para la Declaración de la Contribución Federal sobre el Trabajo por Cuenta Propia (Incluyendoel Crédito Tributario Adicional por Hijos para Residentes Bona fide de Puerto Rico);

Form 1040–SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents ofPuerto Rico);

Form 1040X, Amended U.S. Individual Income Tax Return;

2009–3 I.R.B. 314 January 21, 2009

Form 1041, U.S. Income Tax Return for Estates and Trusts;

Form 1041–N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;

Form 1041–QFT, U.S. Income Tax Return for Qualified Funeral Trusts;

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;

Form 1120, U.S. Corporation Income Tax Return;

Form 1120–C, U.S. Income Tax Return for Cooperative Associations;

Form 1120–F, U.S. Income Tax Return of a Foreign Corporation;

Form 1120–FSC, U.S. Income Tax Return of a Foreign Sales Corporation;

Form 1120–H, U.S. Income Tax Return for Homeowners Associations;

Form 1120–IC DISC, Interest Charge Domestic International Sales Corporation Return;

Form 1120–L, U.S. Life Insurance Company Income Tax Return;

Form 1120–ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

Form 1120–PC, U.S. Property and Casualty Insurance Company Income Tax Return;

Form 1120–POL, U.S. Income Tax Return for Certain Political Organizations;

Form 1120–REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

Form 1120–RIC, U.S. Income Tax Return for Regulated Investment Companies;

Form 1120S, U.S. Income Tax Return for an S Corporation;

Form 1120–SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

Form 1120X, Amended U.S. Corporation Income Tax Return;

Form 2438, Undistributed Capital Gains Tax Return;

Forms 8038–T, Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate;

Form 8038–R, Request for Recovery of Overpayments Under Arbitrage Rebate Provisions;

Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests; and

Form 8804, Annual Return for Partnership Withholding Tax (Section 1446).

(2) Estate and Gift Tax Returns — Subtitle B

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return;

Form 706–A, United States Additional Estate Tax Return;

Form 706–D, United States Additional Estate Tax Return Under Code Section 2057;

Form 706–GS(D), Generation-Skipping Transfer Tax Return for Distributions;

Form 706–GS(T), Generation-Skipping Transfer Tax Return for Terminations;

Form 706–NA, United States Estate (and Generation-Skipping Transfer) Tax Return — Estate of nonresident not acitizen of the United States;

Form 706–QDT, United States Estate Tax Return for Qualified Domestic Trusts;

Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; and

Form 843, Claim for Refund and Request for Abatement.

(3) Employment Tax Returns — Subtitle C

Form CT–1, Employer’s Annual Railroad Retirement Tax Return;

Form CT–1X, Adjusted Employer’s Annual Railroad Retirement Tax Return or Claim for Refund;

Form CT–2, Employee Representative’s Quarterly Railroad Tax Return;

Form 843, Claim for Refund and Request for Abatement;

January 21, 2009 315 2009–3 I.R.B.

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return;

Form 940–PR, Planilla para la Declaración Federal ANUAL del Patrono de la Contribución Federal para el Desempleo(FUTA);

Form 941, Employer’s QUARTERLY Federal Tax Return;

Form 941–X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund;

Form 941–PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono;

Form 941–X (PR), Ajuste a la Declaración Federal TRIMESTRAL del Patrono o Reclamacion de Reembolso;

Form 941–SS, Employer’s QUARTERLY Federal Tax Return;

Form 941–M, Employer’s MONTHLY Federal Tax Return;

Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees;

Form 943–X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund;

Form 943–PR, Planilla para la Declaración ANUAL de la Contribución Federal del Patrona de Empleados Agrícolas;

Form 943–X (PR), Ajuste a la Declaración Federal ANUAL del Patrono de Empleados Agrícolas o Reclamacion deReembolso;

Form 944, Employer’s ANNUAL Federal Tax Return;

Form 944–X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund;

Form 944–PR, Planilla para la Declaración ANUAL de la Contribución Federal del Patrono;

Form 944–X (PR), Ajuste a la Declaración Federal ANUAL del Patrono o Reclamacion de Reembolso (Puerto Rico);

Form 944(SP), Declaración Federal ANUAL de Impuestos del Patrono o Empleador;

Form 944–X (SP), Ajuste a la Declaración Federal ANUAL del Patrono o Reclamacion de Reembolso;

Form 944–SS, Employer’s ANNUAL Federal Tax Return;

Form 945, Annual Return of Withheld Federal Income Tax

Form 945–X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund;

Schedule H (Form 1040), Household Employment Taxes; and

Anexo H-PR (Formulario 1040–PR) Contribuciones sobre el Empleo de Empleados Domésticos.

(4) Miscellaneous Excise Tax Returns — Subtitle D

Form 11–C, Occupational Tax and Registration Return for Wagering;

Form 720, Quarterly Federal Excise Tax Return;

Form 720X, Amended Quarterly Federal Excise Tax Return;

Form 730, Monthly Tax Return for Wagers;

Form 843, Claim for Refund and Request for Abatement;

Form 990–PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a PrivateFoundation (with respect to the excise tax based on investment income);

Form 2290, Heavy Highway Vehicle Use Tax Return;

Form 2290(FR), Declaration d’Impot sur L’utilisation des Vehicules Lourds sur les Routes;

Form 2290(SP), Declaración del Impuesto sobre el Uso de Vehículos Pesados en las Carreteras;

Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code;

Form 5330, Return of Excise Taxes Related to Employee Benefit Plans;

Form 8612, Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts;

Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies;

Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests; and

Form 8849, Claim for Refund of Excise Taxes.

2009–3 I.R.B. 316 January 21, 2009

Form 8924, Excise Tax on Certain Transfers of Qualifying Geothermal or Mineral Interests

(5) Alcohol, Tobacco, and Certain Other Excise Taxes — Subtitle E

Form 8725, Excise Tax on Greenmail; and

Form 8876, Excise Tax on Structured Settlement Factoring Transactions.

(6) Procedure and Administration — Subtitle F

Form 8752, Required Payment or Refund Under Section 7519.

.03 Information Returns and OtherDocuments

(1) A person who for compensationprepares information returns or other doc-uments that include information that isor may be reported on a taxpayer’s taxreturn or claim for refund is subject to sec-tion 6694 if the information reported onthe information return or other documentconstitutes a substantial portion of thetaxpayer’s tax return or claim for refund,notwithstanding the fact that the infor-mation return or other document may notbe reporting the liability of the taxpayer.Treas. Reg. § 301.7701–15(b)(3)(iii). Thecurrent regulatory definitions of substan-tial portion and substantial preparationrequire a facts and circumstances analysis

of each document prepared and a compari-son of the items included on that documentwith the tax return or claim for refundthat actually reports a tax liability. Treas.Reg. § 301.7701–15(b)(3)(i). Thus, forexample, the preparer of a Form 1065,U.S. Return of Partnership Income, maybe deemed to be the preparer of any part-ner’s individual income tax return (e.g.,Form 1040, U.S. Individual Income TaxReturn), if the items on the partnershipreturn constitute a substantial portion ofthat partner’s income tax return. Treas.Reg. § 301.7701–15(b)(3)(iii).

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

Solely for purposes of section 6694, aninformation return listed in this subsectionbelow that includes information that is ormay be reported on a taxpayer’s tax returnor claim for refund is a return to which sec-tion 6694 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 in this subsec-tion, which form does not report a tax lia-bility but affects an entry or entries on a taxreturn and constitutes a substantial portionof the tax return or claim for refund thatdoes report a tax liability, is a tax returnpreparer who is subject to section 6694.

Form 706–GS (D–1), Notification of Distribution From a Generation-Skipping Trust;

Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation;

Form 1042–S, Foreign Person’s U.S. Source Income Subject to Withholding;

Form 1065, U.S. Return of Partnership Income;

Form 1065–B, U.S. Return of Income for Electing Large Partnerships;

Form 1120S, U.S. Income Tax Return for an S Corporation;

Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts;

Form 3520–A, Annual Information Return of Foreign Trust With a U.S. Owner (Under section 6048(b));

Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations;

Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S.Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code);

Form 5500, Annual Return/Report of Employee Benefit Plan;

Form 5500–EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan;

Form 5500–SF, Short Form Annual Return/Report of Small Employee Benefit Plan;

Form 8805, Foreign Partner’s Information Statement of Section 1446 Withholding Tax;

Form 8858, Information Return of U.S. Persons With Respect To Foreign Disregarded Entities; and

Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

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

Solely for purposes of section 6694, adocument that includes information that isor may be reported on a taxpayer’s tax re-turn or claim for refund is treated as a re-

turn to which section 6694 could apply ifthe information reported constitutes a sub-stantial portion of that taxpayer’s tax re-turn or claim for refund. For example,

January 21, 2009 317 2009–3 I.R.B.

a person who for compensation preparesdocuments, such as depreciation schedulesor cost, expense or income allocation stud-ies, that do not report a tax liability butwhich will affect an entry or entries on atax return that does report a tax liability,and that constitute a substantial portion ofsuch tax return, is a tax return preparer whois subject to section 6694.

