Part I. Rulings — Internal Revenue Bulletin 2008-45

Section 1.—Tax Imposed

The Service provides inflation adjustments to the tax rate tables for individuals, trusts, and estates for taxable years beginning in 2009. In addition, the amounts of certain reductions allowed against the unearned income of minor children in computing the “kiddie tax” are adjusted. Also adjusted are the amounts used to determine whether a parent may elect to report the “kiddie tax” on the parent’s return. See Rev. Proc. 2008-66, page 1107.

Section 23.—Adoption Expenses

The Service provides inflation adjustments to the adoption credit allowed for the adoption of a child for taxable years beginning in 2009. The Service also provides inflation adjustments to the value used in calculating the modified adjusted gross income limitations used to determine the amount of adoption credit that is allowed in taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 24.—Child Tax Credit

The Service provides inflation adjustments for the value used in determining the amount of the credit that may be refundable for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 25A.—Hope and Lifetime Learning Credits

For taxable years beginning in 2009, the Service provides inflation adjustments for the amount of qualified tuition and related expenses that are taken into account in determining the amount of the Hope Scholarship Credit, and for the amount of a taxpayer’s modified adjusted gross income that is taken into account in determining the reduction in the amount of the Hope Scholarship and Lifetime Learning Credits otherwise available. See Rev. Proc. 2008-66, page 1107.

Section 32.—Earned Income

The Service provides inflation adjustments to the limitations on the earned income credit for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

The Service provides inflation adjustments to the amounts used to calculate the State housing credit ceiling used in determining the low-income housing credit for calendar year 2009. See Rev. Proc. 200866, page 1107.

Section 45A.—Indian Employment Credit

As a result of cost-of-living adjustments, the limitation on wages under section 45A regarding individuals eligible for the Indian employment credit, which was $40,000 for tax years beginning in 2008, is increased by $45,000 for tax years beginning in 2009. See Notice 2008-102, page 1106.

Section 59.—Other Definitions and Special Rules

The Service provides an inflation adjustment to the exemption amount used in computing the alternative minimum tax for a minor child subject to the “kiddie tax” for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 62.—Adjusted Gross Income Defined

The Service provides inflation adjustments to the amounts an eligible employer may pay in calendar year 2009 to certain welders and heavy equipment mechanics for rig-related expenses that are deemed substantiated under an accountable plan if paid in accordance with Rev. Proc. 2002–41, 2002–1 C.B. 1098. See Rev. Proc. 2008-66, page 1107.

Section 63.—Taxable Income Defined

The Service provides inflation adjustments to the standard deduction amounts (including the limitation in the case of certain dependents, and the additional standard deduction for the aged or blind) for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 68.—Overall Limitation on Itemized Deductions

The Service provides inflation adjustments to the overall limitation on itemized deductions for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 132.—Certain Fringe Benefits

The Service provides inflation adjustments to the limitations on the exclusion of income for a qualified transportation fringe benefit for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 135.—Income From United States Savings Bonds Used to Pay Higher Education Tuition and Fees

The Service provides inflation adjustments to the limitation on the exclusion of income from United States savings bonds for taxpayers who pay qualified higher education expenses for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 137.—Adoption Assistance Programs

The Service provides inflation adjustments to the maximum amount that can be excluded from an employee’s gross income in connection with a qualified adoption assistance program for taxable years beginning in 2009. The Service also provides inflation adjustments to the amount used to calculate the modified adjusted gross income limitations used to determine the amount that can be excluded from an employee’s gross income for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 146.—Volume Cap

The Service provides inflation adjustments to the amounts used to determine the State ceiling for the volume cap of private activity bonds for calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 147.—Other Requirements Applicable to Certain Private Activity Bonds

The Service provides an inflation adjustment to the loan limit amount on agricultural bonds for first-time

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farmers for calendar year 2009. See Rev. Proc. 200866, page 1107.

Section 148.—Arbitrage

26 CFR 1.148–5: Yield and valuation of investments.

The Service provides inflation adjustments for determining in the calendar year 2009 whether a broker’s commission or similar fee with respect to the acquisition of a guaranteed investment contract or investments purchased for a yield restricted defeasance escrow is reasonable. The Service provides an inflation adjustment to the computation credit determined under section 1.148–3(d)(4) of the proposed Income Tax Regulations for bond years ending in 2009. See Rev. Proc. 2008-66, page 1107.

Section 151.—Allowance of Deductions for Personal Exemptions

The Service provides inflation adjustments to the personal exemption and to the threshold amounts of adjusted gross income above which the exemption amount phases out for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 170.—Charitable, etc.,Contributions and Gifts

The Service provides inflation adjustments to the “insubstantial benefit” guidelines for calendar year 2009. Under the guidelines, a charitable contribution is fully deductible even though the contributor receives “insubstantial benefits” from the charity. See Rev. Proc. 2008-66, page 1107.

