Part IV. Items — Internal Revenue Bulletin 1999-43

Notice of Proposed Rulemaking and Notice of Public Hearing

Averaging of Farm Income

REG–121063–97

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations for averaging farm income under section 1301 of the Internal Revenue Code. The regulations reflect the enactment of the provision by the Taxpayer Relief Act of 1997, as amended by the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999. The regulations provide guidance to individuals engaged in a farming business who may elect to reduce their regular tax liability by treating all or a portion of the current year’s farming income as if it had been earned in equal proportions over the prior three years. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments and requests to speak (with outlines of oral comments) at a public hearing scheduled for February 15, 2000, must be received by January 14, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG–121063–97), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG–121063–97), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.gov/tax_regs/ regslist.html. The public hearing will be held in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, John M. Moran, at (202) 622-4940; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Guy Traynor, at (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Manage- ment and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. Comments on the collection of information should be received by December 7, 1999. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this proposed regulation is in §1.1301–1(c). This collection of information is required by the IRS to verify compliance with sec

tion 1301. This information will be used to determine whether the amount of tax has been calculated correctly. The collection of information is required to obtain a benefit. The respondents are certain individuals engaged in the trade or business of farming.

Taxpayers provide the information on Schedule J, Farm Income Averaging, which is attached to Form 1040, U.S. Individual Income Tax Return, for the taxable year in which income averaging is elected. The burden for this requirement is reflected in the burden estimate for Schedule J. The estimated burden for the 1998 Schedule J is 1.31 hours per respondent.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Background

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) for averaging farm income under section 1301 of the Internal Revenue Code (Code). Section 1301 was enacted by section 933 of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788) (the TRA of 1997), effective for taxable years beginning after December 31, 1997, and ending before January 1, 2001. Section 2011 of the Tax and Trade Relief Extension Act of 1998, which is part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999, Public Law 105277, 112 Stat. 2681, amended section 933 of the TRA of 1997 by deleting the January 1, 2001 ending date.

Section 1301(c) authorizes the Secretary to prescribe regulations as may be appropriate to carry out the purposes of this section, including regulations regarding (1) the order and manner in which items of income, gain, deduction, or loss, or

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limitations on tax, shall be taken into account in computing the tax imposed by chapter 1 (Normal Taxes and Surtaxes) of subtitle A (Income Taxes) of the Code on the income of any taxpayer to whom this section applies for any taxable year, and (2) the treatment of any short taxable year.

Explanation of Provisions

I. In general

Under section 1301, an individual may elect to compute the section 1 tax for the current taxable year by designating all or a portion of the individual’s farm income (subject to certain limitations) as elected farm income, and subtracting it from taxable income. One-third of the elected farm income is allocated to each of the three prior years’ taxable income and the increase in the section 1 tax that results from these additions is calculated. The prior years are referred to as base years. The tax for the current year is the sum of (1) the section 1 tax for the current year without the elected farm income and (2) the increase in the section 1 tax for the three base years that is attributable to elected farm income.

II. Engaged in a farming business

The proposed regulations provide that the term farming business has the same meaning as provided in section 263A(e)(4) and the regulations thereunder. The proposed regulations also provide that an individual engaged in a farming business includes a sole proprietor of a farming business, a partner of a partnership engaged in a farming business, and a shareholder of an S corporation engaged in a farming business.

III. Making, changing, or revoking an election

The proposed regulations provide that a farm income averaging election is made by filing Schedule J, Farm Income Averaging, with an individual’s timely filed Federal income tax return (including extensions). In general, the proposed regulations provide that if an individual has an adjustment for an election year or base year, the individual may also make a late farm income averaging election or change or revoke a previous election. An adjust

ment is any change in taxable income or tax liability that is permitted to be made by filing an amended Federal income tax return, or a change in taxable income or tax liability resulting from an IRS examination. If there is no adjustment for an election year or a base year, a late election, change, or revocation may be made only with the consent of the Commissioner. The IRS and the Treasury Department anticipate that the Commissioner’s consent will be obtained by requesting a letter ruling from the national office.

IV. Calculation of section 1 tax

Farm income averaging allocates onethird of elected farm income from an election year to each of the base years only for the purpose of calculating the section 1 tax attributable to the elected farm income allocated to each base year. The proposed regulations provide that the section 1 tax for the election year is determined by allocating elected farm income to the base years only after all other adjustments and determinations have been made. For example, any net operating loss carryover is applied to an election year before allocating elected farm income to the base years.

The regulations provide that the allocation of elected farm income to the base years does not affect any determination (other than the calculation of the section 1 tax attributable to the elected farm income) with respect to the election year or the base years. Thus, for example, in applying the section 68 overall limitation on itemized deductions to the election year, adjusted gross income for the election year includes any elected farm income allocated to the base years. Similarly, the section 68 limitation for a base year is not recomputed to take into account any allocation of elected farm income to such base year.