.04 Other Documents Not Constitutinga Substantial Portion of a Taxpayer’s TaxReturn or Claim for Refund Unless Pre-pared Willfully to Understate Tax or inReckless or Intentional Disregard of theRules or Regulations

Solely for purposes of section 6694, adocument listed in this subsection that in-cludes information that is or may be re-ported on a taxpayer’s tax return or claim

for refund (and that constitutes a substan-tial portion of such tax return or claimfor refund) will not subject the preparerto a penalty under section 6694(a). Adocument listed in this subsection, how-ever, may subject the preparer to a willfulor reckless conduct penalty under section6694(b) if the information reported on thedocument constitutes a substantial portionof the tax return or claim for refund andis prepared willfully in any manner to un-derstate the liability of tax on a tax returnor claim for refund, or in reckless or in-tentional disregard of rules or regulations.For example, preparation of a Form W–2,Wage and Tax Statement, reporting com-pensation may constitute preparation of asubstantial portion of the Form 1040 returnon which the compensation is reported if

it is prepared willfully in a manner to un-derstate the liability of tax. A person whofor compensation prepares all or a substan-tial portion of any of the forms or otherdocuments listed below is not a tax returnpreparer subject to section 6694(a) and (b)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.

Form SS–8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding;

Form W–2 series of returns;

Form W–8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding;

Form 990, Return of Organization Exempt from Income Tax;

Form 990–EZ, Short Form Return of Organization Exempt From Income Tax;

Form 990–N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990–EZ;

Form 1099 series of returns;

Form 4029 (Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits);

Form 4361 (Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders andChristian Science Practitioners);

Form 5227, Split Interest Trust Information Return;

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;

Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues;

Form 8038–G, Information Return for Government Purpose Tax-Exempt Bond Issues;

Form 8038–GC, Consolidated Information Return for Small Tax-Exempt Government Bond Issues;

Form 8288–A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests; and

Form 8288–B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests.

SECTION 4. RETURNS AND CLAIMSFOR REFUND SUBJECT TO THESECTION 6695(b) PENALTY

.01 This section identifies the returnsand claims for refund required to be signedby a signing tax return preparer as definedin § 301.7701–15(b)(1) in order to avoid asection 6695(b) penalty. The Treasury De-partment and the IRS may choose to addor remove documents that must be signedby a tax return preparer in future guid-

ance and in forms and instructions as ad-ditional forms are developed and as theygain experience in implementing the pro-visions of section 6695(b) and the finalregulations. The tax return preparer mustsign the return in the manner prescribed bythe Commissioner in forms, instructions,or other appropriate guidance. Informa-tion on the preparer signature requirementfor electronically filed returns will be an-nounced in IRS publications, instructions,

and information posted electronically onthe IRS.gov website.

.02 Forms Requiring Signature of TaxReturn Preparer

Consistent with existing regulations, inorder to avoid the imposition of a penaltyunder section 6695(b), a signing tax returnpreparer must provide a signature on anytax returns or claims for refund of tax thatare filed on or after January 1, 2009, in-cluding but not limited to the following:

2009–3 I.R.B. 318 January 21, 2009

(1) Income Tax Returns — Subtitle A

Form 990–T, Exempt Organization Business Income Tax Return;

Form 1040, U.S. Individual Income Tax Return;

Form 1040A, U.S. Individual Income Tax Return;

Form 1040–C, U.S. Departing Alien Income Tax Return;

Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents;

Form 1040NR, U.S. Nonresident Alien Income Tax Return;

Form 1040NR–EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents;

Form 1040–PR, Planilla para la Declaración de la Contribución Federal sobre el Trabajopor Cuenta Propia (Incluyendoel Crédito Tributario Adicional por Hijos para Residentes Bona fide de Puerto Rico);

Form 1040–SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents ofPuerto Rico);

Form 1040X, Amended U.S. Individual Income Tax Return;

Form 1041, U.S. Income Tax Return for Estates and Trusts;

Form 1041–N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts;

Form 1041–QFT, U.S. Income Tax Return for Qualified Funeral Trusts;

Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons;

Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;

Form 1120, U.S. Corporation Income Tax Return;

Form 1120–C, U.S. Income Tax Return for Cooperative Associations;

Form 1120–F, U.S. Income Tax Return of a Foreign Corporation;

Form 1120–FSC, U.S. Income Tax Return of a Foreign Sales Corporation;

Form 1120–H, U.S. Income Tax Return for Homeowners Associations;

Form 1120IC–DISC, Interest Charge Domestic International Sales Corporation Return;

Form 1120–L, U.S. Life Insurance Company Income Tax Return;

Form 1120–ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

Form 1120–PC, U.S. Property and Casualty Insurance Company Income Tax Return;

Form 1120–POL, U.S. Income Tax Return for Certain Political Organizations;

Form 1120–REIT, U.S. Income Tax Return for Real Estate Investment Trusts;

Form 1120–RIC, U.S. Income Tax Return for Regulated Investment Companies;

Form 1120S, U.S. Income Tax Return for an S Corporation;

Form 1120–SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

Form 1120X, Amended U.S. Corporation Income Tax Return;

Form 2438, Undistributed Capital Gains Tax Return;

Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests; and

Form 8804, Annual Return for Partnership Withholding Tax (Section 1446).

(2) Estate and Gift Tax Returns — Subtitle B

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return;

Form 706–A, United States Additional Estate Tax Return;

Form 706–D, United States Additional Estate Tax Return Under Code Section 2057;

Form 706–GS(D), Generation-Skipping Transfer Tax Return For Distributions;

January 21, 2009 319 2009–3 I.R.B.

Form 706–GS(T), Generation-Skipping Transfer Tax Return For Terminations;

Form 706–NA, United States Estate (and Generation-Skipping Transfer) Tax Return — Estate of nonresident not acitizen of the United States;

Form 706–QDT, United States Estate Tax Return for Qualified Domestic Trusts;

Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return; and

Form 843, Claim for Refund and Request for Abatement.

(3) Employment Tax Returns — Subtitle C

Form CT–1, Employer’s Annual Railroad Retirement Tax Return;

Form CT–1 X, Adjusted Employer’s Annual Railroad Retirement Tax Return or Claim for Refund;

Form CT–2, Employee Representative’s Quarterly Railroad Tax Return;

Form 843, Claim for Refund and Request for Abatement;

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return;

Form 940–PR, Planilla para la Declaración Federal ANUAL del Patrono de la Contribución Federal para el Desempleo(FUTA);

Form 941, Employer’s QUARTERLY Federal Tax Return;

Form 941–X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund;

Form 941–PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono;

Form 941–X (PR), Ajuste a la Declaración Federal TRIMESTRAL del Patrono o Reclamacion de Reembolso;

Form 941–SS, Employer’s QUARTERLY Federal Tax Return;

Form 941–M, Employer’s MONTHLY Federal Tax Return;

Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees;

Form 943–X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund;

Form 943(PR), Planilla para la Declaración ANUAL de La Contribución Federal del Patrono de Empleados Agrícolas;

Form 943–X (PR), Ajuste a la Declaración Federal Anual del Patrono de Empleados Agrícolas o Reclamacion deReembolso

Form 944, Employer’s ANNUAL Federal Tax Return;

Form 944–X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund;

Form 944–PR, Planilla para la Declaración ANUAL de la Contribución Federal del Patrono;

Form 944–X (PR), Ajuste a la Declaración Federal ANUAL del Patrono o Reclamacion de Reembolso (Puerto Rico);

Form 944(SP), Declaración Federal ANUAL de Impuestos del Patrono o Empleador;

Form 944–X (SP), Ajuste a la Declaración Federal ANUAL del Empleador o Reclamacion de Reembolso;

Form 944–SS, Employer’s ANNUAL Federal Tax Return;

Form 945, Annual Return of Withheld Federal Income Tax;

Form 945–X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund;

Schedule H (Form 1040), Household Employment Taxes; and

Anexo H-PR (Formulario 1040–PR), Contribuciones sobre el Empleo de Empleados Domésticos.

(4) Miscellaneous Excise Tax Returns — Subtitle D

Form 11–C, Occupational Tax and Registration Return for Wagering;

Form 720, Quarterly Federal Excise Tax Return;

Form 720X, Amended Quarterly Federal Excise Tax Return;

Form 730, Monthly Tax Return for Wagers;

Form 843, Claim for Refund and Request for Abatement;

2009–3 I.R.B. 320 January 21, 2009

Form 990–PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a PrivateFoundation;

Form 2290, Heavy Highway Vehicle Use Tax Return;

Form 2290(FR), Declaration d’Impot sur L’utilisation des Vehicules Lourds sur les Routes;

Form 2290(SP), Declaración del Impuesto sobre el Uso de Vehículos Pesados en las Carreteras;

Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code;

Form 5330, Return of Excise Taxes Related to Employee Benefit Plans;

Form 8612, Return of Excise Tax on Undistributed Income of Real Estate Investment Trusts;

Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies;

Form 8831, Excise Taxes on Excess Inclusions of REMIC Residual Interests;

Form 8849, Claim for Refund of Excise Taxes; and

Form 8924, Excise Tax on Certain Transfers of Qualifying Geothermal or Mineral Interests.

(5) Alcohol, Tobacco, and Other Excise Taxes — Subtitle E

Form 8725, Excise Tax on Greenmail; and

Form 8876, Excise Tax on Structured Settlement Factoring Transactions.

(6) Information Returns and Other Documents

Form 1065, U.S. Return of Partnership Income;

Form 1065–B, U.S. Return of Income for Electing Large Partnerships;

Form 5227, Split Interest Trust Information Return;

Form 8453–B, U.S. Electing Large Partnership Declaration for an IRS e-file Return;

Form 8453–C, U.S. Corporation Income Tax Declaration for an IRS e-file Return;

Form 8453–EO, Exempt Organization Declaration and Signature for Electronic Filing;

Form 8453–EX, Excise Tax Declaration for an IRS e-file Return;

Form 8453–F, U.S. Estate or Trust Income Tax Declaration and Signature for Electronic Filing;

Form 8453–I, Foreign Corporation Income Tax Declaration for an IRS e-file Return;

Form 8453–PE, U.S. Partnership Declaration for an IRS e-file Return;

Form 8453–S, U.S. S Corporation Income Tax Declaration for an IRS e-file Return; and

Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

(6) Procedure and Administration — Subtitle F

Form 8752, Required Payment or Refund Under Section 7519.