Section 179.—Election to Expense Certain Depreciable Business Assets

The Service provides inflation adjustments to the aggregate cost of section 179 property that a taxpayer may elect to treat as an expense for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 213.—Medical, Dental, etc., Expenses

The Service provides inflation adjustments to the limitation on the amount of eligible long-term care premiums includible in the term “medical care” for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 220.—Archer MSAs

The Service provides inflation adjustments to the amounts used to determine whether a health plan is

a “high deductible health plan” for purposes of determining whether an individual is eligible for a deduction for cash paid to a medical savings account for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 221.—Interest on Education Loans

The Service provides inflation adjustments to the income limitations used to determine the allowable deduction for interest on education loans for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 415.—Limitations on Benefits and Contributions Under Qualified Plans

Certain cost-of-living adjustments effective January 1, 2009, applicable to the dollar limitations on benefits and contributions under qualified retirement plans are set forth. Other limitations applicable to deferred compensation plans are also affected by these adjustments. See Notice 2008-102, page 1106.

Section 467.—Certain Payments for the Use of Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month

of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 512.—Unrelated Business Taxable Income

The Service provides an inflation adjustment to the maximum amount of annual dues that can be paid to certain agricultural or horticultural organizations without any portion being treated as unrelated trade or business income by reason of any benefits or privileges available to members for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 513.—Unrelated Trade or Business

The Service provides an inflation adjustment to the maximum cost of a “low cost article” for taxable years beginning in 2009. Funds raised through a charity’s distribution of “low cost articles” will not be treated as unrelated business income to the charity. See Rev. Proc. 2008-66, page 1107.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

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Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 877.—Expatriation to Avoid Tax

The Service provides an inflation adjustment to the amount used for calendar year 2009 to determine whether an individual’s loss of United States citizenship had the avoidance of United States tax as one of its principal purposes. See Rev. Proc. 2008-66, page 1107.

Section 877A.—Tax Responsibilities of Expatriation

The Service provides an inflation adjustment to the amount that reduces the amount that would be includible in the gross income of a covered expatriate

for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 911.—Citizens or Residents of the United States Living Abroad

The Service provides an inflation adjustment to the amount of foreign earned income that may be excluded from gross income for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for November 2008.

Rev. Rul. 2008–50

This revenue ruling provides various prescribed rates for federal income tax purposes for November 2008 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, and before December 31, 2013, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

Applicable Federal Rates (AFR) for November 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 1.63% 1.62% 1.62% 1.61% 110% AFR 1.79% 1.78% 1.78% 1.77% 120% AFR 1.95% 1.94% 1.94% 1.93% 130% AFR 2.12% 2.11% 2.10% 2.10%

Mid-term

AFR 2.97% 2.95% 2.94% 2.93% 110% AFR 3.28% 3.25% 3.24% 3.23% 120% AFR 3.57% 3.54% 3.52% 3.51% 130% AFR 3.88% 3.84% 3.82% 3.81% 150% AFR 4.48% 4.43% 4.41% 4.39% 175% AFR 5.23% 5.16% 5.13% 5.11%

Long-term

AFR 4.24% 4.20% 4.18% 4.16% 110% AFR 4.67% 4.62% 4.59% 4.58% 120% AFR 5.10% 5.04% 5.01% 4.99% 130% AFR 5.53% 5.46% 5.42% 5.40%

2008–45 I.R.B. 1098 November 10, 2008

REV. RUL. 2008–50 TABLE 2

Adjusted AFR for November 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 2.20% 2.19% 2.18% 2.18% AFR

Mid-term adjusted AFR 3.35% 3.32% 3.31% 3.30%

Long-term adjusted 4.94% 4.88% 4.85% 4.83% AFR

REV. RUL. 2008–50 TABLE 3

Rates Under Section 382 for November 2008

Adjusted federal long-term rate for the current month 4.94%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.94%

REV. RUL. 2008–50 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for November 2008

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.83%

Appropriate percentage for the 30% present value low-income housing credit 3.36%

REV. RUL. 2008–50 TABLE 5

Rate Under Section 7520 for November 2008

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 3.6%

without including the amount in taxable gifts for calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 4161.—Imposition of Tax

The Service provides an inflation adjustment to the amount of excise tax imposed for calendar year 2009 on the first sale by a manufacturer, producer, or importer of any shaft of a type used in the manufacture of certain arrows. See Rev. Proc. 2008-66, page 1107.

