* * * * * tion has a realistic possibility of being susa Tax Shelter Analysis as required under Comments and Requests for a Public tained on the merits as a defense to the § 1.6011-4T (or as may be otherwise pro- Hearing penalty imposed under section 6662(b)(1). vided in any successor regulations). The taxpayer instead would be required to Before these proposed regulations are satisfy the adequate disclosure exception unProposed Effective Date adopted as final regulations, consideration der § 1.6662–3(c)(1), including the disclo will be given to any written (a signed origi These regulations are proposed to apsure of the reportable transaction under ply to returns filed after December 30, 2002, nal and eight (8) copies) or electronic com ments that are submitted timely to the IRS. § 1.6011-4T. with respect to transactions entered into on The IRS and Treasury Department request The proposed regulations also clarify and or after January 1, 2003, to coincide with comments on the clarity of the proposed modify the standards for, and limits on, the the temporary regulations relating to dis- regulations and how they can be made use of opinions and advice to satisfy the closure, promulgated under section 6011 and easier to understand. All comments will be reasonable cause and good faith excep- applicable for transactions entered into on available for public inspection and copytion under section 6664(c) as a defense to or after January 1, 2003. The IRS, how ing. A public hearing may be scheduled if the imposition of the accuracy-related pen- ever, cautions taxpayers and tax practitio- requested in writing by any person that alty under section 6662. The proposed regu ners that it will rigorously apply the existing timely submits written comments. If a publations, for instance, clarify that a taxpayer's facts and circumstances standard under lic hearing is scheduled, notice of the date, education, sophistication and business ex- § 1.6664–4(c) regarding a taxpayer's rea- time, and place for the public hearing will perience will be relevant in determining sonable reliance in good faith on advice be published in the Federal Register. whether the taxpayer's reliance on the opin from a tax professional, as well as the other ion or advice was reasonable and made in provisions of the regulations under sec- Drafting Information good faith. The IRS currently takes these tions 6662 and 6664, including $ 1.6664– facts and circumstances into account in de 4(c) relating to special rules for the The principal authors of these regula substantial understatement penalty attribtermining whether a taxpayer has satis tions are Jamie G. Bernstein and Heather utable to tax shelter items of a corporafied the reasonable cause and good faith L. Dostaler of the Office of Associate Chief tion. In addition to the modifications Counsel (Procedure and Administration), exception under section 6664(c). These proposed regulations amend contained in these proposed regulations, and Administrative Provisions and Judicial Prac tice Division. $ 1.6664-4(c) to specify when a taxpayer regardless of when a transaction was encannot rely upon an opinion or advice to tered into, the IRS, in appropriate circumsatisfy the reasonable cause and good faith stances, may consider a taxpayer's failure exception. Taxpayers who do not disclose to disclose a reportable transaction or fail- Proposed Amendments to the Regulations positions based upon a regulation being in ure to disclose a position that a regulavalid (see § 1.6662–3(c)(2)) cannot use an tion is invalid as a factor in determining Accordingly, 26 CFR part 1 is proposed opinion or advice concerning the invalidwhether the taxpayer has satisfied the rea to be amended as follows: ity of the regulation as a basis for satisfy sonable cause and good faith exception uning the reasonable cause and good faith der section 6664(c) to the accuracy-related PART 1 INCOME TAXES exception under section 6664(c). Simi- penalty. ) Paragraph 1. The authority citation for larly, the proposed regulations prohibit taxSpecial Analyses part 1 continues to read in part as follows: payers from using an opinion or advice as Authority: 26 U.S.C. 7805 * * * a basis for satisfying the reasonable cause It has been determined that this notice Par. 2. Section 1.6662–3 is amended by: and good faith exception under section of proposed rulemaking is not a signifi 1. Revising paragraph (a). 