The proposed regulations provide that calculation of the section 1 tax on elected farm income allocated to a base year is made without any additional adjustments or determinations with respect to that year. For example, if a base year had a partially used capital loss, the remaining capital loss may not be applied to reduce the elected farm income allocated to such year. Similarly, if a base year had a partially used credit, the remaining credit may not applied to reduce the section 1

tax attributable to the elected farm income allocated to such year.

V. Elected farm income

The proposed regulations provide that farm income includes all income, deductions, gains, and losses attributable to an individual’s farming business. An individual may designate what type, and how much of each type, of farm income is to be treated as elected farm income. The elected farm income may not exceed an individual’s taxable income. In addition, elected farm income from net capital gain attributable to a farming business may not exceed total net capital gain. One-third of each type of elected farm income is then allocated to each base year.

Proposed Effective Date

The regulations, as proposed, apply to any taxable period ending on or after the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register. However, the rules in these proposed regulations may be relied on by individuals for taxable periods ending before the publication of the Treasury decision.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the collection of information imposed by this regulation is not significant as reflected in the estimated burden of information collection for Schedule J, which is 1.31 hours per respondent. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

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ship engaged in a farming business, and a shareholder of an S corporation engaged in a farming business. An individual is not required to have been engaged in a farming business in any of the base years in order to make a farm income averaging election.

(c) Making, changing, or revoking an election —(1) Making an election. A farm income averaging election is made by filing Schedule J, Farm Income Averaging, with an individual’s timely filed (including extensions) Federal income tax return for the election year.

(2) Making a late election, or changing or revoking an election —(i) Adjustments in an election or base year. An individual who has an adjustment for an election year or any base year may make a late farm income averaging election, change the amount of elected farm income in a previous election, or revoke a previous election, if the period of limitation on filing a claim for credit or refund has not expired for the election year. For purposes of this paragraph (c)(2), an adjustment is any change in taxable income or tax liability that is permitted to be made by filing an amended Federal income tax return or a change in taxable income or tax liability made as the result of an IRS examination.

(ii) No adjustment. If an individual does not have an adjustment described in paragraph (c)(1)(i) of this section, the individual may not make a late farm income averaging election, change the amount of elected farm income in a previous election, or revoke a previous election, without the consent of the Commissioner.

(d) Calculation of section 1 tax —(1) In general. The section 1 tax for the election year is determined by allocating elected farm income to the base years only after all other adjustments and determinations have been made. For example, any net operating loss (NOL) carryover or net capital loss carryover is applied to an election year before allocating elected farm income to the base years. Similarly, the determination of whether there is a net section 1231 gain or loss in the election year and the determination of the character of the section 1231 items are made before allocating elected farm income to the base years. The allocation of elected farm income to the base years does not affect

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic or written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. In addition, comments are specifically requested regarding whether wages paid to a shareholder of an S corporation may be electible farm income. All comments will be available for public inspection and copying.

A public hearing has been scheduled for February 15, 2000, beginning at 10 a.m. in room 2615 of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by January 14, 2000. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is John M. Moran, Office of Assistant Chief Counsel (Income Tax & Accounting). However, other personnel

from the IRS and Treasury Department participated in their development.

- - - -

Proposed Amendment to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.1301–1 also issued under 26 U.S.C. 1301(c). * * *

Par. 2. An undesignated center heading and §1.1301–1 are added immediately following the center heading “Readjustment of Tax Between Years and Special Limitations” to read as follows:

INCOME AVERAGING

§1.1301–1 Averaging of farm income.

(a) Overview. An individual engaged in a farming business may elect to compute his or her current year (election year) income tax liability under section 1 by averaging, over the prior three-year period (base years), all or a portion of the individual’s current year electible farm income (as defined in paragraph (e) of this section. To average farm income, the individual–

(1) Designates all or a portion of his or her electible farm income for the election year as elected farm income;

(2) Allocates one-third of the elected farm income to each of the three base years; and

(3) Determines the election year section 1 tax by determining the sum of–

(i) The election year section 1 tax without regard to the elected farm income; plus

(ii) For each base year, the increase in section 1 tax attributable to the elected farm income allocated to such year.

