Part IV. Items — Internal Revenue Bulletin 2001-15

These proposed regulations provide guidance on the circumstances under which levied upon property will be returned by the IRS and the manner in which a request for return of property must be made.

The proposed regulations apply to the return of (1) levied upon money that has been applied toward the taxpayer’s liability, (2) money received from the sale of levied upon property under section 6335 of the Code, and (3) levied upon property that the United States has purchased in a sale under section 6335 of the Code. This property may be returned if one of the conditions enumerated in paragraph (c) of the proposed regulations exists.

The regulations also clarify that, other than as provided in §301.6343–1(b) and paragraph (d) of this section, the IRS, in its discretion, may return levied upon property in its possession pending sale. The return of levied upon property in the IRS’s possession pending sale is not limited by these proposed regulations. The IRS has the authority to determine what property of the taxpayer to levy. As part of that authority, the IRS may release a levy and return levied upon property in its possession pending sale.

Under paragraph (c) of the proposed regulations, the Commissioner may return levied upon property if one of the following conditions exist: (1) the levy was premature or otherwise not in accordance with the administrative procedures of the IRS; (2) the taxpayer has entered into an agreement under section 6159 of the Code to satisfy the liability for which the levy was imposed by means of installment payments, unless the agreement provides otherwise; (3) the return of property will facilitate collection of the tax liability; or (4) the return of property is in the best interest of the taxpayer, as determined by the National Taxpayer Advocate, and in the best interest of the United States, as determined by the Commissioner.

Section 6343(d)(2)(D) authorizes the return of property if it is in the best interests of both the United States and the taxpayer. Therefore, two distinct determinations must be made before the Commissioner may return property based on these grounds. Under the proposed regulations the Commissioner (or his del

Notice of Proposed Rulemaking

Return of Property in Certain Cases

REG–101520–97

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to the return of property in certain cases. The proposed regulations reflect changes made to section 6343 of the Internal Revenue Code of 1986 by the Taxpayer Bill of Rights 2. The proposed regulations also reflect certain changes affecting levies enacted by the Internal Revenue Service Restructuring and Reform Act of 1998. The proposed regulations affect taxpayers seeking the return of property from the IRS.

DATES: Written comments and requests for a public hearing must be received by May 15, 2001.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG–101520–97), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered to: CC:M&S:RU (REG–101520–97), room 5226, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Taxpayers may also 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/prod/tax_regs/regslist. html.

FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly at (202) 6223630 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) relating to the return of property under

section 6343 of the Internal Revenue Code (Code). Section 501(b) of the Taxpayer Bill of Rights 2 (TBOR2), Public Law 104-168 (110 Stat. 1452), amended section 6343 to authorize the IRS to return property in certain cases and, to the extent possible, but without payment of interest, return the taxpayer to the same position as if the levy had not been issued. These proposed regulations reflect the amendments made by section 501(b) of TBOR2.

These proposed regulations also reflect modifications made by the Internal Revenue Service Restructuring and Reform Act (RRA 1998), Public Law 105-206 (112 Stat. 685), which added new sections 6331(i) and (j) of the Code, prohibiting the issuance of levies during the pendency of proceedings for refund of divisible taxes or prior to completion of an investigation of the status of property (effective for unpaid tax attributable to tax periods beginning after December 31, 1998). RRA 1998 also added section 6331(k), prohibiting levies during the period an offer-in-compromise is pending or an installment agreement is pending or in effect (effective for offers-in-compromise pending on or made after December 31, 1999, and for installment agreements submitted after July 22, 1998). In addition, the RRA 1998 added section 6330, which provides in certain circumstances for notice and an opportunity for a hearing prior to the imposition of a levy.

Explanation of Provisions

Section 6343(b) provides for the return of levied upon property, including levied upon money and money received from the sale of levied upon property, if the property was wrongfully levied upon. Section 501(b) of TBOR2 enacted section 6343(d) of the Code authorizing the IRS to return levied upon property to the taxpayer in certain other prescribed circumstances. Property returned under new section 6343(d) will be returned in accordance with section 6343(b) of the Code as if the property had been wrongfully levied upon, except that no interest will be allowed. The provision is designed to permit the IRS, to the extent possible, to restore the taxpayer to a pre-levy position.

2001–15 I.R.B. 1057 April 9, 2001

egate) will determine whether the return of property is in the best interest of the United States. The National Taxpayer Advocate (or his delegate) generally will determine whether the return of property is in the best interest of the taxpayer; however, a finding by the Commissioner (or his delegate) that the return of property is in the best interest of the taxpayer, as well as the United States, will be sufficient to support the return of property. Only the National Taxpayer Advocate (or his delegate) is authorized to determined that the return of property is not in the taxpayer’s best interest.

