Part IV. Items — Internal Revenue Bulletin 2005-9

Notice of Proposed Rulemaking

Disclosure of Returns and Return Information in Connection With Written Contracts or Agreements for the Acquisition of Property and Services for Tax Administration Purposes

REG–148867–03

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to the disclosure of returns and return information pursuant to section 6103(n) of the Internal Revenue Code (Code). The proposed regulations describe the circumstances under which officers or employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice may disclose returns and return information to obtain property or services for tax administration purposes, pursuant to a written contract or agreement. The proposed regulations clarify the existing regulations with respect to redisclosures of returns or return information by contractors, especially with regard to redisclosures by contractors to agents or subcontractors, and clarify that the civil and criminal penalties of sections 7431, 7213, and 7213A apply to the agents or subcontractors. The proposed regulations also clarify that section 6103(n) applies to written contracts or agreements that are entered into to obtain property or services for purposes of tax administration, including contracts that are not awarded under the Federal Acquisition Regulations (FAR), 48 CFR pts. 1–53. The proposed regulations will affect officers and employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice who disclose returns or return information in connection with a written contract or agreement for the acquisition of property or services for tax administra

tion purposes. The proposed regulations will also affect any person, or officer, employee, agent, or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information in connection with a written contract or agreement for the acquisition of property or services.

DATES: Written or electronic comments and requests for a public hearing must be received by April 12, 2005.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–148867–03), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–148867–03), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the IRS Internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG–148867–03). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202–622–4570 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the 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, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collections of information should be received by March

14, 2005. Comments are specifically requested concerning:

Whether the proposed collections of information are necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

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

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

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

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

The collections of information in this proposed regulation are in §§301.6103(n)–1(d) and 301.6103(n)–1(e)(3). This information is required and will be used to ensure compliance with the internal revenue laws and regulations, and to protect the privacy of American taxpayers. The collections of information are required to obtain a benefit. The likely respondents are state or local governments, business or other for-profit institutions, federal agencies, and/or small businesses or organizations.

Estimated total annual reporting burden: 250 hours. Estimated average annual burden per respondent: 6 minutes.

Estimated number of respondents: 2500. Estimated annual frequency of responses: Annually.

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

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

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information. The proposed regulations, at §301.6103(n)–1(d), extend the written notification requirements to agents and subcontractors. In particular, agents or subcontractors who receive returns or return information under the proposed regulations must provide written notice to their officers and employees of the purposes for which returns or return information may be used and of the potential civil and criminal penalties for unauthorized inspections or disclosures. The proposed regulations, at §301.6103(n)–1(e), clarify that agents or subcontractors who receive returns or return information under the proposed regulations are subject to all safeguard requirements described in the proposed regulations.

Section 6103(n) Applies to Written Tax Administration Contracts or Agreements, Including Contracts Not Awarded Under the FAR

The proposed regulations clarify that section 6103(n) applies to written contracts or agreements that are entered into to obtain property or services for purposes of tax administration, including contracts that are not awarded under the FAR. The existing regulations use the term contractual procurement to describe the acquisition of property or services. Clarification is needed as to whether this term is limited to the acquisition of property or services under the FAR or whether the term refers more broadly to any written contract or agreement to acquire property or services relating to tax administration. The FAR applies only to contracts involving acquisitions with appropriated funds. FAR 1.104 and 2.101, 48 CFR 1.104 and 2.101. The existing and proposed regulations under section 6103(n), however, are intended to apply to any written contract or agreement for tax administration that creates obligations that are enforceable or otherwise recognizable at law, regardless of the form of the contract ( e.g., interagency agreement, memorandum of understanding, purchase order), the statutory or regulatory authority for the contract, if any ( e.g., the FAR, the Contract Disputes Act, 41 U.S.C. 601 through 613, the Economy Act, 31 U.S.C. § 1535), or the nature of the consideration exchanged (monetary or non-monetary). Accordingly, the proposed regulations replace

Background

Under section 6103(a), returns and return information are confidential unless the Code authorizes disclosure. Section 6103(n) authorizes, pursuant to regulations prescribed by the Secretary, returns and return information to be disclosed to any person, including any person described in section 7513(a), for purposes of tax administration, to the extent necessary in connection with: (1) the processing, storage, transmission, and reproduction of returns and return information; (2) the programming, maintenance, repair, testing, and procurement of equipment; and (3) the providing of other services.