6664(c) with respect to a reportable trans- cant regulatory action as defined in Ex 2. Revising the last sentence of paraaction that the taxpayer did not disclose in ecutive Order 12866. Therefore, a regulatory graph (b)(2). accordance with $ 1.6011-4T. assessment is not required. It has also been 3. Revising the first sentence of paraUnder these proposed regulations, a tax- determined that section 553(b) of the Ad graph (c)(1). payer, in order to properly disclose a trans- ministrative Procedure Act (5 U.S.C. chap- The revisions read as follows: action, may be required to file with the ter 5) does not apply to these regulations, taxpayer's return more than one disclo and because the regulation does not im- $ 1.6662–3 Negligence or disregard of sure form for the same transaction in or pose a collection of information on small rules or regulations. der to satisfy the requirements in the entities, the Regulatory Flexibility Act (5 regulations under sections 6662 and 6664 U.S.C. chapter 6) does not apply. Pursu (a) In general. If any portion of an un(as modified by these proposed regula- ant to section 7805(f) of the Internal Rev- derpayment, as defined in section 6664(a) tions), and section 6011. The IRS and Treaenue Code, this notice of proposed and § 1.6664–2, of any income tax imsury may consider permitting taxpayers to rulemaking will be submitted to the Chief posed under subtitle A of the Internal Revuse a single disclosure document to sat- Counsel for Advocacy of the Small Busi enue Code that is required to be shown on isfy those regulations, provided that all re- ness Administration for comment on their a return is attributable to negligence or disquired information is provided by the impact on small businesses. regard of rules or regulations, there is added taxpayer and provided that the taxpayer files to the tax an amount equal to 20 percent a copy of the document with the Office of of such portion. The penalty for disre * * * * * (c) * * * * * * * (b) * * * garding rules or regulations does not ap- The additions read as follows: have known, that the advisor lacked knowlply, however, if the requirements of para edge in the relevant aspects of Federal tax § 1.6664–0 Table of contents. graph (c)(1) of this section are satisfied and law. the position in question is adequately dis (i) * * * In addition, the requirements closed as provided in paragraph (c)(2) of of this paragraph (c)(1) are not satisfied if this section (and, if the position relates to $ 1.6664-4 Reasonable cause and good the taxpayer fails to disclose a fact that it a reportable transaction as defined in faith exception to section 6662 penalties. knows, or reasonably should know, to be § 1.6011-4T(b), the transaction is disclosed relevant to the proper tax treatment of an in accordance with $ 1.6011-4T), or to the item. extent that the reasonable cause and good faith exception to this penalty set forth in § 1.6664_4 applies. In addition, if a posi (iii) Reliance on the invalidity of a regu (iii) Reliance on the invalidity of a regu lation. A taxpayer may not rely on an opintion with respect to an item (other than with lation. ion or advice that a regulation is invalid to respect to a reportable transaction, as de- (2) Opinions or advice relating to re establish that the taxpayer acted with reafined in § 1.6011-4T(b)) is contrary to a portable transactions. sonable cause and good faith unless the taxrevenue ruling or notice (other than a no payer adequately disclosed, in accordance tice of proposed rulemaking) issued by the Par. 4. Section 1.6664_4 is amended by: with § 1.6662–3(c)(2), including the disInternal Revenue Service and published in 1. Revising paragraph (c)(1) introduc- closure of the position that the regulation the Internal Revenue Bulletin (see tory text. in question is invalid, and, if the position $ 601.601(d)(2) of this chapter), this pen- 2. Revising the last sentence of para- relates to a reportable transaction as dealty does not apply if the position has a regraph (c)(1)(i). fined in § 1.6011-4T(b), the