Part III. Administrative, Procedural, and Miscellaneous

Compliance Initiative for Nonresident Aliens and Foreign Corporations

Notice 2003–38

The Internal Revenue Service (IRS) announces a compliance initiative for nonresident aliens and foreign corporations that have not filed U.S. federal income tax returns and that may consequently be denied deductions and credits pursuant to Code section 874(a) or 882(c)(2). Taxpayers that have requests for waivers pending with the IRS under Regs. 1.874–1(b)(2) or 1.882–4(a)(3)(ii) may also participate in this compliance initiative.

This compliance initiative is intended to encourage nonresident aliens and foreign corporations to file income tax returns that were not filed in a timely manner in accordance with the regulations under section 874(a) or 882(c)(2). The IRS will waive the filing deadlines set forth in Regs. 1.874– 1(b)(1) and 1.882–4(a)(3)(i) if a taxpayer files on or before September 15, 2003, all required U.S. federal income tax returns for every year for which a waiver is requested. In addition, a taxpayer must pay the reported income tax liability with each such return, must pay statutory interest and penalties as determined by the IRS (except the fraudulent failure to file penalty, as discussed below), and must cooperate with the IRS upon request in determining and satisfying its income tax liability for any taxable year for which a waiver is requested. To qualify for a waiver, a taxpayer must attach a statement to each late income tax return for which a waiver is requested agreeing to cooperate with the IRS upon request in determining and satisfying the taxpayer’s income tax liability for that taxable year. The requirements of this compliance initiative may not be satisfied by filing protective returns.

This compliance initiative is not available where the taxpayer has previously filed a U.S. federal income tax return or a protective return for any taxable year prior to a taxable year for which a waiver is requested, or where the IRS has contacted the taxpayer concerning a failure to file U.S. federal income tax returns, initiated an examination or investigation of the taxpayer,

or notified the taxpayer that it intends to commence an examination or investigation.

SCOPE OF THE WAIVER

Under this compliance initiative, the IRS will waive the filing deadlines set forth in Regs. 1.874–1(b)(1) and 1.882–4(a)(3)(i) with respect to late-filed U.S. federal income tax returns. With respect to U.S. federal income tax returns filed pursuant to this compliance initiative, the IRS will also waive the fraudulent failure to file penalty under section 6651(f), but not the failure to file penalty under section 6651(a)(1). The IRS will impose other applicable penalties, as appropriate, with respect to U.S. federal income tax returns filed pursuant to this compliance initiative.

If a taxpayer that is eligible under this notice to participate in this compliance initiative files all required U.S. federal income tax returns for taxable years ending in 1996 and all subsequent years for which the applicable deadline set forth in Regs. 1.874–1(b)(1) or 1.882–4(a)(3)(i) has passed, and satisfies all other requirements set forth in this notice, the IRS will not examine any potential U.S. federal income tax liability with respect to taxable years ending prior to 1996. However, effect will be given to a carryover item of deduction or credit only if all required U.S. federal income tax returns are filed on or before September 15, 2003, for the year in which the item arose and for all years through the year in which the item has effect, and the taxpayer cooperates with the IRS upon request in verifying the carryover item of deduction or credit. Protective returns will not satisfy the requirements of this or the preceding paragraph.

SUBMISSION PROCESS

The IRS will waive the timely filing requirement under Regs. 1.874–1(b)(1) and 1.882–4(a)(3)(i) for any taxable year for which a waiver is requested, provided that the nonresident alien or foreign corporation:

(1) files a true and accurate return for such taxable year, not including a protective return, with the Philadelphia Service Center on or before September 15, 2003;

(2) pays the reported tax liability with the filing of the return;

(3) pays statutory interest under section 6601 and penalties as determined by the IRS;

(4) agrees in a statement attached to the return to cooperate with the IRS upon request in determining and satisfying the taxpayer’s liability for income tax, interest and penalties, for the taxable year for which a waiver is requested, and does in fact cooperate in accordance with such agreement, and satisfy any liability determined; and

(5) attaches to the return a copy of any power of attorney (Forms 2848) granted by the taxpayer with respect to such taxable year.

Income tax returns that were not timely filed pursuant to Regs. 1.874–1(b)(1) and 1.882–4(a)(3)(i) must be filed with the Philadelphia Service Center via the United States Postal Service to P.O. Box 480, Bensalem, PA 19020; or by private delivery service to 11601 Roosevelt Blvd., Philadelphia, PA 19154.

Each late return filed under this notice must be marked at the top, in red, “RETURN FILED UNDER NOTICE 2003– 38.”

MISCELLANEOUS

The provisions of this notice relate to qualification for and participation in a compliance initiative with respect to late U.S. federal income tax returns filed on or before September 15, 2003, for prior taxable years by taxpayers subject to section 874(a) or 882(c)(2). The IRS is committed to assisting all taxpayers to file their required U.S. federal income tax returns. Taxpayers that do not file pursuant to this compliance initiative are not prevented from demonstrating that they satisfy the reasonable cause exception under Regs. 1.874–1(b)(2) or 1.882–4(a)(3)(ii).

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 1545–1845. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collec

2003–27 I.R.B. 9 July 7, 2003

Qualified New York Liberty Bond Questions and Answers

Notice 2003–40

PURPOSE

This notice provides guidance concerning qualified New York Liberty Bonds (“Liberty Bonds”).

BACKGROUND

Section 301 of the Job Creation and Worker Assistance Act of 2002, Pub.L. No.107–147, created section 1400L of the Internal Revenue Code of 1986, which provides various tax benefits for the area of New York City damaged or affected by the terrorist attack on September 11, 2001. Section 1400L(d) authorizes the issuance of $8 billion of Liberty Bonds, a new type of taxexempt private activity bond. On July 8, 2002, the Internal Revenue Service issued Notice 2002–42, 2002–27 I.R.B. 36, which provides guidance regarding section 1400L, including section 1400L(d). This notice provides additional guidance with respect to Liberty Bonds.

OVERVIEW OF THE PROVISION

Under section 1400L(d)(1), Liberty Bonds are treated as exempt facility bonds within the meaning of section 142. Section 1400L(d)(2) provides that a Liberty Bond is any bond issued as part of an issue if: (a) 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of the issue are to be used for qualified project costs; (b) the bond is issued by the State of New York or any political subdivision thereof; (c) the Governor of the State of New York or the Mayor of The City of New York designates the bond for purposes of section 1400L(d); and (d) the bond is issued after March 9, 2002, and before January 1, 2005. The maximum aggregate face amount of bonds that may be designated as Liberty Bonds is $8 billion.

Section 1400L(d)(4) defines the term qualified project costs as the cost of acquisition, construction, reconstruction, and renovation of: (a) nonresidential real property and residential rental property (including fixed tenant improvements associated with the property) located in the New York Liberty Zone (as defined in section 1400L(h)), and (b) public utility property (as defined in section 168(i)(10)) located in

tion of information displays a valid OMB control number. The collection of information in this announcement is in the section titled SUBMISSION PROCESS .

This information is required to determine whether a taxpayer is entitled to a waiver under this compliance initiative. The collection of information is required to obtain the benefit described in this notice. The likely respondents are individuals, and businesses or other for-profit organizations.

The estimated total annual reporting burden is 50 hours. The estimated annual burden per respondent is 15 minutes. The number of respondents is uncertain but is estimated at 200. 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 notice, contact Jim Carfine at (202) 435– 5044 (not a toll-free call).

Charitable Lead Trusts

Notice 2003–39