Part I. Rulings — Internal Revenue Bulletin 2008-29

Section 101.—Certain Death Benefits

A revenue procedure provides a procedure by which an issuer of a life insurance contract may automatically obtain a waiver, under section 7702(f)(8) or section 101(f)(3)(H) of the Internal Revenue Code, for certain reasonable errors that caused the contract to fail to satisfy the requirements of section 7702 or section 101(f), as applicable. Rev. Rul. 91–17, 1991–1 C.B. 190, is amplified. See Rev. Proc. 2008-42, page 160.

Section 817.—Treatment of Variable Contracts

26 CFR 1.817–5: Diversification requirements for variable annuity, endowment, and life insurance con- tracts.

A revenue procedure provides a procedure by which an issuer of a variable contract may remedy an inadvertent failure of a variable contract to satisfy the diversification requirements of section 817(h) of the Internal Revenue Code. Rev. Rul. 91–17, 1991–1 C.B. 190, is amplified; Rev. Proc. 92–25, 1992–1 C.B. 741, is superseded; Notice 2000–9, 2000–1 C.B. 449, is obsolete. See Rev. Proc. 2008-41, page 155.

Section 2031.—Definition of Gross Estate

26 CFR 20.2031–1: Definition of gross estate; valu- ation of property.

This revenue ruling addresses whether an interest in a restricted management account (RMA) will be valued for transfer tax purposes without any reduction or discount for the restrictions imposed by the RMA agreement. See Rev. Rul. 2008-35, page 116.

Section 2036.—Transfers With Retained Life Estate

26 CFR 20.2036–1: Transfers with retained life es- tate.

Section 2512.—Valuation of Gifts

26 CFR 25.2512–1: Valuation of property; in gen- eral.

26 CFR 25.2512–1: Valuation of property; in gen- eral. (Also Sections 2031, 2036, 2703; 20.2031–1, 20.2036–1, 25.2703–1.)

Transfer tax valuation of interest in restricted management account. This ruling addresses whether an interest in a restricted management account (RMA) will be valued for transfer tax purposes without any reduction or discount for the restrictions imposed by the RMA agreement.

Rev. Rul. 2008–35

ISSUE

In determining the value for federal gift and estate tax purposes of any part or all of a restricted management account (RMA), do the restrictions imposed by the RMA agreement result in a value that is less than the full fair market value of the assets in the RMA?

FACTS

In year 1, A, as the Depositor, enters into an agreement with Bank M pursuant to which A agrees to deposit marketable securities and cash into an account described as an RMA with Bank M . A was advised that the terms of the RMA were designed to enhance the investment performance of the portfolio by allowing Bank M and any investment advisor appointed by Bank M to maximize the portfolio’s long term performance without the risk of withdrawal of assets from the RMA before the expiration of the selected term of the RMA. Bank M agreed to accept a reduced investment management fee because Bank M was guaranteed a fee over the fixed term of the RMA.

During the term of the agreement, Bank M will manage the RMA and have complete discretion regarding investment of the assets held in the RMA. A will retain a property interest under applicable law in the assets held within the RMA and Bank M has no property rights with respect to assets in the account. All dividends, interest, and other income earned within the RMA is to be retained and reinvested, and no distributions of income or principal may be made from the RMA during the agreement term, except as otherwise noted in the agreement. The Depositor may nominate an investment advisor to be appointed by Bank M, but Bank M will have the power to select and replace the investment advisor during the term of the agreement. The agreement provides that it shall terminate on the fifth anniversary of the date of its execution. However, the term may be extended at any time by the Depositor, with the consent of Bank M . On the expiration of the term of the agreement, the assets in the RMA are to be paid to the Depositor or to the Depositor’s legal representative if the Depositor is no longer living.

