Part IV. Items of General Interest

tion in accordance with section 6103. The collection of information is required to obtain a benefit. The likely respondents and recordkeepers are federal agencies and state or local governments.

Estimated total annual reporting and/or recordkeeping burden: 11 hours.

Estimated average annual burden hours per respondent and/or recordkeeper: 1 hour.

Estimated number of respondents and/or recordkeepers: 11.

Estimated annual frequency of responses: once.

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 an internal revenue law. Generally, tax returns and return information are confidential, as required by 26 U.S.C. 6103.

Background

Section 6103(p)(2)(B) provides that return information disclosed pursuant to the Code may be disclosed by any mode or means that the Secretary determines necessary or appropriate. 26 CFR 301.6103(p)(2)(B)–1 currently permits certain recipients of returns and return information under section 6103, with the Commissioner’s approval, to disclose returns and return information to certain other permissible recipients under section 6103. Specifically, the existing regulation permits disclosure by Federal agencies, with the Commissioner’s approval, to 1) other Federal agencies, 2) state tax agencies, 3) the General Accounting Office, 4) Federal, state and local child support enforcement agencies, 5) persons described in section 6103(c) (person designated in a taxpayer consent), and 6) persons described in section 6103(e) (person with a material interest).

The Consolidated Appropriations Act, 2001, Pub. L. No. 106–554 (114 Stat. 2763), was signed into law on December 21, 2000. Section 1 of that Act enacted

Notice of Proprosed Rulemaking by Cross- Reference to Temporary Regulations

Disclosure of Returns and Return Information by Other Agencies

REG–105344–01

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: In the Rules and Regulations section of the December 13, 2001, issue of the Federal Register, the IRS is issuing a temporary regulation to enable the Commissioner to authorize federal, state and local agencies with access to returns and return information under section 6103 of the Internal Revenue Code to redisclose such returns and return information, with the Commissioner’s approval, to any authorized recipient set forth in section 6103 of the Internal Revenue Code, subject to the same restrictions and for the same purposes, as if the recipient had received the information from the IRS directly.

DATES: Written comments and electronic comments and requests for a public hearing must be received by February 14, 2002.

ADDRESSES: Send submissions to CC:ITA:RU (REG–105344–01), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to CC:ITA:RU (REG–105344–01), 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: http://www. irs.gov/prod/tax_regs/comments/html.

FOR FURTHER INFORMATION CONTACT: Julie C. Schwartz, 202– 622–4570 (not a toll-free number).

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 Management 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, W:CAR: MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by February 14, 2002. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal revenue Service, 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 service to provide information.

The collection of information in this proposed regulation is in 26 CFR 301.6103(p)(2)(B)–1T. This information is required for the Commissioner to authorize agencies with access to returns and return information under section 6103 to disclose such to other authorized recipients of returns and return informa

2002-2 I.R.B 302 January 14, 2002

into law H.R. 5662, the Community Renewal Tax Relief Act of 2000. Section 310 of the Community Renewal Tax Relief Act of 2000 added section 6103(j)(6) to the Code, authorizing the Commissioner to disclose return information to the Congressional Budget Office (CBO) for the purpose of, but only to the extent necessary for, long term models of the Social Security and Medicare programs. The conference report, H.R. Conf. Rep. No. 106–1033, at 1020–21 (2000), provides that it is the intent of Congress that all requests for information made by CBO under this provision be made to the Commissioner, who will use his authority under section 6103(p)(2) such that the Social Security Administration (SSA) or other agency can furnish the information directly to CBO for the purpose of CBO’s long term models of Social Security and Medicare. SSA, not IRS, collects and maintains much of the information sought by CBO and also receives the tax information CBO seeks under other provisions of section 6103. However, section 301.6103(p)(2)(B)–1 in its current form would not allow the Commissioner to authorize SSA to redisclose return information properly in its possession to CBO, an authorized recipient of the information under section 6103(j)(6). Updating the regulation would allow SSA to make return information in its possession available to CBO to the extent authorized by section 6103(j)(6).