SECTION 5. EFFECT ON OTHERDOCUMENTS

This revenue procedure obsoletes No-tice 2008–12, 2008–3 I.R.B. 280; andNotice 2008–46, 2008–18 I.R.B. 868. Thisrevenue procedure modifies and super-sedes the list of forms in Notice 2008–13,2008–3 I.R.B. 282.

SECTION 6. EFFECTIVE DATE

This revenue procedure is effective Jan-uary 1, 2009, for all forms, tax returns,

amended tax returns, and claims for refundfiled on or after that date.

SECTION 7. CONTACTINFORMATION

The principal authors of this revenueprocedure are Matthew S. Cooper andMichael E. Hara of the Office of AssociateChief Counsel (Procedure and Adminis-tration). For further information regardingthis notice, contact Mr. Cooper at (202)622–4940 or Mr. Hara at (202) 622–4910(not toll-free calls).

26 CFR 1.61–21: Taxation of fringe benefits.(Also: §§ 61, 280F.)

Rev. Proc. 2009–12

This revenue procedure provides maxi-mum vehicle values for 2009 that taxpay-ers need to determine the value of personaluse of an employer–provided vehicle un-der the special valuation rules under regu-lations section 1.61–21(d) and (e). Thesevalues are indexed annually for inflation.For purposes of this revenue procedure,the indexation takes into account only cer-tain components of the Consumer Price In-

January 21, 2009 321 2009–3 I.R.B.

dex (CPI). These components can decreaseeven when the overall CPI increases, as isthe case for this year.

SECTION 1. PURPOSE

.01 This revenue procedure provides:(1) the maximum value of employer-pro-vided vehicles first made available to em-ployees for personal use in calendar year2009 for which the vehicle cents-per-milevaluation rule provided under section1.61–21(e) of the Income Tax Regula-tions may be applicable is $15,000 for apassenger automobile and $15,200 for atruck or van; (2) the maximum value ofemployer-provided vehicles first madeavailable to employees for personal use incalendar year 2009 for which the fleet-av-erage valuation rule provided under sec-tion 1.61–21(d) of the regulations maybe applicable is $19,900 for a passengerautomobile and $19,900 for a truck or van.

SECTION 2. BACKGROUND

.01 If an employer provides an em-ployee with a vehicle that is availableto the employee for personal use, thevalue of the personal use must generallybe included in the employee’s incomeand wages. Internal Revenue Code § 61;Treas. Reg. § 1.61–21.

.02 For employer-provided passen-ger automobiles (including trucks andvans) made available to employees forpersonal use that meet the requirementsof section 1.61–21(e)(1) of the regula-tions, generally the value of the personaluse may be determined under the vehiclecents-per-mile valuation rule of section1.61–21(e). However, regulations section1.61–21(e)(1)(iii)(A) provides that for apassenger automobile first made avail-able after 1988 to any employee of theemployer for personal use, the value ofthe personal use may not be determinedunder the vehicle cents-per-mile valuationrule for a calendar year if the fair marketvalue of the passenger automobile (de-termined pursuant to regulations section1.61–21(d)(5)(i) through (iv)) on the firstdate the passenger automobile is madeavailable to the employee exceeds a spec-ified dollar limit.

.03 For employer-provided vehiclesavailable to employees for personal use foran entire year, generally the value of the

personal use may be determined under theautomobile lease valuation rule of section1.61–21(d) of the regulations. Under thisvaluation rule, the value of the personaluse is the Annual Lease Value. Providedthe requirements of regulation section1.61–21(d)(5)(v) are met, an employerwith a fleet of 20 or more automobilesmay use a fleet-average value for purposesof calculating the Annual Lease Values ofthe automobiles in the employer’s fleet.The fleet-average value is the averageof the fair market values of all the auto-mobiles in the fleet. However, section1.61–21(d)(5)(v)(D) of the regulationsprovides that for an automobile first madeavailable after 1988 to an employee of theemployer for personal use, the value of thepersonal use may not be determined underthe fleet-average valuation rule for a cal-endar year if the fair market value of theautomobile (determined pursuant to reg-ulations section 1.61–21(d)(5)(i) through(v)) on the first date the passenger auto-mobile is made available to the employeeexceeds a specified dollar limit.

.04 The maximum passenger automo-bile values for applying the vehicle cents-per-mile and the fleet-average value rulesreflect the automobile price inflation ad-justment of Code section 280F(d)(7). Themethod of calculating this price inflationamount for automobiles other than trucksand vans uses the “new car” component ofthe CPI “automobile component”. Whencalculating this price inflation adjustmentfor trucks and vans, the “new trucks” com-ponent of the CPI is used. This resultsin somewhat higher maximum values fortrucks and vans. This change reflects thehigher rate of price inflation that trucks andvans have been subject to since 1988, andis consistent with the change announced inRev. Proc. 2003–75, 2003–2 C.B. 1018,for purposes of calculating depreciationdeductions. See also Rev. Proc. 2008–22,2008–12 I.R.B. 658. For purposes of thisrevenue procedure, the term “trucks andvans” refers to passenger automobiles thatare built on a truck chassis, including mini-vans and sport utility vehicles (SUVs) thatare built on a truck chassis.

SECTION 3. PROCEDURE

.01 Maximum Automobile Value forUsing the Cents-per-mile Valuation Rule.

An employer providing a passenger au-tomobile for the first time in calendar year2009 for the personal use of any employeemay determine the value of the personaluse by using the vehicle cents-per-milevaluation rule in section 1.61–21(e) of theregulations if its fair market value on thedate it is first made available does not ex-ceed $15,000 for a passenger automobileother than a tuck or van, or $15,200 fora truck or van. If the fair market valueof the passenger automobile exceeds thisamount, the employer may determine thevalue of the personal use under the gen-eral valuation rules of regulations section1.61–21(b) or under the special valuationrules of section 1.61–21(d) (Automobilelease valuation) or section 1.61–21(f)(Commuting valuation) if the applicablerequirements are met. See Rev. Proc.2007–11, 2007–1 C.B. 261, for guidanceon determining the maximum value ofpassenger automobiles first made avail-able during calendar year 2007, and Rev.Proc. 2008–13, 2008–6 I.R.B. 407, asmodified by Announcement 2008–15,2008–9 I.R.B. 511, for guidance on deter-mining the maximum value of passengerautomobiles first made available duringcalendar year 2008.

.02 Maximum Automobile Value forUsing the Fleet-Average Valuation Rule.

An employer with a fleet of 20 or moreautomobiles providing an automobile forthe first time in calendar year 2009 forthe personal use of any employee for anentire year may determine the value ofthe personal use by using the fleet-aver-age valuation rule in regulations section1.61–21(d)(5)(v) to calculate the AnnualLease Values of the automobiles in thefleet. The fleet-average valuation rule maynot be used to determine the Annual LeaseValue of any automobile if its fair marketvalue on the date it is first made availableexceeds $19,900 for a passenger automo-bile other than a truck or van, or $19,900for a truck or van. If all other appli-cable requirements are met, an employerwith a fleet of 20 or more vehicles consist-ing of passenger automobiles other thantrucks or vans as well as trucks and vansmay use the fleet-average valuation ruleas long as none of the vehicles exceedtheir respective maximum allowable val-ues. If the fair market value of any passen-ger automobile in the fleet exceeds theseamounts, the employer may determine the

2009–3 I.R.B. 322 January 21, 2009

value of the personal use under regulationssection 1.61–21(f) (Commuting valuation)or the general valuation rules of section1.61–21(b) or may determine the AnnualLease Value of such automobile separatelyunder the automobile lease valuation ruleof section 1.61–21(d)(2) if the applicablerequirements are met.

SECTION 4. EFFECTIVE DATE

This revenue procedure applies to em-ployer-provided passenger automobilesfirst made available to employees for per-sonal use in calendar year 2009.

SECTION 5. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Don M. Parkinson of theOffice of the Division Counsel/AssociateChief Counsel (Tax Exempt & Govern-ment Entities). For further informationregarding the maximum automobile valuefor applying the valuation rules of regu-lations section 1.61–21(e)(1)(iii)(A) (thevehicle cents-per-mile valuation rule),and section 1.61–21(d)(5)(v)(D) (thefleet average valuation rule), contactDon M. Parkinson at (202) 622–6040 (nota toll-free call).

26 CFR 31.6011(a)–1: Returns under Federal Insur-ance Contributions Act.

26 CFR 31.6011(a)–4: Returns of income tax with-held.(Also: Part 1, § 6011; 26 CFR 31.6071(a)–1,31.6091–1, and 31.6302–1.)

Rev. Proc. 2009–13

SECTION 1. PURPOSE

This revenue procedure sets forth theprocedures for employers to follow to re-quest to receive notification of their qual-ification to file Forms 944, Employer’sANNUAL Federal Tax Return, and alsosets forth the procedures for employerswho were notified that they should fileForm 944, Employer’s ANNUAL FederalTax Return, who wish to request to fileForms 941, Employer’s QUARTERLY Fed-eral Tax Return, instead for tax year 2009.

SECTION 2. BACKGROUND

.01 Form 944, Employer’s ANNUALFederal Tax Return, was designed toreduce burden on small employers bypermitting those employers to file one em-ployment tax return to report their socialsecurity, Medicare, and withheld federalincome taxes (referred to herein as their“employment tax liability”) for the entiretaxable year instead of four employmenttax returns (one for each quarter).