(b) Individual engaged in a farming business. Farming business has the same meaning as provided in section 263A(e)(4) and the regulations thereunder. An individual engaged in a farming business includes a sole proprietor of a farming business, a partner in a partner

October 25, 1999 542 1999–43 I.R.B.

any determination (other than the calculation of the section 1 tax attributable to the elected farm income) with respect to the election year or the base years. Thus, for example, in applying the section 68 overall limitation on itemized deductions to the election year, adjusted gross income for the election year includes any elected farm income allocated to the base years. Similarly, the section 68 limitation for a base year is not recomputed to take into account any allocation of elected farm income to such base year. The calculation of the section 1 tax on elected farm income allocated to a base year is made without any additional adjustments or determinations with respect to such year. For example, if a base year had a partially used capital loss, the remaining capital loss may not be applied to reduce the elected farm income allocated to such year. Similarly, if a base year had a partially used credit, the remaining credit may not applied to reduce the section 1 tax attributable to the elected farm income allocated to such year.

(2) Base year was previously an elec- tion year or another base year. If a base year for a current farm income averaging election was previously an election year for another farm income averaging election, the base year’s section 1 tax is determined after reducing the base year’s taxable income by the elected farm income for that prior election year. If a base year for a current farm income averaging election was previously a base year for another farm income averaging election, the base year’s section 1 tax is determined after increasing the base year’s taxable income by the elected farm income allocated to that year by that prior election.

(3) Example. The rules of paragraph (d)(2) of this section are illustrated by the following example:

Example. (i) In each of years 1996, 1997 and 1998, T had taxable income of $20,000. In 1999, T had taxable income of $30,000 (prior to any farm income averaging election) and electible farm income of $10,000. T makes a farm income averaging election with respect to $9,000 of his electible farm income for 1999. Thus, $3,000 of elected farm income is allocated to each of years 1996, 1997 and 1998. T’s 1999 tax liability is the sum of—

(A) The section 1 tax on $21,000 (1999 taxable income minus elected farm income); plus

(B) For each of years 1996, 1997, and 1998, the section 1 tax on $23,000 minus the section 1 tax on $20,000 (the increase in section 1 tax attributable to the elected farm income allocated to such year).

(ii) In 2000, T has taxable income of $50,000 and electible farm income of $12,000. T makes a farm income averaging election with respect to all $12,000 of his electible farm income for 2000. Thus, $4,000 of elected farm income is allocated to each of years 1997, 1998 and 1999. T’s 2000 tax liability is the sum of—

(A) The section 1 tax on $38,000 (2000 taxable income minus elected farm income); plus

(B) For each of years 1997 and 1998, the section 1 tax on $27,000 minus the section 1 tax on $23,000 (the increase in section 1 tax attributable to the elected farm income allocated to such years after increasing such years’ taxable income by the elected income allocated to such year by the 1999 farm income averaging election); plus

(C) For year 1999, the section 1 tax on $25,000 minus the section 1 tax on $21,000 (the increase in section 1 tax attributable to the elected farm income allocated to such year after reducing such year’s taxable income by the 1999 elected farm income).

(e) Electible farm income —(1) I dentifi- cation of items attributable to a farming business —(i) In general. Farm income includes items of income, deduction, gain, and loss attributable to the individual’s farming business. Farm losses include a NOL carryover or carryback, or a net capital loss carryover, to an election year that is attributable to a farming business. Income, gain or loss from the sale of development rights, grazing rights, and other similar rights is not treated as attributable to a farming business. Farm income does not include wages.

(ii) Gain or loss on sale or other dis- position of property —(A) In general. Gain or loss from the sale or other disposition of property (other than land, but including a structure affixed to the land) that was regularly used in the individual’s farming business for a substantial period of time is treated as attributable to a farming business. Whether property was regularly used for a substantial period of time depends on all of the facts and circumstances.

(B) Cessation of a farming business. If gain or loss described in paragraph (e)(1)(ii)(A) of this section is realized after cessation of a farming business, such gain or loss is treated as attributable to a farming business if the property is sold within a reasonable time after cessation of the farming business. A sale or other disposition within one year of cessation of the farming business is presumed to be within a reasonable time. Whether a sale or other disposition that occurs more than one year after cessation of the farming business is within a reasonable time de

pends on all of the facts and circumstances.

(2) Determination of amount that may be elected farm income —(i) Electible farm income. The maximum amount of income that an individual may elect to average (electible farm income) is the sum of any farm income and gain minus any farm deductions or losses (including loss carryovers and carrybacks) that are allowed as a deduction in computing the individual’s taxable income. However, electible farm income may not exceed taxable income. In addition, electible farm income from net capital gain attributable to a farming business cannot exceed total net capital gain. An individual who has both ordinary and net capital gain farm income may elect (up to electible farm income) any combination of such ordinary and net capital gain farm income.

(ii) Examples. The rules of paragraph (e)(2)(i) of this section are illustrated by the following examples:

Example 1 . A has farm gross receipts of $200,000 and farm ordinary deductions of $50,000. A’s taxable income is $150,000 ($200,000–$50,000). A’s electible farm income is $150,000, all of which is ordinary income.

