Part I. Rulings — Internal Revenue Bulletin 2003-20

Section 25.—Interest on Cer- tain Home Mortgages

26 CFR 1.25–4T: Qualified mortgage credit certifi- cate program (temporary).

Guidance is provided with respect to the national and area median gross income figures for use by issuers of qualified mortgage bonds and mortgage credit certificates in determining the housing cost/income ratio described in section 143(f)(5) of the Code. See Rev. Proc. 2003–29, page 917.

Section 103.—Interest on State and Local Bonds

26 CFR 1.103–1: Interest upon obligations of a State, Territory, etc.

Guidance is provided with respect to the national and area median gross income figures for use by issuers of qualified mortgage bonds and mortgage credit certificates in determing the housing cost/income ratio described in section 143(f)(5) of the Code. See Rev. Proc. 2003–29, page 917.

Section 143.—Mortgage Rev- enue Bonds: Qualified Mort- gage Bond and Qualified Veterans’ Mortgage Bond

26 CFR 6a.103A–2: Qualified mortgage bond.

Section 527.—Political Organizations

26 CFR 1.527–2: Definitions. (Also §§ 6012, 6033, 6104, 6651, and 6652.)

Reporting requirements for section 527 organizations. This ruling provides questions and answers regarding the reporting and disclosure requirements for section 527 of the Code. Rev. Rul. 2000–49 modified and superseded.

Rev. Rul. 2003–49

ISSUES

On November 2, 2002, Pub. L. 107– 276 was enacted, amending § 527 of the Code. The new law amends the reporting and disclosure requirements for tax-exempt political organizations described in § 527 with respect to the following: (1) notice of status, (2) periodic reports of contributions and expenditures, and (3) annual returns. This revenue ruling provides questions and answers relating to the reporting and disclosure requirements for political organizations described in § 527, as amended by Pub. L. 107–276.

QUESTIONS AND ANSWERS

I. Notice of Status

Q–1. What is the notice of status requirement for an organization described in § 527?

A–1. Under § 527(i)(1)(A), to be taxexempt, a political organization is required to give notice electronically to the Service that it is a political organization described in § 527, unless excepted (see Q&A–3).

Q–2. What is the required notice form? A–2. The required notice form is Form 8871, Political Organization Notice of Sec- tion 527 Status .

Q–3. Are all political organizations required to file the Form 8871 notice to be tax-exempt?

A–3. No. Under § 527(i)(5) and § 527(i)(6), five types of organizations are not required to file the Form 8871 notice:

(a) Any person required to report under the Federal Election Campaign Act of 1971 (FECA) as a political committee (see 2 U.S.C. § 431(4));

(b) Any political committee of a state or local candidate;

(d) Any organization that reasonably anticipates that its annual gross receipts will always be less than $25,000; and

(e) Any organization described in § 501(c) that is subject to § 527(f)(1) because it has made an “exempt function” expenditure.

Q–4. Must a political committee of a state or local candidate be incorporated or otherwise have formal organizational documents to be excepted from the Form 8871 filing requirements?

A–4. No. As discussed in Q&A–13, § 527 does not require political organizations to be incorporated or otherwise have formal organizational documents to qualify as a tax-exempt political organization. Therefore, a political organization need not be incorporated or otherwise have formal organizational documents to qualify for the exception under § 527(i)(5) for political committees of a state or local candidate.

Q–5. Is a political organization required to file Form 8871 if it does not know whether it will have annual gross receipts of $25,000 or more for any taxable year?

A–5. A newly established political organization is not required to file Form 8871 if it reasonably anticipates that its annual gross receipts will be less than $25,000 for its first six taxable years. However, if an organization, in fact, does have annual gross receipts of $25,000 or more for any taxable year, it is required to file Form 8871 within 30 days of receiving $25,000 in a single taxable year to continue to be taxexempt.

Q–6. Is the separate segregated fund established under § 527(f)(3) by a § 501(c) organization required to file Form 8871?

A–6. A § 501(c) organization that is not prohibited from participating in political campaign activity has the option of conducting the activity itself or setting up a separate segregated fund. If the § 501(c) organization conducts the activity itself, it is subject to tax under § 527(f)(1) on the lesser of its investment income or the amount of its political expenditures, but it is not required to file Form 8871 pursuant to § 527(i)(5)(A). If the § 501(c) organization establishes a separate segregated fund, the fund is treated as a separate political organization under § 527(f)(3) and does not qualify for the exception under § 527(i)(5) (A). Therefore, unless it meets one of the other exceptions, the separate segregated fund is required to file Form 8871 to be taxexempt.

Q–7. Is an organization that finances both federal and non-federal election activity required to file the Form 8871 notice to be tax-exempt?

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mally chartered or established as a corporation, trust, or association. For example, a separate bank account can qualify as a political organization. See Rev. Rul. 79–11, 1979–1 C.B. 207. The requirement that a § 527 organization include the names and addresses of its officers, highly compensated employees, and members of its Board of Directors does not change the organizational test for § 527. Section 527(i) does not require political organizations to be organized with Boards of Directors, officers and highly compensated employees. It merely requires the organization to provide their names and addresses if it is so organized.

Q–14. What is a “related entity” for this purpose?

A–14. An entity is a “related entity” within the meaning of § 168(h)(4), which provides that an organization is related to another entity as follows:

A–7. As a general rule, any political organization (whether or not separately incorporated) that is organized and operated primarily for an exempt function under § 527(e)(2) (see Q&A–22) must file Form 8871 to be tax-exempt unless it meets one of the exceptions discussed above (see Q&A–3), one of which is being required to report under FECA as a political committee. An organization that finances election activity (within the meaning of FECA) for both federal and non-federal elections may establish a political committee to receive contributions and make expenditures for both federal and non-federal election activity. In that case, the organization must register as a political committee and comply with the FECA contribution limitations and reporting requirements. 11 C.F.R. 102.5(a)(1)(ii). Such an organization is, therefore, not required to file Form 8871. If, however, the organization sets up separate accounts to conduct its federal election activity and its non-federal election activity, the federal account is treated as a separate political committee that is required to register and report under FECA. 11 C.F.R. 102.5(a)(1)(i). The treatment of the federal account as a separate committee is consistent with the organizational requirements for political organizations under § 527, as discussed below in Q&A–13. Accordingly, the separate federal account is not required to file Form 8871. However, a separate non-federal account is not required to register and report under FECA as a political committee. Therefore, a separate non-federal account that is described in § 527(e)(1) is required to file Form 8871 to be tax-exempt.

Q–8. Is a political organization that is required to report to state or local election agencies excepted from the notice requirement?

A–8. Section 527(i) does not except political organizations that file reports with state or local election agencies from the notice of status requirement. Therefore, unless the political organization meets one of the exceptions discussed above in Q&A–3, it must file Form 8871 to be tax-exempt.

Q–9. When must the organization file Form 8871?

A–9. If the political organization seeks tax-exempt status, Form 8871 must be filed within 24 hours after the date on which the organization was established. If the orga

nization has a material change in any of the information reported on Form 8871, it must file an amended Form 8871 within 30 days of the material change to maintain its taxexempt status. When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination.

Q–10. What are the methods of filing Form 8871?

A–10. Section 527(i)(1)(A) requires that the Form 8871 be filed electronically. Form 8871 may be filed electronically via the Internal Revenue Service Internet web site (IRS web site) at www.irs.gov/polorgs (IRS Keyword: political orgs).

Q–11. Must an organization take any additional steps before filing Form 8871?

A–11. To file Form 8871, the political organization must have its own employer identification number (EIN) even if it has no employees. To obtain an EIN, an organization must file Form SS–4, Applica- tion for Employer Identification Number, with the Service. See the Form SS–4 Instructions for information on how to get an EIN by telephone.

Q–12. What information must be provided in the Form 8871 notice?

