* * * * ary 1, 1996. (a) * * * owned by a grantor or other person by rea- (i) Effective date and transition rule- month following the close of the 12-month son of the death of the grantor or other (1) Effective date. The trustee of a trust any period which began with the first day of the person—(1) Definition of decedent. For pur- portion of which is treated as owned by one decedent's taxable year. poses of this paragraph (h), the decedent is or more grantors or other persons must re- (ii) Effective date. This paragraph (a)(2) the grantor or other person treated as the port pursuant to paragraphs (a), (b), (c), applies to taxable years ending on or afowner of the trust, or portion of the trust, (d)(1), (e), (f), and (g) of this section for ter December 24, 2002. under subpart E, part I, subchapter J, chap- taxable years beginning on or after Januter 1 of the Internal Revenue Code on the date of death of that person. PART 301-PROCEDURE AND (2) In general. The provisions of this ADMINISTRATION section apply to a trust, or portion of a trust, (3) Effective date for paragraphs (d)(2) treated as owned by a decedent for the taxand (h) of this section. Par. 9. The authority citation for part 301 able year that ends with the decedent's Paragraphs (d)(2) and (h) of this sec continues to read in part as follows: death. Following the death of the decetion apply for taxable years ending on or Authority: 26 U.S.C. 7805 * * * after December 24, 2002. dent, the trust or portion of a trust that Par. 10. Section 301.6109–1 is amended ceases to be treated as owned by the de Par. 7. Section 1.6012–3 is amended by as follows: cedent, by reason of the death of the deadding paragraph (a)(1)(iv) to read as 1. Paragraph (a)(2)(iii) is removed. follows: cedent, may no longer report under this 2. Paragraphs (a)(3) through (a)(6) are section. A trust, all of which was treated as $ 1.6012–3 Returns by fiduciaries. added. owned by the decedent, must obtain a new The additions are as follows: TIN upon the death of the decedent, if the (iv) For each trust electing to be taxed trust will continue after the death of the de- as, or as part of, an estate under section 645 $ 301.6109–1 Identifying numbers. . cedent. See $ 301.6109–1(a)(3)(i) of this for which a trustee acts, and for each rechapter for rules regarding obtaining a TIN lated estate joining in a section 645 elecupon the death of the decedent. tion for which an executor acts, if the (3) Obtaining a taxpayer identification (3) Special rules—(i) Trusts reporting aggregate gross income of the electing number for a trust, or portion of a trust, folpursuant to paragraph (a) of this section trust(s) and related estate, if any, joining in lowing the death of the individual treated for the taxable year ending with the dece- the election for the taxable year is $600 or as the owner—(i) In general—(A) A trust dent's death. The due date for the filing of more. (For the respective filing require- all of which was treated as owned by a dea return pursuant to paragraph (a) of this ments of the trustee of each electing trust cedent. In general, a trust all of which is section for the taxable year ending with the and executor of any related estate, see treated as owned by a decedent under subdecedent's death shall be the due date pro- § 1.645–1). part E (section 671 and following), part I, vided for under $ 1.6072–1(a)(2). The re subchapter J, chapter 1 of the Internal Revturn filed under this paragraph for a trust enue Code as of the date of the decedent's all of which was treated as owned by the Par. 8. Section 1.6072-1 is amended as death must obtain a new taxpayer identidecedent must indicate that it is a final refollows: fication number following the death of the 1. The text of paragraph (a) is redesig- decedent if the trust will continue after the (ii) Trust reporting pursuant to para nated as paragraph (a)(1) and a paragraph death of the decedent. graph (b)(2)(B) of this section for the tax heading is added for newly designated para- (B) Taxpayer identification number of able year of the decedent's death. A trust graph (a)(1). trust with multiple owners. With respect to that reports pursuant to paragraph (b)(2)(B) 2. Paragraph (a)(2) is added. a portion of a trust treated as owned unof this section for the taxable year ending The additions are as follows: der subpart E (section 671 and followwith the decedent's death must indicate on ing), part I, subchapter J, chapter 1 (subpart $ 1.6072–1 Time for filing returns of each Form 1096 “Annual Summary and E) of the Internal Revenue Code by a