Example 2. B has ordinary farm income of $200,000 and nonfarm losses of $50,000. B’s taxable income is $150,000 ($200,000–$50,000). B’s electible farm income is $150,000, all of which is ordinary income.

Example 3. C has a farm capital gain of $50,000 and a nonfarm capital loss of $40,000. C also has ordinary farm income of $60,000. C has taxable income of $70,000 ($50,000–$40,000+$60,000). C’s electible farm income is $70,000. C can elect up to $10,000 of farm capital gain and up to $60,000 of farm ordinary income.

Example 4. D has a nonfarm capital gain of $40,000 and a farm capital loss of $30,000. D also has ordinary farm income of $100,000. D has taxable income of $110,000 ($40,000–$30,000+ $100,000). D’s electible farm income is $100,000 ordinary farm income minus $30,000 farm capital loss, or $70,000, all of which is ordinary income.

Example 5. E has a nonfarm capital gain of $20,000 and a farm capital loss of $30,000. E also has ordinary farm income of $100,000. E has taxable income of $97,000 ($20,000–$23,000 +$100,000). E has a farm capital loss carryover of $7,000 ($30,000–$23,000 allowed as a deduction). E’s electible farm income is $100,000 ordinary farm income minus $23,000 farm capital loss, or $77,000, all of which is ordinary income.

(f) Miscellaneous rules —(1) Short tax- able year —(i) In general. If a base year or an election year is a short taxable year, the rules of section 443 and the regula

1999–43 I.R.B. 543 October 25, 1999

tions thereunder apply for purposes of calculating the section 1 tax.

(ii) Base year is a short taxable year. If a base year is a short taxable year, the increase in section 1 tax attributable to the elected farm income allocated to such year is determined after the taxable income for such year has been annualized.

(iii) Election year is a short taxable year. If an election year is a short taxable year, any elected farm income is first annualized before being allocated to the base years. The increase in section 1 tax attributable to the elected farm income allocated to the base years is the same part of the tax computed on an annual basis as the number of months in the short election year is of 12 months.

(2) Changes in filing status. An individual is not prohibited from making a farm income averaging election solely because the individual’s filing status is not the same in an election year and the base years. For example, an individual who files married filing jointly in the election year, but filed as single in all of the base years, may still elect to average farm income.

(3) Employment tax. A farm income averaging election has no effect in determining the amount of wages for purposes of the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA), and the Collection of Income Tax at Source on Wages (Federal income tax withholding), or the amount of net earnings from self-employment for purposes of the Self-Employment Contributions Act (SECA).

(4) Alternative minimum tax. A farm income averaging election does not apply for purposes of determining the section 55 alternative minimum tax in the election year or any base year. However, an election will apply for purposes of determining the regular tax under sections 53(c) and 55(c).

(5) Unearned income of minor child. In an election year, if a minor child’s investment income is taxable under section 1(g) and a parent makes a farm income averaging election, the tax rate used for purposes of applying section 1(g) is the rate determined after application of the election. With respect to a base year, however, the tax on a minor child’s investment income is not affected by a farm income averaging election.

(g) Effective date. The rules of this section apply to taxable years ending on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.

John M. Dalrymple, Acting Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on October 7, 1999, 8:45 a.m., and published in the issue of the Federal Register for October 8, 1999, 64 F.R. 54836)

The Department of the Treasury Study Regarding Taxpayer Confidentiality

Announcement 99–101

AGENCY: Department of the Treasury

ACTION: Solicitation for comment.

SUMMARY: This is a solicitation for public comment in connection with a study being conducted by the Department of the Treasury relating to the scope and use of provisions regarding taxpayer confidentiality. This study is required by section 3802 of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105–206, 112 Stat. 782).

DATES: Written comments must be submitted by November 15, 1999.

ADDRESSES: Send comments to: Elizabeth P. Askey, Office of Tax Legislative Counsel, Department of the Treasury, 1500 Pennsylvania Avenue, NW, Room 1321A, Washington, DC 20220. Comments may also be submitted to: taxpolicy@do.treas.gov - the subject line should contain the phrase “Confidentiality Study.” All comments will be available for public inspection and copying.

FOR FURTHER INFORMATION CONTACT: Elizabeth Askey at 202-622-0224 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 6103 of the Internal Revenue Code (Code) prohibits the disclosure of tax returns or return information except as

otherwise authorized by the Code. Permitted disclosures include: 1) disclosures to a taxpayer or the taxpayer’s designee pursuant to the taxpayer’s consent;

disclosures for purposes of tax administration (including state tax administration);
disclosures to federal, state, or local governmental agencies for nontax purposes such as child support enforcement and verifying taxpayers’ eligibility for certain designated needs based programs, including food stamps, and certain Social Security benefits; and 4) disclosures for nontax law enforcement purposes. Permitted disclosures generally are subject to strict procedural safeguards. Unauthorized disclosure or inspection of returns and return information may result in civil damages against the United States and/or criminal penalties against individuals who unlawfully disclose or inspect tax information.

