Part I. Rulings — Internal Revenue Bulletin 2009-32

Section 126.—Certain Cost-Sharing Payments

26 CFR 16A.126–1: Certain cost-sharing payments

— in general.

Certain cost-sharing payments; For- est Health Protection Program. This ruling states that the Forest Health Protection Program (FHPP) is substantially similar to the type of programs described in section 126(a)(1) through (8) of the Code within the meaning of section 126(a)(9). Consequently, all or a portion of cost-share payments received under the FHPP is eligible for exclusion from gross income to the extent permitted by section 126.

Rev. Rul. 2009–23

ISSUE

Is the Forest Health Protection Program (FHPP) substantially similar to the type of programs described in § 126 (a)(1) through (8) of the Internal Revenue Code, so that the FHPP is within the scope of § 126(a)(9) and, thereby, all or a portion of cost-sharing payments received under the FHPP is eligible for exclusion from gross income to the extent permitted by § 126?

FACTS

The FHPP, authorized under the provisions of § 8 of the Cooperative Forestry Assistance Act of 1978, Pub. L. No. 95–313, 92 Stat. 368, as amended by Title XII, 1218 of the International Narcotics Control Act of 1990, Pub. L. No. 101–624, 104 Stat. 3525, 3531, is a program to protect forests, trees, and wood products, stored wood, and wood in use directly on the National Forest System and, in cooperation with others, on other lands in the United States.

The U.S. Forest Service administers the FHPP on behalf of the U.S. Department of Agriculture (USDA), by working in partnership with state forestry and agriculture agencies. The state agencies work with nonindustrial private forest landowners to identify and implement appropriate management practices. The FHPP includes

cost-sharing assistance to landowners that volunteer to participate in the program.

A landowner who wishes to participate in the FHPP must enter into a contract or cooperative agreement with the USDA pursuant to which the landowner agrees to establish an acceptable integrated pest management strategy as determined by the Secretary of Agriculture that will prevent, retard, control, or suppress gypsy moth infestations, southern pine beetle infestations, spruce budworm infestations, or other major insect infestations and receives cost-sharing payments in exchange. The cost-sharing payments under the program are not less than 50 percent and not more than 75 percent of the cost of implementing the pest management strategy.

The Secretary of Agriculture has determined that cost-sharing payments under the FHPP are primarily for the purpose of conserving and restoring woodlands resources. In addition, the Secretary of Agriculture has informed the Treasury Department that the USDA believes that the FHPP is a small watershed program.

LAW AND ANALYSIS

Under § 126(a), gross income does not include the excludable portion of payments received under certain conservation programs set forth in § 126(a)(1) through (8). Section 126(a)(9) provides that a small watershed program administered by the Secretary of Agriculture also is eligible for § 126 treatment if the Secretary of the Treasury or his delegate determines that the program is substantially similar to the type of programs described in § 126(a)(1) through (8). See § 16A.126–1(d) of the Temporary Income Tax Regulations Relating to the Partial Exclusion for Certain Cost-Sharing Payments for rules permitting the Commissioner to make these determinations and announce them in the Internal Revenue Bulletin, and for the definition of “small watershed.”

If the Commissioner has determined that a program is substantially similar to the type of programs described in § 126(a)(1) through (8), taxpayers receiving cost-sharing payments under that program must determine what portion (if

any) of the cost-sharing payments is excludable from gross income under § 126. Under § 126(b), the excludable portion of a payment is limited to the portion that (1) is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, (2) does not increase substantially the annual income derived from the property, and (3) is not properly associated with a deductible expense. See § 126(b) and § 16A.126–1, relating to the partial exclusion of certain cost-sharing payments, to determine what portion of the cost-sharing payments is excludable from gross income under § 126.

HOLDING

The Internal Revenue Service accepts the USDA’s conclusion that the FHPP is a small watershed program. Accordingly, the FHPP will be treated for purposes of § 126 as a small watershed program administered by the Secretary of Agriculture. In addition, the Commissioner has determined that the FHPP is substantially similar, within the meaning of § 126(a)(9), to the type of programs described in § 126(a)(1) through (8).