transaction is alistic possibility of being sustained on its 3. Adding paragraph (c)(1)(iii). disclosed in accordance with § 1.6011merits. See $ 1.6694–2(b) of the income tax 4. Redesignating paragraphs (c)(2) and 4T. return preparer penalty regulations for a de (c)(3) as paragraphs (c)(3) and (c)(4), re- (2) Opinions or advice relating to rescription of the realistic possibility stan- spectively. portable transactions. Taxpayers may not dard. 5. Adding a new paragraph (c)(2). reasonably rely on an opinion or advice of The revision and additions read as a tax advisor if the opinion or advice is dis(2) * * * Nevertheless, a taxpayer who follows: qualified under this paragraph. An opintakes a position (other than with respect to ion or advice is disqualified if it relates to a reportable transaction, as defined in $ 1.6664-4 Reasonable cause and good the appropriate tax treatment of a report§ 1.6011-4T(b)) contrary to a revenue rul- faith exception to section 6662 penalties. able transaction, as defined in $ 1.6011ing or a notice has not disregarded the rul (c) Reliance on opinion or advice — (1) 4T(b), and the taxpayer does not disclose ing or notice if the contrary position has a Facts and circumstances; minimum re the transaction in accordance with $ 1.6011– realistic possibility of being sustained on its 4T. quirements. All facts and circumstances merits. must be taken into account in determin ing whether a taxpayer has reasonably re(c) (1) * * * No penalty under sec- lied in good faith on advice (including the David A. Mader, tion 6662(b)(1) may be imposed on any opinion of a professional tax advisor) as to a Assistant Deputy Commissioner portion of an underpayment that is attrib- the treatment of the taxpayer (or any en of Internal Revenue. utable to a position contrary to a rule or tity, plan, or arrangement) under Federal tax (Filed by the Office of the Federal Register on December 30, regulation if the position is disclosed in ac- law. For example, the taxpayer's educa 2002, 8:45 a.m., and published in the issue of the Federal Regcordance with the rules of paragraph (c)(2) tion, sophistication and business experi- ister for December 31, 2002, 67 F.R. 79894) of this section (and, if the position relates ence will be relevant in determining whether to a reportable transaction as defined in the taxpayer's reliance on the advice was $ 1.6011-4T(b), the transaction is disclosed reasonable and made in good faith. In no Notice of Proposed Rulemakin accordance with $ 1.6011-4T) and, in event will a taxpayer be considered to have ing by Cross-Reference to case of a position contrary to a regula- reasonably relied in good faith on advice tion, the position represents a good faith (including an opinion) unless the require- Notice of Public Hearing Temporary Regulation and challenge to the validity of the regula- ments of this paragraph (c)(1) are satistion. fied and the advice is not disqualified under Section 6038— Returns Par. 3. Section 1.6664–0 is amended by: paragraph (C)(2) of this section. The fact that Required With Respect to 1. Adding an entry for $ 1.6664- these requirements are satisfied, however, Controlled Foreign 4(c)(1)(iii). will not necessarily establish that the tax Partnerships 2. Redesignating the entries for payer reasonably relied on the advice (in§ 1.6664–4(c)(2) and (c)(3) as $ 1.6664- cluding the opinion of a professional tax REG-124069-02 4(c)(3) and (c)(4), respectively. advisor) in good faith. For example, reli3. Adding a new entry for $ 1.6664– ance may not be reasonable or in good faith AGENCY: Internal Revenue Service (IRS), 4(c)(2). if the taxpayer knew, or reasonably should Treasury. * * * * * * * * * * * ACTION: Notice of proposed rulemak- Treasury, Office of Information and Regu- Background and Explanation of The temporary regulation in this issue SUMMARY: In this issue of the Bulletin, of the Bulletin amends 26 CFR part 1. If W:CAR:MP:FP:S, Washington, DC 20224. the IRS is issuing a temporary regulation a foreign partnership files Form 1065 or Comments on the collection of informa(T.D. 9033) relating to controlled foreign Form 1065-B and a United States partner a tion should be received by February 21, partnerships. That document requires that