During the term of the agreement, the Depositor, with the consent of Bank M, may assign or transfer all or any part of the RMA to a permitted transferee, defined in the agreement as a spouse, parent, or descendant of the Depositor, or to the estate or a trust for the benefit of a permitted transferee. If the Depositor exercises the assignment power with respect to only a part of the RMA, Bank M will create a separate RMA in the name of the designated transferee, and will select the assets (equal in value to the amount designated by the Depositor) to be transferred to the separate RMA. The terms of the agreement will apply to the new RMA, the recipient of the new RMA will be bound by the terms of the agreement, and the recipient will become the Depositor of the new RMA for purposes of the agreement. The recipient, as the new Depositor, will have a property interest under applicable law in the assets held within the new RMA. The RMA agreement is binding on the new Depositor’s heirs, successors, transferees, executors and administrators.

2008–29 I.R.B. 116 July 21, 2008

described in section 2703(b) must be independently satisfied for a right or restriction to meet this exception. Although Congress, in enacting section 2703, focused primarily on below-market buy-sell agreements, the legislative history of that section confirms that it is to have a broad application. Section 25.2703–1(a)(3) further clarifies that a right or restriction may be contained in a partnership agreement, articles of incorporation, corporate bylaws, a shareholders’ agreement, or any other agreement, or may be implicit in the capital structure of an entity.

The willing buyer-willing seller test, applicable for both estate and gift tax purposes, is an objective test to be applied without reference to a specific donor, decedent, or his or her beneficiaries. In Smith ex. rel. Estate of Smith v. United States, 391 F.3d 621, 628 (5 ^th Cir. 2004), the court concluded that, in determining the estate tax value of retirement accounts that could not be sold, “[a]pplying the [willing buyer-willing seller] test appropriately . . . entails looking at what a hypothetical buyer would pay for the assets in the Retirement Accounts.” Accordingly, no discount was allowed for the anticipated income tax that would be incurred if the assets were distributed to the account beneficiaries. See also Estate of Kahn v. Com- missioner, 125 T.C. 227, 237–240 (2005) (reaching a similar conclusion and denying a marketability discount with respect to an individual retirement account).

ANALYSIS

The fair market value of all property transferred during life or owned at death by A, including marketable securities and cash, is the amount subject to transfer tax, even if that property is held in an account with a broker, deposited with a bank, or in the possession of another person. The interposition of the RMA agreement to manage A’ s assets, reduces neither the fair market value of the transferred property for gift tax purposes nor the fair market value of the property included in A ’s gross estate for estate tax purposes. A at all times retains a property interest under applicable law in the assets in the RMA, and Bank M has no such interest in any of the assets. Notwithstanding the restrictions on A ’s ability to withdraw assets from the RMA and on A ’s ability to terminate or

All securities in the RMA requiring registration are to be inscribed in the name of Bank M’s nominee and negotiability is to be provided by Bank M as custodian. Bank M issues Forms 1099 to A with respect to income generated by assets held within the RMA. Purchasers of securities from the RMA are not subject to the restrictions imposed by the RMA agreement.

A funds the RMA in Year 1 with marketable securities and cash having a total fair market value of $50x. In Year 2, when the total fair market value of the assets held in the RMA is $60x, A assigns one-sixth of the RMA to A ’s child, B . In accordance with the terms of the agreement, Bank M establishes a new RMA with B designated as the Depositor, selects assets held in A ’s RMA then having a fair market value of $10x, and transfers those assets to B ’s RMA. The new RMA is subject to the terms of the same agreement and will terminate at the same time as specified in the agreement, unless B, as the Depositor of the new RMA, extends the termination date of that RMA.

In Year 3 with Bank M ’s consent, A extends the term of A ’s RMA to Year 7. A dies in Year 4. At the time of A ’s death, the fair market value of the assets held in A ’s RMA is $55x.

LAW

Section 2501 imposes a tax on the transfer of property by gift by an individual. Section 2511(a) provides that the tax imposed by section 2501 applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.

Section 2512(a) provides that if a gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift. Section 25.2512–1 of the Gift Tax Regulations provides that the value of the transferred property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.