Section 4261.—Imposition of Tax

The Service provides inflation adjustments to the amounts of the excise taxes on passenger air transportation beginning or ending in the United States and

Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 2032A.—Valuation of Certain Farm, etc., Real Property

The Service provides an inflation adjustment to the maximum amount by which the value of certain farm and other qualified real property included in a decedent’s gross estate may be decreased for purposes of

valuing the estate of a decedent dying in calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 2503.—Taxable Gifts

The Service provides an inflation adjustment to the amount of gifts that may be made to a person in a calendar year without including the amount in taxable gifts for calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 2523.—Gift to Spouse

The Service provides an inflation adjustment to the amount of gifts that may be made in a calendar year to a spouse who is not a citizen of the United States

November 10, 2008 1099 2008–45 I.R.B.

for each domestic segment of air transportation for calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 6033.—Returns by Exempt Organizations

The Service provides an inflation adjustment to the amount of dues certain exempt organizations with nondeductible lobbying expenditures can charge and still be excepted from reporting requirements for taxable years beginning in 2009. See Rev. Proc. 200866, page 1107.

Section 6039F.—Notice of Large Gifts Received From Foreign Persons

The Service provides an inflation adjustment to the amount of gifts received, in a taxable year from foreign persons, that triggers a reporting requirement for a United States person for taxable years beginning in 2009. See Rev. Proc. 2008-66, page 1107.

Section 6323.—Validity and Priority Against Certain Persons

The Service provides inflation adjustments for calendar year 2009 to (1) the maximum amount of a casual sale of personal property below which a federal tax lien will not be valid against a purchaser of the property and (2) the maximum amount of a contract for the repair or improvement of certain residential property at or below which a federal tax lien will not be valid against a mechanic’s lienor. See Rev. Proc. 2008-66, page 1107.

Section 6334.—Property Exempt From Levy

The Service provides inflation adjustments to the value of certain property exempt from levy (fuel, provisions, furniture, household personal effects, arms for personal use, livestock, poultry, and books and tools of a trade, business, or profession) for calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 6601.—Interest on Underpayment, Nonpayment, or Extensions of Time for Payment, of Tax

The Service provides an inflation adjustment to the amount used to determine the amount of interest charged on a certain portion of the estate tax payable in installments for the estate of a decedent dying in calendar year 2009. See Rev. Proc. 2008-66, page 1107.

Section 6707A.—Penalty for Failure to Include Reportable Transaction Information With Return

26 CFR 301.6707A–1T: Failure to include on any re- turn or statement any information required to be dis- closed under section 6011 with respect to a reportable transaction.

T.D. 9425

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Section 6707A and the Failure to Include on Any Return or Statement any Information Required to be Disclosed Under Section 6011 With Respect to a Reportable Transaction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations regarding the imposition of penalties under section 6707A of the Internal Revenue Code (Code) for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. The text of the temporary regulations also serves as the text of the proposed regulations (REG–160868–04) 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 September 11, 2008.

Applicability Date: For dates of applicability, see §301.6707A–1T(f).

FOR FURTHER INFORMATION CONTACT: Matthew Cooper, (202) 622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR part 301 under section 6707A of

the Code. Section 6707A was added to the Code by section 811 of the American Jobs Creation Act of 2004, Public Law 108–357 (118 Stat. 1418) (AJCA), enacted on October 22, 2004. Section 6707A provides a monetary penalty for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction. The penalty applies to returns and statements the due date for which is after October 22, 2004, and which were not filed before that date.

The amount of the section 6707A penalty for failure to include information required under section 6011 with respect to a reportable transaction, other than a listed transaction, is $10,000 in the case of an individual, and $50,000 in any other case. If the failure is with respect to a listed transaction, the penalty is increased to $100,000 in the case of an individual, and $200,000 in any other case.

Section 6707A(d)(1) grants the Commissioner authority to rescind all or a portion of any penalty imposed under section 6707A if (1) the violation relates to a reportable transaction that is not a listed transaction and (2) rescission of the penalty would promote compliance with the requirements of the Code and effective tax administration. Section 6707A(d)(2) provides that the Commissioner’s determination whether to rescind the penalty may not be reviewed in any judicial proceeding. Rev. Proc. 2007–21, 2007–9 I.R.B. 613, provides the procedures to follow to request rescission of all or any portion of a penalty assessed under section 6707A with respect to a reportable transaction other than a listed transaction.

Section 6707A(e) requires a person that is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934, or consolidated reports with another person, to disclose in those reports for the periods specified by the Secretary, the requirement to pay the penalties set forth in section 6707A(e)(2) (for example, certain penalties under section 6662(h) and penalties under sections 6662A(c), 6707A(b)(2)), or 6707A(e)). Rev. Proc. 2005–51, 2005–2 C.B. 296, which was amplified by Rev. Proc. 2007–25, 2007–12 I.R.B. 761, describes the reports on which the disclosures must be made, the information that must be disclosed, and the deadlines by

2008–45 I.R.B. 1100 November 10, 2008

to an original or amended return and failed to provide a copy of a required disclosure statement to OTSA would be subject to a single penalty under section 6707A.