There are other situations, similar to that found under section 6103(j)(6), where it is more efficient for returns and return information in the possession of one authorized agency recipient, to be disclosed by such agency to another statutorily authorized recipient. The inability of agencies, including Federal, state and local agencies, to share returns and return information between themselves or even inside a single agency, even where the information is more readily available from an agency other than the IRS, was highlighted by the Department of the Treasury on pages 89–90 of its October 2000 Report to the Congress on the Scope and Use of Taxpayer Confidentiality and Disclosure Provisions. The report notes, for example, that currently a single agency within a state (or even a single caseworker) may be administering both child support under Title IV-D of the

Social Security Act and welfare under Title IV-A of the Social Security Act. The agency may receive return information under both section 6103(l)(6) and section 6103(l)(7) to aid the agency in making determinations of eligibility for these programs, but the current regulation does not permit even intra-agency pooling or sharing of these data. The report notes that both intra- and inter-agency data sharing with respect to common data elements could be authorized by amendment to the Treasury regulations. Updating the regulation would allow the IRS to authorize such redisclosure in appropriate situations.

The text of the proposed temporary regulation also serves as the text of this proposed regulation. The preamble to the temporary regulation contains a full explanation of the reasons underlying the issuance of the proposed regulation.

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) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel of the Small Business Administration for comment on its impact on small businesses.

Comments and Request for a Public Hearing

Before this proposed regulation is adopted as a final regulation, consideration will be given to any electronic and written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. 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 this regulation is Julie C. Schwartz, Office of the Associate Chief Counsel (Procedure and Administration), Disclosure and Privacy Law Division.

- - - -

Amendments to the Regulations

Accordingly, 26 CFR parts 301 and 602 are 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(p)(2)(B)–1 also issued under 26 U.S.C. 6103(p)(2);***

§ 301.6103(p)(2)(B)–1 [Removed]

Par. 2. Section 301.6103(p)(2)(B)–1 is removed.

Par. 3. Section 301.6103(p)(2)(B)–1T is added to read as follows:

[The text of this proposed section is the same as the text of § 301.6103(p) (2)(B)–1T published elsewhere in this issue of the Federal Register].

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805 *** Par. 5. In § 602.101, paragraph (b) is amended by adding an entry to the table in numerical order to read as follows:

[The text of this proposed section is the same as the text of § 602.101 published elsewhere in this issue of the Fed- eral Register ].

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on December 12, 2001, 8:45 a.m., and published in the issue of the Federal Register for December 13, 2001, 65 F.R. 64386)

January 14, 2002 303 2002-2 I.R.B.

the item or another item arising from the same transaction is an issue raised during an examination, or (2) April 23, 2002. For purposes of this disclosure initiative, an item is an issue raised during an examination if the person examining the return (the examiner) communicates to the taxpayer knowledge about the specific item or on or before December 21, 2001, the examiner has made a request to the taxpayer for information, and the taxpayer could not make a complete response to that request without giving the examiner knowledge of the specific item.

INFORMATION REQUIRED TO MAKE A DISCLOSURE

To disclose an item under this initiative, a taxpayer must provide the following:

(a) All transactional documents, including agreements, contracts, instruments, schedules, and, if the taxpayer’s participation in the transaction was promoted, solicited or recommended by any other party, all material received from that other party or that party’s advisor(s);

Elimination of User Fees for Certain Determination Letter Requests Pursuant to Section 620 of the Economic Growth and Tax Relief Reconciliation Act of 2001

Announcement 2002–1

Q&A–15 of Notice 2002–1, page 283, this Bulletin, describes a revised Form 8717 that is to be used with section 620 applications, i.e., certain Employee Plans determination letter requests, that are filed after December 31, 2001. The revised form will not be available on the IRS Web Site until late in January 2002. Accordingly, prior to that time employers that meet the requirements described in the notice may use the draft Form 8717 and the related instructions that are being made available through the Employee Plans Newsletter and the various tax services.