Section 2031(a) provides that the value of the gross estate of a decedent includes the value at the date of death of all property, real or personal, tangible or intangible, wherever situated. Section

20.2031–1(b) of the Estate Tax Regulations provides that, in general, the value of every item of property includible in the decedent’s gross estate is its fair market value at the time of the decedent’s death, which is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Section 20.2031–2(g) provides that if the decedent holds a trading account with a broker, all securities belonging to the decedent and held by the broker at the date of death must be included at their fair market value as of the applicable valuation date, even if pledged to secure a debt. Similarly, under section 20.2031–5, the amount of cash belonging to the decedent at the date of death, whether in the possession of the decedent or another person, or deposited with a bank, is included in the gross estate.

Section 2036(a) provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life, or for any period not ascertainable without reference to his death, or for any period which does not in fact end before his death — (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.

Section 2703(a)(2) provides that, for federal estate, gift, and generation-skipping transfer tax purposes, the value of any property shall be determined without regard to any restriction on the right to sell or use such property. Under section 2703(b), section 2703(a)(2) does not apply to a restriction (1) that is a bona fide business arrangement; (2) that is not a device to transfer property to members of the decedent’s family for less than full and adequate consideration in money or money’s worth; and (3) whose terms are comparable to similar arrangements entered into by persons in an arm’s length transaction. Section 25.2703–1(b)(2) confirms that each of the three requirements

July 21, 2008 117 2008–29 I.R.B.

A revenue procedure provides a procedure by which an issuer of a life insurance contract may remedy an inadvertent non-egregious failure to comply with the modified endowment contract rules under section 7702A of the Internal Revenue Code. Rev. Proc. 2001–42, 2001–2 C.B. 212, and Rev. Proc. 2007–19, 2007–1 C.B. 515, are superseded. See Rev. Proc. 2008-39, page 143.

A revenue procedure provides a procedure by which an issuer of a life insurance contract may remedy the failure of one or more contracts to meet the definition of a life insurance contract under section 7702(a) or to satisfy the requirements of section 101(f) of the Internal Revenue Code. Rev. Rul. 91–17, 1991–1 C.B. 190, is superseded in part; Notice 99–48, 1999–2 C.B. 429, is superseded. See Rev. Proc. 2008-40, page 151.

Section 7216.—Disclosure or Use of Information by Preparers of Returns

26 CFR 301.7216–3T: Disclosure or use permitted only with the taxpayer’s consent (temporary).

T.D. 9409

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Amendments to the Section 7216 Regulations—Disclosure or Use of Information by Preparers of Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations that provide rules relating to the disclosure and use of tax return information by tax return preparers. These regulations provide updated

transfer an interest in the RMA (in this case, to anyone other than the natural objects of A ’s bounty), A remains the sole and outright owner of the assets in the RMA and the income from those assets. A has not changed the nature of A ’s property by entering into the RMA agreement. Consequently, A ’s assets held in the RMA constitute the property to be valued for gift and estate tax purposes.

In substance, the RMA agreement is a management contract between the owner of property and the person agreeing to serve as the property manager. Any restrictions imposed by the RMA agreement relate primarily to the performance of the management contract ( e.g ., by establishing and ensuring a long-term investment horizon to be pursued by the manager, and an appropriate fee in light of this circumstance), rather than to substantive restrictions on the underlying assets held in the RMA. Any restrictions on the ability to withdraw assets, terminate the agreement, or transfer interests in the RMA do not impact the price at which those assets would change hands between a willing buyer and a willing seller and, thus, do not affect the value of the assets in the RMA. In this regard, the RMA is comparable to the retirement fund and the individual retirement account at issue in the Smith and Kahn cases, above, in which the fair market value of assets within a particular type of account was held to not be affected by the value of those assets in the hands of the ultimate beneficiary. Further, the situation presented with respect to A ’s RMA is similar to that presented where the owner of a parcel of rental real estate enters into a contract with a property manager relating to the management of that property. The existence of the management contract has no effect on the fair market value of the real property subject to that contract.

In addition to the above analysis under sections 2511, 2512, and 2031, other Internal Revenue Code sections apply in determining that the amount subject to federal transfer tax is the fair market value of the assets in the RMA. Specifically, section 2036 applies to A ’s retained interest in the assets of the RMA and section 2703(a)(2) applies to disregard the restrictions on the sale or use of property for federal transfer tax valuation purposes. Further, to the extent A has the ability to terminate the rela

tionship with Bank M under state law principles of agency, the amount subject to federal transfer tax is the fair market value of the assets in the RMA.