Section 6104 makes available to the public certain tax information related to tax-exempt organizations and certain other entities. In the case of any tax-exempt organization, section 6104 generally provides that the organization’s application for tax exemption and supporting documents, IRS determination letter, and annual information returns filed under section 6033 are available for public inspection at certain IRS offices and at the organization’s principal office (and certain regional and district offices). In addition, copies of such documents are generally available upon request made to the organization or the IRS. Section 6104 also authorizes the Secretary to disclose to certain state officials charged with overseeing charitable organizations described in section 501(c)(3) information relating to any organization’s failure to qualify for, or subsequent loss of, section 501(c)(3) status, or the mailing of certain notices of tax deficiency.

Section 3802 of the IRS Restructuring and Reform Act of 1998 requires the Secretary of the Treasury to study the scope and use of provisions regarding taxpayer confidentiality. Specifically, the study is to examine:

the present protections for taxpayer privacy,
any need for third parties to use tax return information,
whether greater levels of voluntary

October 25, 1999 544 1999–43 I.R.B.

compliance may be achieved by allowing the public to know who is legally required to file tax returns, but does not file tax returns,

the interrelationship of the taxpayer confidentiality provisions in the Internal Revenue Code of 1986 with provisions in other Federal law, including 5 U.S.C. 552a (commonly known as the Freedom of Information Act),
the impact on taxpayer privacy of the sharing of income tax return information for purposes of enforcement of state and local tax laws other than income tax laws, including the impact on the taxpayer privacy intended to be protected at the Federal, state, and local levels under Public Law 105-35, the Taxpayer Browsing Protection Act of 1997, and,
whether the public interest would be served by greater disclosure of information relating to tax-exempt organizations described in section 501 of the Internal Revenue Code of 1986.

Request for Public Comment

The Department of the Treasury invites comments relative to the six topics described. In particular, the Department of the Treasury invites comments with respect to the following:

How is the privacy protection provided by section 6103 beneficial to taxpayers?
How is the section 6103 statutory scheme burdensome for taxpayers? Does section 6103 affect the IRS’s ability to deliver quality customer service and, if so, in what ways?
Is the statutory structure and/or administration of section 6103 consistent, simple, administrable, and fair? What changes, if any, should be made to the content and/or administration of section 6103?
What is the relationship between taxpayer confidentiality as provided by section 6103 and compliance with the internal revenue laws? What effect, if any, might publishing the names of nonfilers have on compliance with the internal revenue laws? What effect, if any, might broadening the scope of permissible disclosures have on compliance with the internal revenue laws?
What impact has technology had on the protection of taxpayer privacy and what, if any, additional safeguards may be necessary as a result? As the IRS moves toward electronic filing and maintenance of tax records, what, if any, changes should be made to the confidentiality rules under section 6103?
What impact have taxpayer privacy protections had on the ability of federal, state, and local agencies to receive information critical to their operation, particularly information not easily obtainable from other sources?
Should tax information be used for nontax purposes? If so, what factors should influence whether agencies and others should be permitted direct access under section 6103 to taxpayer information for nontax purposes? What factors should influence whether agencies and others should be allowed to obtain such information by consent from the taxpayer, for example, as a condition to approval of mortgages or other loans, or for obtaining government benefits? Should there be any conditions or restrictions on the recipient’s use of tax information obtained by consent?
What factors should influence whether federal, state, or local agencies that receive tax information to carry out particular programs, and who use private contractors for data processing and other services, should be permitted to disclose tax information to those contractors for the purpose of performing those programs?
What changes, if any, should be made to either the safeguard program or the consent process?
What, if any, additional restrictions should be placed on the ability of those who receive tax information to redisclose the information to other parties? What means should be used to implement any such redisclosure protections?
How can taxpayer privacy concerns and a desire for more information-sharing within government be balanced?
Would the public interest be served by allowing greater sharing of information between the IRS and other federal and state agencies for joint investigations relating to the enforcement of federal and

state laws affecting tax-exempt organizations? What restrictions, if any, should be imposed on use of the information by those agencies?

Do the public inspection provisions of section 6104 and section 6110 provide adequate disclosure of IRS determinations affecting tax-exempt organizations? If not, what additional information should be made available?
Is the information currently reported by tax-exempt organizations to the IRS adequate to ensure effective oversight? If not, what additional information should be reported? Should there be more detailed disclosure regarding transactions between tax-exempt organizations and their subsidiaries or other affiliates?