Clarification is needed with respect to whether the existing regulations permit redisclosures by persons authorized to receive the returns and return information to their agents or subcontractors, and if so, whether certain penalty provisions, written notification requirements, and safeguard requirements are applicable to these agents and subcontractors. The proposed regulations make these clarifications. The existing regulations provide that any person, or officer or employee of the person, who receives returns or return information under the existing regulations, may redisclose the returns or return information when authorized in writing by the IRS. The proposed regulations clarify that redisclosures to agents or subcontractors are permissible provided that the IRS authorizes the redisclosures in writing. The proposed regulations clarify that agents and subcontractors are persons described in section 6103(n) and, accordingly, are subject to the civil and criminal penalty provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of returns or return information. The proposed regulations clarify that agents and subcontractors are required to comply with any written notification requirements and safeguard restrictions that may be imposed by the IRS.

Finally, the proposed regulations clarify that section 6103(n) applies to written contracts or agreements that are entered into to obtain property or services for tax administration purposes, including contracts that are not awarded under the FAR.

Explanation of Provisions

The structure of the proposed regulations is very similar to that of the existing regulations, with the exception of modifications to clarify: the redisclosure authority of contractors, especially to agents or subcontractors; the applicability to agents and subcontractors of written notification requirements, safeguard requirements, and the civil and criminal penalty provisions of sections 7431, 7213, and 7213A; and the applicability of section 6103(n) to written contracts or agreements for tax administration purposes, including contracts that are not awarded under the FAR. The proposed regulations also elaborate on the safeguard protections that the IRS may require. Finally, the proposed regulations contain other minor changes for organizational and clarity purposes.

Redisclosures to Agents or Subcontractors

The proposed regulations, at §301.6103(n)–1(a)(2)(ii), provide that any person, or officer or employee of the person, who receives returns or return information under the proposed regulations, may further disclose the returns or return information, when authorized in writing by the IRS, to the extent necessary to carry out the purposes of the written contract or agreement. To eliminate any ambiguity as to whether this provision applies to agents and subcontractors, the proposed regulation states that disclosures may include redisclosures to a person’s agent or subcontractor, or officer or employee of the agent or subcontractor. The proposed regulations, at §301.6103(n)–1(a)(3), provide guidance applicable if agents or subcontractors, or officers or employees of the agents or subcontractors, who receive returns or return information under §301.6103(n)–1(a)(2)(ii), are to exercise the authority to redisclose the returns or return information to another officer or employee of the agent or subcontractor whose duties or responsibilities require the returns or return information for a purpose described in the proposed regulations. The proposed regulations, at §301.6103(n)–1(c), set forth the civil and criminal penalties to which agents, subcontractors, and their officers or employees, are subject for unauthorized inspection or disclosure of returns or return

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nal Revenue Code and subject to the conditions of this section, officers and employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice, are authorized to disclose returns and return information (as defined in section 6103(b)) to any person (including, in the case of the Treasury Department, any person described in section 7513(a)), or to an officer or employee of the person, for purposes of tax administration (as defined in section 6103(b)(4)), to the extent necessary in connection with a written contract or agreement for the acquisition of—

(i) Equipment or other property; or (ii) Services relating to the processing, storage, transmission, or reproduction of returns or return information, the programming, maintenance, repair, or testing of equipment or other property, or the providing of other services.