HOLDINGS

The fair market value of an interest in an RMA for gift and estate tax purposes is determined based on the fair market value of the assets held in the RMA without any reduction or discount to reflect restrictions imposed by the RMA agreement on the transfer of any part or all of the RMA or on the use of the assets held in the RMA. Accordingly, A ’s gift to B in Year 2 is valued at $10X, the full fair market value of the assets transferred into B ’s separate RMA. Similarly, the amount to be included in A ’s gross estate for estate tax purposes with respect to the RMA is $55X, the full fair market value of the assets in the RMA at A ’s death.

DRAFTING INFORMATION

The principal author of this revenue ruling is Karlene M. Lesho of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling, contact Ms. Lesho at (202) 622–3090 (not a toll-free call).

Section 2703.—Certain Rights and Restrictions Disregarded

26 CFR 25.2703–1: Property subject to restrictive arrangements.

Section 7121.—Closing Agreements

26 CFR 301.7121–1: Closing agreements.

A revenue procedure provides a procedure by which an issuer of a life insurance contract may remedy a failure to account for charges for qualified additional benefits (QABs) under the expense charge rule of section 7702(c)(3)(B)(ii) of the Internal Revenue Code. Rev. Rul. 2005–6, 2005–1 C.B. 471, is amplified. See Rev. Proc. 2008-38, page 139.

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were explained in the preamble to the final regulations. The regulation was adopted in light of factors including: 1) the fact that it is not necessary for tax return preparers to disclose certain taxpayer identifying information to other tax return preparers who are assisting them in preparing a return; 2) the important role an SSN plays in the tax administration process, and the heightened potential for misuse when an SSN is readily associated with confidential information, such as tax return information; and 3) the heightened concern about the theft of taxpayer identifying information resulting from disclosures outside the United States.

Upon further consideration, the Treasury Department and IRS have concluded that §301.7216–3(b)(4) can be amended to provide flexibility to allow a tax return preparer within the United States to disclose an SSN with the taxpayer’s consent to a tax return preparer located outside of the United States if both tax return preparers have sufficient data security programs and procedures in operation to protect such important confidential information from misuse or unauthorized access or disclosure. These measures will significantly reduce the security risks associated with the disclosure of this information outside of the United States. Although SSN security is the primary focus of these regulations, the flexibility provided by these regulations will enable qualified tax return preparers to address situations in which there is a need for a tax return preparer in the United States to disclose an SSN to a tax return preparer located outside of the United States, as appropriate under the circumstances. This includes, but is not limited to, situations in which the tax return preparer located outside of the United States is a signing tax return preparer or requires an unredacted SSN to file a return on behalf of a taxpayer, the tax return preparer located outside the United States may need a copy of the entire return, including the taxpayer’s SSN (for example, to assist an expatriated U.S. taxpayer secure treaty benefits from the relevant foreign government), or the taxpayer prefers that the tax return preparer located within the United States disclose the taxpayer’s SSN to the tax return preparer located outside the United States (for example, because the taxpayer concludes that the data security protection provided by the tax return preparer in the United States and the

guidance regarding the disclosure of a taxpayer’s social security number to a tax return preparer located outside of the United States. The text of these regulations also serves as the text of the proposed regulations (REG–121698–08) set forth in the notice of proposed rulemaking on this subject in this issue of the Bulletin.

DATES: Effective Date: These regulations are effective on July 2, 2008.

Applicability Date: See §301.7216– 3T(d).

FOR FURTHER INFORMATION CONTACT: Lawrence E. Mack, (202) 622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends 26 CFR part 301 to provide modified rules relating to the ability of a tax return preparer located within the United States to disclose a taxpayer’s social security number constituting tax return information with the taxpayer’s consent to a tax return preparer located outside of the United States. In the accompanying and cross-referenced notice of proposed rulemaking, the Treasury Department and IRS request comments on the proposed rule from all interested persons.