Joseph Mikrut, Tax Legislative Counsel.

Reporting Requirements of Tax- Exempt Owners of Disregarded Entities

Announcement 99–102

On January 13, 1997, final regulations under section 7701 of the Internal Revenue Code pertaining to the classification of certain business organizations under an elective regime were published in the Federal Register. See 26 C.F.R. 301.7701–1 et seq. These regulations provide that an entity wholly owned by a single owner may be disregarded as an entity separate from the owner. When an entity is disregarded as separate from its owner its operations are treated as a branch or division of the owner. Therefore, an owner that is exempt from taxation under section 501(a) of the Internal Revenue Code must include, as its own, information pertaining to the finances and operations of a disregarded entity in its annual information return. Accordingly, the instructions to the 1999 Forms 990, 990-EZ, 990-T, and 990-PF will be modified. The principal authors of this announcement are Lynn Kawecki and Marvin Friedlander. For further information regarding this notice contact Mr. Kawecki at (202) 622-7922 or Mr. Friedlander at (202) 622-8715 (not toll free numbers).

1999–43 I.R.B. 545 October 25, 1999

Foundations Status of Certain Organizations

Announcement 99–103

Berkshire Worker Ownership Center,

Inc., Pittsfield, MA Big Valley 4-H Cluster Fair, Fosston, MN Birmingham Kwanzaa & Heritage

Dade Urban Development Corporation,

Miami, FL Dale County Humane Society, Inc.,

Ozark, AL Dan Ashnic, Inc., Inkster, MI Dayton Aviators, Inc., Brookville, OH Delaware Indoor Recreation Campaign

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations: 2 M & O Counties Head Start, Inc., Boynton, OK Abode Multi-Service Center, Inc.,

Foundation, Inc., Birmingham, AL Bloomingdale Civic Association,

Children, Charlevoix, MI Cherrystone Foundation, Inc., Coscob,

Washington, DC Boys and Girls Club of Cheyenne

Wyoming, Inc., Cheyenne, WY Brevard County Alliance Southeastern

Committee, Delaware, OH Dietert Claim Senior Citizens Center,

Consortium Minorities In Engineering, Merritt Island, FL Broward Affordable Housing Coalition,

Inc., Kerrville, TX Diotex Enterprises c/o A Youth

Development Foundation, Dallas, TX District of Columbia Resident Council

Advisory Board, Washington, DC Drug Free Shoals, Inc., Florence, AL Drug-Off, Memphis, TN Drum Corps Associates of Pennsylvania,

Inc., Ft. Lauderdale, FL Building Blocks Child Nutrition,

Houston, TX Burning Bush International, Inc.,

Englewood, CO Calhoun County Family Support

Network, Homer, MI Casa de Amigos VIII, Inc., Mission, TX Cause for Adventure, Inc., Norwood, MA Center for Community and Economic

Philadelphia, PA East Knoxville Athletic Association,

Knoxville, TN Eastern Wisconsin Community Service

Corporation, Sheboygan, WI Economic Opportunity Commission of

Rockland County, Inc., Spring Valley, NY Emergency Fire & Disaster Relief

Development, Fairfield, AL Central Indiana Baseball Association,

Corporation, Tucson, AZ Emulate, Inc., Smyrna, GA Fairview Home Health Services, Inc.,

Downers Grove, IL Faith Housing, Inc., Worth, IL Families Forward, Inc., Greenfield,

Detroit, MI Affordable Home Ownership

Inc., Indianapolis, IN Charlevoix County Area Love for

Corporation, Jacksonville, FL Agricultural Housing for Georgia, Inc.,

Lyons, GA Alabama Boychoir, Inc., Tuscaloosa, AL Alabama Education Foundation for K

Through Grade 12 Public Schools, Montgomery, AL Alamo Community Telecommunications

CT Chesapeake Youth Organization, Inc.,

Baltimore, MD Choice City Wrestling Club, Inc.,

Mexico, Inc., Santa Fe, NM Circles Restored, St. Paul, MN Clarke County Youth Facility 701 Clarke

Fort Collins, CO Christian Interactive Network, Inc.,

WI Forest Meadow East Resident

Management Corporation, Jacksonville, FL Foundation for Immunological Research,

Inc., Palm Beach, FL Freedom Flight International, Inc.,

Boca Raton, FL Friends of Boyce Ditto Municipal

Initiatives, Inc., DBA Salsa Net, San Antonio, TX Alchini Binitsekees Naholzhooh

Fort Lauderdale, FL Christmas in April-Northern New

Foundation, Inc., Tohatchi, NM Alexandria Inside Edges, Alexandria,

St., Grove Hill, AL Clinton Riverboat Days Foundation,

Clinton, IA Clinton Valley Softball League, Inc.,

MN Alumni Chamber Choir, Lapeer, MI American Institute for Nonprofit

Library, Mineral Wells, TX Friends of Onahan School, Chicago, IL Friends of the Polk County Parks