DRAFTING INFORMATION

The principal author of this announcement is Michael Rubin of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this announcement, please contact the Employee Plans’ taxpayer assistance telephone service at 1–877–829– 5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern Time, Monday through Friday. Mr. Rubin can be reached at 1–202–283–9888 (not a toll-free number).

Disclosure Initiative for Certain Transactions Resulting in Waiver of Certain Penalties Under § 6662 of the Internal Revenue Code

Announcement 2002–2

The Internal Revenue Service (IRS) announces a disclosure initiative to encourage taxpayers to disclose their tax treatment of tax shelters and other items for which the imposition of the accuracyrelated penalty may be appropriate if

there is an underpayment of tax. If a taxpayer discloses any item in accordance with the provisions of this announcement before April 23, 2002, the IRS will waive the accuracy-related penalty under § 6662(b)(1), (2), (3), and (4) for any underpayment of tax attributable to that item.

This disclosure initiative covers all items except items resulting from a transaction that (1) did not in fact occur, in whole or in part, but for which the taxpayer claimed a tax benefit on its return; (2) involved the taxpayer’s fraudulent concealment of the amount or source of any item of gross income; (3) involved the taxpayer’s concealment of its interest in, or signature or other authority over a financial account in a foreign country; (4) involved the taxpayer’s concealment of a distribution from, a transfer of assets to, or that the taxpayer was a grantor of a foreign trust; or (5) involved the treatment of personal, household, or living expenses as deductible trade or business expenses.

SCOPE OF THE WAIVER

Under this disclosure initiative, the IRS will waive the accuracy-related penalty under § 6662(b) for that portion of an underpayment attributable to the disclosed item and due to one or more of the following: (1) negligence or disregard of rules or regulations; (2) any substantial understatement of income tax; (3) any substantial or gross valuation misstatement under chapter 1 of the Code, except for any portion of an underpayment attributable to a net § 482 transfer price adjustment, unless the standards of § 6662(e)(3)(B) regarding documentation are met; and (4) any substantial overstatement of pension liabilities.

Disclosure under this initiative does not affect whether the IRS will impose, as appropriate, any other civil penalty that may be applicable under the Code or will investigate any associated criminal conduct or recommend prosecution for violation of any criminal statute.

PERIOD OF DISCLOSURE

The IRS will waive the accuracyrelated penalty if the taxpayer discloses the item before the earlier of (1) the date

(1) A statement describing the material facts of the item; (2) A statement describing the taxpayer’s tax treatment of the item; (3) The taxable years affected by the item; (4) If the taxpayer is a Coordinated Industry Case (CIC) taxpayer, a statement that the taxpayer will agree to address the disclosed item under the Accelerated Issue Resolution process described in Rev. Proc. 94–67 (1994–2 C.B. 800) if requested to do so by the IRS; (5) The names and addresses of (a) any parties who promoted, solicited, or recommended the taxpayer’s participation in the transaction underlying the item and who had a financial interest, including the receipt of fees, in the taxpayer’s decision to participate, and (b) if known to the taxpayer, any parties who advised the promoter, solicitor or recommender with respect to that transaction; (6) A statement agreeing to provide, if requested, copies of all of the following:

2002-2 I.R.B 304 January 14, 2002

The estimated frequency of responses is one time per respondent.

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.

CONTACT INFORMATION

For further information regarding this announcement, contact Jozef Chilinski of the Office of Tax Shelter Analysis at (202) 283–8425 (not a toll-free call).

Form 1065 Electronic Filing Waiver Request Procedures

Announcement 2002–3

Section 6011(e) of the Internal Revenue Code and section 301.6011–3(a) of the Regulations on Procedure and Administration require partnerships with more than 100 partners to file their partnership returns (Form 1065 series) on magnetic media. The regulations define “magnetic media” to include electronic filing, if electronic filing is required by the Internal Revenue Service (Service).

