SECTION 5. PAPERWORK

REDUCTION ACT

The collection of information contained in this revenue procedure 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 1545–1956. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collections of information in this revenue procedure are in sections 4.01 and 4.02. This information is required to enforce the provisions of section 6707A(e) and make investors or potential investors aware of a person’s participation in certain reportable transactions that led to penalties under the Internal Revenue Code. The collection of information is mandatory. The likely respondents are businesses that are publicly traded corporations.

The estimated total annual reporting or recordkeeping burden is 429.5 hours.

The estimated annual burden per respondent/recordkeeper varies from .25 to .75 hour, depending on individual circumstances, with an estimated average of .5 hour. The estimated number of respondents or recordkeepers is 859.

The estimated annual frequency of responses (used for reporting requirements only) is 859.

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

son, must disclose in Item 3 (Legal Proceedings) of Form 10–K the requirement to pay any penalty specified in section 2.05 of this revenue procedure.

.02 Required disclosures . A person must disclose in the Form 10–K the amount of any penalty specified in section 2.05 of this revenue procedure, whether it has paid the penalty in full, the Code section and subparagraph under which the penalty was determined ( i.e., section 6662(h), section 6662A(c), section 6707A(b)(2), or section 6707A(e)), and a description of the penalty ( i.e., accuracy-related penalty for gross valuation misstatement, accuracy-related penalty on an understatement attributable to a nondisclosed listed or other avoidance transaction, penalty for failure to include listed transaction information with return, or penalty for failure to disclose imposition of penalty in report filed with the SEC). A person must disclose in its Form 10–K the requirement to pay the 40-percent accuracy-related penalty under section 6662(h) if:

(1) the person consented to the assessment of the 40-percent penalty without the issuance of a statutory notice of deficiency if the Service proposed the 30-percent penalty determined under section 6662A(c) in the alternative in a notice of proposed deficiency (30-day letter);

(2) the person consented to the assessment of the 40-percent penalty or did not timely petition the Tax Court if the Service included the 30-percent penalty determined under 6662A(c) in the alternative in a statutory notice of deficiency;

(3) the government raised the 30-percent accuracy-related penalty under section 6662A(c) in the alternative in any pleading in a judicial proceeding challenging the applicability of the 40-percent penalty and the court expressly determined that the 30-percent penalty applied in the alternative to the 40-percent penalty; or

(4) the person expressly acknowledged the applicability of the 30-percent accuracy-related penalty under section 6662A(c) in the alternative to the 40-percent accuracy-related penalty under section 6662(h) in a written settlement agreement with the government.

.03 When disclosure must be made . (1) A person required to pay a penalty specified in section 2.05 of this revenue procedure must disclose the requirement to pay

the penalty on the Form 10–K filed with the SEC that relates to the fiscal year (as defined in 17 C.F.R. § 240.12b–2) in which the Service sends the person notice and demand for payment of the penalty. If the person pays the penalty (not including interest) in full prior to the Service sending notice and demand for payment, the person must disclose the requirement to pay the penalty on the Form 10–K filed with the SEC that relates to the fiscal year in which the person has paid the penalty. If the person fails to disclose the requirement to pay any penalty specified in section 2.05, as specified in the two preceding sentences, the disclosure must be made on the next Form 10–K filed with the SEC after the failure to disclose has occurred. This obligation to disclose on each successive Form 10–K filed will continue until the person actually discloses its requirement to pay each of the penalties specified in section 2.05. Each failure to disclose the requirement to pay a penalty specified in section 2.05, in the manner specified in sections 4.01, 4.02 and this section 4.03, will give rise to a new, separate penalty under section 6707A(e) that also must be disclosed on the Form 10–K in the manner specified.

Example : In Year 1, Taxpayer T failed to disclose the requirement to pay a section 6662A(c) accuracy-related penalty on the Form 10–K filed with the SEC (the Year 1 Form 10–K) that relates to the fiscal year in which the IRS sent notice and demand for payment of the penalty. Taxpayer T is subject to a penalty under section 6707A(e) for a failure to disclose the section 6662A(c) accuracy-related penalty. Accordingly, Taxpayer T must disclose on the next Form 10–K filed with the SEC (the Year 2 Form 10–K) the requirement to pay the original section 6662A(c) penalty and, if the IRS sends notice and demand for payment of the section 6707A(e) penalty in the fiscal year to which the Year 2 Form 10–K relates, must disclose the requirement to pay that penalty as well.

(2) If a person brings a refund action seeking recovery of a 40-percent accuracy-related penalty under section 6662(h) and the government raises the 30-percent penalty under section 6662A(c) in the alternative in any pleading filed in that action without having previously raised the 30-percent penalty in a 30-day letter or a statutory notice of deficiency, the requirement to disclose the penalty will only apply if the 30-percent penalty is upheld, either directly or in the alternative to the 40-percent penalty. In that case, the person must disclose the requirement to pay either the 30-percent or 40-percent penalty, as applicable, on the first Form

August 15, 2005 297 2005–33 I.R.B.

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