.02 The Treasury Department and theInternal Revenue Service (IRS) publisheda temporary regulation (T.D 9239, 2006–1C.B. 401) related to Form 944 in the Fed-eral Register (71 FR 11) on January 3,2006. A notice of proposed rulemak-ing (REG–148568–04, 2006–1 C.B. 417)cross-referencing the temporary regula-tions was published in the Federal Registeron the same day (71 FR 11). A correctionto the temporary regulation was publishedin the Federal Register on March 17,2006 (71 FR 13766). Revised temporaryregulations (T.D. 9440) and proposed reg-ulations (REG–148568–04) relating toForm 944 were published in the FederalRegister (73 FR 79354 and 73 FR 79423)on December 29, 2008.

.03 For tax year 2009, employersare qualified to file Form 944 if theirestimated annual employment tax li-ability is $1,000 or less. See Treas.Reg. §§ 31.6011(a)–1T(a)(5)(i) and31.6011(a)–4T(a)(4)(i). The IRS willnotify employers in writing of their quali-fication to file Form 944. Id. Employerswho continue to be eligible in subsequentyears will not receive another notification.The IRS will notify employers in writingwhen they no longer qualify to file Form944 and must file Forms 941 instead.

.04 Prior to the 2009 tax year, employ-ers received written notification in oneof three ways. Employers who had filedForms 941 may have received a letter no-tifying them that the IRS had determinedthey were eligible based on the liabilitythey reported on prior Forms 941. Newemployers may have received notificationthat they were eligible in the letter advis-ing them of their employer identificationnumber, depending on how they respondedto lines 13 and 14 when they completedForm SS–4, Application for EmployerIdentification Number. Employers who

did not receive notification to file Form944 in either of the two ways describedabove could call the IRS to determine ifthey were eligible and, if so, will receive aletter confirming their eligibility.

.05 Employers notified of their qualifi-cation to file Form 944 must file Form 944,Employer’s ANNUAL Federal Tax Return,for tax year 2009 rather than Forms 941,Employer’s QUARTERLY Federal Tax Re-turn.

.06 Sections 31.6011(a)–1T(a)(5)(i)(B)and 31.6011(a)–4T(a)(4)(i)(B) of the tem-porary regulations provide that the IRSmay establish procedures in publishedguidance for employers to follow to re-quest to receive notification of their qual-ification to file Forms 944, Employer’sANNUAL Federal Tax Return, and foremployers to follow to opt to file Forms941, Employer’s QUARTERLY FederalTax Return, after receiving notificationof their qualification to file Forms 944.This revenue procedure constitutes pub-lished guidance for purposes of Treas.Reg. §§ 31.6011(a)–1T(a)(5)(i)(B) and31.6011(a)–4T(a)(4)(i)(B).

.07 Employers who file Forms 941 and944 must deposit their employment tax lia-bility in accordance with the rules in Treas.Reg. §§ 31.6302–1 and 31.6302–1T or,absent reasonable cause, the employersmay be subject to the penalty for failureto deposit under section 6656. Generally,the same deposit rules apply to employersregardless of which form they file to reporttheir employment tax liability; however,the de minimis deposit amount may bedifferent. For more information on thedeposit rules, see Publication 15 or theinstructions to Forms 941 and 944 andthe related Spanish-language returns orreturns for U.S. possessions.

.08 For provisions relating to the timeand place for filing returns, see Treas. Reg.§§ 31.6071(a)–1 and 31.6091–1, respec-tively.

SECTION 3. SCOPE

This revenue procedure applies to em-ployers who are notified by the IRS thatthey should file Form 944 rather thanForms 941 and to qualified employers whochoose to file Forms 944 beginning in the2009 tax year.

January 21, 2009 323 2009–3 I.R.B.

SECTION 4. PROCEDURES

.01 Employers eligible to opt out. Fortax year 2009, employers who are notifiedthat they should file Form 944 may opt outif they timely notify the IRS that they sat-isfy at least one of the following condi-tions:

(1) The employer anticipates that itsemployment tax liability for tax year 2009will be more than $1,000; or

(2) The employer wants to file elec-tronically quarterly Forms 941 for tax year2009.

Employers who received notification tofile Form 944 in prior years and did notpreviously opt out of filing Form 944 areeligible to opt out for tax year 2009 if theysatisfy one of the conditions listed above.

.02 Opt-out procedures. Employerswho satisfy one of the conditions in sec-tion 4.01 must call or write the IRS statingthat they want to opt out of filing Form944 before the applicable due date, asindicated below. Employers can find theappropriate IRS contact phone numberand mailing address below.

(1) Due dates.(a) Employers who have previously filed

Form 941 or Form 944 or the related Span-ish-language returns or returns for U.S.possessions. Employers who want to callto opt out of filing Form 944 must call theIRS on or before April 1, 2009. Employ-ers who want to write to opt out of filingForm 944 must have their written corre-spondence postmarked on or before March15, 2009.

(b) New employers. Businesses that re-cently received an employer identificationnumber or had an employer identificationnumber but were not previously required

to file Form 941 or Form 944 or the re-lated Spanish-language returns or returnsfor U.S. possessions who want to call toopt out must call the IRS on or before thefirst day of the month that their first re-quired Form 941 is due (i.e., call made onor before April 1, 2009, July 1, 2009, Oc-tober 1, 2009, or January 1, 2010). Em-ployers who want to write to opt out of fil-ing Form 944 must have their written cor-respondence postmarked on or before the15th day of the month before their first re-quired Form 941 is due (i.e., correspon-dence postmarked on or before March 15,2009, June 15, 2009, September 15, 2009,or December 15, 2009). For any due datethat falls on a Saturday, Sunday, or legalholiday, the last day employers may callthe IRS or have their written correspon-dence postmarked is the next business dayfollowing that Saturday, Sunday, or legalholiday.

(2) Phone numbers. Employers can callthe IRS to opt out of filing Form 944 byusing the following phone numbers:

(a) Employers in the United States, in-cluding Puerto Rico and the U.S. Virgin Is-lands, can call 1–800–829–4933.

(b) Employers in Guam can call671–472–7471.

(c) All other international callers cancall 01–215–516–2000 or the nearest IRSoffice.

(3) Mailing Addresses. Employers canwrite the IRS to opt out of filing Form 944by using one of the two following mailingaddresses:

Department of Treasury, Internal Rev-enue Service, Ogden, Utah 84201–0038 orDepartment of Treasury, Internal RevenueService, Cincinnati, Ohio 45999–0038.

.03 Confirmation of opt-out of filingForm 944. The IRS will send written con-firmation to employers that their filing re-quirement was changed to Form 941. Em-ployers who are notified to file Form 944and are not notified that their filing re-quirement was changed to Form 941 mustfile Form 944 rather than Forms 941.

.04 Requests for Notification to FileForm 944. Beginning with the 2009 taxyear, the IRS will send notification of eligi-bility to file Forms 944 only upon requestby the qualified employer. Employersmay request to receive such notificationby calling the IRS at the telephone num-bers identified in paragraph .02(2) aboveby the due dates identified in paragraph.02(1) above. Employers who previouslyreceived notification of their qualificationto file Forms 944 must continue to fileForms 944 unless they opt out consistentwith the procedures described above.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective onJanuary 1, 2009.

SECTION 6. DRAFTINGINFORMATION

The principal authors of this rev-enue procedure are Raymond Baileyand Audra Dineen of the Office ofAssociate Chief Counsel (Procedure &Administration). For further informationregarding this revenue procedure, contactRaymond Bailey or Audra Dineen at (202)622–4910 (not a toll-free call).

26 CFR 601.202: Closing agreements.(Also Part I, §§ 446, 482, 7121; 1.446–1, 301.7121–1.)

Rev. Proc. 2009–14

TABLE OF CONTENTS

SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

SECTION 3. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326.01 Eligible taxpayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326.02 Eligible taxable years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

2009–3 I.R.B. 324 January 21, 2009

.03 Eligible issues generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

.04 Relationship of eligible issues to eligible taxable years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

.05 Eligible domestic and eligible international issues require coordination and consultation withAssociate Chief Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

.06 Eligible international issues requiring Associate Chief Counsel (International) concurrence inexecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

.07 Special provisions for requests on international issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

.08 Excluded issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

.09 Methods of accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328

.10 Definition of taxpayer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328

SECTION 4. REQUESTING A PRE-FILING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.01 Required information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.02 Specific descriptions of issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.03 Perjury statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328.04 Agreement regarding examination or inspection of records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.05 Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.06 Where to submit request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

SECTION 5. SELECTING TAXPAYERS FOR THE PFA PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.01 Jurisdiction of LMSB Industry Director and coordination and consultation with the Associate Chief

Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.02 Criteria for selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.03 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.04 Requests not accepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

SECTION 6. PROCESSING A REQUEST FOR A PFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.01 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.02 Continuing coordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329.03 Drafting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.04 Return filing requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.05 TEFRA taxpayers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.06 Execution prior to filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.07 Execution after filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

SECTION 7. NATURE AND EFFECT OF A PFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.01 Criteria for issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.02 Form and content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330.03 Methods and periods of accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330

SECTION 8. WITHDRAWAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 9. NO PFA EXECUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.01 Post-filing procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.02 Administrative appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 10. USER FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.01 Taxpayers subject to fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.02 Amount of fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.03 Time and method of payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331.04 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 11. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 12. EFFECTIVE DATE AND DURATION OF PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 13. EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 14. RECORDKEEPING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

SECTION 15. PAPERWORK REDUCTION ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331

January 21, 2009 325 2009–3 I.R.B.

