Automatic Extension of Time to File U.S. Individual Income Tax Return) be filed in duplicate. When this regulation takes effect, only an original of these forms need be filed. Because this regulation is nonsubstantive and essentially procedural it is found unnecessary to issue this Treasury decision with notice and public procedure. For the same reasons, this regulation is not a significant regulation under paragraph 8 of the proposed Treasury Directive appearing in the Federal Register for May 24, 1978 (43 FR 22319). DRAFTING INFORMATION The principal author of this regulation was David Jacobson of the Legislation and Regulations Division of the Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in developing the regulation, both on matters of substance and style. Adoption of amendments to the regulations The following amendments to the regulations are adopted: Paragraph 1. Section 1.6081 is de leted. Par. 2. Section 1.6081-3 is amended as follows: 1. Paragraph (a) (1) is amended by deleting the words "in duplicate”. 2. Paragraph (a) (2) is amended by deleting the words "original of the" and the last sentence. 3. Paragraph (b) is amended by deleting the words "original of such" and the last sentence. Par. 3. Section 1.6081-4 is amended as follows: 1. Paragraph (a) (2) is amended by deleting the words "in duplicate". 2. Paragraph (a) (3) is amended by deleting the words "original of the". 3. Paragraph (a) (5) is amended by deleting the second sentence. Because this regulation is nonsubstantive and essentially procedural, it is found unnecessary to issue it with notice and public procedure under subsection (b) of section 553 of Title 5 of the United States Code or subject to the effective date limitation of subsection (d) of that section. This Treasury decision is issued under the authority contained in section 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805). JEROME KURTZ, Approved September 25, 1978. DONALD C. LUBICK, Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on October 2, 1978, 8:45 a.m., and published in the issue of the Federal Register for October 3, 1978, 43 F.R. 45582) Subchapter B.-Miscellaneous Provisions Section 6103.-Confidentiality and Disclosure of Returns and Return Information 26 CFR 404.6103(h) (2)-1: Disclosure of returns and return information (including taxpayer return information) to and by at. torneys and other officers and employees of the Department of Justice in preparation for proceeding or investigation involving tax administration. T.D. 7550 TITLE 26.—INTERNAL REVENUE. CHAPTER 61, SUBCHAPTER B, PART 404.-TEMPORARY REGULATIONS ON PROCEDURE AND ADMINISTRATION UNDER THE TAX REFORM ACT OF 1976 Disclosure of returns and return information to and by attorneys and other officers and employees of the Department of Justice in preparation for proceeding or investigation involving tax administration. AGENCY: Internal Revenue Service, Treasury. ACTION: Temporary regulations. SUMMARY: This document contains amendments to the existing temporary regulations relating to the disclosure of returns and return information to and by attorneys and other officers and employees of the Department of Justice in preparation for proceedings or investigations involving tax administration. These amendments are intended to add additional requirements or restrictions applicable to certain disclosures. They affect disclosures to and by attorneys of the Department of Justice to other attorneys of the Department of Justice where necessary in connection with preparing for a proceeding or conducting an investigation involving tax administration. DATE: The regulations, as amended, apply to disclosures made after July 6, 1978. FOR FURTHER INFORMATION: Diane L. Renfroe of the Legislation and Regulations Division, Office of the Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224 (Attention: CC:LR:T) (202-566-3590). INFORMA SUPPLEMENTARY TION: BACKGROUND This document contains amendments to the temporary regulations relating to disclosure of returns and return information to and by attorneys of the Department of Justice under section 6103 (h) (2) of the Internal Revenue Code of 1954 as added by section 1202 of the Tax Reform Act of 1976 (Pub. L. 94-455 [1976-3 C.B. (Vol. 1) 1], 90 Stat. 1674). SUBSEQUENT DISCLOSURE OF RETURNS AND RETURN INFORMATION BY ATTORNEYS OF THE DEPARTMENT OF JUSTICE RECEIVING THE SAME IN CONNECTION WITH A PROCEEDING OR INVESTIGATION INVOLVING TAX ADMINISTRATION as This temporary regulation, amended, provides for subsequent disclosure and use of returns or return information made available to attorneys of the Department of Justice under paragraph (a) (1) of the existing temporary regulation. First, subdivision (i) of paragraph (a) (2) provides for such subsequent disclosure in connection with preparing for a proceeding or conducting an investigation described in paragraph (a)(1). Second, subdivision (ii) provides for such subsequent disclosure in connection with a proceeding or investigation described in paragraph (a) (1) which also involves enforcement of a specific federal criminal statute other than one described in paragraph (a)(1) provided that three conditions are met. First, such other matter must involve or arise out of the particular facts and circumstances giving rise to a proceeding or investigation involving tax administration. Second, the tax portion of such joint proceeding or investigation must have been authorized by the Assistant Attorney General for the Tax Division of the Department of Justice at the request of the Internal Revenue Service as a proceeding involving tax administration. Third, if the tax administration portion of the joint proceedings is terminated for any reason, attorneys of the Department of Justice working on the nontax portion of the case must then obtain a court order as required under section 6103 (i) prior to further use of the tax returns or taxpayer derived tax data in their possession. The second and third conditions are new and have been added to provide further safeguards to insure adequate protection of the confidentiality of this tax material. PUBLICATION OF NOTICE OF PROPOSED RULEMAKING These temporary regulations, as amended, are also published as a notice of proposed rulemaking under section 6103 (h) (2) of the Code. DRAFTING INFORMATION The principal author of this regulation was Diane L. Renfroe of the Legislation and Regulations Division. of the Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in developing the regulation, both on matters of substance and style. WAIVER OF CERTAIN PROCEDURAL REQUIREMENTS OF PROPOSED TREASURY DIRECTIVE A determination has been made by one of the undersigned, Jerome Kurtz, Commissioner of Internal Revenue, that there is an immediate need for amendment of the temporary regulations under section 6103 (h) (2) in order to clarify rules relating to disclosures of returns and return information in situations involving certain joint tax and nontax related investigations. Because of the immediate need for such clarification, compliance with. the procedural requirements of paragraphs 8 through 13 of the proposed Treasury directive, relating to improving regulations (43 F.R. 22319), would be impractical, and, therefore, these requirements have not been followed. Adoption of amendments to the regulations In order to amend the temporary regulations on Procedure and Administration (26 CFR Part 404) to provide additional restrictions on certain disclosures of returns and return information to and by attorneys of the Department of Justice in connection with matters involving tax administration under section 6103 (h) (2), the heading of 404.6103 (h) (2) -1 and paragraph (a) (2) of such section are amended to read as follows: § 404.6103 (h) (2) -1 Disclosure of returns and return information (including taxpayer return information) to and by attorneys and other officers and employees of the Department of Justice in preparation for proceeding or investigation involving tax administration. (a) Disclosure of returns and return information (including taxpayer return information) to and by attor neys of the Department of Justice. (1) * * * (2) Returns and return information (including taxpayer return information) inspected by or disclosed to attorneys of the Department of Justice as provided in paragraph (a)(1) of this section may also be used by such attorneys, or disclosed by them to other attorneys (including United States attorneys and supervisory personnel, such as Section Chiefs, Deputy Assistant Attorneys General, Assistant Attorneys General, the Deputy Attorney General, and the Attorney General) of the Department of Justice, where necessary (i) In connection with preparation for any proceeding (or with an investigation which may result in such a proceeding) described in paragraph (a) (1), or (ii) In connection with preparation for any proceeding (or with an investigation which may result in such a proceeding) described in paragraph (a) (1) which also involves enforcement of a specific federal criminal statute other than one described in paragraph (a) (1) to which the United (a)(1) States is or may be a party, provided such matter involves or arises out of the particular facts and circumstances giving rise to the proceeding (or investigation) described in paragraph (a)(1) and further provided the tax portion of such proceeding (or investigation) has been duly authorized by or on behalf of the Assistant Attorney General for the Tax Division of the Department of Justice, pursuant to the request of the Secretary, as a proceeding (or investigation) described in paragraph (a) (1). If, in the course of preparation for a proceeding (or the conduct of an investigation which may result in such a proceeding) described in