Additionally, the proposed regulations provide that it is in the best interests of the United States and the taxpayer to release levies made in violation of the law. Any property received pursuant to a levy made in violation of the law will be returned unless the taxpayer gives permission to the IRS to keep the property. For example, section 6331(k)(2) of the Internal Revenue Code of 1986 prohibits levies during the period an offer to enter into an installment agreement is pending (and for a 30-day period after rejection of the offer or while a timely appeal from the rejection of an offer to enter into an installment agreement is pending) and during the period an installment agreement is in effect. If property has been received by the IRS as the result of a levy that is prohibited under section 6331(k)(2), the IRS will return the property to the taxpayer pursuant to section 6343(d)(2)(D). It may, however, be advantageous for a taxpayer in some circumstances to allow the IRS to keep the levied upon property and apply the proceeds of that levy to the taxpayer’s outstanding tax liabilities. These proposed regulations allow the taxpayer to give permission to the IRS to retain the levied upon property and apply the proceeds of that levy to the taxpayer’s outstanding tax liabilities. Absent taxpayer consent, the IRS is required to return the levied upon property (or the proceeds if the property had been sold) to the taxpayer.

Pursuant to the requirement of section 6343(d) that property to be returned under this provision be treated as if it were wrongfully levied upon, the proposed regulations also provide that if the United States purchases property, it will be treated as having received an amount of money equal to the minimum price determined by the Commissioner before the sale.

Property other than money may be returned at any time. Money may be returned any time within 9 months after the date of the levy. In addition, when a timely request for the return of money is filed in accordance with these regulations, or a determination to return an amount of money is made before the expiration of the 9-month period, the money may be returned within a reasonable period of time after the 9-month period if additional time is necessary for investigation or processing. This will ensure that if a timely request has been made, or the IRS timely decides to return money on its own initiative, the IRS will have sufficient time for necessary investigation or processing.

Under the proposed regulations a taxpayer may request the return of property by writing to the address on the levy form or to the Commissioner (marked for the attention of the Chief, Special Procedures Function) of the IRS office in which the levy was made. A written request for the return of property must include: (1) the name, current address, and taxpayer identification number of the taxpayer requesting the return of property; (2) a description of the property levied upon; (3) the date of the levy; and (4) the grounds upon which the return of property is being requested.

The Commissioner must consider each taxpayer’s request for the return of property, determine whether any of the conditions authorizing the return of property exist, and decide whether to return the property. The Commissioner also may return the property based on information received from a source other than the taxpayer. A decision to return the property is within the Commissioner’s discretion, unless the levy was in violation of law, in which case the Commissioner must return the property.

If the Commissioner returns property, and the taxpayer fails to pay the previously assessed liability for which the levy was made on the returned property, the Commissioner may administratively collect the liability. Collection may include levying again on the returned property provided statutory and administrative requirements are followed.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Exec

utive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue 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.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments that are submitted timely (preferably a signed original and eight (8) copies) to the IRS. 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/prod/tax_regs/regslist. html . All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Kevin B. Connelly, Office of Assistant Chief Counsel (General Litigation) CC:EL:GL, IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

April 9, 2001 1058 2001–15 I.R.B.

encumbrancing the house. C requests that an amount of money equal to the amount seized from the bank account be returned so that C can complete the renovations on the house. Without the funds, C will be unable to complete the renovations and sell the house. Upon examination, the Commissioner determines that the IRS will be able to collect the entire tax liability if C’s house is restored to salable condition. If the National Taxpayer Advocate, or the Commissioner in lieu of the National Taxpayer Advocate, determines that the return of the seized money is in the taxpayers best interest, the Commissioner may return an amount of money equal to the amount seized from the bank account in the best interest of the taxpayer and the United States.

(d) Best interests of the United States and the taxpayer to release levy and re- turn of property where levy made in viola- tion of law —(1) In General . If the Internal Revenue Service (IRS) makes a levy in violation of the law, it is in the best interest of the United States and the taxpayer to release the levy and the IRS will return to the taxpayer any property obtained pursuant to the levy. For example, the IRS will release the levy and return the taxpayer’s property if the levy was made—

(i) Without giving the requisite thirtyday notice of intent to levy under section 6330; (ii) During the pendency of a proceeding for refund of divisible tax in violation of section 6331(i);

(iii) Before investigation of the status of levied upon property in violation of section 6331(j);

(iv) During the pendency of offers-incompromise in violation of section 6331(k)(1); or (v) During the period an offer to enter into an installment agreement is pending (or for 30 days following the rejection of an offer, or, if the rejection is timely appealed, during the period that the appeal is pending) or during the period an installment agreement is in effect (or during the 30 days following a termination or, if a timely appeal of termination is filed, during the period the appeal is pending) in violation of section 6331(k)(2).

(2) Property may not be credited to out- standing liability without the taxpayer’s permission . When the release of a levy and the return of property are required under this paragraph (d), the property or the proceeds from the sale of the property received by the IRS pursuant to the levy must be returned to the taxpayer unless the taxpayer requests otherwise. The

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.6343–3 is added to read as follows:

§301.6343–3 Return of property in certain cases.

