Section 3. Settlement Terms

(a) Income Tax Part (1) Taxpayers will submit correct original returns or amend their previously filed tax returns for 2003, 2004, and 2005 to correctly report their tax liability.

(2) Taxpayers will pay all taxes and applicable statutory interest with respect to their correct tax liabilities for taxable years 2003, 2004, and 2005. Taxpayers will pay penalties and/or additions to tax as described in subsection (7) below. Taxpayers will not claim refunds of any amounts paid under this initiative. Taxpayers will not file claims for interest abatement with respect to taxable years 2003, 2004, and 2005. (3) Taxpayers will provide an official statement from their employer to verify the correct amount of gross income received for taxable years 2003, 2004, and 2005. Gross income includes, but is not limited to, wages, taxable benefits, contributions to qualified retirement plans made on an after tax basis, pension distributions, and taxes paid by employers.

(4) Taxpayers will provide verification of payment and entitlement for all deductions and foreign tax credits claimed on their original and amended tax returns for taxable years 2003, 2004, and 2005, which are related to their employment at a foreign embassy, foreign consular office or international organization.

(5) Taxpayers must agree to report all income they receive after 2005 related to their employment at a foreign embassy, foreign consular office or international organization. No penalties and/or additions to tax will be waived with respect to any taxable years after 2005 as part of this initiative.

(6) Taxpayers will agree not to claim tax benefits in taxable years after 2005 that are inconsistent with positions taken with respect to prior taxable years. For example, a taxpayer failing to report after tax contributions to a qualified retirement plan as described in I.R.C. § 401(a) for any year cannot treat those contributions as constituting basis in those payments in a subsequent year.

(7) The IRS will assess an applicable accuracy penalty on underpayments under I.R.C. § 6662 and/or applicable additions to tax under I.R.C. § 6651 for failure to file and/or failure to pay for only one of the taxable years 2003, 2004, or 2005, the year to be determined by the IRS based on the year with the highest tax deficiency. No other penalties will be assessed for adjustments relating to foreign embassy, foreign consular office or international organization income for the taxable years 2003, 2004, and 2005. (8) The IRS will assess the taxes, penalties, additions to tax, and statutory interest determined under this initiative for taxable years 2003, 2004, and 2005.

(b) SEP/IRA Part (1) Taxpayers agree to the disallowance of deductions claimed on their 2003, 2004, and 2005 income tax returns for contributions to erroneously established SEP/IRA accounts relating to their employment at a foreign embassy, foreign consular office or international organization and will not claim deductions for such contributions after 2005.

(2) Taxpayers will pay all taxes and applicable statutory interest resulting from the disallowance of erroneous SEP/IRA contribution deductions for taxable years 2003, 2004, and 2005. Taxpayers will not claim refunds of any amounts paid under this initiative. Taxpayers will not file claims for interest abatement with respect to taxable years 2003, 2004, and 2005.

(3) The IRS will allow taxpayers to move funds from their erroneously established SEP/IRA accounts to other tax-favored retirement plans ( i.e., I.R.C.

2006–50 I.R.B. 1106 December 11, 2006

with a taxpayer who is unable to reach acceptable financial arrangements.