deindividuals, estates, and trusts. Transmittal of the U.S. Information Re cedent as of the date of the decedent's turns” that it files (or appropriately on mag (a) In general—(1) Returns of income death, if, following the death of the decenetic media) for the taxable year ending for individuals, estates and trusts. *** dent, the portion treated as owned by the with the death of the decedent that it is the (2) Return of trust, or portion of a trust, decedent remains part of the original trust final return of the trust. treated as owned by a decedent—(i) In gen- and the other portion (or portions) of the trust continues to be treated as owned un(iii) Trust reporting under paragraph eral. In the case of a return of a trust, or (b)(3) of this section. If a trust has been re- portion of a trust, that was treated as owned der subpart E by a grantor(s) or other perporting under paragraph (b)(3) of this sec- by a decedent under subpart E (section 671 son(s), the trust reports under the taxpayer tion, the trustee may not report under that and following), part I, subchapter J, chap- identification number assigned to the trust paragraph if any portion of the trust has a ter 1 of the Internal Revenue Code as of the prior to the decedent's death and the porshort taxable year by reason of the death date of the decedent's death that is filed in tion of the trust treated as owned by the deof the decedent and the portion treated as accordance with § 1.671-4(a) for the frac- cedent prior to the decedent's death owned by the decedent does not termi- tional part of the year ending with the date (assuming the decedent’s portion of the trust nate on the death of the decedent. of the decedent's death, the due date of such is not treated as terminating upon the dereturn shall be the fifteenth day of the fourth cedent's death) continues to report under the * * * * * turn. a under penalties of perjury by the trustee providing each payor with the name of the trust, the new taxpayer identification number, and the address of the trustee. (5) Persons treated as payors. For purposes of paragraphs (a)(2), (3), and (4) of this section, a payor is a person described in $$ 1.671-4(b)(4) of this chapter. (6) Effective date. Paragraphs (a)(3), (4), and (5) of this section apply to trusts of decedents dying on or after December 24, 2002. taxpayer identification number used for re- (4) Taxpayer identification number to be porting by the other portion (or portions) used by a trust upon termination of a secof the trust. For example, if a trust, report- tion 645 election—(i) If there is an execuing under $ 1.671-4(a) of this chapter, is tor. Upon the termination of the section 645 treated as owned by three persons and one election period, if there is an executor, the of them dies, the trust, including the por- trustee of the former electing trust may need tion of the trust no longer treated as owned to obtain a taxpayer identification numby a grantor or other person, continues to ber. If § 1.645–1(g) of this chapter regardreport under the tax identification num- ing the appointment of an executor after a ber assigned to the trust prior to the death section 645 election is made applies to the of that person. See § 1.671-4(a) of this electing trust, the electing trust must obchapter regarding rules for filing the Form tain a new TIN upon termination of the 1041, “U.S. Income Tax Return for Es- election period. See the instructions to the tates and Trusts,” where only a portion of Form 1041 for whether a new taxpayer the trust is treated as owned by one or more identification number is required for other persons under subpart E. former electing trusts. (ii) Furnishing correct taxpayer identi- (ii) If there is no executor. Upon termification number to payors following the nation of the section 645 election period, death of the decedent. If the trust contin- if there is no executor, the trustee of the ues after the death of the decedent and is former electing trust must obtain a new taxrequired to obtain a new taxpayer identi- payer identification number. fication number under paragraph (a)(3)(i)(A) (iii) Requirement to provide taxpayer of this section, the trustee must furnish pay- identification number to payors. If the ors with a new Form W–9, “Request for trustee is required to obtain a new taxTaxpayer Identification Number and Cer- payer identification number for a former tification,” or an acceptable substitute Form electing trust pursuant to this paragraph W-9, containing the new taxpayer identi- (a)(4), or pursuant to the instructions to the fication number required under paragraph Form 1041, the trustee must furnish all pay(a)(3)(i)(A) of this section, the name of the ors of the trust with a completed Form W–9 trust, and the address of the trustee. or acceptable substitute Form W-9 signed PART 602—OMB CONTROL Par. 11. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805. Par. 12. In $ 602.101, paragraph (b) is amended by adding an entry in numerical order to the table to read as follows: $ 602.101 OMB Control numbers. * * * * * (b) * * * a FOR FURTHER INFORMATION CON- tion 6031 requires certain foreign partner- regulation also corrects a cross reference in Special Analyses Treas. Reg. $ 1.6038–3(j)(1) provides It has been determined that this TreaPaperwork Reduction Act that if a foreign partnership completes and sury decision is not a significant regula files Form 1065 and a United States part- tory action as defined in Executive Order These regulations are being issued with ner is required to file Form 8865 with re- 12866. Therefore, a regulatory assessment out prior notice and public procedure pur spect to that partnership, the United States is not required. It has also been determined suant to the Administrative Procedure Act partner must attach to its Form 8865 cop- that section 553(b) of the Administrative (5 U.S.C. 553). For this reason, the col ies of the Form 1065 schedules filed by the Procedure Act (5 U.S.C. chapter 5) does not lection of information contained in these partnership instead of completing the Form apply to this regulation. For the applicaregulations has been reviewed and, pend- partnership instead of completing the Form , 8865 schedules that are equivalent to Form bility of the Regulatory Flexibility Act (5 ing receipt and evaluation of public com1065 schedules. This rule was added to the U.S.C. chapter 6) refer to the Special Analyments, approved by the Office of ses section of the preamble to the crossManagement and Budget under control 1999 Final Regulations to reduce the bur- reference notice of proposed rulemaking number 1545–1617. Responses to this collection of information are mandatory. there is an overlap between section 6038 published elsewhere in this issue of the BulAn agency may not conduct or spon letin. Pursuant to section 7805(f) of the Inand section 6031. However, this rule does ternal Revenue Code, this temporary sor, and a person is not required to re not directly address the filing requirements spond to, a collection of information unless for Form 8865, when a United States part- regulation will be submitted to the Chief the collection of information displays a valid ner files electronically its income tax re Counsel for Advocacy of the Small Busi ness Administration for comment on its imOMB control number. turn (including any attachments such as pact on small businesses. For further information concerning this Form 8865). collection of information, and where to sub Drafting Information Explanation of Provisions mit comments on the collection of information and the accuracy of the estimated To facilitate revisions to the filing re The principal author of this regulation burden, and suggestions for reducing this quirements for Form 8865 (such as elec, is Tasheaya Warren, Office of the Associburden, please refer to the preamble to the tronic filing of Form 8865), the temporary ate Chief Counsel (International). Howcross-referencing notice of proposed rule ever, other personnel from the IRS and regulation amends Treas. Reg. $ 1.6038–3 making published elsewhere in this issue of to provide that a United States partner must Treasury Department participated in its dethe Bulletin velopment follow the filing requirements that are speciBooks or records relating to a collec fied in the instructions for Form 8865 when tion of information must be retained as long the United States partner must file Form Amendments to the Regulations as their contents may become material in 8865 and the partnership completes and files the administration of any internal revenue Form 1065 or Form 1065-B. As a transi- Accordingly, 26 CFR parts 1 and 602 are law. Generally, tax returns and tax return tional matter, for the next filing season it amended as follows: information are confidential, as required by is anticipated that the instructions for Form 26 U.S.C. 6103. 