(2) Any person, or officer or employee of the person, who receives returns or return information under paragraph (a)(1) of this section, may—

(i) Further disclose the returns or return information to another officer or employee of the person whose duties or responsibilities require the returns or return information for a purpose described in this paragraph; or

(ii) Further disclose the returns or return information, when authorized in writing by the Internal Revenue Service (IRS), to the extent necessary to carry out the purposes described in this paragraph. Disclosures may include disclosures to an agent or subcontractor of the person, or officer or employee of the agent or subcontractor.

(3) An agent or subcontractor, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a)(2)(ii) of this section, may further disclose the returns or return information to another officer or employee of the agent or subcontractor whose duties or responsibilities require the returns or return information for a purpose described in this paragraph (a).

(4) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under this paragraph, may, subject to the provisions of §301.6103(p)(2)(B)–1 (concerning disclosures by a Federal, State, or local agency,

the term contractual procurement with the phrase “written contract or agreement” in all instances where the term appeared.

Other Changes to the Existing Regulations

The proposed regulations, at §301.6103(n)–1(a)(4), clarify that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under the proposed regulations, may redisclose the returns or return information pursuant to §301.6103(p)(2)(B)–1 (concerning disclosures by a Federal, State, or local agency, or its agents or contractors, for a purpose authorized, and subject to all applicable conditions imposed, by section 6103). The proposed regulations, at §301.6103(n)–1(e), add the requirement that any person, or agent or subcontractor of the person, who may receive returns or return information under the proposed regulations, must agree, before the disclosure of any returns or return information to the person, agent, or subcontractor, to an IRS inspection of his, her, or its site or facilities. Finally, the proposed regulations, at §301.6103(n)–1(e)(3), set forth the condition that before the execution of a contract or subcontract for the acquisition of property or services under which returns or return information will be disclosed in accordance with the proposed regulations, the contract must be made available to the IRS.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collections of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that any burden on taxpayers is minimal in that the estimated average burden per respondent for complying with the collections of information imposed by these regulations is 6 minutes. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibil

ity Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), this notice of proposed rulemaking will be submitted to the Chief Counsel of the Small Business Administration for comment on its impact on small businesses.

Comments and Request for a Public Hearing

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

Drafting Information

The principal author of these regulations is Helene R. Newsome, Office of the Associate Chief Counsel (Procedure & Administration), Disclosure & Privacy Law Division.

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Proposed Amendments to the Regulations

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

PART 301—PROCEDURE AND ADMINSTRATION

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(n)–1 is revised to read as follows:

§301.6103(n)–1 Disclosure of returns and return information in connection with written contracts or agreements for the acquisition of property and services for tax administration purposes.

(a) General rule . (1) Pursuant to the provisions of section 6103(n) of the Inter

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formation under paragraph (a) of this section, shall comply with all applicable conditions and requirements as the IRS may prescribe from time to time (prescribed requirements) for the purposes of protecting the confidentiality of returns and return information and preventing disclosures or inspections of returns or return information in a manner not authorized by this section.

(3) The terms of any written contract or agreement for the acquisition of property or services as described in paragraph (a) of this section shall provide, or shall be amended to provide, that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, shall comply with the prescribed requirements. Any contract or agreement shall be made available to the IRS before execution of the contract or agreement. For purposes of this paragraph (e)(3), a written contract or agreement shall include any contract or agreement between a person and an agent or subcontractor of the person to provide the property or services described in paragraph (a) of this section.

(4) If the IRS determines that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, has failed to, or does not, satisfy the prescribed requirements, the IRS may take any actions it deems necessary to ensure that the prescribed requirements are or will be satisfied, including—

(i) Suspension of further disclosures of returns or return information by the IRS to the State tax agency, the Social Security Administration, or the Department of Justice, until the IRS determines that the conditions and requirements have been or will be satisfied;

(ii) Suspension of further disclosures by the Treasury Department otherwise authorized by paragraph (a) of this section; and

(iii) Suspension or termination of any duty or obligation arising under a contract or agreement with the Treasury Department.