(a) In general . If money has been levied upon and applied toward the taxpayer’s liability, or property has been levied upon and sold, and the receipts have been applied toward the taxpayer’s liability, or property has been levied upon and purchased by the United States and the United States still possesses the property, and the Commissioner determines that any of the conditions in paragraph (c) of this section exist, the Commissioner may return—

(1) An amount of money equal to the amount of money levied upon;

(2) An amount of money equal to the amount of money received by the United States from a sale of the property; or

(3) The specific property levied upon and purchased by the United States.

(b) Return of levied upon property in possession of the Internal Revenue Service (IRS) pending sale under section 6335 . Other than as provided in §301.6343–1(b) or in paragraph (d) of this section, the Commissioner, in his or her discretion, may return levied upon property that is in the possession of the United States pending sale under section 6335.

(c) Conditions authorizing the return of property . The Commissioner may return property upon determining that one of the following conditions exist:

(1) Premature or not in accordance with administrative procedures . The levy was premature or otherwise not in accordance with the administrative procedures of the Secretary.

(2) Installment agreement . Subsequent to the levy, the taxpayer enters into an agreement under section 6159 to satisfy the liability for which the levy was made by means of installment payments. If, however, the agreement specifically provides that already levied upon property will not be returned under section 6343(d), the Commissioner may not grant a request for return of property under this paragraph (c)(2).

(3) Facilitate collection . The return of property will facilitate the collection of the tax liability for which the levy was made.

(4) Best interests of the United States and the taxpayer —(i) In general . The taxpayer or the National Taxpayer Advocate (or his delegate) has consented to the return of property, and the return of property would be in the best interest of the taxpayer, as determined by the National Taxpayer Advocate (or his delegate), and in the best interest of the United States, as determined by the Commissioner.

(ii) Best interest of the taxpayer . The National Taxpayer Advocate (or his delegate) generally will determine whether the return of property is in the best interest of the taxpayer. If, however, a taxpayer requests the Commissioner to return property and has not specifically requested the National Taxpayer Advocate (or his delegate) to determine the taxpayer’s best interest, a finding by the Commissioner that the return of property is in the best interest of the taxpayer will be sufficient to support the return of property. Only the National Taxpayer Advocate (or his or her delegate) may determine that a return of property is not in the best interest of the taxpayer.

(5) Examples . The following examples illustrate the provisions of this paragraph (c):

Example 1. A owes $1,000 in Federal income taxes. The IRS levies on a broker with respect to a money market account belonging to the taxpayer and receives payment from the broker which it applies to the taxpayer’s outstanding liability. However, the IRS failed to follow procedure provided by the Internal Revenue Manual (but not required by statute) with regard to managerial approval prior to the making of the levy. The Commissioner may return an amount of money equal to the amount of money the IRS levied upon and applied toward the taxpayer’s tax liability.

Example 2 . B owes $1,000 in Federal income taxes. The IRS levies on a bank with respect to a savings account belonging to the taxpayer and receives funds from the bank which it applies to the taxpayer’s liability. Subsequent to the levy, B enters into an installment agreement, under which it will pay timely installments to satisfy the entire liability. The installment agreement does not by its terms preclude the return of levied upon property. The revenue officer verifies that B is financially capable of paying the entire liability, including accruals, in the agreed-upon installment payments. The Commissioner may return an amount of money equal to the amount of money levied upon and applied toward the taxpayer’s liability.

Example 3 . C owns a house that is deteriorating and in unsalable condition. C is in the process of renovating the house for sale when the IRS levies upon C’s bank account for the payment of a $20,000 outstanding Federal tax liability and receives funds in the amount of $3,000, which it applies toward C’s liability. A notice of federal tax lien is the only lien

2001–15 I.R.B. 1059 April 9, 2001

property or proceeds of sale may not be credited to any outstanding tax liability of the taxpayer, including the one with respect to which the IRS made the levy, without the written permission of the taxpayer.

(e) Time of return . Levied upon property in possession of the IRS (other than money) may be returned under paragraphs (c) and (d) of this section at any time. An amount of money equal to the amount of money levied upon or received from a sale of property may be returned at any time before the expiration of 9 months from the date of the levy. When a request for the return of money filed in accordance with paragraph (h) of this section is filed before the expiration of the 9month period, or a determination to return an amount of money is made before the expiration of the 9-month period, the money may be returned within a reasonable period of time after the expiration of the 9-month period if additional time is necessary for investigation or processing.

(f) Purchase by the United States . For purposes of paragraph (a)(2) of this section, if property is declared purchased by the United States at a sale pursuant to section 6335(e)(1)(C), the United States will be treated as having received an amount of money equal to the minimum price determined by the Commissioner before the sale.

(g) Determinations by the Commis- sioner . The Commissioner must determine whether any of the conditions authorizing the return of property exists if a taxpayer submits a request for the return of property in accordance with paragraph (h) of this section. The Commissioner also may make this determination independently. If the Commissioner determines that conditions authorizing the return of property are not present, the Commissioner may not authorize the return of property. If the Commissioner determines that conditions authorizing the return of property are present, the Commissioner may (but is not required to, unless the reason for the return of property is that the levy was made in violation of law and is governed by paragraph (d) of this section) authorize the return of property. If the Commissioner decides independently to return property under paragraph (c)(4) of this section based on the best interests of the taxpayer and the United

States, the taxpayer or the National Taxpayer Advocate (or his delegate) must consent to the return of property.