8865 will continue to provide for the ex PART 1 — INCOME TAXES Background isting filing procedure pursuant to which a Paragraph 1. The authority citation for United States partner attaches certain sched part 1 continues to read in part as follows: In 1997, Congress amended section 6038 ules from Form 1065 or Form 1065-B to Authority: 26 U.S.C. 7805 * * * to require information reporting by cer- its Form 8865 as well as provide for an al Par. 2. Section 1.6038–3 is amended as . tain United States persons with direct and ternative electronic filing procedure for follows: indirect interests in controlled foreign part- Form 8865. 1. The last sentence in paragraph (b)(9) nerships (CFPs). Treas. Reg. § 1.6038-3 The final regulation also makes two re Example 1 is revised. was published in 1999 (T.D. 8850, 2000–1 visions to the 1999 Final Regulations. If a 2. Paragraphs (g)(1)(i) through (g)(1)(v) C.B. 265 [64 FR 72545] (1999)) (the “1999 U.S. person is required to file Form 8865, are redesignated as paragraphs (g)(1)(ii) Final Regulations”) and provides guid- Treas. Reg. $ 1.6038–3(g)(1) provides that through (g)(1)(vi), respectively. ance regarding the reporting requirements a U.S. person must submit any informa 3. New paragraph (g)(1)(i) is added. under section 6038 with respect to CFPs. tion that Form 8865 or its accompanying 4. Paragraphs (j) and (1) are revised. A United States person required to report instructions require to be submitted. The fi The revisions and addition read as under section 6038 with respect to a CFP nal regulation clarifies the requirement un follows: must file Form 8865, Return of U.S. Per- der Treas. Reg. § 1.6038–3, as reflected in sons With Respect To Certain Foreign Part- the Form 8865 instructions, that the United § 1.6038–3 Information returns required $ nerships. In addition to the reporting States partner must include the foreign part- of certain United States persons with obligation imposed on certain partners in nership’s name, address, and taxpayer iden- respect to controlled foreign partnerships foreign partnerships under section 6038, sec- tification number on Form 8865. The final (CFPs). * * * * * (g) *** (1) *** (i) The name, address, and taxpayer identification number (if any) of the foreign partnership of which the person qualified as a controlling fifty-percent partner or a controlling ten-percent partner; ***** (j) [Reserved). For further guidance, see § 1.6038–3T(j). (a) through (i)(2) [Reserved). For fur PART 602 OMB CONTROL NUMther guidance, see § 1.6038–3(a) through BERS UNDER THE PAPERWORK RE DUCTION ACT Par. 4. The authority citation for part 602 ner may be required to file Form 8865 un continues to read as follows: der this section and the foreign partnership Authority: 26 U.S.C. 7805. in which it is a partner may also be re- Par. 5. In § 602.101, paragraph (b) is quired to file a Form 1065 or Form 1065–B amended by adding the following entry in under section 6031(e) for the same part- numerical order to the table to read as nership tax year. For cases where a United a follows: $ 602.101 OMB Control numbers. ***** (1) Effective date. Except as otherwise provided, this section shall apply for tax years of a foreign partnership ending on or a after December 31, 2000. For tax years of ***** (b) *** Part IV. Items of General Interest Notice of Proposed submissions of comments and requests for Treasury also believe that taxpayers have Rulemaking a public hearing, Ms. LaNita Van Dyke of improperly relied upon opinions or ad the Regulations Unit at (202) 622–7180 (not vice that a regulation is invalid without disEstablishing Defenses to the toll-free numbers). closing on their returns their position that Imposition of the the regulation is invalid. SUPPLEMENTARY INFORMATION: Accuracy-Related Penalty Accordingly, the IRS and Treasury have concluded that the regulations under secREG-126016-01 Background tions 6662 and 6664 should be amended This document contains proposed regu and clarified so that (1) a taxpayer who AGENCY: Internal Revenue Service (IRS), Treasury. lations amending the regulations promul takes a position that a regulation is in valid cannot rely on an opinion or advice gated pursuant to sections 6662 and 6664, to satisfy the reasonable cause and good ACTION: Notice of proposed rulemak- relating to the accuracy-related penalty. Secing. tion 6662 provides for the imposition of an faith exception under section 6664(c) with accuracy-related penalty for underpay respect to any underpayment attributable to SUMMARY: This document contains pro such position if the position was not disments of tax, including underpayments due posed regulations that limit the defenses to negligence or disregard of rules or regu closed on a return; and (2) a taxpayer who available to the imposition of the accuracy- lations and understatements that are