Payments received under the FHPP are limited to a percentage of the cost of implementing an integrated pest management strategy and qualify as cost-sharing payments. The cost-sharing payments received under the FHPP are eligible for exclusion from gross income to the extent permitted by § 126.

See § 126(b) and § 16A.126–1 to determine the extent to which cost-sharing payments under the FHPP are excludable from gross income under § 126.

DRAFTING INFORMATION

The principal author of this revenue ruling is Jennifer C. Bernardini of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling, contact Ms. Bernardini at (202) 622–3110 (not a toll-free call).

2009–32 I.R.B. 177 August 10, 2009

Section 6033.—Returns by Exempt Organizations

26 CFR 1.6033–6: Notification requirement for enti- ties not required to file an annual information return under section 6033(a)(1) (taxable years beginning af- ter December 31, 2006).

T.D. 9454

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Notification Requirement for Tax-Exempt Entities Not Currently Required to File

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations as required by section 6033(i)(1) describing the time and manner in which certain tax-exempt organizations not currently required to file an annual information return under section 6033(a)(1) are required to submit an annual electronic notice including certain information required by section 6033(i)(1)(A) through (F). These regulations affect tax-exempt organizations whose annual gross receipts are not normally in excess of $25,000.

DATES: Effective Date: These regulations are effective on July 23, 2009.

Applicability Date: These regulations are applicable to annual periods beginning after 2006.

FOR FURTHER INFORMATION CONTACT: Monice Rosenbaum at (202) 622–6070 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 6033(i)(1) relating to the notification requirement for entities not currently required to

file an annual information return under section 6033(a)(1). Section 6033(i)(1) was added by section 1223(a) of the Pension Protection Act of 2006, Public Law No. 109–208, 120 Stat. 1090 (2006) (PPA 2006), effective for annual periods beginning after 2006. Section 6033(i)(1) requires the Treasury Secretary to promulgate regulations that describe the time and manner in which certain tax-exempt organizations not currently required to file an annual information return are to submit an annual electronic notification including information set forth in section 6033(i)(1)(A) through (F).

On November 15, 2007, temporary regulations (T.D. 9366, 2007–2 C.B. 1232) were published in the Federal Register (72 FR 64147) satisfying the requirement that the Treasury Secretary promulgate regulations as described in the preceding paragraph. Those temporary regulations were corrected on November 23, 2007 (72 FR 65667) and December 14, 2007 (72 FR 71060). A notice of proposed rulemaking (REG–104942–07, 2007–2 C.B. 1264) cross-referencing the temporary regulations was published in the Federal Register (72 FR 64174) on November 15, 2007.

The IRS and the Treasury Department received four written comments from the public in response to the proposed and temporary regulations. No hearing was requested or held. After consideration of the comments received, it was determined that the proposed regulations would be finalized without change. Accordingly, the proposed regulations are adopted as amended by this Treasury decision and the corresponding temporary regulations are removed. The final regulations retain the provisions of the proposed and temporary regulations and make minor typographical changes.

Explanation of Revisions and Summary of Comments

One comment pointed out that there is no de minimis rule regarding the amount of income an organization receives during the year which would exempt it from having to submit an electronic notification. Section 6033(i) does not provide a de minimis rule, nor does it provide discretionary authority for the IRS and the Treasury Department

to establish a de minimis exception for reporting under section 6033(i)(1).

Another comment objected to the requirement that the notification be submitted electronically. The IRS and the Treasury Department note that the statute requires that information be submitted electronically, and makes no provision for paper notification. However, as stated in the preamble to the temporary regulations, if an organization that is required to submit an annual electronic notification files a complete Form 990, “Return of Organi- zation Exempt From Income Tax,” or Form 990–EZ, “Short Form Return of Organiza- tion Exempt From Income Tax,” the annual notification required under section 6033(i) shall be deemed satisfied. The annual notification requirement is not satisfied if the Form 990 or Form 990–EZ contains only those items of information that would have been required by submitting the notification in electronic form.