is required to file Form 8865 with respect 2003. Comments are specifically requested the United States partner must follow the to that partnership, the temporary regulafiling requirements that are specified in the concerning: tion amends Treas. Reg. $ 1.6038–3 to proinstructions for Form 8865. The text of that Whether the proposed collection of in vide that the United States partner must regulation also serves as the text of this pro formation is necessary for the proper per- follow the filing requirements that are speciposed regulation. This document also proformance of the functions of the Internal fied in the instructions for Form 8865. The vides notice of a public hearing on these Revenue Service, including whether the in text of the temporary regulation also serves proposed regulations. formation will have practical utility; as the text of this proposed regulation. The The accuracy of the estimated burden as preamble to the temporary regulation exDATES: Written or electronic comments sociated with the proposed collection of in- plains the temporary regulation and this promust be received by March 24, 2003. Out- formation (see below); posed regulation. lines of topics to be discussed at the pub How the quality, utility, and clarity of the lic hearing scheduled for March 12, 2003, Special Analyses information to be collected may be enat 10 a.m., must be received by February hanced; It has been determined that this notice 19, 2003. How the burden of complying with the of proposed rulemaking is not a signifiADDRESSES: Send submissions to: proposed collection of information may be cant regulatory action as defined in ExCC:ITA:RU (REG-124069-02), room 5226, minimized, including through the applica- ecutive Order 12866. Therefore, a regulatory Internal Revenue Service, POB 7604, Ben tion of automated collection techniques or assessment is not required. It has also been Franklin Station, Washington, DC 20044. other forms of information technology; and determined that section 553(b) of the AdSubmissions may be hand delivered Mon Estimates of capital or start-up costs and ministrative Procedure Act (5 U.S.C. chapday through Friday between the hours of costs of operation, maintenance, and pur- ter 5) does not apply to these regulations 8 a.m. and 5 p.m. to: CC:ITA:RU (REG- chase of service to provide information. and because this regulation does not im124069–02), Courier's Desk, Internal Rev The collection of information in this pose a collection of information on small enue Service, 1111 Constitution Avenue, regulation is in $ 1.6038–3T. This infor- entities, a Regulatory Flexibility Analysis NW, Washington, DC. Alternatively, tax mation is required by the IRS to identify under the Regulatory Flexibility Act (5 payers may submit electronic comments di- foreign partnerships which are controlled by foreign partnerships which are controlled by U.S.C. chapter 6) does not apply. Pursurectly to the IRS internet site at www.irs.gov/ United States persons and verify amounts ant to section 7805(f) of the Internal Rev enue Code, this notice of proposed regs. The public hearing will be held in the reported by the partners. The collection of Auditorium, Internal Revenue Building, information is mandatory. The likely re- rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Busi1111 Constitution Avenue, NW, Washing- spondents will be individuals and busiton, DC. ness or other for-profit organizations. ness Administration for comment on its im The burden of complying with the col- pact on small businesses. FOR FURTHER INFORMATION CON- lection of information required to be re- Comments and Public Hearing TACT: Concerning the proposed regula- ported on Form 8865 is reflected in the tions, Tasheaya Warren, (202) 622–3860; burden for Form 8865. The estimated num- Before this proposed regulation is concerning submissions and the hearing, ber of respondents is 5000. The estimated adopted as a final regulation, considerLaNita Van Dyke, (202) 622–7180 (not toll- burden for the 2001 Form 8865 per re- ation will be given to any written (a signed free numbers). spondent is 89 hours. original and eight (8) copies) or electronic An agency may not conduct or spon- comments that are submitted timely to the