A–12. Under § 527(i)(3), an organization must provide in its Form 8871 notice its name and address (including any business address, if different) and electronic mailing address; its purpose; the names and addresses of its officers, highly compensated employees, contact person, custodian of records, and members of its Board of Directors; the name and address of, and relationship to, any related entities (within the meaning of § 168(h)(4)); and whether it is claiming an exemption from filing Form 8872 as a qualified state or local political organization (within the meaning of § 527(e)(5)) or an exemption from filing Form 990 as a caucus or association of state or local officials.

Q–13. Does § 527(i) change the organizational requirements for § 527 organizations?

A–13. No. Section 527 does not require an organization to have formal organizational documents, such as articles of incorporation. Under § 1.527–2(a)(2) of the Income Tax Regulations, a political organization meets the organizational test if it is organized for the primary purpose of carrying on exempt function activities as defined in § 527. The regulation specifically states that the organization need not be for

(a) The two entities have (i) significant common purposes and substantial common membership or (ii) directly or indirectly substantial common direction or control; or

(b) Either entity owns (directly or through one or more entities) a 50 percent or greater interest in the capital or profits of the other. For this purpose, entities treated as related entities under (a) above shall be treated as one entity. Q–15. What are “highly compensated employees” for this purpose?

A–15. Highly compensated employees for this purpose are the five employees (other than officers and directors) who are reasonably expected to have the highest annual compensation over $50,000. Annual compensation includes both cash and noncash amounts, whether paid currently or deferred.

Q–16. What is a qualified state or local political organization?

A–16. A qualified state or local political organization is a political organization that meets the following requirements:

a. The organization limits its exempt function (see Q&A–22) to the “selection process” (see Q&A–22) relating solely to any state or local public office or office in a state or local political organization;

b. The organization is required under a state law to report to a state agency (and the organization does so) the information that otherwise would be required to be reported on Form 8872. The organization will

May 19, 2003 904 2003–20 I.R.B.

deduct its exempt function expenditures because § 162(e) denies a deduction for political campaign expenditures.

Under § 527(b), the tax is computed by multiplying the organization’s taxable income (including its net investment income) by the highest corporate tax rate, currently 35 percent. The organization must file a Form 1120–POL to report the income and pay the tax.

Q–21. When is an organization described in § 527(e)(1)?

A–21. An organization is described in § 527(e)(1) if it meets both the organizational and operational tests, that is, it must be organized and operated primarily for the purpose of accepting contributions or making expenditures for an exempt function under § 527(e)(2). See § 1.527–2(a).

Q–22. What is an “exempt function” under § 527(e)(2)?

A–22. “Exempt function” means, under § 527(e)(2), influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed (referred to as the “selection process”).

Q–23. Are transfers to political organizations that fail to file Form 8871 subject to the gift tax?

A–23. Section 2501(a)(5) provides that the gift tax does not apply to transfers of money or other property to political organizations within the meaning of § 527(e)(1). Therefore, transfers to an organization described in § 527(e)(1) (see Q&A–21) are not subject to the gift tax, regardless of whether the organization has filed Form 8871. Q–24. Is the Form 8871 notice publicly available?

A–24. Yes. Under § 6104(a), Form 8871 (including any supporting papers), and any letter or other document the Service issues with regard to Form 8871, will be open to public inspection. Copies of Form 8871 that have been filed are currently available at the IRS web site at www.irs.gov/ polorgs (IRS Keyword: political orgs) and are considered widely available under § 301.6104(d)–2 of the Procedure and Administration Regulations, as long as the organization provides the IRS web site

meet this requirement even if the state law does not require reporting of the identical information required on the Form 8872, so long as at least the following information is required to be reported under the state law and is reported by the organization:

(a) The name and address of every person who contributes $500 or more in the aggregate to the organization during the calendar year and the amount of each contribution, and

(b) The name and address of every person to whom the organization makes expenditures aggregating $800 or more during the calendar year, and the amount of each expenditure. However, if the state law requires the reporting of any additional information specified in § 527(j)(3) (see Q&A–40), the organization will meet this requirement only if it reports that additional information to the state agency;

(d) The organization makes the reports filed with the state agency publicly available in the manner described in § 6104(d) (see Q&A–44); and

A–18. A political organization that conducts activities in more than one state that otherwise meets the requirements (see Q&A–16) for a qualified state or local political organization, including the requirement that it limit its exempt function activities to the “selection process” relating solely to any state or local office and not influence or attempt to influence the “selection process” of any individual to federal public office, may be a qualified state or local political organization. To be a qualified state or local political organization, a political organization that conducts activities in more than one state must be required under the laws of one state to report to that state’s agency (and the organization must so report) information regarding all of its contributions and expenditures that otherwise would be required to be reported on Form 8872, without regard to whether those contributions or expenditures were received or made within that state. The organization must identify this state on its Form 8871 when claiming an exception from filing Form 8872 as a qualified state or local political organization (see Q&A–12).

Q–19. May a caucus or association of state or local officials be a qualified state or local political organization?

A–19. Yes, a caucus or association of state or local political officials may be a qualified state or local political organization if it meets the requirements (see Q&A– 16). Q–20. What if an organization described in § 527(e)(1) does not file the Form 8871 notice?

A–20. An organization described in § 527(e)(1) must file Form 8871 to be taxexempt, unless it is an organization described in § 527(i)(5) or § 527(i)(6) (see Q&A–3). If the organization fails to file Form 8871 on a timely basis, § 527(i)(4) provides that, from the date of establishment (or from the date of material change if the organization fails to file an amended Form 8871 (see Q&A–9)) until the date the organization satisfies the notice requirement, the taxable income of the organization includes its exempt function income (including contributions received, membership dues, and political fundraising receipts), minus any deductions directly connected with the production of that income. For purposes of computing its taxable income, the organization may not

(e) No federal candidate or office holder controls or materially participates in the direction of the organization, solicits contributions to the organization, or directs any of the organization’s disbursements. Q–17. May a political organization that is required under a state law to report to a state agency some, but not all, of its contributions and expenditures that otherwise would be required to be reported on Form 8872 meet the requirements for a qualified state or local political organization?

A–17. Except for contributions or expenditures that are not required to be reported because the state law has a higher threshold for reporting (see Q&A–16), all contributions and expenditures that otherwise would be required to be reported on Form 8872 must be required to be reported under the state law to a state agency (and the organization must so report) for the political organization to meet the requirements of a qualified state or local political organization.

Q–18. May a political organization that conducts activities in more than one state meet the requirements for a qualified state or local political organization?

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address to any person making a request for a copy (see also Q&A–54). In addition, the organization is required to make a copy of these materials available for public inspection during regular business hours at the organization’s principal office (and at each of its regional or district offices having at least three paid employees) in the same manner as applications for exemption of § 501(c) organizations are made available. § 6104(d).

Q–25. What is the penalty on the organization for failure to comply with the public inspection requirement?

A–25. Under § 6652(c)(1)(D), a penalty of $20 per day may be imposed on any person with a duty to comply with the public inspection requirement for each day a failure to comply continues.

II. Periodic Reporting Requirements

Q–26. What are the periodic reporting requirements imposed upon tax-exempt political organizations?

A–26. Under § 527(j), a tax-exempt political organization is required to report periodically certain contributions it receives and expenditures it makes.

Q–27. What is the required periodic reporting form?

A–27. The required periodic reporting form is Form 8872, Political Organiza- tion Report of Contributions and Expen- ditures .

Q–28. When are tax-exempt political organizations required to file periodic reports on Form 8872?