One comment asked about the intent of the regulations and the application of the requirement to submit electronic notification to organizations that are local chapters or clubs of larger organizations. The intent of the regulations, which were required by statute, is to provide the public with the most accurate information about tax-exempt organizations. With respect to organizations that are local chapters or clubs of larger organizations, if the organization is a subordinate of a parent organization and the subordinate is included on the parent’s group return, the subordinate need not submit the electronic notification. However, if an organization is not part of a group return and is a separate legal entity that meets the criteria for submitting the electronic notification, it must submit Form 990–N, “Elec- tronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required To File Form 990 or 990–EZ.” Finally, another comment asked about the applicability of the electronic notification requirement to Qualified State and Local Political Organizations (QSLPOs). QSLPOs are not organizations described in section 501(c) that are required to file a return under section 6033(a); therefore, the provisions of these final regulations do not apply to them. However, QSLPOs may have other reporting requirements under section 6033(g).

August 10, 2009 178 2009–32 I.R.B.

(v) Any organization that is required to file or files an annual information return under section 6033(a)(1) on any other form prescribed by the Internal Revenue Service for that purpose.

(2) An organization exempt from taxation under section 501(a) that is not required to file a return under section 6033(a)(1) is also not required to submit an annual electronic notification under section 6033(i). This includes the following types of organizations:

(i) A church, an interchurch organization of local units of a church, a convention or association of churches, or an integrated auxiliary of a church (as defined in §1.6033–2(h)).

(ii) An exclusively religious activity of any religious order.

(iii) A mission society sponsored by or affiliated with one or more churches or church denominations, more than one-half of the activities of which society are conducted in, or directed at persons in, foreign countries.

(iv) An educational organization (below college level) described in section 170(b)(1)(A)(ii), that has a program of a general academic nature, and that is affiliated (within the meaning of §1.6033–2(h)(2)) with a church or operated by a religious order.

(v) A State institution, the income of which is excluded from gross income under section 115(a).

(vi) An organization described in section 501(c)(1).

(vii) An organization that is a governmental unit or an affiliate of a governmental unit exempt from Federal income tax under section 501(a).

(3) If an organization exempt from taxation under section 501(a) is not described in paragraph (b)(1) or (2) of this section, the organization must submit an annual electronic notification. Thus, a black lung trust that normally has gross receipts of $25,000 or less is not required to file Form 990–BL but is required to submit an annual electronic notification. A section 509(a)(3) supporting organization of a religious organization that normally has gross receipts of $5,000 or less is not required to file Form 990 or Form 990–EZ but is required to submit an annual electronic notification.

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.

It is hereby certified that the collection of information in §1.6033–6 will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. 601) is not required. The effect of these regulations on small entities flows directly from the statute these regulations implement. Section 6033(i)(1) requires that certain entities submit annual notification, in electronic form, setting forth: the legal name of the organization; any name under which such organization operates or does business; the organization’s mailing address and Internet Web site address (if any); the organization’s taxpayer identification number; the name and address of a principal officer; and evidence of the continuing basis for the organization’s exemption from the filing requirements under section 6033(a)(1).

Pursuant to section 7805(f) of the Internal Revenue Code, these regulations were 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 Monice Rosenbaum of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in their development.

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1 — INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.6033–6 also issued under 26 U.S.C. 6033(i)(1).*** Par. 2. Section 1.6033–6 is added to read as follows:

§1.6033–6 Notification requirement for entities not required to file an annual information return under section 6033(a)(1) (taxable years beginning after December 31, 2006) —(a) In general . Except as otherwise provided in this paragraph, every organization exempt from taxation under section 501(a) that is not required to file a return described in §1.6033–2(a)(2), other than an organization described in section 401(a) or 501(d), shall submit annually, in electronic form, a notification setting forth the items described in paragraph (c) of this section and such other information as may be prescribed in the instructions and publications issued with respect to the notification.

(b) Organizations not required to sub- mit annual electronic notification . (1) An organization exempt from taxation under section 501(a) that is required to file or files an annual information return under section 6033(a)(1) shall not submit an annual electronic notification under section 6033(i). This includes the following types of organizations:

(i) Any organization included in a group return for that year under §1.6033–2(d).