SUPPLEMENTARY INFORMATION: : sor, and a person is not required to re- IRS. The IRS and Treasury Department rePaperwork Reduction Act spond to, a collection of information unless quest comments on the clarity of the pro it displays a valid control number assigned posed rules and how they can be made The collection of information contained by the Office of Management and Bud- easier to understand. All comments will be in this notice of proposed rulemaking has get. available for public inspection and copybeen submitted to the Office of Manage- Books or records relating to a collec- ing. ment and Budget for review in accordance tion of information must be retained as long A public hearing has been scheduled for with the Paperwork Reduction Act of 1995 as their contents may become material in March 12, 2003, at 10 a.m., in the Audi(44 U.S.C. 3507(d)). Comments on the col- the administration of any internal revenue torium, Internal Revenue Building, 1111 lection of information should be sent to the law. Generally, tax returns and tax return Constitution Avenue, NW, Washington, DC. Office of Management and Budget, Attn: information are confidential, as required by Because of access restrictions, visitors will Desk Officer for the Department of the 26 U.S.C. 6103. not be admitted beyond the immediate en trance area more than 30 minutes before the (Filed by the Office of the Federal Register on December 20, shareholders”, is corrected to read “loss (or 2002, 8:45 a.m., and published in the issue of the Federal Reghearing starts. For information about hav gain, as appropriate). The respondents are ister for December 23, 2002, 67 E.R. 78202) ing your name on the building access list shareholders.” to attend the hearing, see the For Further Information Contact portion of this pre $ 1.302–5 [Corrected] amble. The rules of 26 CFR 601.601(a)(3) Redemptions Taxable as 2. On page 64339, column 1, § 1.302–5, apply to the hearing. Persons who wish to Dividends; Correction paragraph (d)(8), line 4 from the bottom of present oral comments must submit writ the paragraph “accelerated inclusion date ten or electronic comments and an out- Announcement 2003-9 shall be made” is corrected to read “accelline of the topics to be discussed and the erated loss inclusion date shall be made". time to be devoted to each topic (a signed AGENCY: Internal Revenue Service (IRS), Treasury. original and eight (8) copies) by Febru 3. On page 64340, column 3, § 1.302–5, paragraph (f)(9), of Example 7, lines 6 and ary 19, 2003. A period of 10 minutes will be allotted to each person for making comACTION: Correction to notice of proposed 7, the language “equal to PS's basis in the corporation Z stock, ($50 after applicaments. An agenda showing the schedul- rulemaking and notice of public hearing. tion of section 301(c)(2)), is”, is corrected ing of the speakers will be prepared after SUMMARY: This document contains cor- to read “(equal to PS's basis in the corpothe deadline for receiving outlines has rections to a notice of proposed rulemak- ration Z stock, ($50 after application of secpassed. Copies of the agenda will be avail ing and notice of public hearing (REG- tion 301(c)(2)) is”. able free of charge at the hearing. 150313–01, 2002–44 I.R.B. 777) which was published in the Federal Register on FriDrafting Information § 1.304–3 [Corrected] day, October 18, 2002 (67 FR 64331). This The principal author of this regulation regulation provides guidance regarding the 4. On page 64342, column 3, § 1.304–3, is Tasheaya Warren, Office of the Associ- treatment of the basis of redeemed stock paragraph (a), lines 21 through 24, the lan guage “For the treatment of the redeemed ate Chief Counsel (International). How- when a distribution in redemption of such ever, other personnel from the IRS and stock is treated as a dividend, as well as shareholder's basis in the redeemed stock in such cases, see $ 1.302–5.” is removed. Treasury Department participated in their guidance regarding certain acquisitions of development. stock by related corporations that are treated Cynthia E. Grigsby, as distributions in redemption of stock. Chief, Regulations Unit, FOR FURTHER INFORMATION CONProposed Amendments to the Associate Chief Counsel