SECTION 16. DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

SECTION 1. PURPOSE

.01 This revenue procedure permits ataxpayer under the jurisdiction of the Largeand Mid-Size Business Division to requestthat the Service examine specific issues re-lating to tax returns before those returnsare filed. This revenue procedure super-sedes Rev. Proc. 2007–17, 2007–4 I.R.B.368. This revenue procedure provides theframework within which a taxpayer andthe Service may work together in a cooper-ative environment to resolve, after exami-nation, issues accepted into the program.If the taxpayer and the Service are able toresolve the examined issues before the re-turns that they affect are filed, this revenueprocedure authorizes the taxpayer and theService to memorialize their agreement byexecuting an LMSB Pre-Filing Agreement(PFA).

.02 This revenue procedure outlines theprocedures for resolving issues throughpre-filing examinations. Taxpayers andthe Service often resolve issues more ef-fectively and efficiently through a pre-fil-ing examination than a post-filing ex-amination, because the taxpayer and theService have more timely access to therecords and personnel that are relevantto the issues. A pre-filing examinationalso provides the taxpayer with certaintyregarding the examined issue at an ear-lier point than a post-filing examination.These procedures benefit both taxpayersand the Service by improving the qualityof tax compliance while reducing costs,burdens, and delays. Unlike letter rulingsand other forms of written advice providedby the Offices of the Associates ChiefCounsel (see Rev. Proc. 2008–1, 2008–1I.R.B. 1), a PFA does not determine the taxtreatment of prospective or future trans-actions or events, but only of completedtransactions or events whose tax treatmenthas not yet been reported on a return.

SECTION 2. BACKGROUND

.01 In Rev. Proc. 2001–22, 2001–1C.B. 745, the Service provided proceduresfor LMSB taxpayers to request an exami-nation and resolve specific issues relatingto returns that were neither due (taking intoaccount any extensions of time to file) norfiled.

.02 Because Rev. Proc. 2001–22 lim-ited the eligible years for the PFA programto current or prior taxable years for whichreturns were neither due nor filed, taxpay-ers and the Service could not resolve issuesfor multiple future taxable years or issuesregarding appropriate methodologies fordetermining tax consequences that wouldaffect future taxable years. In Rev. Proc.2005–12, the Service expanded the scopeof the PFA program by allowing taxpay-ers and the Service to address certain is-sues over a limited number of future tax-able years. In addition, the Service revisedthe domestic and international issues eligi-ble for the PFA program.

.03 In Rev. Proc. 2007–17, the Ser-vice renewed the PFA program with mini-mal changes, clarifying the procedures forprocessing a PFA request and updating theuser fee requirements for a PFA. Section12 of Rev. Proc. 2007–17 provided thatthe revenue procedure would remain ineffect until December 31, 2008, unlesssooner revoked, modified, or superseded.

.04 The objective of the PFA programremains to resolve, before returns are filed,issues that are likely to be disputed inpost-filing audits. This revenue proceduremakes the PFA program permanent.

SECTION 3. SCOPE

.01 Eligible taxpayers. This revenueprocedure applies to taxpayers under thejurisdiction of LMSB that desire to resolveissues that otherwise may be the subject ofa post-filing examination through a PFA.

.02 Eligible taxable years.(1) Current, past, and future taxable

years. An eligible taxpayer may request aPFA for the current taxable year, any priortaxable year for which the original returnis not yet due (taking into account any ex-tensions of time to file) and is not yet filedand, except in the case of a PFA providedunder section 3.09(2), for a limited numberof future taxable years.

(2) Agreements for future taxable years.Agreements for future taxable years arelimited to four taxable years beyond thecurrent taxable year.

.03 Eligible issues generally.(1) Factual issues and well-established

law. The Service will consider enteringinto a PFA on any issue that requires ei-

ther a determination of facts or the appli-cation of well-established legal principlesto known facts.

(2) Issues that involve a methodology.The Service also will, in general, considerentering into a PFA regarding a method-ology used by a taxpayer to determine theappropriate amount of an item of income,allowance, deduction, or credit.

(3) Issues under the jurisdiction of otherService divisions. The Service will con-sider entering into a PFA on an issue un-der the jurisdiction of an operating divisionof the Service other than LMSB, but onlywith the concurrence of that operating di-vision.

.04 Relationship of eligible issues to el-igible taxable years. An issue also mustrelate to an eligible taxable year or yearsin order to be an eligible issue.

.05 Eligible domestic and eligible inter-national issues require coordination andconsultation with Associate Chief Counsel.There is no list of eligible domestic and in-ternational issues. Any domestic or inter-national issue that requires either a deter-mination of facts or application of well-es-tablished legal principles to known factsand that is not excluded under section 3.08or section 3.09 of this revenue procedure islikely suitable for a PFA.

The Service may, in its sole discretion,refuse to address an issue in a PFA basedon considerations of sound tax administra-tion. Before any decision is made to pro-ceed with the taxpayer’s request for a PFA,the Service must coordinate and consultwith the Associate Chief Counsel havingsubject matter jurisdiction over any issueproposed to be determined by a PFA. Aspart of this coordination and consultation,the Associate Chief Counsel may considerwhether the issue is more appropriately re-solved by a letter ruling or other form ofwritten advice from the Offices of the As-sociate Chief Counsel, as described in Rev.Proc. 2008–1, 2008–1 I.R.B. 1, or its suc-cessors, and whether the issue is currentlyone with respect to which the Service willnot, or will not ordinarily, issue a letterruling. See Rev. Proc. 2008–3, 2008–1I.R.B. 110, Rev. Proc. 2008–7, 2008–1I.R.B. 229, and their successors.

.06 Eligible international issues re-quiring Associate Chief Counsel (Inter-

2009–3 I.R.B. 326 January 21, 2009

national) concurrence in execution. Thissubsection lists specific international is-sues that are likely suitable for a PFA,but also require that the Associate ChiefCounsel (International) concur with theacceptance of the issue into the PFA Pro-gram and execution of the PFA. Eventhough an issue in a particular case ap-pears on this list, the Service may, in itssole discretion, refuse to address that is-sue based on considerations of sound taxadministration. The eligible issues are:

(1) whether a unit of the taxpayer’strade or business is a qualified businessunit within the meaning of section 989(a)and the regulations promulgated underthat section;

(2) whether the taxpayer is engagedin a trade or business within the UnitedStates (excluding questions under section864(b)(2));

(3) the amount of gross income thatis effectively connected with the conductby the taxpayer of a trade or businesswithin the United States (see Rev. Proc.2008–31, 2008–23 I.R.B. 1133 (AdvancePricing Agreement program));

(4) factual determinations concerningthe extent to which, under section 882(c),deductions are connected with incomethat is effectively connected with the tax-payer’s conduct of a trade or businesswithin the United States; and

(5) whether the taxpayer has a perma-nent establishment in the United States forpurposes of a bilateral income tax conven-tion to which the United States is a partyand, if so, what profits are attributable tothat permanent establishment. See Rev.Proc. 2008–31.

.07 Special provisions for requests oninternational issues. The provisions of thissection apply, in addition to the generallyapplicable provisions of this revenue pro-cedure, to any request for a PFA on an issuehaving international implications.

(1) A PFA and any factual informationcontained in the background files is subjectto exchange of information under incometax treaties or tax information exchangeagreements in accordance with the termsof such treaties and agreements (includingterms regarding relevancy, confidentiality,and the protection of trade secrets). Incases where the exchange of informationwould be discretionary, information maybe exchanged to the extent consistent with

sound tax administration and the practicesof the relevant foreign competent author-ity.

(2) To minimize taxpayer and gov-ernmental uncertainty and administrativecost, taxpayers that seek a PFA on an in-ternational issue are encouraged to seekcompetent authority consideration underthe mutual agreement procedure of anyapplicable United States income tax con-vention. This consideration will be givenafter the PFA is concluded, and the PFAmay be modified to reflect the outcome ofthe mutual agreement procedure.

(3) A taxpayer may request a PFAfor an international issue that is the sub-ject of a previously submitted requestfor competent authority assistance. Theconsideration of this competent authorityrequest will not be suspended during thePFA process. If the taxpayer requests aPFA and the previously submitted requestfor competent authority assistance is on-going, if appropriate, the taxpayer alsoshould make a request for the AcceleratedCompetent Authority Procedure of Rev.Proc. 2006–54, 2006–2 C.B. 1035.

.08 Excluded issues. The Service willnot enter into a PFA on the following typesof issues:

(1) Transfer pricing issues. See Rev.Proc. 2006–9, 2006–1 C.B. 278, Rev.Proc. 2008–31, and their successors;

(2) Except as provided in section3.09(2) of this revenue procedure, issuesinvolving a change in accounting method.See Treas. Reg. § 1.446–1(e). This in-cludes issues that are or have been thesubject of a request by or with respectto the taxpayer for consent to change amethod of accounting under proceduressuch as Rev. Proc. 97–27, 1997–1 C.B.680 (as modified and amplified by Rev.Proc. 2002–19, 2002–1 C.B. 696, andas amplified and clarified by Rev. Proc.2002–54, 2002–2 C.B. 432), or its prede-cessor or successor, or of an applicationfiled under automatic consent proceduressuch as Rev. Proc. 2008–52, 2008–36I.R.B. 587, or its predecessor or succes-sor. This also includes issues for whicha change in accounting method is neces-sary to resolve the issue. A taxpayer mustobtain consent to make an accountingmethod change by using applicable admin-istrative procedures. See generally Rev.