(h) Procedures for request for the re- turn of property —(1) Manner. A request for the return of property must be made in writing to the address on the levy form.

(2) Form . The written request must include the following information—

(i) The name, current address, and taxpayer identification number of the person requesting the return of money (or property purchased by the United States);

(ii) A description of the property levied upon;

(iii) The date of the levy; and (iv) A statement of the grounds upon which the return of money is being requested (or property purchased by the United States).

(i) No interest . No interest will be paid on any money returned under this section.

(j) Administrative collection upon de- fault . If the Commissioner returns property under this section, and the taxpayer fails to pay the previously assessed liability for which the levy was made on the returned property, the Commissioner may administratively collect the liability. Collection may include levying again on the returned property as long as statutory and administrative requirements are followed.

(k) Effective date . This section is applicable on the date final regulations are published in the Federal Register .

(Filed by the Office of the Federal Register on February 13, 2001, 8:45 a.m., and published in the issue of the Federal Register for February 14, 2001, 66 F.R. 10249)

Notice of Proposed Rulemaking

Deposits of Excise Taxes

REG–106892–00

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to the requirements for excise tax returns, pay

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue .

ments, and deposits. These regulations affect persons required to report liability for excise taxes on Form 720, “ Quarterly Federal Excise Tax Return. ”

DATES: Written and electronic comments and requests for a public hearing must be received by May 17, 2001 .

ADDRESSES: Send submissions to: CC:M&SP:RU (REG–106892–00), 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:M&SP:RU (REG–106892–00), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC. Alternatively, taxpayers may send submissions electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or directly to the IRS Internet site at http://www.irs.gov/ tax_regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning submissions, Guy Traynor (202) 622-7180; concerning the regulations, Susan Athy (202) 622-3130 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Excise Tax Procedural Regulations (26 CFR part 40) relating to the requirements for excise tax returns, payments, and deposits. On January 7, 2000, an advance notice of proposed rulemaking was published in the Federal Register (65 FR 1076) that invited comments from the public on issues relating to the requirements for excise tax returns and deposits. Several written comments were received that were considered in drafting these proposed regulations.

The advance notice requested comments on: whether there should be a single deposit date for all excise taxes (other than those deposited under the alternative method), such as 14 days after the end of the semimonthly period; whether a taxpayer should be required to deposit only 95 percent of tax liability incurred for the semimonthly period (in lieu of the current requirement of 100 percent with safe harbor rules); and whether the amount required to be deposited for a quarter should

April 9, 2001 1060 2001–15 I.R.B.

be computed without reduction for the amounts of any claims made on Schedule C of the Form 720 for that quarter.

In general, commentators from the air transportation industry requested that the one-month filing extension provided to those reporting communications, air transportation, and ozone-depleting chemical taxes be retained because airlines need additional time to determine the proper amount of tax liability. The IRS and Treasury believe the need for additional time is adequately addressed by the retention of the alternative method for making deposits of communications and air transportation taxes. Filers choosing to use the alternative method for making deposits of these taxes also are allowed additional time to determine the amount of tax liability. For example, under the alternative method, the activity for December, January, and February is reported as tax liability for January, February, and March on the Form 720 due April 30th. Thus, even without the one-month filing extension, filers reporting under the alternative method have two months after the last activity to determine the amount of tax liability to be reported. In addition, retention of an extended filing date for certain industries would be inconsistent with the simplification and overall fairness sought to be achieved by these changes. Accordingly, the proposed amendments eliminate the one-month filing extension that is now allowed for returns related to taxes imposed by chapter 33 (relating to communications and air transportation) and section 4681 (relating to ozone-depleting chemicals) and require that all Forms 720 be filed by the last day of the month following the quarter for which the return is made.

Commentators generally supported a single deposit date for all taxes other than those deposited under the alternative method (regular method taxes). The proposed amendments provide that deposits for regular method taxes for a semimonthly period are due by the 14th day of the following semimonthly period. The proposed amendments change the requirement to deposit by class of tax. The 9-day rule, 14-day rule, and 30-day rule taxes are eliminated. Instead there are two classes: regular method and alternative method.

Commentators generally supported a reduction in the amount of the required deposit for a semimonthly period from 100 percent of net tax liability to 95 percent of net tax liability. However, they requested that the look-back quarter safe harbor rule be retained. One commentator noted that the look-back quarter safe harbor rule is easy for taxpayers to use and provides a way for taxpayers to meet the deposit requirements when taxpayers have not determined their liability for the current semimonthly period. Finally, some commentators requested that the provisions allowing deposits to be reduced by Schedule C claims be retained to avoid economic hardship. The proposed amendments adopt the suggestions of these commentators.