Regulations TACT: Lisa K. Leong at (202) 622–7530 (Income Tax and Accounting). (not a toll-free number). (Filed by the Office of the Federal Register on December 24, Accordingly, 26 CFR part 1 is proposed 2002, 8:45 a.m., and published in the issue of the Federal Regto be amended as follows: SUPPLEMENTARY INFORMATION: ister for December 26, 2002, 67 F.R. 78761) * * * respect to controlled foreign partnerships rulemaking contains errors that may prove erating foundations. Accordingly , grantors PART 1-INCOME TAXES Background Paragraph 1. The authority citation for The proposed regulations that are the Foundations Status of Certain part 1 continues to read in part as follows: subject of these corrections are under sec subject of these corrections are under sec- Organizations Authority: 26 U.S.C. 7805 * * * tions 302, 304, 704, 861, 1371, 1374, and Par. 2. Section 1.6038–3 is amended by 1502 of the Internal Revenue Code. Announcement 2003-10 revising paragraph (j) to read as follows: Need for Correction The following organizations have failed $ 1.6038–3 Information returns required to establish or have been unable to main As published, this notice of proposed of certain United States persons with tain their status as public charities or as op , to be misleading and are in need of clari(CFPs). and contributors may not, after this date, fication. rely on previous rulings or designations in Correction of Publication the Cumulative List of Organizations (Pub(j) [The text of the proposed amend lication 78), or on the presumption arisment to § 1.6038–3(j) is the same as the Accordingly, the publication of the no- ing from the filing of notices under section text for $ 1.6038–3T(j) published else tice of proposed rulemaking and notice of 508(b) of the Code. This listing does not where in this issue of the Federal Regis- public hearing (REG-150303–01, 2002–44 indicate that the organizations have lost their ter.] I.R.B. 777), which is the subject of FR. status as organizations described in secDoc. 02-26449, is corrected as follows: tion 501(c)(3), eligible to receive deduct1. On page 64332, column 1, in the pre ible contributions. Robert E. Wenzel, amble under the paragraph heading “Pa- Former Public Charities. The follow . Deputy Commissioner perwork Reduction Act”, paragraph 7, line ing organizations (which have been treated of Internal Revenue. 12, the language “loss. The respondents are as organizations that are not private foun ***** * * * dations described in section 509(a) of the Career Access California, Inc., Carolina Family Alliance, Spartanburg, SC Center for Advanced Transportation Technologies, Monroeville, PA New York, NY Center for Social Ministry, Berkeley, CA Charanjit Singh Batth Foundation, Caruthers, CA Chennai Educational Foundation, Inc., Vienna, VA Cherrie Williams Foundation, Gardena, CA Childcare International, Inc., Miami, FL Children of Peace, Inc., Buffalo, NY Christian Business & Consumer Ministries Corporation, Fairhope, AL Christian Family, Greeley, CO Circuit Foundation, Brooklyn, NY Citizens for Buckeye Basin Parks, Inc., Toledo, OH Commanchees Retreat Organization, Galion, OH Communities With Vision, Inc., Community Development Corporation of LaFourche, Raceland, LA Community Resources Technology, Inc., Lexington, MA Community Revival Corporation, Spring Valley, NY Corporation, Inc., Riviera Beach, FL Newton, MA Woodbridge, CT Copernicus Foundation, Inc., Boston, MA Council International Study Programs, Inc., Crusaders Community Development Corporation, Philadelphia, PA David Merrick and Natalie Lloyd Foundation, Inc., New York, NY Port Washington, NY Deliverance Outreach Center, New Haven, CT D.E.R.E.K. Program, Minneapolis, MN Wilmette, IL Foundation, Kenansville, NC Los Angeles, CA Eagle Vision Society, Oklahoma City, OK ment, Inc., West Palm Beach, FL Silverton, OR Washington, DC Foundation, Eufaula, AL Center, Inc., Thomasville, NC Brookhaven, NY Council Bluffs, IA Development, Reno, NV Corporation, Santa Ana, CA Montebello, CA Company, Pittsburgh, PA Yourself, Inc., Huntington Beach, CA Memphis, TN Tiburon, CA Organization, Inc., Suffern, NY Coordinating Council, Inc., Cairo, GA Spanaway, WA Middlesex, VT Brooklyn, NY Education HOPE, Sebastapol, CA |