(f) Definitions . For purposes of this section—

or its agents or contractors), further disclose the returns or return information for a purpose authorized, and subject to all applicable conditions imposed, by section 6103. (b) Limitations . (1) Disclosure of returns or return information in connection with a written contract or agreement for the acquisition of property or services described in paragraph (a) of this section will be treated as necessary only if the performance of the contract or agreement cannot otherwise be reasonably, properly, or economically carried out without the disclosure.

(2) Disclosure of returns or return information in connection with a written contract or agreement for the acquisition of property or services described in paragraph (a) of this section shall be made only to the extent necessary to reasonably, properly, or economically perform the contract. For example, disclosure of returns or return information to employees of a contractor for purposes of programming, maintaining, repairing, or testing computer equipment used by the IRS or a State tax agency shall be made only if the services cannot be reasonably, properly, or economically performed without the disclosure. If it is determined that disclosure of returns or return information is necessary, and if the services can be reasonably, properly, and economically performed by disclosure of only parts or portions of a return or if deletion of taxpayer identity information (as defined in section 6103(b)(6)) reflected on a return would not seriously impair the ability of the employees to perform the services, then only the parts or portions of the return, or only the return with taxpayer identity information deleted, may be disclosed.

(c) Penalties . Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, is subject to the civil and criminal provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of the returns or return information.

(d) Notification requirements . Any person, or agent or subcontractor of the person, who receives returns or return information under paragraph (a) of this section shall provide written notice to his, her, or

its officers and employees receiving the returns or return information that—

(1) Returns or return information disclosed to the officer or employee may be used only for a purpose and to the extent authorized by paragraph (a) of this section;

(2) Further inspection of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a misdemeanor, punishable upon conviction by a fine of as much as $1,000, or imprisonment for as long as 1 year, or both, together with costs of prosecution;

(3) Further disclosure of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a felony, punishable upon conviction by a fine of as much as $5,000, or imprisonment for as long as 5 years, or both, together with the costs of prosecution;

(4) Further inspection or disclosure of returns or return information by any person who is not an officer or employee of the United States for a purpose or to an extent not authorized by paragraph (a) of this section may also result in an award of civil damages against that person in an amount not less than $1,000 for each act of unauthorized inspection or disclosure, or the sum of actual damages sustained by the plaintiff as a result of the unauthorized inspection or disclosure plus, in the case of a willful inspection or disclosure or an inspection or disclosure that is the result of gross negligence, punitive damages. In addition, costs and reasonable attorneys fees may be awarded; and

(5) A conviction for an offense referenced in paragraph (c)(2) or (3) of this section shall, in addition to any other punishment, result in dismissal from office or discharge from employment if the person convicted is an officer or employee of the United States.

(e) Safeguards . (1) Any person, or agent or subcontractor of the person, who may receive returns or return information under paragraph (a) of this section, shall agree, before disclosure of any returns or return information to the person, agent, or subcontractor, to permit an inspection by the IRS of his, her, or its site or facilities.

(2) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return in

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(1) the terms and conditions of the QJSA; (2) the participant’s right to make an election to waive the QJSA form of benefit; (3) the effect of such an election; (4) the rights of the participant’s spouse; and (5) the right to revoke an election to waive the QJSA form of benefit.

Section 205 of the Employee Retirement Income Security Act of 1974 (ERISA), Public Law 93–406 (88 Stat. 829) as subsequently amended, provides rules that are parallel to the rules of sections 401(a)(11) and 417 of the Internal Revenue Code. In particular, section 205(c)(3) of ERISA provides a rule parallel to the rule of section 417(a)(3) of the Code.