(ii) All private foundations required to file under §1.6033–2(a)(2)(i) Form 990–PF, “Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.”

(iii) Section 509(a)(3) supporting organizations required to file under §1.6033–2(a)(2)(i) Form 990, “Return of Organization Exempt From Income Tax,” or Form 990–EZ, “Short Form Return of Organization Exempt From Income Tax.”

(iv) A section 501(c)(21) black lung trust required to file under §1.6033–2(a)(2)(i) Form 990–BL, “In- formation and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons.”

2009–32 I.R.B. 179 August 10, 2009

tion shall be on the basis of the established annual accounting period of the organization. If the organization has no established accounting period, the annual electronic notification shall be on the basis of the calendar year.

(f) Time and place for submitting an- nual electronic notification . The annual electronic notification required by this section shall be submitted on or before the 15th day of the fifth calendar month following the close of the period for which the notification is required to be submitted. Thus, an organization with an accounting period ending December 31, 2007, is required to submit an annual electronic notification by May 15, 2008. The notification shall be submitted in accordance with instructions and publications, including those provided at the Internal Revenue Service Web site for exempt organizations.

(g) Effective/applicability date . These regulations are applicable to annual periods beginning after 2006.

§1.6033–6T [Removed].

Par. 3. Section 1.6033–6T is removed.

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

Approved July 15, 2009.

Michael Mundaca, Acting Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on July 22, 2009, 8:45 a.m., and published in the issue of the Federal Register for June 23, 2009, 74 F.R. 36395)

described in paragraph (a) of this section shall submit an annual electronic notification described in section 6033(i)(1). The annual electronic notification shall—

(i) Be in electronic form; and (ii) Set forth— (A) The legal name of the organization; (B) Any name under which the organization operates or does business;

(D) The organization’s taxpayer identification number;

(E) The name and address of a principal officer;

(F) Evidence of the continuing basis for the organization’s exemption from the filing requirements under section 6033(a)(1); and

(G) Additional information necessary to process the notification.

(2) The mailing address required by section 6033(i)(1)(C) and submitted in the annual electronic notification shall be the organization’s last known address as provided by §301.6212–2(a) of this chapter. This last known address may be updated as provided under §301.6212–2 of this chapter, or by clear and concise notification. The Internal Revenue Service will use this last known address as the organization’s address of record and will direct all mailings to this address.

(3) By submitting the annual electronic notification described in paragraph (c)(1) of this section, an organization acknowledges that it is not required to file a return under section 6033(a) because its annual gross receipts are not normally in excess of $25,000. In order to make this determination, the organization must keep records that enable it to calculate its gross

receipts. All organizations are required to maintain records under section 6001. These records will provide evidence of the continuing basis for the organization’s exemption from the filing requirements under section 6033(a)(1).

(4) If an organization that is required to submit an annual electronic notification files a complete Form 990 or Form 990–EZ, the annual electronic notification requirement shall be deemed satisfied. The annual electronic notification requirement is not satisfied if the Form 990 or Form 990–EZ contains only those items of information that would have been required by submitting the notification in electronic form. Also, the filing of a complete Form 990 or Form 990–EZ, rather than the submission of an annual electronic notification, is the filing of a return that starts the period of limitations for assessment under section 6501(g)(2).

(d) No effect on other filing require- ments . An organization that is relieved from filing an information return under section 6033(a) is still subject to the requirements of §§1.6033–2(i) and (j), concerning: notice regarding changes in character, operations, or purpose; provision of additional information; duty to file other returns of information; and duty to file unrelated business tax returns. If an organization is required to file an unrelated business tax return, Form 990–T, “Exempt Or- ganization Business Income Tax Return,” the filing of that return does not relieve the organization from the requirement of submitting an annual electronic notification under section 6033(i).

(e) Accounting period for submitting annual electronic notification . An annual electronic notification required by this sec

August 10, 2009 180 2009–32 I.R.B.