Foundation, Inc., Bartow, FL Fund for Large Enterprises in Russia,

New York, NY Garland Clean & Green, Inc., Garland,

Management, Inc., Sarasota, FL American Institute of Pakistan Studies,

State University, AR Andrews Air Force Base Fisher House,

Inc., Andrews AFB, MD Asociacion de Nayaritas de California,

Mt. Clemens, MI Colorado Institute of Music, Denver, CO Committee for New Arts, Incorporated,

Fort Myers, FL Community Project Development

TX Glimpses of Grace, Inc., Batesville, MS Golden Angels Drum & Bugle Corps.,

Midvale, UT Good Shepherd Society, Inc., St. Clair,

MI Grace Baptist Church Foundation, Inc.,

Toccoa, GA Green Globe USA, Columbus, OH

Wilmington, CA Audubon Recreation Association,

Corporation, S. Charleston, WV Community Special Transportation Svcs.,

Trooper, PA Bayou la Batre-Coden Tourism

Commission, Coden, AL Bells Loving Care, Inc., Mt. Morris, MI

Southfield, MI Coral-Aires of Southwest Florida, Inc.,

Port Charlotte, FL Creative Child Care, Inc., Lafayette, IN Crime Stoppers of Sumter County, Inc.,

Livingston, AL

October 25, 1999 546 1999–43 I.R.B.

Randolph Family Day Care Association,

New Braunfels, TX Recovery Solutions-Plus, Inc., Arlington,

Hawkins McKinley and Stanley

Independent Living Center, Houston, TX Heart-Led Evangelical Church, Pasadena,

Michigan Soldiers Aid Society, Comstock

Park, MI Midnight Basketball League of Meridian,

Inc., Meridian, MS Monterey High School Instrumental

Randolph, MA Rape Crisis Center of Comal County,

MD Heart of Texas Foundation for Mental

TX Southeastern Housing Foundation, Inc.,

Roswell, GA Region II Regional Support Council, Inc.,

Health Research, Belton, TX Helios Arts & Events, Inc., Athens, GA Heritage Village, Kankakee, IL Hispanic Educational

Music Boosters, Monterey, CA Mission, Inc., Hattiesburg, MS Multi-Cultural Resources, Inc., Orlando,

Glenwood, CO National Alliance Against Violence,

Carbon Hill, AL Region V Regional Support Council,

Telecommunications System, Inc., Edinburg, TX Hiwasse Fire Auxillary, Hiwasse, AR Home Hospice Support Systems, Inc.,

FL N A T U R E Foundation, Inc.,

Youth Inc., Washington, DC National Institute for Community

Birmingham, AL Rehabilitation Technology Center,

Dayton, OH Residential Provider Services, Inc.,

Southfield, MI Home Vision Youth Charities, Inc.,

Brunswick, ME Hospice House of Friends, Inc., a

Washington, DC National Center to Rehabilitate Violent

Grosse Pointe, MI Rhode Island Resource Conservation and

New Jersey Nonprofit Corporation, Denville, NJ Housing Corporation of Charlotte

Enpowerment, Dallas, TX National Pet Assistance and Adoption

Network, Inc., Bowling Green, KY National Race Car Drivers Memorial

Development Area, E. Greenwich, RI Ricks Institute Alumni Ass. USA, Inc.,

Silver Spring, MD Rocky Mountain Student Theater Project,

Boulder, CO Rural Education System Network,

County, Port Charlotte, FL Hulbert Area Program for Seniors, Inc.,

Hulbert, OK Independent Opportunities of Michigan,

Fund, Harrisburg, NC New Hampshire Water Ski Association,

Columbia, SC North Dakota Indian Arts Association,

Inc., Manchester, NH Noahs Arc Transition Center, Inc.,

Garland, TX Safety Harbor Alcohol & Drug Objectors,

Safety Harbor, FL Sarapiqui Conservation Learning

Inc., Shelby Township, MI Intown Arts Center & Gallery, Bangor,

Bismarck, ND Northwest Area Arts Council, Inc.,

ME Irmo Little League, Bellentine, SC Isaiah Project, Dallas, TX Jesus Tapes, Mission Viejo, CA Kiwanis Club of Botetourt County