Proc. 97–27 and Rev. Proc. 2008–52, ortheir successors;

(3) Issues involving the annual account-ing period. See Treas. Reg. § 1.442–1.This includes issues that are or have beenthe subject of a request by or with respectto the taxpayer for permission to adopt,change, or retain an annual accounting pe-riod under procedures such as Rev. Proc.2002–39, 2002–1 C.B. 1046 (as clarifiedand modified by Notice 2002–72, 2002–2C.B. 843, and as modified by Rev. Proc.2003–34, 2003–1 C.B. 856), or an applica-tion filed under automatic procedures suchas Rev. Proc. 2002–37, 2002–1 C.B. 1030,and Rev. Proc. 2002–38, 2002–1 C.B.1037, or their predecessors or successors.This also includes issues for which a rul-ing regarding an annual accounting periodis necessary to resolve the issue;

(4) Issues of reasonable cause, due dili-gence, good faith, clear and convincing ev-idence, or any other similar standard underSubtitle F (Procedure and Administration)of the Internal Revenue Code;

(5) Issues involving the applicability ofany penalty or criminal sanction;

(6) Issues that are, or will be, the subjectof a pending or proposed request for a de-termination letter, technical advice memo-randum, or letter ruling issued to or regard-ing the taxpayer;

(7) Issues for which the taxpayer pro-poses a resolution that is contrary to a letterruling, determination letter, technical ad-vice memorandum, or closing agreementpreviously issued to or regarding the tax-payer;

(8) Issues for which the taxpayer pro-poses a resolution that is contrary to a po-sition proposed by the Service in responseto a request for a letter ruling or determina-tion letter that was withdrawn by the tax-payer;

(9) Issues that are the subject of pend-ing litigation between the Service and thetaxpayer for an earlier taxable year;

(10) Issues designated for litigation foran earlier taxable year of the taxpayer bythe Office of Chief Counsel;

(11) Issues that involve a tax shelter de-scribed in section 6662(d)(2)(C)(ii);

(12) Issues that require the Service todetermine whether the taxpayer, ratherthan another entity, is the common lawemployer; and

(13) Issues relating to transactionsthat have not yet occurred, regardless

January 21, 2009 327 2009–3 I.R.B.

of whether the issue otherwise wouldqualify as one on which the Servicewill issue letter rulings or other formsof written guidance as described inRev. Proc. 2008–1, 2008–1 I.R.B. 1, andsuccessor revenue procedures.

.09 Methods of accounting.(1) Except as provided in section

3.09(2) of this revenue procedure, theService will not enter into a PFA for is-sues relating to a change in method ofaccounting. In applying the law to thefacts, or establishing the facts, a changein the overall plan of accounting for grossincome or deductions from the treatmentof such items in prior taxable years, or achange in the treatment of any item thatinvolves the proper time for the inclusionof an item or the taking of an item as adeduction from the treatment of such itemin prior taxable years generally may be achange in method of accounting. A PFAmay not be used to change a taxpayer’smethod of accounting.

(2) If the Service has issued a letter rul-ing granting consent to a change in methodof accounting under Rev. Proc. 97–27, orits successor, a taxpayer may request andthe Service may enter into a PFA with re-spect to the approved change in method ofaccounting. In such case, a PFA may in-clude determinations described in section11 of Rev. Proc. 97–27 or a similar provi-sion of its successor. Thus, for example, ataxpayer may request and the Service mayenter into a PFA with respect to the amountof the section 481(a) adjustment and theimplementation of the change in methodof accounting in accordance with the termsand conditions of the consent agreementand Rev. Proc. 97–27. A PFA underthis provision may only apply to the tax-able year of change and may not apply toany other taxable years, except that a de-termination of the amount of the section481(a) adjustment under section 11.01(2)of Rev. Proc. 97–27, or a successor, shallapply to any other taxable year for whichsuch amount is taken into account (i.e., anyspread period). A PFA under this provisionmay not be entered into with respect to achange in method of accounting requestedpursuant to automatic consent procedures,such as Rev. Proc. 2008–52.

.10 Definition of taxpayer. For pur-poses of section 3 of this revenue proce-dure, any reference to the taxpayer also in-

cludes a related taxpayer and any prede-cessor of the taxpayer or a related taxpayer.A related taxpayer is one related within themeaning of section 267 or a member ofan affiliated group within the meaning ofsection 1504 that includes the taxpayer. Apredecessor is an entity for whose tax lia-bility the taxpayer or a related taxpayer isor was primarily or secondarily liable.

SECTION 4. REQUESTING APRE-FILING AGREEMENT

.01 Required information. A request fora PFA must contain the following informa-tion:

(1) Names, addresses, telephone num-bers, and taxpayer identification numbersof all interested parties;

(2) The name, title, address, and tele-phone number of a person to contact. Ifthe person to contact is an authorized rep-resentative of the taxpayer, a properly exe-cuted Form 2848, Power of Attorney andDeclaration of Representative, must ac-company the request;

(3) The annual accounting period andthe overall method of accounting (for ex-ample, cash receipts and disbursementsor accrual) for maintaining the accountingbooks and filing the federal income taxreturns of all interested parties;

(4) The location of the taxpayer’s taxstaff and records;

(5) A brief description of the taxpayer’sbusiness operations, including the princi-pal business activity code used by the tax-payer on its last filed return;

(6) The taxable year(s) for which thePFA is sought, the last date on whichthe taxpayer may file (with extensions) atimely return for that year (or for the firstof those taxable years), and, if earlier, thedate on which the taxpayer intends to filethat return; and

(7) The dollar amount of assets re-flected on the most recently filed return.

.02 Specific descriptions of issues. A re-quest for a PFA should also contain a sep-arate written statement for each proposedissue that concisely:

(1) Describes the issue;(2) Summarizes all the facts that are

relevant and material to the issue and, inthe case of agreements for future taxableyears, any related factual assumptions thatmay be appropriate (see section 7.02(2),below);

(3) States whether the issue involvesan item or transaction in which two ormore persons may take contrary positions(a “whipsaw” issue);

(4) Summarizes all relevant legal au-thorities, including citations to specificsections of the Internal Revenue Code,Income Tax Regulations, case law, taxtreaties, and other authorities, and dis-cusses why the issue is an eligible issue,as defined in section 3 of this revenueprocedure;

(5) Summarizes and discusses the im-plications of any known authorities thatmay be contrary to the position advanced,such as legislation (or pending legislation),court decisions, regulations, revenue rul-ings, revenue procedures, notices (includ-ing notices of proposed rulemaking), or an-nouncements;

(6) Discusses whether and how the PFAwill affect taxable years before or after thetaxable year for which the PFA is sought;

(7) Describes any proposed methodol-ogy to be used;

(8) Discusses whether the issue quali-fies for mutual agreement procedure con-sideration under any United States incometax treaty, specifies the treaty, and stateswhether the taxpayer previously applied orwill apply for competent authority assis-tance with respect to the issue for the yearor years in question or any prior year;

(9) States whether the taxpayer has, forthe current taxable year or any prior tax-able year, requested a letter ruling (includ-ing a request for consent to a change inmethod of accounting or a request to adopt,change, or retain an annual accounting pe-riod), determination letter, or technical ad-vice on the issue;

(10) Discusses whether the issue canreasonably be resolved by the earliest dateon which the taxpayer intends to file anyrelevant return; and

(11) Describes the availability, organ-ization, and location of the records andother information that substantiate the tax-payer’s proposed position on the issue.

.03 Perjury statement. A request fora PFA, and any supplemental submissions(including additional documents), must in-clude a declaration, signed by a personcurrently authorized to sign the taxpayer’sfederal income tax return, in the followingform:

2009–3 I.R.B. 328 January 21, 2009

Under penalties of perjury, I declarethat I have examined this request, in-cluding accompanying documents, andto the best of my knowledge and belief,the facts presented in support of the re-quest for the Pre-Filing Agreement aretrue, correct, and complete.

.04 Agreement regarding examinationor inspection of records. The request fora PFA also must contain a statement by thetaxpayer in the following form:

The taxpayer agrees that the reviewof records and information under thePFA procedures does not constitutean inspection within the meaning ofsection 7605(b) and will not precludeor impede (under section 7605(b) orany administrative provisions adoptedby the Service) the Service from laterexamining any return or inspecting anyrecords. The taxpayer further agreesthat procedural restrictions, such asproviding notice under section 7605(b),do not apply to actions taken under thePFA procedures.

.05 Signature. The request for a PFAmust be signed by the taxpayer or a rep-resentative properly authorized by thetaxpayer in an accompanying Form 2848,Power of Attorney and Declaration ofRepresentative.

.06 Where to submit request.(1) In the case of a taxpayer whose re-

turn for any taxable year is currently un-der examination by LMSB, a request fora PFA should be submitted to the LMSBTeam Manager in charge of the examina-tion; or

(2) In the case of a taxpayer who has noreturns under examination for any taxableyear, a request for a PFA should be sent byany of the following methods:

(a) mail to the following address:

Internal Revenue ServiceAttn: LMSB:PFT:PFSPFA Program ManagerMint Building1111 Constitution Avenue, NWWashington, DC 20224;

(b) facsimile transmission to the atten-tion of the PFA Program Manager at (202)283–8406 (not a toll-free call); or

(c) electronic transmission topfa.info@irs.gov.

SECTION 5. SELECTING TAXPAYERSFOR THE PFA PROGRAM

.01 Jurisdiction of LMSB Industry Di-rector and coordination and consultationwith the Associate Chief Counsel. TheLMSB Industry Director having jurisdic-tion over the taxpayer, after coordinationand consultation with the Associate ChiefCounsel having subject matter jurisdictionover any issue proposed to be determinedby a PFA, will decide whether to acceptthe taxpayer’s request for a PFA. (For pur-poses of this revenue procedure, the term“LMSB Industry Director” includes a dulyauthorized designee of an LMSB IndustryDirector.) The decision regarding the ac-ceptance of any PFA involving an interna-tional issue also will require the concur-rence of the Deputy Commissioner, Inter-national (LMSB). In general, the AssociateChief Counsel will respond within 10 busi-ness days to a request for coordination andconsultation to proceed with the PFA.