The proposed amendments require the deposit of at least 95 percent of net tax liability incurred during the semimonthly period. This rule replaces both the requirement to deposit 100 percent of net tax liability and the safe harbor rule for taxpayers depositing 95 percent of their current liability. The new requirement is, in fact, more generous than the current safe harbor, which applies only if the 95-percent deposit requirement is met for each semimonthly period in the quarter. Under the proposed amendments, a taxpayer that deposits 95 percent of net tax liability for a semimonthly period will satisfy the deposit requirement for that period even if less than 95 percent of net tax liability is deposited for one or more of the other semimonthly periods in the quarter.

The proposed amendments retain the look-back quarter liability safe harbor rule for taxpayers depositing taxes that were in effect during the look-back quarter. The proposed amendments to the deposit requirements and the safe harbor rule apply to all excise tax deposits, including deposits made under the alternative method. Finally, the proposed amendments continue to allow deposits to be reduced by Schedule C claims.

Proposed Effective Date

The regulations are proposed to be applicable with respect to returns and deposits that relate to calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register .

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue 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.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic and written comments that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Susan Athy, Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 40 is proposed to be amended as follows:

PART 40—EXCISE TAX PROCEDURAL REGULATIONS

2001–15 I.R.B. 1061 April 9, 2001

Paragraph 1. The authority citation for part 40 is amended by removing the entries for Sections 40.6071(a)–1 and 40.6071(a)–2, and Sections 40.6302(c)–2, 40.6302(c)–3, and 40.6302(c)–4; and adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 40.6071(a)–1 also issued under 26 U.S.C. 6071(a). * * * Section 40.6302(c)–2 also issued under 26 U.S.C. 6302(a). Section 40.6302(c)–3 also issued under 26 U.S.C. 6302(a).

§40.0–1 [Amended]

Par. 2. Section 40.0–1 is amended as follows:

Paragraphs (d) and (e) are removed.
Paragraph (f) is redesignated as new paragraph (d).

§40.6011(a)–1 [Amended]

Par. 3. Section 40.6011(a)–1 is amended by removing paragraph (c).

§40.6011(a)–2 [Amended]

Par. 4. Section 40.6011(a)–2 is amended as follows:

In paragraph (b)(2), the language “§40.6302(c)–1(f)(2)” is removed and “§40.6302(c)–1(e)(2)” is added in its place.
Paragraph (d) is removed. Par. 5. Section 40.6071(a)–1 is amended by revising paragraphs (a), (b)(2), and (c) to read as follows:

§40.6071(a)–1 Time for filing returns.

(a) Quarterly returns . Each quarterly return required under §40.6011(a)–1(a)(2) must be filed by the last day of the first calendar month following the quarter for which it is made.

(b) * * * (2) Semimonthly returns. Each semimonthly return required under §40.6011 (a)–1(b) must be filed by the last day of the semimonthly period (as defined in §40.0–1(c)) following the semimonthly period for which it is made.

(c) Effective date . This section is applicable with respect to returns that relate to calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register .

§40.6071(a)–2 [Removed]

Par. 6. Section 40.6071(a)–2 is removed.

§40.6091–1 [Amended]

Par. 7. Section 40.6091–1 is amended by removing paragraph (d).

Par. 8. Section 40.6101–1 is revised to read as follows:

§40.6101–1 Period covered by returns.

See §40.6011(a)–1(a)(2) for the rules relating to the period covered by the return.

Par. 9. Sections 40.6109(a)–1 and 40.6151(a)–1 are revised to read as follows:

§40.6109(a)–1 Identifying numbers.

Every person required under §40.6011(a)–1 to make a return must provide the identifying number required by the instructions applicable to the form on which the return is made.

§40.6151(a)–1 Time and place for paying tax shown on return.

Except as provided by statute, the tax must be paid at the time prescribed in §40.6071(a)–1 for filing the return, and at the place prescribed in §40.6091–1 for filing the return.

Par. 10. Section 40.6302(c)–1 is revised to read as follows:

§40.6302(c)–1 Use of Government depositaries.

(a) In general —(1) Semimonthly de- posits required . Except as provided by statute or by paragraph (e) of this section, each person required under §40.6011 (a)–1(a)(2) to file a quarterly return must make a deposit of tax for each semimonthly period (as defined in §40.0–1(c)) in which tax liability is incurred.

(2) Treatment of taxes imposed by chapter 33 . For purposes of this part 40, tax imposed by chapter 33 (relating to communications and air transportation) is treated as a tax liability incurred during the semimonthly period—

(i) In which that tax is collected; or (ii) In the case of the alternative method, in which that tax is considered as collected.

(3) Definition of net tax liability . Net tax liability means the tax liability for the specified period plus or minus any adjust

ments allowable in accordance with the instructions applicable to the form on which the return is made.

(4) Computation of net tax liability for a semimonthly period . The net tax liability for a semimonthly period may be computed by—

(i) Determining the net tax liability incurred during the semimonthly period; or

(ii) Dividing by two the net tax liability incurred during the calendar month that includes that semimonthly period, provided that this method of computation is used for all semimonthly periods in the calendar quarter.