Notice 2005–11 requested comments regarding the rules and standards relating to section 6707A, including the factors that should be considered in exercising the rescission authority under section 6707A(d) and how voluntary, but untimely disclosures (for example, if a taxpayer failed to make a required disclosure upon filing a return, but subsequently submits the required disclosure statement) should be treated in applying the section 6707A penalty. Since then, many have observed that there is little incentive for remedial action if a complete but delinquent disclosure statement is penalized as harshly as a complete failure to submit a disclosure statement. The Treasury Department and the IRS are currently considering whether it would be appropriate to publish a rule that would treat as timely a Form 8886 voluntarily filed prior to the date the IRS first contacts the taxpayer concerning a tax examination for the taxable period in which the taxpayer participated in the reportable transaction. Other appropriate dates by which filings must be made to qualify for relief would be considered as well. Comments are specifically requested on the necessity and appropriateness of publishing guidance addressing this issue.

Explanation of Provisions

These temporary regulations provide rules reflecting the AJCA enactment of the section 6707A penalty for the failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction.

These temporary regulations provide that a taxpayer may incur a separate penalty under section 6707A with respect to each reportable transaction that the taxpayer was required, but failed, to disclose within the time and in the form and manner required under §1.6011–4(d) and (e) or as stated in other published guidance. A taxpayer who is required to disclose a reportable transaction on a Form 8886 (or successor form) filed with a return, amended return, or application for tentative refund and who also is required to disclose the transaction on a Form 8886

which persons must make the disclosures on the reports to avoid additional penalties under section 6707A(e). If the person fails to disclose the requirement to pay the penalties, then section 6707A(e) requires that the failure be treated as a failure to disclose a listed transaction to which an additional section 6707A penalty applies. Because a penalty imposed under section 6707A(e) is treated as a penalty imposed with respect to a listed transaction, the penalty is not subject to rescission.

To implement the pertinent provisions of the AJCA, the Treasury Department and the IRS proposed amendments to the rules relating to the disclosure of reportable transactions by taxpayers under section 6011 (see Prop. Treas. Reg. §1.6011–4, REG–103038–05, 2006–2 C.B. 1049) and finalized those proposed regulations in T.D. 9350, 2007–38 I.R.B. 607 (72 FR 43146) published on August 3, 2007. Sections 1.6011–4(a) and (d) generally require that a taxpayer file a disclosure statement on Form 8886, “Reportable Transaction Disclosure Statement” (or successor form) for each reportable transaction in which the taxpayer participated. Section 1.6011–4(e)(1) provides that a disclosure statement for a reportable transaction must be attached to the taxpayer’s tax return for each taxable year for which a taxpayer participates in a reportable transaction. In addition, a disclosure statement for a reportable transaction must be attached to each amended return that reflects a taxpayer’s participation in a reportable transaction. The taxpayer also must send a copy of the disclosure statement to the IRS Office of Tax Shelter Analysis (OTSA) at the same time that any disclosure statement pertaining to a particular reportable transaction is first filed. If a reportable transaction results in a loss that is carried back to a prior year, the disclosure statement for the reportable transaction must be attached to the taxpayer’s application for tentative refund or amended tax return for that prior year. If a taxpayer who is a partner in a partnership, a shareholder in an S corporation, or a beneficiary of a trust receives a timely Schedule K–1, “Partner’s Share of Income, Deductions, Credits, etc.,” less than 10 calendar days before the due date of the taxpayer’s return (including extensions) and, based on receipt of the timely Schedule K–1, the taxpayer determines that the taxpayer

participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 60 calendar days after the due date of the taxpayer’s return (including extensions).

For transactions entered into after August 2, 2007, §1.6011–4(e)(2)(i) provides that if a transaction becomes a listed transaction or a transaction of interest after the filing of a taxpayer’s tax return (including an amended return) reflecting the taxpayer’s participation in the listed transaction or transaction of interest and before the end of the period of limitations for assessment of tax for any taxable year in which the taxpayer participated in the listed transaction or transaction of interest, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction became a listed transaction or a transaction of interest, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest.