.02 Criteria for selection. The criteriafor selecting taxpayers to participate in thePFA program include, but are not limitedto:

(1) Whether the specific issue presentedby the taxpayer’s facts is an eligible issueunder section 3 of this revenue procedureand is otherwise suitable for the PFA pro-gram;

(2) The direct or indirect impact of aPFA upon other years, issues, taxpayers, orrelated cases;

(3) Whether Service resources areavailable;

(4) Whether the taxpayer is willing andable to dedicate sufficient resources to thePFA process;

(5) Whether the PFA is likely to resultin two or more persons taking contrary po-sitions on an item or transaction (a “whip-saw” issue);

(6) The time remaining until the duedate and expected filing date, if earlier thanthe due date, of the earliest return to whichthe PFA relates; and

(7) The overall probability of complet-ing the process and entering into a PFA bythe proposed date for filing the earliest re-turn to which the PFA relates.

Early submission of a request will fa-cilitate completion of a PFA before anyassociated returns become due. As a re-sult, early requests are more likely to be se-

lected for the PFA program and the Serviceurges taxpayers to submit PFA requests asearly as possible.

.03 Notification. A representative ofLMSB will contact the taxpayer within 15business days of actual receipt of the tax-payer’s request for a PFA to acknowledgethat the Service has received the request.After a PFA request is received, a represen-tative of LMSB will inform the taxpayerin writing whether the request has been se-lected for the PFA program and the issuesthe Service will consider.

.04 Requests not accepted. A taxpayermay not appeal the Service’s decision notto accept a request for a PFA. A taxpayernot selected for the PFA program remainseligible for other early issue resolutionprocedures, including the Accelerated Is-sue Resolution (AIR) program (see Rev.Proc. 94–67, 1994–2 C.B. 800).

SECTION 6. PROCESSING AREQUEST FOR A PFA

.01 Planning. If the Service acceptsthe taxpayer’s request for a PFA, a rep-resentative of LMSB will contact the tax-payer and schedule an orientation meet-ing with the taxpayer and examination per-sonnel to discuss the PFA process and ex-plain the roles and responsibilities of eachparticipant. Immediately after the orienta-tion meeting, the taxpayer and the Serviceshould meet to formulate a plan and time-line that will result in a thorough develop-ment of the facts and a successful resolu-tion of the issues before any associated re-turns are due. During the planning phaseand throughout the PFA process, the tax-payer must provide information requestedby the Service and assist the Service in thetimely and efficient resolution of the exam-ined issues. If, at any time after a requestfor a PFA has been accepted, the facts thatare relevant and material to the request fora PFA significantly change or, in the caseof proposed agreements for future taxableyears, any factual assumptions that may beappropriate significantly change, the tax-payer must promptly inform the Servicethrough the examination team assigned tothe PFA.

.02 Continuing coordination. After arequest for a PFA has been accepted, theLMSB Industry Director having jurisdic-tion over the PFA request will, through

January 21, 2009 329 2009–3 I.R.B.

the examination team and local counsel as-signed to the PFA, coordinate and consultwith the Associate Chief Counsel havingsubject matter jurisdiction over the issueproposed to be determined by the PFA toensure that that issue remains suitable fora PFA. The LMSB Industry Director will,through the examination team and localcounsel assigned to the PFA, inform theAssociate Chief Counsel if, at any timeafter a request for a PFA has been ac-cepted, the facts that are relevant and ma-terial to the issue significantly change or,in the case of agreements for future taxableyears, any factual assumptions that may beappropriate significantly change.

.03 Drafting. After the development ofthe facts and issues, the Team Managerwill meet informally with the taxpayer todetermine whether the parties agree on aPFA. If the parties reach agreement, thetaxpayer will work with the Service to pre-pare the initial draft of the PFA. The PFAwill be prepared by the taxpayer and theaudit team with assistance, as necessary,from the PFA Program Manager, the Of-fice of Chief Counsel, or other Servicepersonnel. Except as provided in section3.06, the Associate Chief Counsel havingsubject matter jurisdiction over the issuein the PFA need not execute or give finalapproval to the proposed PFA; however,upon execution of the PFA, the PFA Pro-gram Manager will immediately forward acopy of the PFA to the office of that Asso-ciate Chief Counsel.

.04 Return filing requirements. TheService’s acceptance of a taxpayer’s re-quest for a PFA does not suspend or waivethe normal filing requirements for any taxreturns that may be affected by the pro-posed PFA.

.05 TEFRA taxpayers. If the proceduresset forth in sections 6221 through 6233 ap-ply to the taxpayer requesting the PFA andthe issue determined by the PFA is a part-nership item as defined in section 6231,the PFA process will be terminated for thatissue if no agreement is reached with allpartners by the date that is 30 business daysbefore the due date for the partnership re-turn (taking into account any extensions oftime to file that may be in effect).

.06 Execution prior to filing. If a PFAis executed before a return is filed, the tax-payer must report the issues determined bythe PFA according to the terms and condi-

tions of the PFA. A copy of the PFA mustbe attached to the return.

.07 Execution after filing. If the Ser-vice and the taxpayer do not reach agree-ment on an issue before the taxpayer filesan associated return, the Service and thetaxpayer may still attempt to resolve theissue and enter into a PFA. If the filed re-turn is inconsistent with the terms and con-ditions of the contemplated PFA, the tax-payer must agree to file an amended returnconsistent with those terms and conditions.A post-filing PFA should state whether thetaxpayer is required to file an amended re-turn. It should further state that the Ser-vice may assess additional tax due, if any,if an amended return is not filed. The tax-payer must attach a copy of the PFA to anyamended return.

SECTION 7. NATURE AND EFFECTOF A PFA

.01 Criteria for issuance. An autho-rized Service official may execute a PFAif that official determines that:

(1) Entering into the PFA is consistentwith the goals of the PFA program;

(2) The resolution of issues in the PFAreflects well-settled legal principles andcorrectly applies those principles to thefacts established by the examination team;

(3) The issues determined by the PFAare eligible issues under section 3 of thisrevenue procedure;

(4) Any methodology approved for useby a taxpayer to determine the appropriateamount of an item of income, allowance,deduction, or credit has a documented fac-tual basis; and

(5) There is an advantage in having theissues permanently and conclusively re-solved for the taxable years covered by thePFA, or the taxpayer shows good and suf-ficient reasons for desiring a PFA and theUnited States will suffer no disadvantageif the agreement is executed.

.02 Form and content.(1) A PFA that makes determinations

for the current taxable year (and any priortaxable year for which a return is not yetdue) is a closing agreement under section7121. The form and content of this type ofPFA must comply with Rev. Proc. 68–16,1968–1 C.B. 770.

(2) A PFA that makes a determinationfor one or more future taxable years as

well as for the current taxable year (andany prior taxable year for which a returnis not yet due) is a non-statutory agree-ment. Although not a closing agreementunder section 7121, this type of PFA is abinding contract between the Service anda taxpayer. It is subject to any legislativeenactment that is applicable to the taxableyears to which the PFA relates. There is noprescribed format for such an agreement.The parties to a non-statutory agreementmay, by mutual consent (and, if applica-ble, the further mutual agreement betweenthe United States and any treaty partnerthat has entered into a mutual agreementthat is a basis for the PFA), modify or ter-minate the agreement. A taxpayer whowants to modify or terminate a non-statu-tory agreement should submit a request tothe office that originally processed the tax-payer’s request for a PFA. The parties toa non-statutory agreement also may con-dition its determinations on the continuingvalidity of certain stated assumptions. A“stated assumption” is any fact (whether ornot within the control of the taxpayer) re-lated to the taxpayer, a third party, an in-dustry, or business and economic condi-tions whose continued existence is mate-rial to the determinations of the PFA. Astated assumption might include, for ex-ample, a particular mode of conductingbusiness operations. If a stated assumptionis no longer valid, a non-statutory agree-ment conditioned on such stated assump-tion will terminate as of the first day of thetaxable year in which the stated assump-tion is no longer valid.

(3) A PFA concerning internationalissues will not be subject to the spe-cial limitation of section 7.05, Effect ofAgreements or Judicial Determinations onCompetent Authority Proceedings, of Rev.Proc. 2006–54, 2006–2 C.B. 1035, whichsets forth the effect of a closing agreementon the procedure for competent authorityconsideration under the mutual agreementprocedure of United States income taxconventions.

.03 Methods and periods of accounting.(1) A PFA does not constitute the con-

sent of the Commissioner under section446(e) to any change in method of ac-counting or the approval under section 442of any adoption, change, or retention of anannual accounting period by the taxpayer.

2009–3 I.R.B. 330 January 21, 2009

(2) A PFA does not constitute a fi-nal determination regarding the adoption,change, or retention of an annual account-ing period by the taxpayer,

(3) A PFA does not constitute a final de-termination regarding the methods of ac-counting of the taxpayer for any taxableyear, except to the extent authorized bysection 3.09(2).

(4) A PFA authorized under section3.09(2) must include the following agree-ment:

Nothing in this agreement precludesthe taxpayer from requesting, or theService from requiring, a change in thetaxpayer’s method of accounting foryears after the year of change.

SECTION 8. WITHDRAWAL

.01 At any time prior to the executionof the PFA, either the taxpayer or the Ser-vice may withdraw from consideration allor part of the request for a PFA. The with-drawal must be in writing and signed bythe party initiating the withdrawal, i.e.,the taxpayer or his authorized representa-tive or the Industry Director, Director FieldOperations, or the Director Field Special-ists.