(b) Amount of deposit —(1) In general. The deposit of tax for each semimonthly period must be not less than 95 percent of the amount of net tax liability incurred during the semimonthly period.

(2) Safe harbor rules —(i) Applicabil- ity . The safe harbor rules of this paragraph (b)(2) are applied separately to taxes deposited under the alternative method provided in §40.6302(c)–3 (alternative method taxes) and to the other taxes for which deposits are required under this section (regular method taxes).

(ii) Regular method taxes . Any person that made a return of tax reporting regular method taxes for the second preceding calendar quarter (the look-back quarter) is considered to have complied with the requirement of this part 40 for deposit of regular method taxes for the current calendar quarter if—

(A) The deposit of regular method taxes for each semimonthly period in the current calendar quarter is not less than 1/6 of the net tax liability for regular method taxes reported for the look-back quarter;

(B) Each deposit is made on time; (C) The amount of any underpayment of regular method taxes is paid by the due date of the return; and

(D) The person’s liability does not include any regular method tax that was not imposed at all times during the look-back quarter or a tax on a chemical not subject to tax at all times during the look-back quarter.

(iii) Alternative method taxes . Any person that made a return of tax reporting alternative method taxes for the look-back quarter is considered to have complied with the requirement of this part 40 for

April 9, 2001 1062 2001–15 I.R.B.

deposit of alternative method taxes for the current calendar quarter if—

(A) The deposit of alternative method taxes for each semimonthly period in the current calendar quarter is not less than 1/6 of the net tax liability for alternative method taxes reported for the look-back quarter;

(B) Each deposit is made on time; (C) The amount of any underpayment of alternative method taxes is paid by the due date of the return; and

(D) The person’s liability does not include any alternative method tax that was not imposed at all times during the lookback quarter and the month preceding the look-back quarter.

(iv) Modification for tax rate increase . The safe harbor rules of this paragraph (b)(2) do not apply to regular method taxes or alternative method taxes for the first and second calendar quarters beginning on or after the effective date of an increase in the rate of any tax to which this part 40 applies unless the deposit of those taxes for each semimonthly period in the calendar quarter is not less than 1/6 of the tax liability the person would have had with respect to those taxes for the look-back quarter if the increased rate of tax had been in effect for the look-back quarter.

(v) Failure to comply with deposit re- quirements . If a person fails to make deposits as required under this part 40, that failure may be reported to the appropriate IRS office and the IRS may withdraw the person’s right to use the safe harbor rules of this paragraph (b)(2).

(c) Time to deposit —(1) In general . The deposit of tax for any semimonthly period must be made by the 14th day of the following semimonthly period unless such day is a Saturday, Sunday, or legal holiday in the District of Columbia in which case the immediately preceding day which is not a Saturday, Sunday, or legal holiday in the District of Columbia is treated as the 14th day. Thus, generally, the deposit of tax for the first semimonthly period in a month is due by the 29th day of that month and the deposit of tax for the second semimonthly period in a month is due by the 14th day of the following month.

(2) Exceptions . See §40.6302(c)–2 for the special rules for September. See §40.6302(c)–3 for the special rules for deposits under the alternative method.

(d) Remittance of deposits —(1) Deposits by federal tax deposit coupon . A completed Form 8109, “ Federal Tax Deposit Coupon,” must accompany each deposit. The deposit must be remitted, in accordance with the instructions applicable to the form, to a financial institution authorized as a depositary for federal taxes (as provided in 31 CFR part 203).

(2) Deposits by electronic funds trans- fer . For the requirement to deposit excise taxes by electronic funds transfer, see §31.6302–1(h) of this chapter. A taxpayer not required to deposit by electronic funds transfer pursuant to §31.6302–1(h) of this chapter remains subject to the rules of this paragraph (d).

(e) Exceptions —(1) Taxes excluded . No deposit is required in the case of the taxes imposed by—

(i) Section 4042 (relating to fuel used on inland waterways);

(ii) Section 4161 (relating to sport fishing equipment and bows and arrow components);

(iii) Section 4682(h) (relating to floor stocks tax on ozone-depleting chemicals); and

(iv) Section 48.4081–3(b)(1)(iii) of this chapter (relating to certain removals of gasohol from refineries).

(2) One-time filings . No deposit is required in the case of any taxes reportable on a one-time filing (as defined in §40.6011(a)–2(b)).

(3) De minimis exception . For any calendar quarter, no deposit is required if the net tax liability for the quarter does not exceed $2,500.

(f) Effective date . This section is applicable with respect to deposits that relate to calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register .

Par. 11. Section 40.6302(c)–2 is revised to read as follows:

§40.6302(c)–2 Special rules for September.

(a) In general —(1) Separate deposits required for the second semimonthly pe- riod . In the case of deposits of taxes not deposited under the alternative method (regular method taxes) for the second semimonthly period in September, separate deposits are required for the period September 16th through 26th and for the period September 27th through 30th.

