SECTION 5. REQUESTS FOR CREDIT

OR REFUND

(a) In general —(1) Request must follow this notice . The Commissioner agrees to credit or refund the amounts paid for nontaxable service if the taxpayer requests the credit or refund in the manner prescribed in this notice.

(2) Form of request . Taxpayers may request a credit or refund of tax on nontaxable service that was billed after February 28, 2003, and before August 1, 2006, only on their 2006 Federal income tax returns. For this purpose, the 2006 income tax return is the income tax return for calendar year 2006 or for the first taxable year including December 31, 2006. Forms 1040 (series), 1041, 1065, 1120 (series), and 990–T will include a line for requesting the

June 19, 2006 1142 2006–25 I.R.B.

any interest on the credit or refund on its Form 990–T, Exempt Organization Busi- ness Income Tax Return, for the taxable year in which received or accrued.

(vi) Corporations . A corporation, as defined in § 7701(a)(3), that is not described in section 5(d)(3)(iii) of this notice may request a credit or refund of federal excise taxes paid on nontaxable service only on its 2006 Form 1120 (series) income tax return (generally, Form 1120, U.S. Corporation Income Tax Return ). Any amount of the credit or refund included in the corporation’s income and any interest on the credit or refund must be reported on the corporation’s income tax return for the taxable year in which received or accrued. Corporations that are not otherwise required to file a federal income tax return must nevertheless file Form 1120 (series) to request the credit or refund.

(vii) Other nonfiling entities . Entities that are not otherwise required to file a federal income tax return must file Form 990–T to request the credit or refund. (4) Requests and adjustments by col- lectors —(i) Section 6415 conditions to al- lowance . The conditions to allowance described in § 6415 apply to all requests and adjustments by collectors, as defined by section 2(a)(3) of this notice. Thus, a request by a collector is allowed only if the person that paid over the tax establishes that it has repaid the amount of the tax to the person from whom the tax was collected, or obtains the written consent of such person to the allowance of the credit or refund.

(ii) Requests for regular method collec- tors —(A) In general . A person that collected the tax imposed by § 4251 on nontaxable service and paid it over to the government based on amounts actually collected under § 40.6302(c)–1(a)(2)(i) of the Excise Tax Procedural Regulations (regular method collectors) may request a credit or refund.

(B) Form of the request . Regular method collectors may use Form 720X, Amended Quarterly Federal Excise Tax Return, line 1, IRS No. 22, for credit or refund of amounts collected and repaid to taxpayers.

(iii) Account adjustments for alter- native method collectors . A person that collected the tax imposed by § 4251 on nontaxable service and paid it over to the

from the service provider, and either have not requested such a credit or refund from the service provider or have withdrawn any such request. The amount of this safe harbor is still under consideration and will be announced in later guidance.

(ii) Actual amount . Taxpayers that do not request the safe harbor amount may request a credit or refund of the actual amount of tax they paid.

(d) How to file —(1) Requests by in- dividual taxpayers . Individual taxpayers may request a credit or refund of federal excise taxes paid on nontaxable service only on their 2006 Form 1040, 1040A, or 1040–EZ, U.S. Individual Income Tax Return . Individuals who are not otherwise required to file a federal income tax return must nevertheless file Form 1040EZ–T to request the credit or refund. Individual taxpayers, including Schedule C filers, may request either the safe harbor amount or the actual amount of tax paid for nontaxable service.

(2) Requests by taxpayers other than in- dividual taxpayers . Taxpayers other than individual taxpayers (entities) may request only the actual amount of tax paid on nontaxable service billed during the relevant period. No safe harbor amount is allowed for entities.

(3) Requests by entities —(i) In general . Entities may request a credit or refund of federal excise taxes paid on nontaxable service only on their 2006 income tax returns. Any part of the credit or refund attributable to tax payments that were deducted as an ordinary and necessary business expense (including in the determination of unrelated business taxable income) must be included in income for the taxable year in which the refund is received or accrued to the extent that the tax payments reduced the amount of federal income tax (or unrelated business income tax) imposed.