subdivision (ii) of this subparagraph, the tax administration portion thereof is terminated for any reason, any further use or disclosure of such returns or taxpayer return information in such preparation or investigation with respect to the remaining portion may be made. only pursuant to, and upon the grant of, a court order as provided by section 6103 (i) (1) (A), provided, however, that the returns and taxpayer return information may in any event be used for purposes of obtaining the necessary court order. There is a need for immediate guidance with respect to the provisions contained in this Treasury decision. For this reason, it is found impracticable to issue it with notice and public procedure under subsection (b) of section 553 of Title 5 of the United States Code or subject to the effective date limitation of subsection (d) of that section. This Treasury decision is issued under the authority contained in section 6103 (q) of the Internal Revenue Code of 1954 (90 Stat. 1685; 26 U.S.C. 6103 (q)) and section 7805 of the Internal Revenue Code of 1954 (68A Stat. 917; 26 U.S.C. 7805). JEROME KURTZ, Approved June 21, 1978. ROBERT H. Mundheim, of the Treasury. (Filed by the Office of the Federal Register on June 30, 1978, 4:10 p.m., and published in the issue of the Federal Register for July 6, 1978, 43 F.R. 29115) Section 6107.-Income Tax Return Preparer Must Furnish Copy of Return to Taxpayer and Must Retain a Copy or List 26 CFR 1.6107-1: Income tax return preparer must furnish copy of return to taxpayer and must retain a copy or record. Is an income tax return preparer required to sign and affix an identification number to the taxpayer's copy of a federal income tax return? See Rev. Rul. 78-317, page 335. 26 CFR 1.6107-1: Income tax return preparer must furnish copy of return to taxpayer and must retain a copy or record. Whether the lease of facilities and services to an unrelated income tax return preparer makes the lessor an income tax return preparer or the employer of an income tax return preparer. See Rev. Rul. 78-318, page 345. Section 6109.—Identifying 26 CFR 1.6109-1: Identifying numbers. Is an income tax return preparer required to sign and affix an identification number to the taxpayer's copy of a federal income tax return? See Rev. Rul. 78-317, page 335. 26 CFR 301.6109-1: Identifying numbers. Magnetic tape reporting requirements. See Rev. Proc. 78-26, page 505. Chapter 62.-Time and Place for Paying Tax Subchapter A.-Place and Due Date for Payment of Tax Section 6152.—Installment 26 CFR 1.6152-1: Installment payments. Rev. Rul. 78-329 ISSUE Have the taxpayers in the situations described below made valid elections to pay their unpaid taxes in two equal installments, as provided by section 6152 of the Internal Revenue Code of 1954? FACTS Situation 1 On March 15, W corporation filed a Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, reporting a tax liability of 20x dollars and claiming estimated tax payments of 20x dollars. On June 15, W filed its income tax return reporting a tax liability of 24x dollars. W paid the 4x dollars of tax due with the return. Situation 2 On March 15, X corporation timely filed a Form 7004, reporting a tax liability of 10x dollars and claiming no estimated tax payments. On March 15, X paid 5x dollars, 50 percent of the unpaid tax shown on Form 7004. On June 15, X filed its income tax return reporting a tax liability of 50x dollars less estimated tax payments of 40x dollars and payment with Form 7004 of 5x dollars. X paid the 5x dollars of tax due with the return. Situation 3 On March 15, Y corporation timely filed a Form 7004, reporting a tax liability of 35x dollars and claimed estimated tax payments of 25x dollars. On March 15, Y paid 5x dollars, 50 percent of the unpaid tax shown on Form 7004. On June 15, Y filed its income tax return reporting a tax liability of 37x dollars, less estimated tax payments of 29x dollars and payment with Form 7004 of 5x dollars. On June 15, Y paid the 3x dollars of tax due with the return. An audit of the return disclosed a deficiency of 6x dollars. Situation 4 On March 15, Z corporation timely filed a Form 7004, reporting a tax liability of 50x dollars and estimated tax payments of 30x dollars. On March 15, Z paid 10x dollars, 50 percent of the unpaid tax shown on Form 7004. On June 15, Z filed its income tax return reporting a tax liability of 60x dollars, less estimated tax payments of 30x dollars and payment with Form 7004 of 10x dollars. On June 15, Z paid the 20x dollars of tax due with the return. LAW AND ANALYSIS Section 1652(a) of the Code provides that a corporation may elect to pay the unpaid amount of income tax in two equal installments. Section 6152(b) (2) of the Code provides that in any case in which the tax may be paid in two installments, the first installment shall be paid on the date prescibed for the payment of the