(2) Amount of deposit —(i) In general . The deposits of regular method taxes for the period September 16th through 26th and the period September 27th through 30th must be not less than 95 percent of the net tax liability for regular method taxes incurred during the respective periods. The net tax liability for regular method taxes incurred during these periods may be computed by—

(A) Determining the amount of net tax liability for regular method taxes reasonably expected to be incurred during the second semimonthly period in September;

(B) Treating 11/15 of the amount determined under paragraph (a)(2)(i)(A) of this section as the net tax liability for regular method taxes incurred during the period September 16th through 26th; and

(C) Treating the remainder of the amount determined under paragraph (a)(2)(i)(A) of this section (adjusted to reflect the amount of net tax liability for regular method taxes actually incurred through the end of September) as the net tax liability for regular method taxes incurred during the period September 27th through 30th.

(ii) Safe harbor rules . The safe harbor rules in §40.6302(c)–1(b)(2) do not apply for the third calendar quarter unless—

(A) The deposit of taxes for the period September 16th through 26th is not less than 11/90 of the net tax liability for regular method taxes reported for the lookback quarter; and

(B) The total deposit of taxes for the second semimonthly period in September is not less than 1/6 of the net tax liability for regular method taxes reported for the look-back quarter.

(3) Time to deposit . (i) The deposit required for the period beginning September 16th must be made by September 29th unless—

(A) September 29th is a Saturday, in which case the deposit must be made by September 28th; or

(B) September 29th is a Sunday, in which case the deposit must be made by September 30th.

(ii) The deposit required for the period ending September 30th must be made at the time prescribed in §40.6302(c)–1(c).

(b) Persons not required to use elec- tronic funds transfer . The rules of this section are applied with the following modifications in the case of a person not

2001–15 I.R.B. 1063 April 9, 2001

required to deposit taxes by electronic funds transfer.

(1) Periods . The deposit periods for the separate deposits required under paragraph (a) of this section are September 16th through 25th and September 26th through 30th.

(2) Amount of deposit . In computing the amount of deposit required under paragraph (a)(2)(i)(B) of this section, the applicable fraction is 10/15. In computing the amount of deposit required under paragraph (a)(2)(ii)(A) of this section, the applicable fraction is 10/90.

(3) Time to deposit . In the case of the deposit required under paragraph (a) of this section for the period beginning September 16th, the deposit must be made by September 28th unless—

(i) September 28th is a Saturday, in which case the deposit must be made by September 27th; or

(ii) September 28th is a Sunday, in which case the deposit must be made by September 29th.

(c) Effective date . This section is applicable with respect to deposits that relate to calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register .

Par. 12. Section 40.6302(c)–3 is amended as follows:

In paragraph (b)(1)(ii), the language “9-day rule of §40.6302(c)–1(b)(6)” is removed and “rule of §40.6302(c)–1(c)(1)” is added in its place.
In paragraph (b)(3), second sentence, the language “6th” is removed and “16th” is added in its place.
In paragraph (d), first sentence, the language “not less than” is removed and “not less than 95 percent of” is added in its place.
In paragraph (f)(4), the language “§40.6302(c)–1(c)(2)(i)” is removed and “§40.6302(c)–1(b)(2)” is added in its place.
Paragraph (f)(5) is removed.
Paragraphs (f)(6) and (f)(7) are redesignated as paragraphs (f)(5) and (f)(6), respectively.
Paragraph (g) is revised.
Paragraph (h) is removed. The revision reads as follows:

§40.6302(c)–3 Special rules for use of Government depositaries under chapter 33.

(g) Effective date . This section is applicable with respect to deposits of taxes that are considered as collected in calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register and to returns of tax for calendar quarters beginning on or after the date of publication of the final regulations in the Federal Register .

§40.6302(c)–4 [Removed]

Par. 13. Section 40.6302(c)–4 is removed.

§40.9999–1 [Removed]

Par. 14. Section 40.9999–1 is removed.

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue.

(Filed by the Office of the Federal Register on February 15, 2001, 8:45 a.m., and published in the issue of the Federal Register for February 16, 2001, 66 F.R. 10650)

Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations

Disclosure of Return Information to the Bureau of the Census

REG–121109–00

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: In T.D. 8943, on page 1054 of this Bulletin, the IRS is issuing temporary regulations relating to additions to the list of items of information disclosed to the Bureau of the Census for use in the Longitudinal Employer-Household Dynamics (LEHD) project and the Survey of Income and Program Participation (SIPP) project. These regulations provide guidance to IRS and Social Security Administration (SSA) personnel responsible for disclosing the information. The text of those temporary regulations also serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public hearing must be received by May 14, 2001.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG–121109–00), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand-delivered between the hours of 8 a.m. and 5 p.m. to CC:M&SP:RU (REG–121109–00), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC or sent electronically, via the IRS Internet site at: http://www.irs.ustreas.gov/tax_regs/reglist. html .