On December 8, 2005, the Treasury Department and IRS published a notice of proposed rulemaking (REG–137243–02, 2006–1 C.B. 317) in the Federal Register (70 FR 72954) proposing amendments to the regulations under section 7216 (regarding the use or disclosure of tax return information by income tax return preparers). On January 3, 2008, the Treasury Department and IRS issued final regulations under section 7216 (T.D. 9375, 2008–5 I.R.B. 344) applicable to disclosures or uses of tax return information occurring on or after January 1, 2009. Thus, T.D. 9375 replaces previously issued final regulations that remain applicable to disclosures or uses of tax return information occurring prior to January 1, 2009.

T.D. 9375 included the revision of §301.7216–3(b)(4), which, for disclosures and uses of tax return information occurring on or after January 1, 2009, provides that an income tax return preparer located in the United States may not disclose the taxpayer’s social security number (SSN)

to a tax return preparer located outside of the United States even if the taxpayer consents to the disclosure. These temporary regulations modify the rules under §301.7216–3(b)(4).

Explanation of Provisions

The Treasury Department and IRS are amending the regulations under section 7216 applicable to disclosures and uses of tax return information occurring on or after January 1, 2009, to provide a limited exception to the general rule that an income tax return preparer located in the United States may not disclose a taxpayer’s SSN to a tax return preparer located outside of the United States. Section 301.7216–3(b)(4) provides that a tax return preparer located within the United States, including any territory or possession of the United States, may not obtain consent to disclose a taxpayer’s SSN to a tax return preparer located outside of the United States or any territory or possession of the United States. Thus, with one exception, if a tax return preparer located within the United States obtains consent from a taxpayer to disclose tax return information to another tax return preparer located outside of the United States, as provided under §§301.7216–3(a)(3)(i)(D), 301.7216–2(c)(2) and 301.7216–2(d), the tax return preparer located in the United States may not disclose the taxpayer’s SSN, and must redact or otherwise mask the taxpayer’s SSN before the tax return information is disclosed outside of the United States. The exception is limited to the circumstance in which a tax return preparer located inside the United States initially receives the SSN from a tax return preparer located outside the United States and the preparer within the United States retransmits the SSN to the preparer that provided the SSN. When a taxpayer-client requests that a tax return preparer within the United States transfer the return preparation engagement to a tax return preparer located outside the United States, the preparer still must redact or otherwise mask the taxpayer’s SSN before the information is disclosed and, in this situation, it will be incumbent upon the taxpayer to provide the SSN directly to the tax return preparer located abroad.

The revisions containing the SSN disclosure prohibition in §301.7216–3(b)(4)

July 21, 2008 119 2008–29 I.R.B.

or Form 1040EZ. Also, the regulations clarify that a tax return preparer located outside of the United States does not include a tax return preparer who is continuously and regularly employed in the United States or any territory or possession of the United States and who is in a temporary travel status outside of the United States. This clarification is necessary to avoid disruption of the performance of the duties of employees of tax return preparers based in the United States who are on a temporary travel assignment in a location outside of the United States.

The Treasury Department and IRS also conclude that the addition of the exception in §301.7216–3T(b)(4)(ii) appropriately balances concerns regarding safeguarding of sensitive tax return information and identity theft against the tax return preparers’ needs for disclosing SSNs and a taxpayer’s right to control access to his or her SSN. In a separate notice of proposed rulemaking published with these temporary regulations, the Treasury Department and IRS request comments on the proposed rules, as well as the guidance regarding the requirements for an adequate data protection safeguard in Section 4.07 of Revenue Procedure 2008–35.

Special Analyses

It has been determined that this Treasury decision 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 because they are interpretive regulations. Because these regulations are necessary to provide tax return preparers and taxpayers with immediate guidance on the application of the section 7216 rules regarding SSN masking requirements, particularly in light of the January 1, 2009 applicability date provided by the recently promulgated section 7216 regulations contained in T.D. 9375, and as these regulations are intended to provide a limited exception to, and relief from, the rule requiring SSN masking in all instances where tax return information is disclosed to a tax return preparer located outside of the United States and its territories and possessions, good cause would otherwise exist for dispens

tax return preparer located outside of the United States is sound).