Section 1.401(a)–20, which provides rules governing the requirements for a waiver of the QJSA, was published in the Federal Register on August 19, 1988 (T.D. 8219, 1988–2 C.B. 48

[53 FR 31837]). Section 1.401(a)–20, Q&A–36, as published in 1988, set forth requirements for the explanation that must be provided under section 417(a)(3) as a prerequisite to waiver of a QJSA. Under those requirements, such a written explanation must contain a general description of the eligibility conditions and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available under the plan ( e.g., the extent to which optional forms are subsidized relative to the normal form of benefit or the interest rates used to calculate the optional forms). In addition, §1.401(a)–20, Q&A–36, as published in 1988, provided that the written explanation must comply with the requirements set forth in §1.401(a)–11(c)(3). Section 1.401(a)–11(c)(3) was issued prior to the enactment of section 417, and provides rules relating to written explanations that were required prior to a participant’s election of a preretirement survivor annuity or election to waive a joint and survivor annuity. Section 1.401(a)–11(c)(3)(i)(C) provides that such a written explanation must contain a general explanation of the relative financial effect of these elections on a participant’s annuity.

For a married participant, the QJSA must be at least as valuable as any other optional form of benefit payable under the plan at the same time. See §1.401(a)–20, Q&A–16. Further, the anti-forfeiture rules

(1) The term Treasury Department includes the IRS, the Office of the Chief Counsel for the IRS, and the Office of the Treasury Inspector General for Tax Administration;

(2) The term State tax agency means an agency, body, or commission described in section 6103(d); and

(3) The term Department of Justice includes offices of the United States Attorneys.

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

Mark E. Matthews, Deputy Commissioner for Services and Enforcement .

(Filed by the Office of the Federal Register on January 11, 2005, 8:45 a.m., and published in the issue of the Federal Register for January 12, 2005, 70 F.R. 2076)

Notice of Proposed Rulemaking

Revised Regulations Concerning Disclosure of Relative Values of Optional Forms of Benefit

REG–152914–04

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations that would revise final regulations that were issued on December 17, 2003, under section 417(a)(3) of the Internal Revenue Code concerning content requirements applicable to explanations of qualified joint and survivor annuities and qualified preretirement survivor annuities payable under certain retirement plans. These regulations affect plan sponsors and administrators, and participants in and beneficiaries of, certain retirement plans.

DATES: Written and electronic comments and requests for a public hearing must be received by April 28, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–152914–04), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG–152914–04), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the IRS Internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG–152914–04).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Bruce Perlin at (202) 622–6090 (not a toll-free number); concerning submissions or hearing requests, LaNita Van Dyke, (202) 622–7180 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been previously reviewed and 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 1545–0928.

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

Background

Section 417(a) provides rules under which a participant (with spousal consent) may waive payment of the participant’s benefit in the form of qualified joint and survivor annuity (QJSA). Specifically, section 417(a)(3) provides that a plan must provide to each participant, within a reasonable period before the annuity starting date, a written explanation that includes the following information:

2005–9 I.R.B. 650 February 28, 2005

to the requirements of section 417(e)(3) ( e.g., single sums, social security level income options, distributions in the form of partial single sums in combination with annuities, or installment payment options) if the actuarial present value of that optional form is less than the actuarial present value (as determined under section 417(e)(3)) of the QJSA. Thus, for example, a QJSA explanation provided with respect to an annuity starting date beginning on or after October 1, 2004, must comply with §1.417(a)(3)–1 to the extent that the plan provides for payment to that participant in the form of a single sum that does not reflect an early retirement subsidy available under the QJSA. Where the existing effective date is retained, the plan must disclose the relative value of the QJSA for the participant even if the plan provides a disclosure of relative values that is not tailored to the participant’s marital status. Accordingly, if a plan provides a relative value disclosure based on the single life annuity (the QJSA for a single participant) to a married participant, the plan must also include a comparison of the value of the QJSA to the value of the single life annuity.