sub engages in a reportable transaction canrelated penalty when taxpayers fail to dis not rely on an opinion or advice to satstantial within the meaning of the statute. close reportable transactions or fail to isfy the reasonable cause and good faith Taxpayers, however, can avoid the accuracydisclose that they have taken a position on exception under section 6664(c) with rerelated penalty if they can establish, among a return based upon a regulation being inother things, that there was reasonable cause spect to any underpayment attributable to valid. By limiting a taxpayer's ability to use the transaction if the transaction was not disfor the underpayment and that they acted an opinion or advice from a tax profes- in good faith within the meaning of sec closed pursuant to the regulations promulsional as a basis for a defense, the pro gated under section 6011. Further, a tion 6664(c). posed regulations are intended to promote taxpayer who engages in a reportable trans Temporary regulations issued under secthe disclosure of reportable transactions and action cannot rely on the realistic possition 6011 require taxpayers to disclose repositions by taxpayers that conflict with portable transactions on their returns within bility standard under section 6662 to avoid regulations issued by the Secretary. The pro the accuracy-related penalty for negligence the meaning of those temporary regulaposed regulations also clarify the existing tions. Treas. Reg. $ 1.6011-4T. Report- position regarding the reportable transac or disregard of rules or regulations if the regulations with respect to the facts and cir able transactions may be abusive tax cumstances that the IRS will consider in de tion is contrary to a revenue ruling or noavoidance transactions. The early identifi tice. termining whether a taxpayer acted with cation of potentially abusive tax avoidreasonable cause and in good faith in reance transactions is a high priority for the Explanation of Provisions lying on an opinion or advice. IRS and Treasury. On October 22, 2002, the DATES: Written or electrically generated IRS and Treasury published proposed and These proposed regulations amend 26 temporary regulations that significantly re- CFR part 1 relating to the defenses availcomments and requests for a public hear vise the definition of certain types of re- able to the imposition of the accuracying must be received by March 31, 2003. portable transactions. See Tax Shelter related penalty under section 6662(b)(1) ADDRESSES: Send submissions to Disclosure Statements, (T.D. 9017, 2002–45 (underpayments of tax attributable to negCC:IT&A:RU (REG-126016-01), room I.R.B. 815 [67 FR 64799] and REG- ligence or disregard of rules or regula5226, Internal Revenue Service, POB 7604, 103735–00, 2002–45 I.R.B. 832 [67 FR tions) and the general exception to the Ben Franklin Station, Washington, DC 64840]) (October 22, 2002) (to be codi- accuracy-related penalty under section 20044. Submissions may be hand deliv fied in 26 CFR parts 1, 20, 25, 31, 53, 54, 6664(c). ered Monday through Friday between the 56, and 301). The proposed amendments to Under these proposed regulations, the adhours of 8 a.m. and 4 p.m. to: CC: the disclosure rules under section 6011 gen- equate disclosure exception to the accuracyIT&A:RU (REG-126016-01), Courier's erally will apply to transactions entered into related penalty for underpayments of tax Desk, Internal Revenue Building, 1111 Conon or after January 1, 2003. attributable to negligence or disregard of stitution Avenue, NW, Washington, DC. Al The IRS and Treasury believe that tax- rules or regulations (see § 1.6662–3(a)) will ternatively, taxpayers may submit comments payers have improperly relied on opin- not apply to underpayments relating to a reelectronically directly to the IRS Internet ions or advice issued by tax advisors to portable transaction unless the reportable site at: www.irs.gov/regs. establish reasonable cause and good faith transaction also is disclosed under $ 1.6011– as a basis for avoiding the accuracy-related 4T. In addition, if a position relates to a reFOR FURTHER INFORMATION CON- penalty, even when the opinion or advice portable transaction and is contrary to a TACT: Concerning the proposed regula- relates to a reportable transaction that the revenue ruling or notice (other than a notions, Jamie G. Bernstein or Heather L. taxpayer should have, but did not, dis- tice of proposed rulemaking), a taxpayer Dostaler at (202) 622–4940; concerning close pursuant to § 1.6011-4T. The IRS and may not rely upon the fact that the posi |