(ii) Partnerships . A partnership, as defined in § 7701(a)(2), may request a credit or refund of federal excise taxes paid on nontaxable service only on its 2006 Form 1065, U.S. Return of Partnership Income . Any amount of the credit or refund included in partnership income and any interest on the credit or refund must be reported on the partnership’s return for the taxable year in which received or accrued and must be allocated to its partners on the Schedule K–1, Partner’s Share of Income,

Deductions, Credits, etc., for that taxable year.

(iii) S Corporations . An S Corporation, as defined in § 1361, may request a credit or refund of federal excise taxes paid on nontaxable service only on its 2006 Form 1120S, U.S. Income Tax Return for an S Corporation . Any amount of the credit or refund included in S Corporation income and any interest on the credit or refund must be reported on the S Corporation’s return for the taxable year in which received or accrued and must be allocated to its shareholders on the Schedule K–1, Shareholder’s Share of Income, Deductions, Credits, etc., for that taxable year.

(iv) Estates and trusts . An estate or a trust, as defined in § 301.7701–4(a) of the Procedure and Administration Regulations, may request a credit or refund of federal excise taxes paid on nontaxable service only on its 2006 Form 1041, U.S. In- come Tax Return for Estates and Trusts . Any amount of the credit or refund included in the estate’s or trust’s income and any interest on the credit or refund must be reported on the estate’s or trust’s Form 1041, U.S. Income Tax Return for Estates and Trusts, for the taxable year in which received or accrued. However, for a trust that is treated as owned by the grantor or other person under subpart E (§ 671 and following), part I, subchapter J, chapter 1 of the Internal Revenue Code (grantor trust), the owner of the trust may request a credit or refund of federal excise taxes treated as paid by the owner for nontaxable service only on its applicable 2006 federal tax return.

(v) Tax exempt organizations . An organization that is described in § 501(a) may request a credit or refund of federal excise taxes paid on nontaxable service only on its 2006 Form 990–T, Exempt Or- ganization Business Income Tax Return . Tax exempt organizations that are not otherwise required to file a federal income tax return must nevertheless file Form 990–T to request the credit or refund. Any amount of the credit or refund included in the organization’s unrelated business taxable income must be reported on the organization’s Form 990–T, Exempt Or- ganization Business Income Tax Return, for the taxable year in which received or accrued. An organization that is subject to tax on its interest income must also report

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government based on amounts considered as collected under § 40.6302(c)–1(a)(2)(ii) (alternative method collectors) may adjust the separate account for the amount of an overpayment. The required adjustment to the separate account is described in § 40.6302(c)–3(b)(2)(ii)(C). The adjustment is reflected on Form 720, Schedule A, line 2, but may not reduce tax liability on Form 720 below zero.

(e) Interest on the credit or refund in- cluded in income . If a taxpayer requests a credit or refund of the actual amount of tax paid, interest on the credit or refund of the tax paid for nontaxable service must be included as income on the taxpayer’s income tax return for the taxable year in which the interest is received or accrued. Thus, individuals are generally required to report the interest on their 2007 income tax returns.

(f) Estimated tax effects . Although the credit or refund allowed to a taxpayer under this notice will be requested on the taxpayer’s income tax return, it is not a credit against tax for purposes of §§ 6654 and 6655. Accordingly, the taxpayer may not take the credit or refund into account in determining the amount of the required installments of estimated tax for 2006. In determining the amount of the required installments of estimated tax for 2007, the income attributable to the credit or refund is taken into account on the date the income is paid or credited in the case of a cash method taxpayer and on the date the return making the request is filed in the case of an accrual method taxpayer.

(g) Requests that do not follow the pro- visions of this notice . Requests that do not follow the provisions of this notice (whether filed before or after its publication)—

(1) Will not be processed to the extent they relate to the tax paid on nontaxable service that was billed after February 28, 2003; and (2) Will be processed normally to the extent they relate to the tax paid on nontaxable service that was billed before March 1, 2003.