The proposed regulations include a special rule that would enable a plan to use the delayed effective date rule even if there are minor differences between the value of an optional form and the value of the QJSA for a married participant that are caused by the calculation of the amount of the optional form of benefit based on the life annuity rather than on the QJSA. Under this special rule, solely for purposes of the effective date provisions, the actuarial present value of an optional form is treated as not being less than the actuarial present value of the QJSA if the following two conditions are met. First, using the applicable interest rate and applicable mortality table under §§1.417(e)–1(d)(2) and (3), the actuarial present value of that optional form is not less than the actuarial present value of the QJSA for an unmarried participant. Second, using reasonable actuarial assumptions, the actuarial present value of the QJSA for an unmarried participant is not less than the actuarial present value of the QJSA for a married participant.

These proposed regulations would also modify the 2003 regulations in several other respects. First, for purposes of disclosing the normal form of benefit as

of section 411(a) prohibit a participant’s benefit under a defined benefit plan from being satisfied through payment of a form of benefit that is actuarially less valuable than the value of the participant’s accrued benefit expressed in the form of an annual benefit commencing at normal retirement age. These determinations must be made using reasonable actuarial assumptions. However, see section 417(e)(3) and §1.417(e)–1(d) for actuarial assumptions required for use in certain present value calculations.

Final regulations under section 417(a)(3) regarding disclosure of the relative value and financial effect of optional forms of benefit as part of QJSA explanations provided to participants receiving qualified retirement plan distributions were published in the Federal Register on December 17, 2003. See §1.417(a)(3)–1 (T.D. 9099, 2004–2 I.R.B. 255 [68 FR 70141]). The 2003 regulations are generally effective for QJSA explanations provided with respect to annuity starting dates beginning on or after October 1, 2004. The 2003 regulations were issued in response to concerns that, in certain cases, the information provided to participants under section 417(a)(3) regarding available distribution forms pursuant to §1.401(a)–20, Q&A–36, does not adequately enable them to compare those distribution forms without professional advice. In particular, participants who are eligible for early retirement benefits in the form of both subsidized annuity distributions and unsubsidized single-sum distributions may be receiving explanations that do not adequately disclose the value of the subsidy that is foregone if the single-sum distribution is elected. In such a case, merely disclosing the amount of the single-sum distribution and the amount of the annuity payments would not adequately enable a participant to make an informed comparison of the relative values of those distribution forms. The 2003 regulations address this problem, as well as the problem of disclosure in other cases where there are significant differences in value among optional forms, and also clarify the rules regarding the disclosure of the financial effect of benefit payments.

A number of commentators requested that the effective date of the 2003 regulations be postponed. Among the reasons

cited is the need in some plans for sponsors to complete an extensive review and analysis of optional forms of benefit in order to prepare proper comparisons of the relative values of those optional forms to the QJSA. They noted that recently proposed regulations under section 411(d)(6) would permit elimination of certain optional forms of benefit and that many plan sponsors can be expected to engage in a thorough review of all of the optional forms of benefit under their plans following publication of those regulations in final form. See §1.411(d)–3, 69 FR 13769 (March 24, 2004) (REG–128309–03, 2004–16 I.R.B. 800). These commentators argued that it would be inefficient for plans to be required to incur the costs of two such extensive analyses in succession, rather than a single analysis of optional forms that might serve to some extent for purposes of both the relative value regulations and the section 411(d)(6) regulations. After consideration of these comments, Treasury and the IRS issued Announcement 2004–58, 2004–29 I.R.B. 66, which postponed the effective date of the 2003 regulations under §1.417(a)(3)–1 for certain QJSA explanations.

Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the Treasury has interpretive jurisdiction over ERISA provisions that are parallel to the Code provisions addressed in these regulations. Therefore, these proposed regulations would apply for purposes of the parallel rules in section 205(c)(3) of ERISA, as well as for section 417(a)(3) of the Code.

Explanation of Provisions

Consistent with Announcement 2004–58, these proposed regulations would modify the 2003 regulations to provide that the 2003 regulations are generally effective for QJSA explanations provided with respect to annuity starting dates beginning on or after February 1, 2006. In the interim, plans that do not comply with §1.417(a)(3)–1 would be required to comply with the 1988 regulations regarding disclosure of relative value and financial effect.