Published guidance identifying listed transactions or transactions of interest involving estate, gift, employment, and certain excise taxes will specify the manner in which taxpayers must disclose those transactions. See §§20.6011–4; 25.6011–4; 31.6011–4; 53.6011–4; 54.6011–4; and 56.6011–4. The Treasury Department and IRS issued Notice 2005–11, 2005–1 C.B. 493, providing interim guidance regarding the imposition and rescission of penalties under section 6707A (see §601.601(d)(2)(ii)( b )). Specifically, the notice stated that the IRS will impose a penalty under section 6707A with respect to each failure to disclose a reportable transaction within the time and in the form and manner provided by section 6011 and the regulations thereunder. Accordingly, a taxpayer would be subject to a penalty under section 6707A for: (1) the failure to attach an appropriate reportable transaction disclosure statement to an original or amended return; or (2) the failure to provide a copy of an appropriate disclosure statement to OTSA, if required, within the time and in the form and manner provided by section 6011 and the regulations thereunder. A taxpayer that failed to attach a reportable transaction disclosure statement

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Effect on other Documents

The temporary regulations supersede Notice 2005–11.

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. The temporary regulations are necessary to promote taxpayers’ immediate compliance with the regulations recently finalized under section 6011 and to provide for regulatory relief in appropriate circumstances, including the additional taxpayer favorable factor of whether the penalty assessed is disproportionately larger than the tax benefit received. 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 Code, these 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 Matthew Cooper of the 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 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.6707A–1T is added to read as follows:

(or successor form) with OTSA, is subject to only a single section 6707A penalty for failure to make either one or both of those disclosures. Additionally, these temporary regulations define “reportable transaction” and “listed transaction” by reference to the regulations under section 6011.

These temporary regulations restate the existing authority of the Secretary to prescribe the procedures to request rescission of a section 6707A penalty with respect to a nonlisted reportable transaction by revenue procedure or other guidance published in the Internal Revenue Bulletin. Rev. Proc. 2007–21 describes the procedures for requesting rescission of a penalty assessed under section 6707A, 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.

These temporary regulations adopt factors mentioned in the legislative history to section 6707A that the Commissioner (or the Commissioner’s delegate) should take into account during the determination whether to rescind all or a portion of any penalty imposed under section 6707A. See H.R. Conf. Rep. No. 755, 108 ^th

Cong., 2d Sess. at 599 (2004). Factors that these regulations identify as weighing in favor of rescission reflect circumstances that suggest that sustaining assessment of the penalty is against equity and good conscience.

These temporary regulations generally adopt the list of factors stated in Rev. Proc. 2007–21. One additional factor these regulations identify as weighing in favor of granting rescission is whether the penalty assessed is disproportionately larger than the tax benefit received. The factors identified in these temporary regulations do not represent an exclusive list, and no single factor will be determinative of whether to grant rescission in any particular case. Rather, the Commissioner (or the Commissioner’s delegate) will consider and weigh all relevant factors, regardless of whether the factor is included in this list.

Because it is the policy of the IRS to administer penalties in a manner that pro

motes voluntary compliance with the tax laws, it will weigh heavily in favor of rescission if a taxpayer voluntarily files the form required under section 6011: (i) prior to the date the IRS first contacts the taxpayer (including contacts by the IRS with any partnership in which the taxpayer is a partner, any S corporation in which the taxpayer is a shareholder, or any trust in which the taxpayer is a beneficiary) concerning a tax examination for the tax period in which the taxpayer participated in the reportable transaction; and (ii) other circumstances suggest that the taxpayer did not delay filing an untimely but properly completed Form 8886 until after the IRS had taken steps to identify the taxpayer’s participation in the reportable transaction in question. See IRS Policy Statement 20–1 (June 29, 2004). The temporary regulations mirror Rev. Proc. 2007–21 in providing that a rescission request is not the appropriate forum to contest whether the elements necessary to support a penalty under section 6707A exist. That question is for the examining agent, the IRS Appeals Division, and the courts. A rescission determination is based on the premise that a violation of section 6707A exists but, nonetheless, the penalty should be rescinded (or abated). Accordingly, the temporary regulations provide that the Commissioner (or the Commissioner’s delegate) will not consider whether the taxpayer in fact failed to comply with section 6011. Furthermore, the temporary regulations provide that the Commissioner (or the Commissioner’s delegate) will not take into consideration doubt as to liability for, or collectibility of, the penalties in determining whether to rescind the penalty.

Additionally, these temporary regulations restate the existing authority of the Secretary to prescribe by revenue procedure or other guidance published in the Internal Revenue Bulletin the manner in which taxpayers must disclose the requirement to pay certain penalties on reports filed with the Securities and Exchange Commission. Rev. Procs. 2005–51 and 2007–25 are the current published guidance items that provide these disclosure rules and remain effective until further guidance is issued in the form of regulations or other guidance that explicitly supersedes these two documents.