FOR FURTHER INFORMATION CONTACT: Stuart Murray (202) 622-4580 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Under section 6103(j)(1), upon written request from the Secretary of Commerce, the Secretary is to furnish to the Bureau of the Census (Bureau) tax return information that is prescribed by Treasury regulations for the purpose of, but only to the extent necessary in, structuring censuses and national economic accounts and conducting related statistical activities authorized by law. Section 301.6103(j)(1)–1 of the regulations further defines such purposes by reference to 13 U.S.C. Chapter 5 and provides an itemized description of the return information authorized to be disclosed for such purposes. Section 301.6103(j)(1)–1(b)(5) of the regulations provides a list of information provided to the Social Security Administration (SSA) pursuant to Internal Revenue Code section 6103(l)(1)(A) or (5) that officers or employees of SSA may disclose to the Bureau. Periodically, the disclosure regulations are amended to reflect the changing needs of the Bureau for data for its statutorily authorized statistical activities.

This document contains proposed amendments to the regulations authorizing IRS and SSA personnel to disclose additional items of return information that have been requested by the Secretary of Commerce for specified purposes related to the LEHD and SIPP projects.

The text of the temporary regulations also serves as the text of these proposed

April 9, 2001 1064 2001–15 I.R.B.

regulations. The preamble to the temporary regulations explains the regulations.

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue 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.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic and written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed regulation and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person that timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register.

Drafting Information

The principal author of these regulations is Jamie G. Bernstein, Office of the Associate Chief Counsel, Procedure & Administration (Disclosure & Privacy Law Division), Internal Revenue Service. However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR Part 301 is proposed to be amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 301.6103(j)(1)–1 also issued under 26 U.S.C. 6103(j)(1);* * *

Par. 2. Section 301.6103(j)(1)–1 is amended by:

Adding paragraphs (b)(2)(v) and (vi).
Adding paragraphs (b)(3)(xxiii), (xxiv), (xxv), (xxvi), (xxvii) and (xxviii).
Adding paragraphs (b)(5)(iii), (iv), and (v).
Revising paragraph (e). The additions and revision read as follows:

§301.6103(j)(1)–1 Disclosure of return information to officers and employees of the Department of Commerce for certain statistical purposes and related activities.

(b)* * * (2)(v) and (vi)[The text of proposed paragraphs (b)(2)(v) and (vi) is the same as the text of §301.6103(j)(1)–1T(b)(2)(v) and (vi) published in T.D. 8943].

(3)[The text of proposed paragraphs (b)(3)(xxiii), (xxiv), (xxv), (xxvi), (xxvii) and (xxviii) is the same as the text of §301.6103(j)(1)–1T(b)(3)(xxiii), (xxiv), (xxv), (xxvi), (xxvii) and (xxviii) published in T.D. 8943].

(5)(iii), (iv), and (v) [The text of proposed paragraphs (b)(5)(iii), (iv), and (v) is the same as the text of §301.6103(j)(1)–T(b)(5)(iii), (iv), and (v) published in T.D. 8943].

(e) [The text of proposed paragraph (e) is the same as the text of §301.6103(j)(1)–T(e) published elsewhere in T.D. 8943].

Robert E. Wenzel, Deputy Commissioner of the Internal Revenue.

(Filed by the Office of the Federal Register on February 12, 2001, 8:45 a.m., and published in the issue of the Federal Register for February 13, 2001, 66 F.R. 9991)

Source of Income From Certain Space and Ocean Activities; Also, Source of Communications Income; Hearing

Announcement 2001–30

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Change of date of public hearing; extension of time to submit outlines of oral comments.

SUMMARY: This document changes the date of the public hearing on the proposed regulations (REG–106030–98, 2000–11 I.R.B. 820) under sections 863(a), (d), and (e) governing the source of income from certain space and ocean activities and certain communications activities. It also extends the time to submit outlines of oral comments for the hearing.

DATES: The public hearing will be held May 23, 2001, beginning at 10 a.m. Additional outlines of oral comments must be received by May 2, 2001.

ADDRESSES: The public hearing will be held in Room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Send submissions to: Regulations Unit CC (REG–106030–98), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: Regulations Unit CC (REG–106030–98), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington DC. Alternatively, taxpayers may submit outlines of oral comments electronically directly to the IRS Internet site at http://www.irs.gov/ tax regs/reglist.html .

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Anne Shelburne (202) 874-1490; concerning submission, LaNita Van Dyke (202) 6227190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

A notice of proposed rulemaking and notice of public hearing, appearing in the Federal Register on Wednesday, January 17, 2001 (66 FR 3903), announced that a public hearing on the proposed regulations under sections 863(d) and 863(e),

2001–15 I.R.B. 1065 April 9, 2001

governing the source of income from certain space and ocean activities and certain communications activities would be held on March 28, 2001, in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Subsequently, the date of the public hearing has changed to May 23, 2001, at 10 a.m. in room 2615. Outlines of oral comments must be received by May 2, 2001.

Cynthia Grigsby, Chief, Regulations Unit, Office of Special Counsel (Modernization & Strategic Planning).

(Filed by the Office of the Federal Register on March 9, 2001, 8:45 a.m., and published in the issue of the Federal Register for March 12, 2001, 66 F.R. 14351)

April 9, 2001 1066 2001–15 I.R.B.