However, the existing effective date under §1.417(a)(3)–1 of the 2003 regulations is retained for explanations with respect to any optional form of benefit that is subject

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Adding a sentence to the end of Q&A–36.

The additions read as follows:

§1.401(a)–20 Requirements of qualified joint and survivor annuity and qualified preretirement survivor annuity.

- - - A–16 - - - A plan does not fail to satisfy the requirements of this Q&A–16 merely because the amount payable under an optional form of benefit that is subject to the minimum present value requirement of section 417(e)(3) is calculated using the applicable interest rate (and, for periods when required, the applicable mortality table) under section 417(e)(3).
- - - A–36 - - - However, the rules of §1.401(a)–20, Q&A–36, as it appeared in 26 CFR Part 1 revised April 1, 2003, apply to the explanation of a QJSA under section 417(a)(3) for an annuity starting date prior to February 1, 2006.
- - - Par. 3. Section 1.417(a)(3)–1 is amended by:

Removing the language “paragraph (c)(3)(iii) of ” from paragraph (c)(2)(ii)(A).
Adding a sentence to the end of paragraph (d)(2)(ii).
Adding paragraph (d)(5).
Revising paragraph (f). The additions and revision read as follows:

§1.417(a)(3)–1 Required explanation of qualified joint and survivor annuity and qualified preretirement survivor annuity.

- - - (d) * * * * * (2) * * * * * (ii) Actual benefit must be disclosed .
- - Reasonable estimates of the type described in paragraph (c)(3)(i) may be used to determine the normal form of benefit for purposes of this paragraph (d)(2)(ii) if the requirements of paragraphs (c)(3)(ii) and (iii) of this section are satisfied with respect to those estimates.
- - - (5) Use of participant-specific informa- tion in generalized notice . A QJSA explanation does not fail to satisfy the requirements of this paragraph (d) merely because

part of a disclosure made in the form of generally applicable information, reasonable estimates of the type permitted to be used to disclose participant-specific information may be used to determine the normal form of benefit, but only if the plan follows the requirements applicable to reasonable estimates used in disclosing participant-specific information (such as offering a more precise calculation upon request and revising previously offered information consistent with the more precise information). Second, a QJSA explanation does not fail to satisfy the requirements for QJSA explanations made in the form of disclosures of generally applicable information merely because the QJSA explanation contains an item of participant-specific information in place of the corresponding generally applicable information.

In addition, the proposed regulations would modify §1.401(a)–20, Q&A–16, to clarify the interaction of the rule prohibiting a plan from providing an option to a married individual that is worth more than the QJSA with the requirement that certain optional forms of benefit be calculated using specified actuarial assumptions. Under that clarification, a plan would not fail to satisfy the requirements of §1.401(a)–20, Q&A–16, merely because the amount payable under an optional form of benefit that is subject to the minimum present value requirement of section 417(e)(3) is calculated using the applicable interest rate (and, for periods when required, the applicable mortality table) under section 417(e)(3).

Dates of Applicability

The changes to §1.401(a)–20, A–36, and §1.417(a)(3)–1 are proposed to apply as if they had been included in T.D. 9099 (68 FR 70141). The change to §1.401(a)–20, Q&A–16, is proposed to apply as if it had been included in T.D. 8219 (53 FR 31837). Taxpayers may rely on these proposed regulations for guidance pending the issuance of final regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore a regulatory assessment is not required. It also has been

determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic or written comments (preferably a signed original and eight (8) copies) that are submitted timely to the IRS. In addition to the other requests for comments set forth in this document, the IRS and Treasury also request comments on the clarity of the proposed rule and how it may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if one is requested.

Drafting Information

The principal authors of these regulations are Bruce Perlin and Linda S.F. Marshall of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury participated in their development.

- - - -

Proposed Amendments to the Regulations

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

PART 1—INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1986

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

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.401(a)–20 is amended by:

Adding a sentence to the end of Q&A–16.