A–28. Under § 527(j)(2), tax-exempt political organizations that accept contributions or make expenditures for an exempt function under § 527 (see Q&A–22) during a calendar year are required to file periodic reports on Form 8872, beginning with the first month or quarter during the calendar year in which they accept contributions or make expenditures, unless excepted (see Q&A–29). For example, a tax-exempt political organization that does not accept contributions or make expenditures for an exempt function under § 527 until April of a particular calendar year is not required to file Form 8872 for the first quarter or first three months of that year (see Q&A–31 through Q&A–36 for filing due dates), but must file all quarterly or monthly reports due for the rest of the calendar year. In addition, tax-exempt political organizations that make contributions or expenditures with

respect to an election for federal office (as defined in § 527(j)(6)) may be required to file pre-election reports for that election.

Q–29. Are all tax-exempt political organizations required to file periodic reports on Form 8872?

A–29. No, § 527(j)(5) provides that certain organizations are not subject to this requirement. The following tax-exempt political organizations are excepted from the filing requirements:

(a) Any organization excepted from the requirement to file a Form 8871 (see Q&A–3); and

end of the month, which must be complete as of the last day of the month. December activity is included in the yearend report that is due not later than January 31 of the following year. Q–34. If an organization chooses to file on a monthly basis, when is Form 8872 due during an election year?

A–34. Pursuant to § 527(j)(2)(B), in any election year ( i.e., even-numbered years), monthly reports are due not later than the 20th day after the end of the month (see Q&A–33), except the organization shall not file the reports regularly due in November and December ( i.e., the monthly reports for activity in October and November). Instead, the organization must file a Form 8872 report not later than 12 days before the general election (or 15 days before the general election if posted by registered or certified mail) that contains information through the 20th day before the general election. The organization must also file a report no more than 30 days after the general election containing information through the 20th day after the election. The December activity is included in the yearend report due not later than January 31 of the following year.

Q–35. If an organization chooses not to file on a monthly basis, when is Form 8872 due in a non-election year?

A–35. Pursuant to § 527(j)(2)(A), a taxexempt political organization that chooses not to file monthly must file semi-annual reports in non-election years ( i.e., oddnumbered years). These reports are due not later than July 31 for the first half of the year and, for the second half of the year, not later than January 31 of the following year.

Q–36. If an organization chooses not to file on a monthly basis, when is Form 8872 due during an election year?

A–36. Pursuant to § 527(j)(2)(A), in an election year (even-numbered years), an organization that chooses not to file monthly reports must file quarterly reports not later than the 15th day after the last day of the quarter, except that the return for the final quarter shall be due not later than January 31 of the following year. The organization must also file a post-general election report not later than 30 days after the general election that contains information through the 20th day after the election. In addition, the organization must file a preelection report for any election for

(b) Any qualified state or local political organization (see Q&A–16). All other tax-exempt political organizations are subject to the reporting requirements of § 527(j).

Q–30. Is an organization that reasonably anticipated it would not have annual gross receipts of $25,000 or more required to file Form 8872 if it, in fact, receives $25,000 or more in any taxable year?

A–30. An organization that receives $25,000 in any taxable year no longer qualifies for the exception in § 527(j)(5)(D) and, therefore, must begin filing Form 8872 unless it meets one of the other exceptions discussed in Q&A–29. (See Q&A–5 with respect to Form 8871.) A tax-exempt political organization must file, within 30 days of receiving $25,000, any Form 8872 that would otherwise have been due during the calendar year prior to that date.

Q–31. How often must the Form 8872 be filed?

A–31. A tax-exempt political organization subject to the periodic reporting requirement may choose to file Form 8872 on a monthly basis or on a quarterly/semiannual basis, but it must file on the same basis for the entire calendar year.

Q–32. What is an election year and nonelection year for purposes of determining the due dates for filing Form 8872?

A–32. An election year is any year in which a regularly scheduled general election for federal office is held, i.e., any evennumbered year. A non-election year is therefore any odd-numbered year.

Q–33. If an organization chooses to file on a monthly basis, when is Form 8872 due in a non-election year?

A–33. Pursuant to § 527(j)(2)(B), a taxexempt political organization that chooses to file monthly must file Form 8872 reports not later than the 20th day after the

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tronically by organizations that have, or expect to have, contributions or expenditures exceeding $50,000 for the calendar year. Organizations that complete the electronic filing of Form 8871 receive a user ID and password that must be used when filing Form 8872 electronically.

Q–43. What if a tax-exempt political organization that has filed Form 8871 does not file the required Form 8872?

A–43. Under § 527(j)(1), a tax-exempt political organization that does not timely file the required Form 8872, or that fails to include the information required on the Form 8872, must pay an amount calculated by multiplying the amount of contributions and expenditures that are not disclosed by the highest corporate tax rate, currently 35 percent.

Q–44. Is the Form 8872 filed by taxexempt political organizations publicly available?

A–44. Yes. Under § 6104(b) and § 6104(d)(6), Form 8872 will be made available for public inspection by the Service. Copies of Form 8872 that have been filed are currently available at the IRS web site at www.irs.gov/polorgs (IRS Keyword: political orgs) and are considered widely available under § 301.6104(d)–2, as long as the organization provides the IRS web site address to any person making a request for a copy (see also Q&A–54). In addition, under § 6104(d)(1)(A), the organization is required to make a copy of these reports available for public inspection during regular business hours at the organization’s principal office (and at each of its regional or district offices having at least three paid employees) in the same manner as applications for exemption of § 501(c) organizations are made available. Pursuant to § 6104(b) and § 6104(d)(3)(A), contributor information must be disclosed to the public.

Q–45. What if the political organization does not make its Form 8872 publicly available?

A–45. Under § 6652(c)(1)(C), a penalty of $20 per day may be imposed on any person with a duty to comply with the public inspection requirement for each day a failure to comply continues. The maximum penalty that may be incurred for any failure to disclose any one report is $10,000.

III. Annual Return Requirements

Q–46. Which political organizations are required to file annual income tax returns?

federal office with respect to which the organization makes a contribution or expenditure. These reports shall be filed not later than 12 days before the election (15 days before if posted by registered or certified mail) and must contain information through the 20th day before the election.

Q–37. What is an election for purposes of the reporting deadlines under § 527(j)?

A–37. For purposes of determining what is an election year and what elections trigger the pre-election and post-general election reports, § 527(j)(6) provides that an “election” is a general, special, primary, or runoff election for a federal office; a convention or caucus of a political party with authority to nominate a candidate for federal office; a primary election to select delegates to a national nominating convention of a political party; or a primary election to express a preference for the nomination of individuals for election to the office of President. Thus, an election for purpose of these reporting deadlines does not include a purely state or local election. When an election involves both candidates for federal office and candidates for state or local offices, it is an election for purposes of the reporting deadlines, but only those organizations that make contributions or expenditures with respect to the candidates for federal office are required to file the pre-election reports for those elections under § 527(j)(2)(A)(i)(II). However, all reports filed under § 527(j) must contain information about the contributions and expenditures within the reporting period, regardless of whether they were accepted or made with respect to candidates for federal, state, or local office.

Q–38. What is a general election? A–38. A general election is either one of the following:

(a) An election for federal office held in even numbered years on the Tuesday following the first Monday in November or

on FEC interpretations of the FECA definition in the absence of further guidance from the Service. The FEC publishes information concerning the filing requirements under FECA and the dates for filing those reports, including information on the dates of elections, on its web site at www.fec.gov . The Service also publishes this information on the IRS web site at www.irs.gov/polorgs (IRS Keyword: political orgs).

Q–40. What must a Form 8872 report contain?

A–40. The report must include the name, address, and (if an individual) the occupation and employer, of any person to whom expenditures are made that aggregate $500 or more in a calendar year and the amount, date and purpose of each expenditure. The report must also include the name, address, and (if an individual) the occupation and employer, of any person that contributes in the aggregate $200 or more in a calendar year and the amount and date of each contribution. However, an organization is not required to report independent expenditures, as defined in § 301 of FECA. Only expenditures made or contributions received after July 1, 2000, that are not made or received pursuant to binding contracts entered into before July 2, 2000, must be reported.

Q–41. What is an independent expenditure under § 301 of FECA?