2008–45 I.R.B. 1102 November 10, 2008

year. Shareholder V fails to attach the Form 8886 to her 2008 individual income tax return but files a proper and complete Form 8886 with OTSA on June 12, 2009. Section 1.6011–4(e)(1) of this chapter provides that if a taxpayer who is a partner in a partnership, a shareholder in an S corporation, or a beneficiary of a trust receives a timely Schedule K–1 less than 10 calendar days before the due date of the taxpayer’s return (including extensions) and, based on receipt of the timely Schedule K–1, the taxpayer determines that the taxpayer participated in a reportable transaction, the disclosure statement will not be considered late if the taxpayer discloses the reportable transaction by filing a disclosure statement with OTSA within 60 calendar days after the due date of the taxpayer’s return (including extensions). Accordingly, Shareholder V is not subject to a penalty under section 6707A for failure to disclose.

Example 6 . In July 2008, Taxpayer W participates in Transaction Z, a transaction that is not reportable as of April 15, 2009, the date Taxpayer W files his individual income tax return for 2008. On July 15, 2009, Transaction Z is identified as a transaction of interest. Section 1.6011–4(e)(2)(i) of this chapter provides that if a transaction that is not otherwise a reportable transaction becomes a listed transaction or a transaction of interest after the taxpayer has filed a tax return (including an amended return) reflecting the taxpayer’s participation in the listed transaction or transaction of interest and before the end of the period of limitations for assessment of tax for any taxable year in which the taxpayer participated in the listed transaction or transaction of interest, then a disclosure statement must be filed with OTSA within 90 calendar days after the date on which the transaction became a listed transaction or transaction of interest, regardless of whether the taxpayer participated in the transaction in the year the transaction became a listed transaction or a transaction of interest. Taxpayer W fails to file a Form 8886 with OTSA by October 13, 2009, 90 calendar days after the date that the transaction was identified as a transaction of interest. Accordingly, Taxpayer W is subject to a penalty under section 6707A.

Example 7 . Taxpayer X is required to attach a Form 8886 to its return for the 2008 taxable year with respect to participation in a listed transaction. Taxpayer X attaches the Form 8886 to its return in a timely manner. The Form 8886, however, does not describe any of the potential tax benefits expected to result from this transaction and states that information will be provided upon request. Because the Form 8886 does not describe any of the potential tax benefits expected to result from the transaction and merely provides that the information will be provided upon request, the Form 8886 filed by Taxpayer X is incomplete and does not satisfy the requirements set forth in §1.6011–4(d) of this chapter. Taxpayer X is subject to a penalty under section 6707A for failure to disclose in the appropriate manner.

(d) Rescission authority —(1) In gen- eral. The Commissioner (or the Commissioner’s delegate) may rescind the section 6707A penalty if— (i) The violation relates to a reportable transaction that is not a listed transaction, and

§301.6707A–1T Failure to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction .

(a) In general . Any person who fails to include on any return or statement any information required to be disclosed under section 6011 with respect to a reportable transaction may be subject to a monetary penalty. The penalty for failure to include information with respect to a reportable transaction, other than a listed transaction, is $10,000 in the case of a natural person, and $50,000 in any other case. The penalty for failure to include information with respect to a listed transaction is $100,000 in the case of a natural person, and $200,000 in any other case. The section 6707A penalty is in addition to any other penalty that may be imposed.

(b) Definitions —(1) Reportable trans- action . The term “reportable transaction” is defined in §1.6011–4(b)(1) of this chapter.

(2) Listed transaction . The term “listed transaction” is defined in section 6707A(c) of the Code and §1.6011–4(b)(2) of this chapter.

(c) Assessment of the penalty —(1) In general . The Internal Revenue Service (IRS) may assess a penalty under section 6707A with respect to each failure to disclose a reportable transaction within the time and in the form and manner provided by §1.6011–4(d) and (e) of this chapter or pursuant to the time, form, and manner stated in other published guidance. A taxpayer who is required to disclose a reportable transaction with a return, amended return, or application for tentative refund and who also is required to disclose the transaction on a Form 8886, “Reportable Transaction Disclo- sure Statement” (or successor form), filed with the IRS Office of Tax Shelter Analysis (OTSA), is subject to only a single section 6707A penalty for failure to make either one or both of those disclosures. If section 6011 and the regulations thereunder require a disclosure statement to be filed at the time that a return is filed, the disclosure statement is considered to be timely filed if it is filed at the same time as the return, even if the return is filed untimely after its due date.

(2) Examples . The rules of paragraph (c)(1) of this section are illustrated by the following examples:

Example 1 . Taxpayer T is required to attach a Form 8886 to its return for the 2007 taxable year and to send a copy of the Form 8886 to OTSA at the time it files its return. Taxpayer T fails to attach the Form 8886 to its return and fails to send a copy of the Form 8886 to OTSA. Taxpayer T is subject to a single penalty under section 6707A for failure to disclose because Taxpayer T failed to comply with the disclosure requirements of section 6011. A penalty under section 6707A also would apply if Taxpayer T had failed to comply with only one of the two requirements.