In light of these considerations, the Treasury Department and IRS, pursuant to these temporary regulations, amend the regulations contained in T.D. 9375 (applicable to disclosures and uses of tax return information on or after January 1, 2009) to include an exception to §301.7216–3(b)(4). The exception in §301.7216–3T(b)(4)(ii) provides that a tax return preparer located within the United States, including any territory or possession of the United States, may obtain consent to disclose the taxpayer’s SSN to a tax return preparer located outside of the United States or any territory or possession of the United States if the tax return preparer discloses the SSN through the use of an “adequate data protection safeguard” as described in guidance published in the Internal Revenue Bulletin and verifies the maintenance of the adequate data protection safeguards in the request for the taxpayer’s consent pursuant to the specifications described in guidance published in the Internal Revenue Bulletin. The exception authorizes only those preparers with an adequate data protection safeguard in operation to request a taxpayer’s consent to disclose an SSN to a preparer located outside the United States that also has an adequate data protection safeguard. The Treasury Department and IRS anticipate that requiring tax return preparers that seek a taxpayer’s consent to disclose an SSN to a tax return preparer located abroad to maintain adequate data security would provide the further benefit of enhancing the level of security of any data transfer, including the data transfer of the taxpayer’s SSN, while providing additional flexibility to address situations in which there is a reason or need to disclose an SSN to a tax return preparer located abroad. Tax return preparers without an adequate data protection safeguard, or those preparers with an adequate data protection safeguard that seek to disclose an SSN to a tax return preparer located abroad that does not have an adequate data protection safeguard, must continue to comply with the general rule in §301.7216–3T(b)(4)(i), and are still required to mask any SSN prior to disclosure to a tax return preparer located outside the United States, or any territory or possession of the United States, even if

the taxpayer has consented to disclosure of an SSN.

Revenue Procedure 2008–35, published concurrently with these regulations, provides the relevant guidance regarding the exception in §301.7216–3T(b)(4)(ii) to the general rule requiring SSN masking. Section 4.07 of Revenue Procedure 2008–35 provides guidance regarding the requirements for an adequate data protection safeguard. Pursuant to Section 4.07, an “adequate data protection safeguard” is a data security program, policy and practice that meets or conforms to one of the following privacy or data security frameworks:

(1) The United States Department of Commerce “safe harbor” framework for data protection (or successor program);

(2) A foreign law data protection safeguard that includes a security component, for example, the European Commission’s Directive on Data Protection;

(3) A framework that complies with the requirements of a financial or similar industry-specific standard that is generally accepted as best practices for technology and security related to that industry, for example, the BITS (Financial Services Roundtable) Financial Institution Shared Assessment Program;

(4) The requirements of the AICPA/CICA Privacy Framework;

(5) The requirements of the most recent version of IRS Publication 1075, Tax In- formation Security Guidelines for Federal, State and Local Agencies and Entities ; or

(6) Any other data security framework that provides the same level of privacy protection as contemplated by one or more of the frameworks described in (1) through (5).

Section 4.04(1)(e)(ii) of Revenue Procedure 2008–35 provides guidance regarding mandatory language that must be included in each request for consent provided to an individual taxpayer by the tax return preparer that seeks consent to disclose an SSN to a return preparer located outside the United States or its territories or possessions. See §601.601(d)(2)(ii)(b).

These regulations clarify that the rule in §301.7216–3T(b)(4) applies only to a tax return preparer’s request for consent to disclose tax return information, including an SSN, from a taxpayer filing a return in the Form 1040 series, for example, Form 1040, Form 1040NR, Form 1040A,

2008–29 I.R.B. 120 July 21, 2008

where the tax return preparer within the United States discloses the SSN to a tax return preparer outside of the United States through the use of an adequate data protection safeguard as defined by the Secretary in guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)(b) of this chapter) and verifies the maintenance of the adequate data protection safeguards in the request for the taxpayer’s consent pursuant to the specifications described by the Secretary in guidance published in the Internal Revenue Bulletin.