A–41. An independent expenditure is an expenditure by a person expressly advocating the election or defeat of a clearly identified candidate for federal office that is made without cooperation or consultation with any candidate for federal office, or any authorized committee or agent of such candidate, and that is not made in concert with, or at the request or suggestion of, any candidate for federal office, or authorized committee or agent of such candidate. See 2 U.S.C. § 431(17).

Q–42. Where is the Form 8872 filed? A–42. Except as provided below, the Form 8872 may be filed either electronically or by sending a signed copy of Form 8872 to the Internal Revenue Service Center, Ogden, UT 84201. The form must be signed by an official authorized by the organization to sign the report. The form may be filed electronically at the IRS web site at www.irs.gov/polorgs (IRS Keyword: political orgs). For forms due after June 30, 2003, the Form 8872 must be filed elec

(b) An election held to fill a vacancy in a federal office ( i.e., a special election) that is intended to result in the final selection of a single individual to the office at stake. See 11 C.F.R. 100.2(b). Q–39. How will “election” under § 527(j)(6) be interpreted?

A–39. The definition of “election” under § 527(j)(6) is virtually identical to the definition of “election” under FECA (2 U.S.C. § 431(1)). Organizations may rely

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A–46. A political organization, whether or not tax-exempt, that has taxable income in excess of the $100 specific deduction allowed under § 527 is required to file an annual income tax return on Form 1120– POL, U.S. Income Tax Return for Certain Political Organizations . § 6012(a)(6).

Q–47. When is the Form 1120–POL due?

A–47. The Form 1120–POL is due on or before the 15th day of the third month after the close of the organization’s taxable year. § 6072(b). Thus, for a calendaryear taxpayer, Form 1120–POL is due on March 15 of the following year. Political organizations may request a six-month extension of the filing deadline by filing Form 7004, Application for Automatic Exten- sion of Time to File Corporate Income Tax Return . This form must be filed by the due date of Form 1120–POL.

Q–48. What if the political organization fails to file Form 1120–POL?

A–48. A political organization that fails to timely file a required Form 1120–POL must pay an additional amount equal to 5 percent of the tax due for each month (or partial month) the return is late up to a maximum of 25 percent of the tax due, unless the organization shows that the failure was due to reasonable cause. A political organization that fails to timely pay the tax shown or required to be shown on Form 1120–POL, must pay an additional amount equal to 0.5 percent of the unpaid tax for each month (or partial month) the tax is not paid up to a maximum of 25 percent of the unpaid tax, unless the organization shows that the failure was due to reasonable cause. § 6651(a). (A technical correction may be needed to clarify that penalties under § 6652 that apply to failure to file Form 990 (see Q&A–53) do not apply to a failure to file Form 1120–POL.)

Q–49. Are the Forms 1120–POL filed by political organizations publicly available?

A–49. No, the Forms 1120–POL filed by political organizations are not required to be available for public inspection by the Service or the organization.

Q–50. Which political organizations are required to file an annual information return?

A–50. Only tax-exempt political organizations may be required to file annual information returns. A tax-exempt political organization (other than a qualified state or local political organization) with $25,000

or more of annual gross receipts is required to file Form 990, Return of Orga- nization Exempt From Income Tax, for taxable years beginning after June 30, 2000, unless excepted (see Q&A–51). Qualified state or local political organizations (see Q&A–16) are required to file Form 990 if they have annual gross receipts of $100,000 or more. § 6033(g)(1). Tax-exempt organizations with gross receipts of less than $100,000 and assets less than $250,000 may file Form 990–EZ, Short Form Return of Organization Exempt From Income Tax . Tax-exempt organizations with gross receipts of less than $25,000 are not required to file Form 990 or Form 990–EZ.

Q–51. Are all tax-exempt political organizations required to file the Form 990?

A–51. No, § 6033(g)(3) provides that certain organizations are not subject to this requirement. The tax-exempt political organizations excepted from the Form 990 filing requirements are as follows:

(a) Any organization excepted from the requirement to file a Form 8871 (see Q&A–3); and

Q–54. Are the Forms 990 filed by taxexempt political organizations publicly available?

A–54. Yes, the Forms 990 filed for taxable years beginning after June 30, 2000, including contributor information reported on Schedule B, will be made available for public inspection by the Service. § 6104(b) and § 6104(d)(3)(A). In addition, each political organization must make a copy of these returns, including contributor information reported on Schedule B, available for public inspection during regular business hours at its principal office (and any regional or district offices having at least three paid employees) in the same manner as annual information returns of § 501(c) organizations are made available. It must also provide a copy of these returns to any person requesting a copy in person or in writing without charge other than a reasonable charge for reproduction and postage in the same manner that § 501(c) organizations provide copies of their annual returns. § 6104(d)(1) and § 6104(d)(3) (A). If an organization’s returns are widely available under § 301.6104(d)–2 (such as on the Internet), the organization need not respond to requests for copies so long as it provides the web site address where the returns are available to any person making a request. Returns only need to be made available for three years after filing. § 6104(d)(2).

Q–55. What if the tax-exempt political organization does not make its Forms 990 publicly available?

A–55. A penalty of $20 per day may be imposed on any person with a duty to comply with the public inspection requirement for each day a failure to comply continues. The maximum penalty that may be incurred for any failure to disclose any one return is $10,000. § 6652(c)(1)(C).

IV. General

Q–56. What if the filing date for any of these forms falls on Saturday, Sunday or a holiday?

A–56. If any due date falls on a Saturday, Sunday, or legal holiday, the organization may file the report on the next business day.

Q–57. Where can organizations access the various forms?

A–57. The various forms and their instructions are available by calling 1–800– TAX–FORM (1–800–829–3676) or via the

(b) Any caucus or association of state or local officials. Q–52. When is the Form 990 due? A–52. The Form 990 (or Form 990– EZ) is due on or before the 15th day of the fifth month after the close of the organization’s taxable year. Thus, for a calendaryear taxpayer, Form 990 is due on May 15 of the following year. Tax-exempt political organizations may request a three-month extension, without showing cause, by filing Form 8868, Application for Exten- sion of Time to File an Exempt Orga- nization Return, by the due date of the Form 990. A second three-month extension, with cause, may also be requested by filing Form 8868. Q–53. What if the political organization fails to file Form 990?

A–53. A political organization that fails to file a required Form 990 or fails to include required information on those returns is subject to a penalty of $20 per day for every day such failure continues. The maximum penalty imposed regarding any one return is the lesser of $10,000 or 5 percent of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, the penalty is increased to $100 per day with a maximum penalty of $50,000. § 6652(c)(1)(A).

May 19, 2003 908 2003–20 I.R.B.

Internet at the IRS web site at www.irs.gov in the “Forms and Publications” section.

Q–58. What if an organization has questions regarding the notice and reporting requirements?

A–58. For more information, organizations may call the TE/GE Customer Service Center at 1–877–829–5500.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 2000–49 is modified and superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Judith E. Kindell of Exempt Organizations. For further information regarding this revenue ruling, contact Judith E. Kindell at (202) 283–8964 (not a toll-free call).

Section 6012.—Persons Required to Make Returns of Income

Questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527. See Rev. Rul. 2003–49, page 903.

Section 6033.—Returns by Exempt Organizations

Questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527. See Rev. Rul. 2003–49, page 903.

Section 6103. —Confiden- tiality and Disclosure of Returns and Return Information

26 CFR 301.6103(c)–1: Disclosure of returns and return information to designee of taxpayer.

T.D. 9054

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 301 and 602

Disclosure of Returns and Return Information to Designee of Taxpayer

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation and removal of temporary regulation.

SUMMARY: This final regulation relates to the disclosure of returns and return information to a designee of the taxpayer. The regulation provides guidance to IRS employees responsible for disclosing returns and return information and to taxpayers who wish to designate a person or persons to whom returns and return information may be disclosed.