Example 2 . Same as Example 1, except that Taxpayer T also subsequently files an amended return for 2007 that reflects Taxpayer T’s participation in the reportable transaction. Taxpayer T fails to attach a Form 8886 to the amended return as required by §1.6011–4(e)(1) of this chapter. Taxpayer T is subject to an additional penalty under section 6707A for failing to disclose a reportable transaction.

Example 3 . In November 2009, Taxpayer U participates in a reportable transaction resulting in a loss that is carried back to 2008. Taxpayer U fails to attach a Form 8886 to its 2008 amended return claiming the loss carryback. Section 1.6011–4(e)(1) of this chapter requires Taxpayer U to attach a Form 8886 to its amended return for the 2008 taxable year. Taxpayer U is subject to a penalty under section 6707A.

Example 4 . Taxpayer P participates in a nonlisted reportable transaction and is required to attach a Form 8886 to its return for the 2008 taxable year that is due on March 16, 2009. Taxpayer P timely files its return but fails to attach the Form 8886 to its return. After the due date of Taxpayer P’s return and without an extension of time to file, Taxpayer P files an amended return relating to the 2008 taxable year to which Taxpayer P attaches the Form 8886. Taxpayer P is subject to a penalty under section 6707A for failure to disclose because Taxpayer P failed to comply with the disclosure requirements of section 6011 by not attaching a Form 8886 to its return for the 2008 taxable year that was timely filed on or before the due date of March 16, 2009. A penalty under section 6707A also would apply if Taxpayer P had failed to attach a Form 8886 to its amended return. Taxpayer P, nevertheless, may file a complete and proper Form 8886 and request in writing rescission of the penalties assessed within 30 days after the date the IRS sends notice and demand for payment of the penalties in accordance with Rev. Proc. 2007–21. The filing of the untimely Form 8886 will weigh heavily in favor of rescission provided that Taxpayer P files the Form 8886 prior to the date the IRS first contacts the taxpayer concerning a tax examination for the 2008 taxable year and there are no other circumstances that suggest that Taxpayer P delayed filing the Form 8886 until after the IRS had taken steps to identify Taxpayer P’s participation in the reportable transaction in question.

Example 5 . Shareholder V, a shareholder in an S Corporation, receives a timely Schedule K–1 “Partner’s Share of Income, Deductions, Credits, etc.,” on April 10, 2009, and determines that she is required to attach a Form 8886 to her individual income tax return for the 2008 taxable

November 10, 2008 1103 2008–45 I.R.B.

consolidated reports with another person) must disclose in periodic reports filed with the SEC the requirement to pay each of the following penalties:

(i) The penalty imposed by section 6707A(a) in the amount of $200,000 for failure to disclose a listed transaction.

(ii) The accuracy-related penalty imposed by section 6662A(a) at the 30-percent rate determined under section 6662A(c) for a 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.

(iii) The accuracy-related penalty imposed by section 6662(a) at the 40-percent rate determined under section 6662(h) for a gross valuation misstatement, if the taxpayer (but for the exclusionary rule of section 6662A(e)(2)(C)(ii)) would have been subject to the accuracy-related penalty under section 6662A(a) at the 30-percent rate determined under section 6662A(c).

(iv) The penalty described in paragraph (e)(3) of this section for failure to disclose in periodic reports filed with the SEC the requirement to pay any of the penalties described in paragraphs (e)(1)(i) through (iii) or (e)(3) of this section.

(2) Manner and content of disclosure . The Secretary may prescribe the manner in which disclosure of the requirement to pay the penalties identified in paragraph (e)(1) of this section must be made on reports filed with the SEC, including identification of the specific SEC form and section thereof in which the taxpayer must make the disclosure as well as specification of the timing and contents of the disclosure, by publishing a revenue procedure or other guidance in the Internal Revenue Bulletin.

(3) Penalty for failure to disclose in SEC filings . Any taxpayer who is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file consolidated reports with another person) may be subject to a penalty in the amount of $200,000 for each failure to disclose the requirement to pay a penalty identified in paragraphs (e)(1)(i) through (e)(1)(iii) of this section in the manner specified by revenue procedure or other guidance published in the Internal Revenue Bulletin. The taxpayer also may be subject to an additional penalty in the amount of $200,000 for each failure to

(ii) Rescinding the penalty would promote compliance with the requirements of the Code and effective tax administration.

(2) Requesting rescission . The Secretary may prescribe the procedures for a taxpayer to request rescission of a section 6707A penalty with respect to a reportable transaction other than a listed transaction by publishing a revenue procedure or other guidance in the Internal Revenue Bulletin.