Institute, Inc., Gainesville, FL Save A Life Today Foundation, St. Louis,

MO SBC Community Life Center, Inc.,

Charitable Foundation, Troutville, VA Kiwanis Foundation of Silver Creek, NY,

Crystal Lake, IL Onondaga Valley Lacrosse Association,

Inc., Syracuse, NY Optimist Foundation of Holiday Texas,

Holliday, TX Ottumwa Sesquicentennial Committee,

Inc., Ottumwa, IA Outreach Institute of Learning, Lakeland,

FL Outreach Unlimited, Inc., Culuota, FL Pacific Health Institute, Vancouver, WA Paducah Bank & Trust Co., Paducah, KY Paulsen & Company, St. Paul, MN Pennsylvania Association of Community

Metuchen, NJ School-Work Program Foundation, Inc.,

Washington, DC Secaucus Public Education Fundation,

Neglect Council, Skowaegan, ME Sonoma County Lesbian & Gay Pride

Inc., Silver Creek, NY L A S T, Inc., Oklahoma City, OK Lake Como Area Council, Incorporated,

Fort Worth, TX Las Americas, La Feria, TX Leesburg Downtown Partnership, Inc.,

Leesburg, FL Little League Poland Foundation, South

Williamsport, PA Londonderry Police Relief Assoc., Inc.,

Londonderry, NH Loving Care Childrens Center and Food

Nutritional Program, Houston, TX Manorly Court, Inc., Provo, UT Marquette Hockey Club Parents Assoc.,

Inc., Chesterfield, MO Mentors and Students, Inc., Fresno, TX Metro-Broward Economic Development

Chatham, VA Premier Ask-A-Nurse, Columbia, SC Progeny, Lancaster, OH Psi Zeta of Lambda Chi Alpha

Inc., Secaucus, NJ Shelter Hope and Dignity of Women

Searching, Inc., Natick, MA Silent Link Society, Inc., Miami, FL Soaring Unlimited, Lansing, MI Somerset County Child Abuse and

Partnerships, Inc., Shillington, PA Penquis Rural Health Centers, Inc.,

Dexter, ME People Live-In Center, Inc., Bayside, NY Picture Tomorrow, Missoula, MT Pikes Peak Amateur Basketball, Inc.,

Colorado Springs, CO Pittsylvania County Crime Stoppers, Inc.,

Committee, Forestville, CA South Central Houston Action Council,

Inc., Houston, TX South Elementary Parents Association,

Zimmerman, MN South Mountain JROTC Parents Club,

Phoenix, AZ Special Institute, Detroit, MI Starbase Oregon, Inc., Salem, OR State Association of Community

Corporation, Ft. Lauderdale, FL Metro Disability Coalition, Inc.,

Simpsonville, KY Michigan Cities in Schools, Grand

Educational Foundation, Inc., Lafayette, IN Pullman Summer Games, Pullman, WA

Disabilities Act, Wilmington, DE

Services Block Grant Providers, Provo, UT Statewide Coalition for Americans with

Rapids, MI

1999–43 I.R.B. 547 October 25, 1999

Suncoast Epilepsy Services, Inc., Pinellas

Touraine Community Housing

Corporation, New Bedford, MA Trauma Service Area-H Regional

Park, FL Sunrise Optimist Foundation of North

Topeka, Inc., Topeka, KS Tampa Smokers, Inc., Tampa, FL Tateya Topa Ho, Winner, SD Team Lima Boosters Club, Lima, OH Teatros Nacionales de Aztlan, Denver,

Vineland, NJ Utica Area Community Action Team,

Shelby Township, MI Van Buren County Soil Conservation

Women Business Owners of Michigan

Advisory Council, Nacogdoches, TX Unique Cultural Variations Community

Development Corp., Inc., Miami, FL Urban Network Organization, Inc.,

Educational Alliance, Midland, MI Your Ride II, Inc., Casper, WY Youth Achievement Foundation,

St. Louis, MO Youth Center of Central Alabama, Inc.,

CO The Center for Minority Business

Research and Development, Inc., Baltimore, MD The Cynthia A Ward Foundation,

Selma, AL If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Incorporated, Newbury, MA The Energetic Crusaders Incorporated,

District Foundation, Inc., Paw Paw, MI Variety Club of South Dakota, Inc.,

Sioux Falls, SD Victims of Violence Memorial,

Washington, DC Vietnam Veterans of the 2nd Battalion,

Washington, DC The Holy Land Redemption

Organization, Inc., Miami, FL The North America Hispanic

Development Corporation – NAHDC, Washington, DC The Progressive Club of the Blind of

New Jersey, Incorporated, Trenton, NJ The Transplant Educational Foundation,

Palermo, NJ Vineyard Housing Associates, Inc.,

Cranston, RI Waco Housing Opportunities

Treatment of Autism, Inc., Madison, WI

Corporation, Waco, TX Wisconsin Families for the Behavioral

Pittsburgh, PA

October 25, 1999 548 1999–43 I.R.B.