DATES: Effective Date: This regulation is effective April 29, 2003.

Applicability Date: For dates of applicability, see §301.6103(c)–1(f).

FOR FURTHER INFORMATION CONTACT: Joseph Conley, (202) 622–4580 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this final regulation have been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–1816. The collections of information relating to requests for or consents to disclosure of returns and return information are in §301.6103(c)–1(b), (c), and (d). Information provided in a request or consent under paragraph (b) is required by the IRS to identify the return or return information described in the request or consent; to search for and, where found, compile such return or return information; and to identify the person to whom any such return or re

turn information is to be provided. Information provided in a request under paragraph (c) is required by the IRS to determine the nature and extent of the information or assistance requested by the taxpayer; to determine any return or return information to be disclosed to a third party in order to comply with the taxpayer’s request; and to search for and, where found, to compile any such return or return information. Information provided in a request under paragraph (c)(2) is also required by the IRS to confirm the identity of the taxpayer and the designee. Information provided in a consent under paragraph (d)(1) is required by the IRS to make certain disclosures to an electronic return transmitter or other third party in connection with the taxpayer’s electronic filing of returns or other documents or information, such as disclosures to a transmitter of the IRS’s receipt of a taxpayer’s return and its acceptance or rejection by the IRS. The collections of information in this regulation are not mandatory, but are required if the IRS is to make disclosures to designees under the regulation. The likely respondents are individuals and households; farms, businesses, and other for-profit institutions; nonprofit institutions; and small businesses and organizations.

Comments on the collections 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:T:T:SP, Washington, DC 20224. Comments on the collections of information should be received by June 30, 2003. Comments on the collections of information are specifically requested concerning the following:

(a) Whether the collections of information are necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

(b) The accuracy of the estimated burden associated with the collections of information (see below);

2003–20 I.R.B. 909 May 19, 2003

in the written request or consent (taxpayer identify information, the identity of the person to whom disclosure is to be made, the type of return or return information to be disclosed, and the taxable years covered by the return or return information). The final regulation adds language to paragraph (b) to make clear that, in order to constitute a valid written request or consent, a writing must contain the four pieces of information when it is signed and dated by the taxpayer. A written request or consent is not valid if the taxpayer signs it in blank, i.e., signs the written request or consent with any of the four pieces of information or the date missing, even if another party later adds such information or the date. This addition is intended as a clarification rather than a change in the effect of the regulation.

Paragraph (c)(2) of the proposed regulation concerns disclosures of returns and return information to a designee of the taxpayer pursuant to a nonwritten request or consent. Paragraph (c)(2)(i) sets forth the requirements to be met in order for such disclosures to be authorized. Paragraph (c)(2)(ii) provides two examples of circumstances under which such disclosures may be useful or convenient: a meeting or interview with the IRS to which a taxpayer brings a friend, relative, or other person, and a telephone conversation with the IRS when the taxpayer wishes to involve another person. In the final regulation, a new paragraph (c)(2)(iii) has been added, which states that the taxpayer does not need to be present, either in person or as part of a telephone conversation, for disclosures of returns and return information to be made to the other person under paragraph (c)(2). This addition is intended as a clarification rather than a change in the effect of the regulation.

Paragraphs (d)(1) and (d)(2) of the proposed regulation provide parameters for the development of consents for, respectively, the IRS’s electronic filing program and combined Federal-State (FedState) return filing programs. Each of these paragraphs permits the creation of limited purpose disclosure consents that would not otherwise be effective under paragraph (b) (relating to general purpose consents in the form of separate written documents pertaining solely to an authorized disclosure) or paragraph (c) (relating to disclosures to designees to comply with a taxpayer’s re

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

(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

Portions of the burden for the reporting requirements contained in paragraph (b) will be reflected in IRS Forms 4506, 6847, and 8821, and in the United States Department of Education form entitled “William D. Ford Federal Direct Loan Program Income Contingent Repayment Plan Consent to Disclosure of Tax Information.” A portion of the burden for the reporting requirement contained in paragraph (c)(1) will be reflected in the return of the taxpayer. The burden for the reporting requirement contained in paragraph (d)(1) will be reflected in IRS Forms 8453 and 8879 and the income tax return of the taxpayer.

Estimated total annual reporting burden under §301.6103(c)–1(b) for consents not using forms disclosed above: 800 hours.

Estimated annual burden per respondent: 0.2 hours (12 minutes). Estimated number of respondents: 4,000. Estimated annual frequency of responses: On occasion.

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 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 return information are confidential, as required by 26 U.S.C. 6103.

Background

On January 11, 2001, a temporary regulation (T.D. 8935, 2001–1 C.B. 702 [66 FR 2261]) and a cross-referenced notice of proposed rulemaking (REG–103320–00, 2001–1 C.B. 714 [66 FR 2373]) under section 6103(c) of the Internal Revenue Code (Code) were published in the Federal Reg- ister .

No written comments were received on the proposed regulation. In this Treasury de

cision, the regulation proposed by REG– 103320–00 is adopted as revised in six minor respects.

Explanation of Provisions

Under section 6103(a), returns and return information are confidential unless disclosure is otherwise authorized by the Code. Section 6103(c), as amended in 1996 by section 1207 of the Taxpayer Bill of Rights II, Public Law 104–168 (110 Stat. 1452), authorizes the IRS to disclose returns and return information to such person or persons as the taxpayer may designate in a request for or consent to disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with a request for information or assistance made by the taxpayer to such other person. Disclosure is permitted subject to such requirements and conditions as may be prescribed by regulations. With the amendment in 1996, Congress eliminated the longstanding requirement that disclosures to designees of the taxpayer must be pursuant to the written request or consent of the taxpayer.

The temporary regulation contained in T.D. 8935 authorized the disclosure of tax returns and return information to a designee of the taxpayer pursuant to a nonwritten request or consent when the taxpayer seeks the assistance of a third party in resolving a tax matter. T.D. 8935 also amended the existing regulation to clarify the rules applicable to written requests or consents to disclosure. The temporary regulation is scheduled to expire on January 10, 2004. This final regulation adopts the proposed regulation as revised in six minor respects.

Paragraphs (b) and (c) of the proposed regulation permit disclosures of returns or return information to the designee of a taxpayer when the requirements of such paragraphs are met. In the final regulation, paragraphs (b) and (c) have been amended to state that returns or return information may be disclosed in written or nonwritten form. This amendment is intended as a clarification rather than a change in the effect of the regulation.

Paragraph (b) of the proposed regulation concerns disclosures of returns and return information to a designee of the taxpayer pursuant to a written request or consent. Paragraph (b)(1)(i) – (iv) lists four pieces of information that must be included

May 19, 2003 910 2003–20 I.R.B.

quest for information or assistance). Accordingly, the last sentence in paragraph (d)(1) of the proposed regulation states that the requirements of paragraphs (b) and (c) do not apply to a consent under paragraph (d)(1). The final regulation deletes such sentence and adds a similar sentence at the beginning of paragraph (d), stating that the requirements of paragraphs (b) and (c) do not apply under paragraph (d). This modification is intended as a clarification rather than a change in the effect of the regulation.

Paragraph (e)(1) of the proposed regulation defines the phrase “separate written document.” (To be valid under paragraph (b), a request for or consent to disclosure must be in the form of a separate written document pertaining solely to the authorized disclosure.) Under paragraph (e)(1)(A), one meaning of the phrase “separate written document” is the text appearing on a sheet of 8 ¹ ⁄2-inch by 11-inch or larger paper. Similarly, under paragraph (e)(1)(B), another meaning of the phrase “separate written document” is the text appearing on a single computer screen containing all the elements described in paragraph (b)(1), which can be signed and dated by the taxpayer, and which can be reproduced if necessary. In the final regulation, paragraphs (e)(1)(A) and (e)(1)(B) have been amended to provide that the text at issue in such paragraphs may appear, respectively, on one or more sheets of 8 ¹ ⁄2-inch by 11-inch or larger paper or on one or more computer screens. This amendment will provide taxpayers and their representatives with additional flexibility in drafting written and electronic consents while continuing to require that language authorizing disclosures of tax information be kept separate and distinct from language regarding other matters.