(3) Factors that weigh in favor of grant- ing rescission. In determining whether rescission would promote compliance with the requirements of the Code and effective tax administration, the Commissioner (or the Commissioner’s delegate) will take into account the following list of factors that weigh in favor of granting rescission. This is not an exclusive list and no single factor will be determinative of whether to grant rescission in any particular case. Rather, the Commissioner (or the Commissioner’s delegate) will consider and weigh all relevant factors, regardless of whether the factor is included in this list.

(i) The taxpayer, upon becoming aware that it failed to disclose a reportable transaction properly, filed a complete and proper, albeit untimely, Form 8886 (or successor form). This factor will weigh heavily in favor of rescission provided that—

(A) the taxpayer files the Form 8886 prior to the date the IRS first contacts the taxpayer (including contacts by the IRS with any partnership in which the taxpayer is a partner, any S corporation in which the taxpayer is a shareholder, or any trust in which the taxpayer is a beneficiary) concerning a tax examination for the tax period in which the taxpayer participated in the reportable transaction; and

(B) other circumstances suggest that the taxpayer did not delay filing an untimely but properly completed Form 8886 until after the IRS had taken steps to identify the taxpayer’s participation in the reportable transaction in question.

(ii) The failure to disclose properly was due to an unintentional mistake of fact that existed despite the taxpayer’s reasonable attempts to ascertain the correct facts with respect to the transaction.

(iii) The taxpayer has an established history of properly disclosing other reportable transactions and complying with other tax laws.

(iv) The taxpayer demonstrates that the failure to include on any return or statement any information required to be disclosed under section 6011 arose from events beyond the taxpayer’s control.

(v) The taxpayer cooperates with the IRS by providing timely information with respect to the transaction at issue that the Commissioner (or the Commissioner’s delegate) may request in consideration of the rescission request. In considering whether a taxpayer cooperates with the IRS, the Commissioner (or the Commissioner’s delegate) will take into account whether the taxpayer meets the deadlines described in Rev. Proc. 2007–21 (or successor document) (see §601.601(d)(2)(ii)( b ) of this chapter) for complying with requests for additional information.

(vi) Assessment of the penalty weighs against equity and good conscience, including whether the penalty is disproportionate to the tax benefit received and whether the taxpayer demonstrates that there was reasonable cause for, and the taxpayer acted in good faith with respect to, the failure to timely file or to include on any return any information required to be disclosed under section 6011. An important factor in determining reasonable cause and good faith is the extent of the taxpayer’s efforts to ensure that persons who prepared the taxpayer’s return were informed of the taxpayer’s participation in the reportable transactions. The presence of reasonable cause, however, will not necessarily be determinative of whether to grant rescission.

(4) Absence of favorable factors weighs against rescission . The absence of facts establishing the factors described in paragraph (d)(3) of this section weighs against granting rescission. The absence of any one of these factors, however, will not necessarily be determinative of whether to grant rescission.

(5) Factors not considered . In determining whether to grant rescission, the Commissioner (or the Commissioner’s delegate) will not consider doubt as to liability for, or collectibility of, the penalties.

(e) Reports to the Securities and Ex- change Commission (SEC) —(1) In gen- eral . Under section 6707A(e), a taxpayer who is required to file periodic reports under section 13 or 15(d) of the Securities Exchange Act of 1934 (or is required to file

2008–45 I.R.B. 1104 November 10, 2008

disclose a penalty arising under this section in the manner specified by revenue procedure or other guidance published in the Internal Revenue Bulletin. The penalty provided by this paragraph is not subject to rescission as described in paragraph (d) of this section.

(f) Effective/applicability date —(1) The rules of this section apply to disclosure statements that are due after September 11, 2008. (2) The applicability of this section expires on or before September 9, 2011.

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

Approved September 5, 2008.

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

(Filed by the Office of the Federal Register on September 10, 2008, 8:45 a.m., and published in the issue of the Federal Register for September 11, 2008, 73 F.R. 52784)

Section 7430.—Awarding of Costs and Certain Fees

The Service provides an inflation adjustment to the hourly limit on attorney fees incurred in calendar year 2009 that may be awarded in a judgement or settlement of an administrative or judicial proceeding concerning the determination, collection, or refund of tax, interest, or penalty. See Rev. Proc. 2008-66, page 1107.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

Section 7702B.—Treatment of Qualified Long-Term Care Insurance

The Service provides an inflation adjustment to the stated dollar amount for calendar year 2009 of the per diem limitation regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual. See Rev. Proc. 200866, page 1107.

Section 7872.—Treatment of Loans With Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of November 2008. See Rev. Rul. 2008-50, page 1098.

November 10, 2008 1105 2008–45 I.R.B.