(b)(5) and (c) [Reserved]. For further guidance, see §301.7216–3(b)(5) and (c).

(d) Effective/applicability date . This section applies to disclosures or uses of tax return information occurring on or after January 1, 2009. The applicability of this section expires on July 1, 2011.

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

Approved June 25, 2008.

Eric Solomon, Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 1, 2008, 8:45 a.m., and published in the issue of the Federal Register for July 2, 2008, 73 F.R. 37910)

Section 7702.—Life Insurance Contract Defined

ing with notice and public comment pursuant to 5 U.S.C. 553(b) and (c). For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referenced notice of proposed rulemaking published in this issue of the Bulletin. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

The principal author of these regulations is Lawrence E. Mack, Office of the Associate Chief Counsel (Procedure and Administration).

- - - -

Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 is amended by adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 301.7216–3T also issued under 26 U.S.C. 7216 * * * Paragraph 2. Section 301.7216–3 is amended by revising paragraph (b)(4) to read as follows:

§301.7216–3 Disclosure or use permitted only with the taxpayer’s consent .

- - - (b) - * (4) [Reserved]. For further guidance, see §301.7216–3T(b)(4).
- - - Paragraph 3. Section 301.7216–3T is added to read as follows:

§301.7216–3T Disclosure or use permitted only with the taxpayer’s consent (temporary) .

(a) [Reserved]. For further guidance, see §301.7216–3(a).

(b) Timing requirements and limita- tions —(1) through (3) [Reserved]. For

further guidance, see §301.7216–3(b)(1) through (3).

(4) No consent to the disclosure of a tax- payer’s social security number to a return preparer outside of the United States with respect to a taxpayers filing a return in the Form 1040 Series —(i) In general . Except as provided in paragraph (ii), a tax return preparer located within the United States, including any territory or possession of the United States, may not obtain consent to disclose the taxpayer’s social security number (SSN) with respect to taxpayers filing a return in the Form 1040 Series, for example, Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ, to a tax return preparer located outside of the United States or any territory or possession of the United States. Thus, if a tax return preparer located within the United States (including any territory or possession of the United States) obtains consent from an individual taxpayer to disclose tax return information to another tax return preparer located outside of the United States, as provided under §§301.7216–2(c) and 301.7216–2(d), the tax return preparer located in the United States may not disclose the taxpayer’s SSN, and the tax return preparer must redact or otherwise mask the taxpayer’s SSN before the tax return information is disclosed outside of the United States. If a tax return preparer located within the United States initially receives or obtains a taxpayer’s SSN from another tax return preparer located outside of the United States, however, the tax return preparer within the United States may, without consent, retransmit the taxpayer’s SSN to the tax return preparer located outside the United States that initially provided the SSN to the tax return preparer located within the United States. For purposes of this section, a tax return preparer located outside of the United States does not include a tax return preparer who is continuously and regularly employed in the United States or any territory or possession of the United States and who is in a temporary travel status outside of the United States.

(ii) Exception. A tax return preparer located within the United States, including any territory or possession of the United States, may obtain consent to disclose the taxpayer’s SSN to a tax return preparer located outside of the United States or any territory or possession of the United States

July 21, 2008 121 2008–29 I.R.B.

to fail to satisfy the requirements of section 7702 or section 101(f), as applicable. Rev. Rul. 91–17, 1991–1 C.B. 190, is amplified. See Rev. Proc. 2008-42, page 160.

Section 7702A.—Modified Endowment Contract Defined

A revenue procedure provides a procedure by which an issuer of a life insurance contract may

remedy a failure to account for charges for qualified additional benefits (QABs) under the expense charge rule of section 7702(c)(3)(B)(ii) of the Internal Revenue Code. Rev. Rul. 2005–6, 2005–1 C.B. 471, is amplified. See Rev. Proc. 2008-38, page 139.

Proc. 2001–42, 2001–2 C.B. 212, and Rev. Proc. 2007–19, 2007–1 C.B. 515, are superseded. See Rev. Proc. 2008-39, page 143.

2008–29 I.R.B. 122 July 21, 2008