Paragraph (e)(3) of the proposed regulation provides rules regarding permissible designees. Paragraph (e)(3) has been amended to include an additional sentence stating that when a designee is an individual, this regulation does not authorize disclosures to other individuals associated with such individual, such as employees of such individual or members of such individual’s staff. This modification is intended as a clarification rather than a change in the effect of the regulation.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. This final regulation provides taxpayers with enhanced procedures to resolve problems with the IRS, and it clarifies the requirements for a valid request for or consent to the disclosure of returns or return information. Therefore, notice and public procedure are not required pursuant to 5 U.S.C. 553(b)(B). Moreover, a delayed effective date would be contrary to the public interest and is not required under 5 U.S.C. 553(d). Pursuant to section 7805(f) of the Code, the temporary regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

It is hereby certified that the collection of information in this regulation will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that any burden on taxpayers is minimal, since the regulation only applies to taxpayers which request or consent to the disclosure of returns or return information, and since the information collected is only that necessary to carry out the disclosure of returns or return information requested or consented to by the taxpayer (such as the name and taxpayer identification number of the taxpayer, the return or return information to be disclosed, and the identity of the designee). Moreover, it is based upon the fact that the regulation reduces the burden imposed upon taxpayers by the prior regulation by clarifying the requirements for and conditions of a request for or consent to disclosure and by permitting certain disclosures pursuant to nonwritten requests or consents. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

Drafting Information

The principal author of this regulation is Joseph Conley, Office of the Associate Chief Counsel (Procedure and Administration), Disclosure and Privacy Law Division.

* * * * *

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 and 26 CFR part 602 are amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

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

Authority: 26 U.S.C. 7805 - - Par. 2. Section 301.6103(c)–1 is added to read as follows:

§301.6103(c)–1 Disclosure of returns and return information to designee of taxpayer.

(a) Overview . Subject to such requirements and conditions as the Secretary may prescribe by regulation, section 6103(c) of the Internal Revenue Code authorizes the Internal Revenue Service to disclose a taxpayer’s return or return information to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with the taxpayer’s request to such other person for information or assistance. This regulation contains the requirements that must be met before, and the conditions under which, the Internal Revenue Service may make such disclosures. Paragraph (b) of this section provides the requirements that are generally applicable to designate a third party to receive the taxpayer’s returns and return information. Paragraph (c) of this section provides requirements under which the Internal Revenue Service may disclose information in connection with a taxpayer’s written or nonwritten request for a third party to provide information or assistance with regard to a tax matter, for example, a Congressional inquiry. Paragraph (d) of this section provides the parameters for disclosure consents connected with electronic return filing programs and combined Federal-State filing. Finally, paragraph (e) of this section provides definitions and general rules related to requests for or consents to disclosure.

(b) Disclosure of returns and return in- formation to person or persons designated in a written request or consent —(1) Gen- eral requirements . Pursuant to section 6103(c) of the Internal Revenue Code, the Internal Revenue Service (or an agent or

2003–20 I.R.B. 911 May 19, 2003

taxpayer brings to an interview or meeting with Internal Revenue Service officials, and disclosures to a person whom the taxpayer wishes to involve in a telephone conversation with Internal Revenue Service officials.

(iii) As long as the requirements of this paragraph (c)(2) are met, the taxpayer does not need to be present, either in person or as part of a telephone conversation, for disclosures of returns and return information to be made to the other person.

(3) Rules applicable to written and non- written requests for information or assis- tance . A return or return information will be disclosed to the taxpayer’s designee as provided by this paragraph only to the extent considered necessary by the Internal Revenue Service to comply with the taxpayer’s request or consent. Such disclosures shall not be made unless the request or consent is received by the Internal Revenue Service, its agent or contractor, or a federal government agency performing a federal tax administration function in connection with a request for advice or assistance relating to such function. This paragraph (c) does not apply to disclosures to a taxpayer’s representative in connection with practice before the Internal Revenue Service (as defined in Treasury Department Circular No. 230, 31 CFR Part 10). For disclosures in these cases, see section 6103(e)(6) and §§601.501 through 601.508 of this chapter. (d) Acknowledgments of electronically filed returns and other documents; com- bined filing programs with state tax agen- cies . The requirements of paragraphs (b) and (c) of this section do not apply to this paragraph (d).

(1) Acknowledgment of, and notices re- garding, electronically filed returns and other documents . When a taxpayer files returns or other documents or information with the Internal Revenue Service electronically, the taxpayer may consent to the disclosure of return information to the transmitter or other third party, such as the taxpayer’s financial institution, necessary to acknowledge that the electronic transmission was received and either accepted or rejected by the Internal Revenue Service, the reason for any rejection, and such other information as the Internal Revenue Service determines is necessary to the operation of the electronic filing program. The consent must inform the taxpayer of the re

contractor of the Internal Revenue Service) may disclose a taxpayer’s return or return information (in written or nonwritten form) to such person or persons as the taxpayer may designate in a request for or consent to such disclosure. A request for or consent to disclosure under this paragraph (b) must be in the form of a separate written document pertaining solely to the authorized disclosure. (For the meaning of separate written document, see paragraph (e)(1) of this section.) The separate written document must be signed (see paragraph (e)(2) of this section) and dated by the taxpayer who filed the return or to whom the return information relates. At the time it is signed and dated by the taxpayer, the written document must also indicate—

(i) The taxpayer’s taxpayer identity information described in section 6103(b)(6);

(ii) The identity of the person or persons to whom the disclosure is to be made;

(iii) The type of return (or specified portion of the return) or return information (and the particular data) that is to be disclosed; and

(iv) The taxable year or years covered by the return or return information.

(2) Requirement that request or con- sent be received within sixty days of when signed and dated . The disclosure of a return or return information authorized by a written request for or written consent to the disclosure shall not be made unless the request or consent is received by the Internal Revenue Service (or an agent or contractor of the Internal Revenue Service) within 60 days following the date upon which the request or consent was signed and dated by the taxpayer.

(c) Disclosure of returns and return in- formation to designee of taxpayer to com- ply with a taxpayer’s request for information or assistance . If a taxpayer makes a written or nonwritten request, directly to another person or to the Internal Revenue Service, that such other person (for example, a member of Congress, friend, or relative of the taxpayer) provide information or assistance relating to the taxpayer’s return or to a transaction or other contact between the taxpayer and the Internal Revenue Service, the Internal Revenue Service (or an agent or contractor of the Internal Revenue Service or a federal government agency performing a federal tax administration function) may disclose returns or return information (in written or

nonwritten form) to such other person under the circumstances set forth in paragraphs (c)(1) through (3) of this section.

(1) Written request for information or as- sistance. (i) The taxpayer’s request for information or assistance may be in the form of a letter or other written document, which must be signed (see paragraph (e)(2) of this section) and dated by the taxpayer. The taxpayer must also indicate in the written request—

(A) The taxpayer’s taxpayer identity information described in section 6103(b)(6);

(B) The identity of the person or persons to whom disclosure is to be made; and

(C) Sufficient facts underlying the request for information or assistance to enable the Internal Revenue Service to determine the nature and extent of the information or assistance requested and the returns or return information to be disclosed in order to comply with the taxpayer’s request.

(ii) A person who receives a copy of a taxpayer’s written request for information or assistance but who is not the addressee of the request, such as a member of Congress who is provided with a courtesy copy of a taxpayer’s letter to another member of Congress or to the Internal Revenue Service, cannot receive returns or return information under paragraph (c)(1) of this section.