Beginning with taxable years ending on or after December 31, 2000, the Service will require partnerships with more than 100 partners to file their partnership returns electronically. IRS Publication 1524 contains instructions for filing partnership returns electronically, and excludes certain partnerships from the electronic filing requirement. For Tax Year 2001, the IRS has excluded Partnerships with the following type of returns from the electronic filing requirement:

1. Fiscal Year Filers
2. Foreign Address Partnerships
3. Amended Returns
4. Delinquent Returns ( Note: For a detailed list of the exclu- sions, refer to Publication 1524. )

Section 301.6011–3(b) of the regulations permits the Commissioner of Internal Revenue to waive the electronic filing requirement if the partnership demonstrates that a hardship would result if it

(b) All internal documents or memoranda used by the taxpayer in its decision-making process, including, if applicable, information presented to the taxpayer’s board of directors; and (c) All opinions and memoranda that provide a legal analysis of the item, whether prepared by the taxpayer or a tax professional on behalf of the taxpayer; and (7) A penalty of perjury statement that the person signing the disclosure has examined the disclosure and that to the best of that person’s knowledge and belief, the information provided as part of the disclosure contains all relevant facts and is true, correct, and complete. In the case of an individual taxpayer, the declaration must be signed and dated by the taxpayer, and not the taxpayer’s representative. In the case of a corporate taxpayer, the declaration must be signed and dated by an officer of the corporate taxpayer who has personal knowledge of the facts. If the corporate taxpayer is a member of an affiliated group filing consolidated returns, a penalties of perjury statement also must be signed, dated, and submitted by an officer of the common parent of the group. The person signing for a trust, a state law partnership, or a limited liability company must be, respectively, a trustee, general partner, or member-manager who has personal knowledge of the facts. A stamped signature is not permitted.

PROCEDURE FOR MAKING THE DISCLOSURE

A CIC taxpayer must submit the disclosure information to the assigned team manager and send a copy of the information to the Office of Tax Shelter Analysis.

A non-CIC taxpayer not under examination as of December 21, 2001, must send the disclosure information to the Office of Tax Shelter Analysis.

A non-CIC taxpayer under examination as of December 21, 2001, must submit the disclosure information to the examiner and send a copy of the information to the Office of Tax Shelter Analysis.

The address for the Office of Tax Shelter Analysis is LM:PFTG:OTSA, 1111 Constitution Ave, NW, Washington, DC 20224.

MISCELLANEOUS

The IRS is committed to considering and resolving disclosed items promptly. A taxpayer’s disclosure of an item creates no inference that the taxpayer’s tax treatment of the item was improper or that the accuracy-related penalty would apply if there is an underpayment of tax. Furthermore, taxpayers that do not disclose under this initiative are not prevented from demonstrating that they satisfy the reasonable cause exception under § 6664(c) and the regulations thereunder with respect to any portion of an underpayment of tax.

PAPERWORK REDUCTION ACT

The collection of information contained in this announcement has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545–1764. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information in this announcement is in the section titled INFORMATION REQUIRED TO MAKE A DISCLOSURE. This information is required to assess the item the taxpayer is disclosing under the initiative. This information will be used to determine whether the taxpayer has reported the disclosed item properly for income tax purposes. The collection of information is required to obtain the benefit described in this announcement. The likely respondents are businesses or other for-profit institutions, small businesses or organizations, and individuals.

The estimated total annual reporting burden is 450 hours.

The estimated annual burden per respondent varies from 2 hours to 4 hours, depending on individual circumstances, with an estimated average of 3 hours. The estimated number of respondents is 150.

January 14, 2002 305 2002-2 I.R.B.

Effect of the Family and Medical Leave Act on the Operation of Cafeteria Plans; Correction

Announcement 2002–4

AGENCY: Internal Revenue Service (IRS), Treasury

ACTION: Correction to final regulations.

SUMMARY: This document contains a correction to final regulations (T.D. 8966, 2001-45 I.R.B. 422) that were published in the Federal Register on October 17, 2001 (66 FR 52676). These regulations relate to cafeteria plans that reflect changes made by the Family and Medical Act of 1993 (Act).

DATES: This correction is effective October 17, 2001.

