SECTION 1. PURPOSE

This revenue procedure provides guidance to persons against whom a penalty under section 6707 or 6707A of the Internal Revenue Code is assessed, and who may request rescission of all or any portion of that penalty from the Commissioner of the Internal Revenue Service if the penalty is with respect to a reportable transaction other than a listed transaction. This revenue procedure describes the procedures for requesting rescission, including the deadline by which a person must request rescission; the information the person must provide in the rescission request; the factors that weigh in favor of and against granting rescission; where the person must submit the rescission request; and the rules governing requests for additional information from the person requesting rescission.

and that the study shall specifically consider:

(1) whether the deductions allowed for income, gift, or estate taxes for charitable contributions to sponsoring organizations of donor advised funds or to supporting organizations are appropriate in consideration of (i) the use of contributed assets (including the type, extent, and timing of such use) or (ii) the use of the assets of such organizations for the benefit of the person making the charitable contribution (or a person related to such person),

(2) whether donor advised funds should be required to distribute for charitable purposes a specified amount (whether based on the income or assets of the fund) in order to ensure that the sponsoring organization with respect to the fund is operating consistent with the purposes or functions constituting the basis for its exemption under § 501 or its status as an organization described in § 509(a),

(3) whether the retention by donors to donor advised funds or supporting organizations of rights or privileges with respect to amounts transferred to such organizations (including advisory rights or privileges with respect to the making of grants or the investment of assets) is consistent with the treatment of such transfers as completed gifts that qualify for a deduction for income, gift, or estate taxes, and

(4) whether any of the issues described above also are issues with respect to other forms of charities or charitable donations.

REQUEST FOR PUBLIC COMMENTS

To assist in performing the required study, the Treasury and the Service request comments on the specific issues identified above and other issues relevant to the study. In particular, the Treasury and the Service request comments with respect to the following:

1. What are the advantages and disadvantages of donor advised funds and supporting organizations to the charitable sector, donors, sponsoring organizations, and supported organizations, compared to private foundations and other charitable giving arrangements?

2. How should the amount and availability of a charitable contribution deduction for a transfer of assets to a donor advised fund or a supporting organization,

and the tax-exempt status or foundation classification of the donee, be determined if:

a. the transferred assets are paid to, or used for the benefit of, the donor or persons related to the donor (including, for example, salaries and other compensation arrangements, loans, or any other personal benefits or rights)?

b. the donor has investment control over the transferred assets?

c. there is an expectation that the donor’s “advice” will be followed, or will be the sole or primary consideration, in determining distributions from, or investment of the assets in, the supporting organization or the donor advised fund?

d. the donor or the donee has option rights ( e.g., puts, calls, or rights of first refusal) with respect to the transferred assets?

e. the transferred assets are appreciated real, personal, or intangible property that is not readily convertible to cash?

3. What are the effects or the expected effects of the PPA provisions (including the § 4958 excess benefit transaction tax amendments applicable to donor advised funds and supporting organizations) on the practices and behavior of donors, donor advised funds, sponsoring organizations, supporting organizations and supported organizations?

4. What would be appropriate payout requirements, and why, for:

a. donor advised funds? b. funds that are excepted from donor advised fund treatment by statute or by the authority of the Secretary, but for which the donor retains meaningful rights with respect to the investment or use of the transferred amounts?

c. supporting organizations? d. any other types of charities? 5. What are the advantages and disadvantages of perpetual existence of donor advised funds or supporting organizations?

6. What other types of charitable giving arrangements give rise to any of the above issues?

Section 1226 of the PPA provides that, not later than August 16, 2007, the Secretary shall submit to the Congress a report on the study. Comments should refer to Notice 2007–21 and be submitted by April 9, 2007, to:

2007–9 I.R.B. 613 February 26, 2007

be imposed on any “reportable transaction understatement,” as defined in section 6662A(b). Section 6662A(c) increases the penalty rate to 30 percent for the portion of any reportable transaction understatement with respect to which the relevant facts affecting the tax treatment of the reportable transaction were not adequately disclosed in accordance with regulations prescribed under section 6011. If the Commissioner (or the Commissioner’s delegate) rescinds the penalty under section 6707A, then the taxpayer is treated as meeting the reportable transaction disclosure requirements of the regulations under section 6011, and the 30-percent penalty rate under section 6662A(c) does not apply. See I.R.C. § 6664(d)(2).

.07 Section 812 of the Act also added section 6664(d) to the Code, which provides a reasonable cause exception to the section 6662A reportable transaction understatement penalty. Generally, this exception cannot apply to any reportable transaction understatement unless, among other things, the relevant facts affecting the tax treatment of the reportable transaction are adequately disclosed in accordance with the regulations prescribed under section 6011. If the Commissioner (or the Commissioner’s delegate) rescinds the penalty under section 6707A for failure to include reportable transaction information with a return or statement, then the taxpayer is treated as meeting the reportable transaction disclosure requirements of the regulations under section 6011, and the taxpayer has satisfied that prerequisite to establishing the reasonable cause exception to the reportable transaction understatement penalty under section 6662A. See I.R.C. § 6664(d)(2). Satisfying that one element of section 6664, however, will not alone establish reasonable cause.

.08 Section 903 of the Act amended section 6404(g)(2) to provide an exception to the general rule that interest and certain penalties will be suspended if the Secretary fails to provide a taxpayer with timely notice of an adjustment to the taxpayer’s liability. Under section 6404(g)(2)(E), interest and certain penalties will not be suspended with respect to any listed transaction as defined in section 6707A(c). Also, under section 6404(g)(2)(E), interest and certain penalties will not be suspended with respect to any reportable transaction (other than a listed transaction) that the