(2) Nonwritten request or consent . (i) A request for information or assistance may also be nonwritten. Disclosure of returns and return information to a designee pursuant to a taxpayer’s nonwritten request will be made only after the Internal Revenue Service has—

(A) Obtained from the taxpayer sufficient facts underlying the request for information or assistance to enable the Internal Revenue Service to determine the nature and extent of the information or assistance requested and the return or return information to be disclosed in order to comply with the taxpayer’s request;

(B) Confirmed the identity of the taxpayer and the designee; and

(ii) Examples of disclosures pursuant to nonwritten requests for information or assistance under this paragraph (c)(2) include, but are not limited to, disclosures to a friend, relative, or other person whom the

May 19, 2003 912 2003–20 I.R.B.

obtain returns under section 6103(e)(1) through (5), except section 6103(e)(1)(D) (iii), may execute a request for or consent to disclose a return or return information to third parties. For taxpayers that are legal entities, such as corporations and municipal bond issuers, any officer of the entity with authority under applicable state law to legally bind the entity may execute a request for or consent to disclosure. A person described in section 6103(e)(6) (a taxpayer’s representative or individual holding a power of attorney) may not execute a request for or consent to disclosure unless the designation of representation or power of attorney specifically delegates such authority. A designee pursuant to this section does not have authority to execute a request for or consent to disclosure permitting the Internal Revenue Service to disclose returns or return information to another person.

(5) No disclosure of return informa- tion if impairment . A disclosure of return information shall not be made under this section if the Internal Revenue Service determines that the disclosure would seriously impair federal tax administration (as defined in section 6103(b)(4) of the Internal Revenue Code).

(f) Effective date . This section is applicable on April 29, 2003.

§301.6103(c)–1T [Removed]

Par. 3. Section 301.6103(c)–1T is removed.

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 revised as follows:

The following entry to the table is removed:

§602.101 OMB Control numbers .

* * * * * (b) * * *

turn information that will be transmitted and to whom disclosure will be made.

(2) Combined return filing programs with state tax agencies . (i) A taxpayer’s participation in a combined return filing program between the Internal Revenue Service and a State agency, body, or commission (State agency) described in section 6103(d)(1) constitutes a consent to the disclosure by the Internal Revenue Service, to the State agency, of taxpayer identity information, signature, and items of common data contained on the return. For purposes of this paragraph, common data means information reflected on the federal return required by state law to be attached to or included on the state return. Instructions accompanying the forms or published procedures involved in such program must indicate that by participating in the program, the taxpayer is consenting to the Internal Revenue Service’s disclosure to the State agency of the taxpayer identity information, signature, and items of common data, and that such information will be treated by the State agency as if it had been directly filed with the State agency. Such instructions or procedures must also describe any verification that takes place before the taxpayer identity information, signature and common data is transmitted by the Internal Revenue Service to the State agency.

(ii) No disclosures may be made under this paragraph (d)(2) unless there are provisions of state law protecting the confidentiality of such items of common data.

(e) Definitions and rules applicable to this section —(1) Separate written docu- ment . (i) For the purposes of paragraph (b) of this section, separate written document means—

(A) Text appearing on one or more sheets of 8 ¹ ⁄2-inch by 11-inch or larger paper, each of which pertains solely to the authorized disclosure, so long as such sheet or sheets, taken together, contain all the elements described in paragraph (b)(1) of this section;

(B) Text appearing on one or more computer screens, each of which pertains solely to the authorized disclosure, so long as such screen or, taken together, such screens—

( 1 ) contain all the elements described in paragraph (b)(1) of this section,

( 2 ) can be signed (see paragraph (e)(2) of this section) and dated by the taxpayer, and

( 3 ) can be reproduced, if necessary; or (C) A consent on the record in an administrative or judicial proceeding, or a transcript of such proceeding recording such consent, containing the information required under paragraph (b)(1) of this section.

(ii) A provision included in a taxpayer’s application for a loan or other benefit authorizing the grantor of the loan or other benefit to obtain any financial information, including returns or return information, from any source as the grantor may request for purposes of verifying information supplied on the application, does not meet the requirements of paragraph (b)(1) of this section because the provision is not a separate written document relating solely to the disclosure of returns and return information. In addition, the provision does not contain the other information specified in paragraph (b)(1) of this section.

(2) Method of signing . A request for or consent to disclosure may be signed by any method of signing the Secretary has prescribed pursuant to §301.6061–1(b) in forms, instructions, or other appropriate guidance.

(3) Permissible designees and public fo- rums . Permissible designees under this section include individuals; trusts; estates; corporations; partnerships; federal, state, local and foreign government agencies or subunits of such agencies; or the general public. When disclosures are to be made in a public forum, such as in a courtroom or congressional hearing, the request for or consent to disclosure must describe the circumstances surrounding the public disclosure, e.g., congressional hearing, judicial proceeding, media, and the date or dates of the disclosure. When a designee is an individual, this section does not authorize disclosures to other individuals associated with such individual, such as employees of such individual or members of such individual’s staff.

(4) Authority to execute a request for or consent to disclosure . Any person who may

2003–20 I.R.B. 913 May 19, 2003

CFR part or section where Current OMB identified and described control No.

***** 301.6103(c)–1 ........................................................................................................................................................... 1545–0280

The following entry is added in numerical order to the table:

§602.101 OMB Control numbers .

* * * * *

(b) * * *

CFR part or section where Current OMB identified and described control No.

***** 301.6103(c)–1 ........................................................................................................................................................... 1545–1816

David A. Mader, Assistant Deputy Commissioner

of Internal Revenue.

Section 6695.—Other Assessable Penalties With Respect to the Preparation of Income Tax Returns for Other Persons

26 CFR 1.6996–1: Other assessable penalties with respect to the preparation of income tax returns for other persons.

T.D. 9053

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR part 1

Tax Return Preparers — Electronic Filing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations to facilitate electronic filing by tax return preparers. The existing regulations, which contain references to manually signed returns, have resulted in uncertainty over whether preparers must produce manually signed, paper copies of returns for taxpayers and for the preparers’ records. The temporary regulations clarify that preparers may avoid paper copies by retaining and furnishing to taxpayers copies of returns in electronic or digital format prescribed by the Commissioner.

DATES: Effective Date: These regulations are effective by April 24, 2003.

Applicability Date: For dates of applicability, see §1.6107–2T(b) and §1.6695– 1T(b)(5).

FOR FURTHER INFORMATION CONTACT: Richard Charles Grosenick, (202) 622–7940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains temporary regulations that amend the Income Tax Regulations (26 CFR part 1) under sections 6107 and 6695 of the Internal Revenue Code (Code) to facilitate electronic filing and recordkeeping by tax return preparers. Section 6695 of the Code imposes various penalties on tax return preparers, including a penalty for failure to sign the returns that they prepare. Originally, the regulations under section 6695 contemplated only manually signed ( i.e., paper) returns. Although the regulations under section 6695 were amended in 1996 to permit tax return preparers to sign and file returns electronically in the manner prescribed by the Secretary (see T.D. 8689, 1997–1 C.B. 214

[61 FR 65319]) (Dec. 12, 1996), §1.6695– 1(b) of the regulations continues to refer to manually signed returns and copies. Those references have resulted in uncertainty over whether preparers must produce manually signed, paper copies of returns to satisfy their obligations under section 6107 to provide copies of returns to taxpayers and keep copies of returns in their records.

These temporary regulations eliminate the references to manually signed returns in §1.6695–1(b). In addition, they provide that the Commissioner may prescribe, in forms, instructions, or other appropriate guidance, the manner in which preparers may satisfy their obligations under section 6107 to furnish returns to taxpay

Approved April 9, 2003.

Pamela F. Olson, Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on April 28, 2003, 8:45 a.m., and published in the issue of the Federal Register for April 29, 2003, 68 F.R. 22596)

Section 6104.—Publicity of Information Required From Certain Exempt Organizations and Certain Trusts

Questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527. See Rev. Rul. 2003–49, page 903.