.02 Notwithstanding the withdrawal byeither the taxpayer or the Service of any orall the issues that are the subject of the re-quest for a PFA, the taxpayer’s agreementunder section 4.04 of this revenue proce-dure will remain in effect.

SECTION 9. NO PFA EXECUTED

.01 Post-filing procedures. If the Ser-vice and the taxpayer do not agree uponand execute a PFA that resolves an issue,either before or after the filing of the re-turn to which the PFA relates, and the Ser-vice subsequently disagrees with the tax-payer’s treatment of the issue on the return,the taxpayer and the Service may continuetheir efforts to reach an agreement usingpost-filing procedures, such as the Accel-erated Issue Resolution (AIR) proceduresunder Rev. Proc. 94–67, 1994–2 C.B. 800.This continuation of the process does notrequire a new application.

.02 Administrative appeals. If the Ser-vice and the taxpayer are unable to resolvean issue by a PFA or an AIR agreement, thetaxpayer may pursue an administrative ap-peal either by requesting an early referral

to Appeals under the procedures set forthin Rev. Proc. 99–28, 1999–2 C.B. 109, orby protesting any proposed deficiency re-lated to the issue.

SECTION 10. USER FEE

.01 Taxpayers subject to fees. Taxpay-ers are subject to a user fee only if they areselected to participate in the PFA program.

.02 Amount of fee. The user fee for tax-payers selected to participate in the PFAprogram is $50,000, or as provided for inRev. Proc. 2008–1, 2008–1 I.R.B. 1, andits successors. A fee will be assessed foreach separate and distinct issue. The ori-entation meeting or the first substantivemeeting with the taxpayer to discuss thePFA issues will not take place until afterthe fee is received.

.03 Time and method of payment. Pay-ment of the user fee must be made within15 business days of notification that the is-sues have been selected for the PFA pro-gram. Payment must be made by check ormoney order payable to the Internal Rev-enue Service and submitted to the addressin the letter notifying the taxpayer of ac-ceptance into the PFA program.

.04 Withdrawal. Notwithstanding thewithdrawal by either the taxpayer or theService of any or all of the issues in therequest for a PFA after acceptance of therequest, the user fee paid by the taxpayergenerally will not be refundable. A refundor waiver of the user fee will not be enter-tained unless a hardship has occurred (forexample, a disaster loss) or if other circum-stances beyond the control of the taxpayerexist. The Industry Director has discretionin granting a request for a refund of a userfee based on considerations of sound taxadministration.

SECTION 11. DISCLOSURE

PFAs are agreements described insection 6103(b)(2)(D). A PFA and theinformation generated or received by theService during the PFA process constituteconfidential return information. Consis-tent with the restrictions of section 6103,the Service will continue to publish annualreports summarizing the operation of thePFA program. PFAs are not written deter-minations available for public inspectionunder section 6110. PFAs are exempt from

disclosure to the public under the Freedomof Information Act.

SECTION 12. EFFECTIVE DATE ANDDURATION OF PROCEDURE

This revenue procedure is effective onJanuary 1, 2009 and will remain in effectunless revoked, modified, or superseded.

SECTION 13. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2007–17, 2007–4 I.R.B.368, is superseded.

SECTION 14. RECORDKEEPINGREQUIREMENTS

.01 No aspect of the PFA process willaffect the recordkeeping requirements im-posed by any section of the Internal Rev-enue Code.

.02 The taxpayer must maintain a copyof the PFA supporting documents andbooks of account and records to enable theService to ensure the taxpayer’s compli-ance with the PFA. These records may bespecified in the PFA itself or in separateagreements.

SECTION 15. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of 1995(44 U.S.C. 3507) under the control num-ber 1545–1684.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid OMB control number. The collec-tions of information in this revenue proce-dure are in sections 4, 6, and 14. The in-formation collected under section 4 is re-quired to provide the Service with the in-formation necessary to determine whichtaxpayers should be included in the PFAprogram. The information collected un-der section 6 will be used to resolve thetaxpayer’s issue and to support any PFAentered into between the taxpayer and theService. The recordkeeping requirementsunder section 14 will be used for tax ad-ministration. The collections of informa-tion under sections 4 and 6 are voluntary.

January 21, 2009 331 2009–3 I.R.B.

Once a PFA is entered into, the record-keeping requirements under section 14 aremandatory. The likely respondents arebusinesses or other for-profit institutions.

The estimated total annual reportingand/or recordkeeping burden is 13,134hours.

The estimated annual burden per re-spondent varies from 5 hours to 1,092hours, depending on whether a taxpayerapplying to the PFA program is acceptedinto the program. The estimated annualburden per respondent for taxpayers whoapply to the PFA program and are acceptedis 1,092 hours. The estimated annualburden per respondent for taxpayers whoapply to the PFA program and are not

accepted is 5 hours. The estimated num-ber of taxpayers who apply to the PFAprogram and are accepted is 12. The esti-mated number of taxpayers who apply tothe PFA program and are not accepted is 6.The estimated total number of applicantsand/or recordkeepers is 18.

The estimated annual frequency of re-sponses is on occasion.

Books or records relating to a collectionof information must be retained so longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

SECTION 16. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Kevin Gillin of the Officeof Associate Chief Counsel (Procedure& Administration). For further informa-tion about this revenue procedure, contactMelanie Perrin, Senior Program Analyst,LMSB Office of Pre-Filing and TechnicalGuidance, at (202) 283–8408 (voice) (nota toll-free call), (202) 283–8406 (fax) (nota toll-free call).

2009–3 I.R.B. 332 January 21, 2009

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

January 21, 2009 i 2009–3 I.R.B.

Numerical Finding List1

Bulletins 2009–1 through 2009–3

Announcements:

2009-1, 2009-1 I.R.B. 242

Notices:

2009-1, 2009-2 I.R.B. 250

2009-3, 2009-2 I.R.B. 250

2009-4, 2009-2 I.R.B. 251

2009-5, 2009-3 I.R.B. 309

2009-6, 2009-3 I.R.B. 311

2009-7, 2009-3 I.R.B. 312

Revenue Procedures:

2009-1, 2009-1 I.R.B. 1

2009-2, 2009-1 I.R.B. 87

2009-3, 2009-1 I.R.B. 107

2009-4, 2009-1 I.R.B. 118

2009-5, 2009-1 I.R.B. 161

2009-6, 2009-1 I.R.B. 189

2009-7, 2009-1 I.R.B. 226

2009-8, 2009-1 I.R.B. 229

2009-9, 2009-2 I.R.B. 256

2009-10, 2009-2 I.R.B. 267

2009-11, 2009-3 I.R.B. 313

2009-12, 2009-3 I.R.B. 321

2009-13, 2009-3 I.R.B. 323

2009-14, 2009-3 I.R.B. 324

Revenue Rulings:

2009-1, 2009-2 I.R.B. 248

2009-2, 2009-2 I.R.B. 245

Treasury Decisions:

9436, 2009-3 I.R.B. 268

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin2008–52, dated December 29, 2008.

2009–3 I.R.B. ii January 21, 2009

Finding List of Current Actions onPreviously Published Items1

Bulletins 2009–1 through 2009–3

Notices:

2001-55

Modified by

Notice 2009-1, 2009-2 I.R.B. 250

2007-54

Obsoleted by

T.D. 9436, 2009-3 I.R.B. 268

2008-11

Obsoleted by

T.D. 9436, 2009-3 I.R.B. 268

2008-12

Obsoleted by

T.D. 9436, 2009-3 I.R.B. 268Rev. Proc. 2009-11, 2009-3 I.R.B. 313

2008-13

Obsoleted by

T.D. 9436, 2009-3 I.R.B. 268

List of forms modified and superseded by

Rev. Proc. 2009-11, 2009-3 I.R.B. 313

Modified and clarified by

Notice 2009-5, 2009-3 I.R.B. 309

2008-46

Obsoleted by

T.D. 9436, 2009-3 I.R.B. 268Rev. Proc. 2009-11, 2009-3 I.R.B. 313

Revenue Procedures:

2007-17

Superseded by

Rev. Proc. 2009-14, 2009-3 I.R.B. 324

2007-71

Modified by

Notice 2009-3, 2009-2 I.R.B. 250

2008-1

Superseded by

Rev. Proc. 2009-1, 2009-1 I.R.B. 1

2008-2

Superseded by

Rev. Proc. 2009-2, 2009-1 I.R.B. 87

2008-3

Superseded by

Rev. Proc. 2009-3, 2009-1 I.R.B. 107

2008-4

Superseded by

Rev. Proc. 2009-4, 2009-1 I.R.B. 118

2008-5

Superseded by

Rev. Proc. 2009-5, 2009-1 I.R.B. 161

Revenue Procedures— Continued:

2008-6

Superseded by

Rev. Proc. 2009-6, 2009-1 I.R.B. 189

2008-7

Superseded by

Rev. Proc. 2009-7, 2009-1 I.R.B. 226

2008-8

Superseded by

Rev. Proc. 2009-8, 2009-1 I.R.B. 229

2008-9

Superseded by

Rev. Proc. 2009-9, 2009-2 I.R.B. 256

2008-61

Superseded by

Rev. Proc. 2009-3, 2009-1 I.R.B. 107

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–27 through 2008–52 is in Internal Revenue Bulletin 2008–52, dated December 29,2008.

January 21, 2009 iii 2009–3 I.R.B.

2009–3 I.R.B. January 21, 2009

January 21, 2009 2009–3 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNETYou may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select

More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two tosix weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300