FOR FURTHER INFORMATION CONTACT: Shoshanna Chaiton (202) 622– 6080 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of this correction are under section 125 of the Internal Revenue Code.

Need for Correction

As published, the final regulations (T.D. 8966) contains errors that may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, final reglations (T.D. 8966), (FR. Doc 01–25909), published October 17, 2001, is corrected as follows:

§ 1.125–3 [Corrected]

On page 52677, column 3, § 1.125–3, line 3, the language “Family and Medical Leave Act (FMLA)” is corrected to read “Family and Medical Leave Act (FMLA), 29 U.S.C. 2601 et seq., ”

were required to file its return electronically. The regulations require partnerships seeking a waiver to request one in the manner prescribed by the Service.

To request a waiver for the taxable year ending December 31, 2001, partnerships must file a written request containing the following information: (1) A notation at the top of the request stating, in large letters, “ Form 1065 e-file Waiver Request: IRC Section 6011 (e)(2) ”; (2) The name, federal tax identification number, and mailing address of the partnership; (3) The taxable year for which the waiver is requested; (4) A detailed statement which lists:

a) the steps the partnership has taken

in an attempt to meet its requirement to file its return electronically, b) why the steps were unsuccessful, c) the hardship that would result,

1. For returns due April 15, 2002 (Form 8736 Extension not filed); January 15, 2002, to March 1, 2002.
2. For returns due July 15, 2002 (Form 8736 Extension filed); January 15, 2002, to June 1, 2002.
3. For returns due October 15, 2002 (Form 8800 Extension filed and approved); January 15, 2002, to September 15, 2002. Requests from the partnership’s tax advisor/preparer must be accompanied by a valid power of attorney. The address for the Ogden Submission Processing Center:

Internal Revenue Service Ogden Submission Processing Center P.O. Box 9941 Ogden, UT 84409 Attn: Form 1065 e-file Waiver Request,

Stop 1057

Fax: 801–620–7622

(Note: Do not attach the waiver request to the partnership’s paper tax return. Also, do not file extension requests with the waiver.)

The Service will approve or deny waiver requests based on the facts and circumstances of each request. In determining whether to approve or deny a waiver request, the Service will consider the ability of the partnership to file its return electronically without incurring an undue economic hardship.

Within 30 days after receipt of the waiver request, the Service will send a letter to the partnership either approving or denying the request for waiver. Partnerships may not appeal a denial of a waiver request. However, partnerships may request a waiver of any penalty imposed by the Service for failing to file their partnership returns electronically. For further information regarding penalty waivers, see IRS Notice 746.

For questions concerning a request for waiver, contact the Ogden Submission Processing Center 801–620–7444 (not a toll-free call).

including any incremental cost to the partnership of complying with the electronic filing requirements. Incremental costs are those costs that are above and beyond the costs to file on paper. The incremental costs must be supported by a detailed computation. The detailed computation must include a schedule detailing the costs to file on paper and the costs to file electronically. (5) A statement as to what steps the partnership will take to assure its ability to electronically file its partnership return for the next tax year. (6) A statement (signed by the Tax Matters Partner, as defined in section 6231(a)(7) of the Code) indicating:

“Under penalties of perjury, I declare that the information contained in this waiver request is true, correct and complete to the best of my knowledge and belief.” All requests for waiver must be filed with the Ogden Submission Processing Center during one of the following periods:

2002-2 I.R.B 306 January 14, 2002

On page 52677, column 3, §1.125–3, Q–1, line 4 and 5, the language “when taking unpaid Family and Medical Leave Act (FMLA), 29 U.S.C., is corrected to read “when taking unpaid FMLA, 29 U.S.C.”

LaNita Van Dyke, Acting Chief, Regulations Unit,

Associate Chief Counsel (Income Tax and Accounting).

(Filed by the Office of the Federal Register on December 10, 2001, 8:45 a.m., and published in the issue of the Federal Register for December 11, 2001, 66 F.R. 63920)

January 14, 2002 307 2002-2 I.R.B.