2005–9 I.R.B. 652 February 28, 2005

it contains an item of participant-specific information in place of the corresponding generally applicable information.

- - - (f) Effective date —(1) General effective date for QJSA explanations . Except as provided in paragraph (f)(2) of this section, this section applies to a QJSA explanation with respect to any distribution with an annuity starting date that is on or after February 1, 2006.

(2) Special effective date for certain QJSA explanations —(i) Application to QJSA explanations with respect to cer- tain optional forms that are less valuable than the QJSA . This section also applies to a QJSA explanation with respect to any distribution with an annuity starting date that is on or after October 1, 2004, and before February 1, 2006, if the actuarial present value of any optional form of benefit that is subject to the requirements of section 417(e)(3) ( e.g., single sums, distributions in the form of partial single sums in combination with annuities, social security level income options, and installment payment options) is less than the actuarial present value (as determined under §1.417(e)–1(d)) of the QJSA. For purposes of this paragraph (f)(2)(i), the actuarial present value of an optional form is treated as not less than the actuarial present value of the QJSA if—

(A) Using the applicable interest rate and applicable mortality table under §§1.417(e)–1(d)(2) and (3), the actuarial present value of that optional form is not less than the actuarial present value of the QJSA for an unmarried participant; and

(B) Using reasonable actuarial assumptions, the actuarial present value of the QJSA for an unmarried participant is not less than the actuarial present value of the QJSA for a married participant.

(ii) Requirement to disclose differences in value for certain optional forms . A QJSA explanation with respect to any dis

tribution with an annuity starting date that is on or after October 1, 2004, and before February 1, 2006, is only required to be provided under this section with respect to—

(A) An optional form of benefit that is subject to the requirements of section 417(e)(3) and that has an actuarial present value that is less than the actuarial present value of the QJSA (as described in paragraph (f)(2)(i) of this section); and

(B) The QJSA (determined without application of paragraph (c)(2)(ii) of this section).

(3) Annuity starting date . For purposes of paragraphs (f)(1) and (2) of this section, in the case of a retroactive annuity starting date under section 417(a)(7), as described in §1.417(e)–1(b)(3)(vi), the date of commencement of the actual payments based on the retroactive annuity starting date is substituted for the annuity starting date.

(4) Effective date for QPSA explana- tions . This section applies to any QPSA explanation provided on or after July 1, 2004.

Mark E. Matthews, Deputy Commissioner for Services and Enforcement .

(Filed by the Office of the Federal Register on January 27, 2005, 8:45 a.m., and published in the issue of the Federal Register for January 28, 2005, 70 F.R. 4058)

Corrected Information for Publication 1220, Specifications for Filing Forms 1098, 1099, 5498 and W–2G, Electronically or Magnetically ; Revised September 2004

Announcement 2005–14

The following announcement provides corrected information for Publication

1220, Specifications for Filing Forms 1098, 1099, 5498 and W–2G, Electroni- cally or Magnetically, revised September 2004.

Part A, Sec. 2. Nature of Changes, .02, (c), (3) should read “The title of Amount Code 2 was changed to Aggregate Amount Received.” This statement refers to the Form 1099-CAP and is correctly recorded in the Payer “A” Record, Amount Codes in positions 28–41.
Part A, Sec. 9. Due Dates, .03 and .05 references to postmarked dates should read March 1, 2005 and December 1, 2005, respectively.
In Part D, Standard Payee “B” Record Format For All Types of Returns, Positions 1–543, Payment Amount 3, the positions should be 79 – 90 .
In Part D, Record Format Specifications and Record Layouts for Form 1099-B, Field Position 627–662, the length of this field should be 36 positions.
When making a correction for a payee name only, use the one step correction process found in Part A, Sec. 11.

Please make note of these changes when submitting information returns for Tax Year 2004 filing. If you have any questions, call toll-free 1–866–455–7438.

February 28, 2005 653 2005–9 I.R.B.