Section 6651.—Failure to File Tax Return or to Pay Tax

Questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527. See Rev. Rul. 2003–49, page 903.

Section 6652.—Failure to File Certain Information Returns, Registration Statements, etc.

Questions and answers relating to the reporting and disclosure requirements for political organizations described in section 527. See Rev. Rul. 2003–49, page 903.

May 19, 2003 914 2003–20 I.R.B.

the income tax return preparer for purposes of this paragraph.

(3) The application of this paragraph is illustrated by the following examples:

Example 1 . X law firm employs Y, a lawyer, to prepare for compensation returns and claims for refund of taxes. X is employed by T, a taxpayer, to prepare his federal tax return. X assigns Y to prepare T’s return. Y obtains the information necessary for completing the return from T and makes determinations with respect to the proper application of the tax laws to such information in order to determine T’s tax liability. Y then forwards such information to C, a computer tax service which performs the mathematical computations and prints the return by means of computers. C then sends the completed return to Y who reviews the accuracy of the return. Y is the individual preparer who is primarily responsible for the overall accuracy of T’s return. Y must sign the return as preparer.

Example 2 . X partnership is a national accounting firm which prepares for compensation returns and claims for refund of taxes. A and B, employees of X, are involved in preparing the tax return of T Corporation. After they complete the return, including the gathering of the necessary information, the proper application of the tax laws to such information, and the performance of the necessary mathematical computations, C, a supervisory employee of X, reviews the return. As part of this review, C reviews the information provided and the application of the tax laws to this information. The mathematical computations and carried-forward amounts are proved by D, an employee of X’s comparing and proving department. The policies and practices of X require that P, a partner, finally review the return. The scope of P’s review includes reviewing the information provided by applying to this information his knowledge of T’s affairs, observing that X’s policies and practices have been followed, and making the final determination with respect to the proper application of the tax laws to determine T’s tax liability. P may or may not exercise these responsibilities, or may exercise them to a greater or lesser extent, depending on the degree of complexity of the return, his confidence in C (or A and B), and other factors. P is the individual preparer who is primarily responsible for the overall accuracy of T’s return. P must sign the return as preparer.

Example 3 . C corporation maintains an office in Seattle, Washington, for the purpose of preparing for compensation returns and claims for refund of taxes. C makes compensatory arrangements with individuals (but provides no working facilities) in several states to collect information from taxpayers and to make determinations with respect to the proper application of the tax laws to the information in order to determine the tax liabilities of such taxpayers. E, an individual, who has such an arrangement in Los Angeles with C, collects information from T, a taxpayer, and completes a worksheet kit supplied by C which is stamped with E’s name and an identification number assigned to E by C. In this process, E classifies this information in appropriate income and deduction categories for the tax determination. The completed worksheet kit signed by E is then mailed to C. D, an employee in C’s office, reviews the worksheet kit to make sure it was properly completed. D does not review the information obtained from T for its validity or accuracy. D may, but did not, make the

ers and to retain copies of returns. These changes and the applicable forms, instructions, and guidance clarify that preparers may maintain electronic (paperless) filing systems.

Special Analyses

It has been determined that this temporary regulation 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 this regulation and, because the regulation does not impose a collection of information on small entities, that the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this temporary regulation will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of this regulation is Richard Charles Grosenick, Office of Assistant Chief Counsel (Administrative Provisions & Judicial Practice). However, other personnel from the IRS and the Treasury Department participated in its development.

* * * * *.

Adoption of Amendment to the Regulations

Accordingly, 26 CFR part 1 is 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 in part as follows:

Authority: 26 U.S.C. 7805 - - Section 1.6695–1T also issued under 26 U.S.C. 6695(b). - - Par. 2. Section 1.6107–2T is added to read as follows:

§1.6107–2T Form and manner of furnishing copy of return and retaining copy or record.

(a) In general . The Commissioner may prescribe the form and manner of satisfying the requirements imposed by section

6107(a) and (b) and §1.6107–1(a) and (b) in forms, instructions, or other appropriate guidance.

(b) Effective date . To the extent this section relates to section 6107(a) and §1.6107– 1(a), it applies to income tax returns and claims for refund presented to a taxpayer for signature after December 31, 2002. To the extent this section relates to section 6107(b) and §1.6107–1(b), it applies after December 31, 2002, to returns and claims for refund for which the 3-year period described in section 6107(b) expires after December 31, 2002.

Par. 3. Section 1.6695–1 is amended by revising paragraph (b) to read as follows:

§1.6695–1 Other assessable penalties with respect to the preparation of income tax returns for other persons.

* * * * * (b) [Reserved]. For further guidance, see §1.6695–1T(b).

* * * * * Par. 4. Section 1.6695–1T is added to read as follows:

§1.6695–1T Other assessable penalties with respect to the preparation of income tax returns for other persons.

(a) [Reserved]. For further guidance, see §1.6695–1(a).

(b) Failure to sign return . (1) An individual who is an income tax return preparer with respect to a return of tax under subtitle A of the Internal Revenue Code or claim for refund of tax under subtitle A of the Internal Revenue Code shall sign the return or claim for refund after it is completed and before it is presented to the taxpayer (or nontaxable entity) for signature. If the preparer is unavailable for signature, another preparer shall review the entire preparation of the return or claim for refund, and then shall sign the return or claim for refund. The preparer shall sign the return in the manner prescribed by the Commissioner in forms, instructions, or other appropriate guidance.

(2) If more than one income tax return preparer is involved in the preparation of the return or claim for refund, the individual preparer who has the primary responsibility as between or among the preparers for the overall substantive accuracy of the preparation of such return or claim for refund shall be considered to be

2003–20 I.R.B. 915 May 19, 2003

return solely because of having prepared another return which affects amounts reported on the return.

(5) Effective date . This paragraph (b) applies to income tax returns and claims for refund presented to a taxpayer for signature after December 31, 2002.

David A. Mader, Assistant Deputy Commissioner

of Internal Revenue .

Approved April 7, 2003.

Pamela F. Olson, Assistant Secretary of the Treasury .

(Filed by the Office of the Federal Register on April 23, 2003, 8:45 a.m., and published in the issue of the Federal Register for April 24, 2003, 68 F.R. 20069)

final determination with respect to the proper application of tax laws to the information. The data from the worksheet is entered into a computer and the return form is completed. The return is prepared for submission to T with filing instructions. E is the individual preparer primarily responsible for the overall accuracy of T’s return. E must sign the return as preparer.

Example 4 . X employs A, B, and C to prepare income tax returns for taxpayers. After A and B have collected the information from the taxpayer and applied the tax laws to the information, the return form is completed by computer service. On the day the returns prepared by A and B are ready for their signatures, A is away from the city for 1 week on another assignment and B is on detail to another office for the day. C may sign the returns prepared by A, provided that (i) C reviews the information obtained by A relative to the taxpayer, and (ii) C reviews the preparation of each return prepared by A. C may not sign the returns prepared by B because B is available.

(4) An individual required by this paragraph (b) to sign a return or claim for refund shall be subject to a penalty of $50 for each failure to sign, with a maximum of

$25,000 per person imposed with respect to each calendar year, unless it is shown that the failure is due to reasonable cause and not due to willful neglect. If the preparer asserts reasonable cause for failure to sign, the Internal Revenue Service will require a written statement in substantiation of the preparer’s claim of reasonable cause. For purposes of this paragraph (b), reasonable cause is a cause which arises despite ordinary care and prudence exercised by the individual preparer. Thus, no penalty may be imposed under section 6695(b) and this paragraph (b) upon a person who is an income tax return preparer solely by reason of—

(i) Section 301.7701–15(a)(2) and (b) of this chapter on account of having given advice on specific issues of law; or

(ii) Section 301.7701–15(b)(3) of this chapter on account of having prepared the

May 19, 2003 916 2003–20 I.R.B.