tax and the second installment shall be paid on or before three months after such date. Section 1.6152-1 (a) (2) of the Income Tax Regulations provides that a corporation shall be considered to have made an election to pay its tax in installments if it files a Form 7004 and pays 50 percent of the unpaid amount of the tax with the Form 7004. The installment privilege is limited by section 1.6152-1 (a) (2) to the unpaid amount of tax as shown on the Form 7004. HOLDINGS Situation 1 W did not make an election to pay the unpaid amount of tax in two equal installments. Section 1.6152-1(a)(2) of the regulations provides that the installment privilege is limited to the unpaid amount of tax shown on the Form 7004. In this situation there was no unpaid amount of tax shown on the Form 7004. Interest on 4x dollars will run from March 15 to June 15. Knickerbocker Construction Co. v. U.S., 373 F.2d 978 (Ct. Cl. 1967). Situation 2 In this situation X made a valid election to pay the unpaid amount of its tax (10x dollars) in two equal installments. The fact that it failed to claim credit on the Form 7004 for estimated tax paid and showed only the net tax liability has no effect on its installment privilege. Situation 3 In this situation Y made a valid election to pay the unpaid amount of tax (10x dollars) in two equal installments. Interest on 4x dollars of the 6x dollars deficiency will be charged from the due date of the return. Interest on the remaining 2x dollars will run from June 15. See Rev. Rul. 75-465, 1975-2 C.B. 486. Situation 4 In this situation Z made a valid election to pay its unpaid amount of tax (20x dollars) in two equal installments. Interest is due on the additional 10x dollars tax liability reported on the return from the due date of the return, since this amount was not included in Z's election. Section 6158.-Installment Payment of Tax Attributable to Divestitures Pursuant to Bank Holding Company Act Amendments of 1970 26 CFR 6.3: Election by a qualified bank holding corporation to pay in installments the tax attributable to sales under the Bank Holding Company Act. Election by bank holding companies under the Bank Holding Company Act of 1976 relating to installment sales. See T.D. 7570, page 210. Chapter 63.-Assesment Subchapter B.-Deficiency Procedures in the Case of Income, Estate, Gift, and Certain Excise Taxes Section 6215.-Assessment of 26 CFR 301.6215-1: Assessment of deficiency found by Tax Court. Whether expenses otherwise deductible under section 2053 (b) of the Code will be allowed as deductions from the gross estate after the decision of the Tax Court becomes final. See Rev. Rul. 78-323, page 240. Chapter 64.-Collection Subchapter C.-Lien for Taxes Section 6322.-Period of Lien Whether a federal income tax lien attaches to assets that pass directly to an heir without going through the decedent's estate. See Rev. Rul. 78-299, page 304. Chapter 65.-Abatements, Credits, and Refunds Subchapter B.-Rules of Special Application Section 6411.-Tentative 26 CFR 1.6411-1: Tentative carryback adjustments. Carryback adjustments; net operating loss; refunds. An application for a tentative refund from the carryback of a net operating loss timely filed on Form 1139 or Form 1045 must be allowed provided the application contains no omissions or errors of computation, even though, in the year to which the loss was carried, a deficiency had been proposed proposed exceeding the amount of the tax plus the amount of the loss. The taxpayer is entitled to a credit or refund of the decrease in tax shown on the application even if the 90-day period described in section 6411(b) of the Code has lapsed. Rev. Rul. 78-369 FACTS In 1977 the taxpayer had a net operating loss of 50x dollars that was carried back to 1974. The taxpayer timely filed a complete Form 1139, Corporation Application for Tentative Refund from Carryback of Net Operating Loss ***, that contained no omissions or errors of computation. Tax of 100x dollars was shown on the 1974 income tax return but the Service examined the 1974 return and determined a proposed deficiency of 200x dollars that had not been assessed at the time the Form 1139 was filed. The 1974 return is under criminal investigation. It also is anticipated that a current examination of the 1977 return will eliminate the net operating loss. ISSUES Question 1 Is the Service required to refund the decrease in tax shown on the Form 1139? Question 2 Is the Service required to allow the decrease in tax shown on the Form 1139, even if 90 days have elapsed after the Form 1139 was filed? LAW AND ANALYSIS Section 6411(b) of the Internal Revenue Code of 1954 provides that the Secretary shall make, to the extent deemed practical, a limited examination of an application for a tentative carryback adjustment to discover omissions and errors of computation therein and shall determine the amount of the decrease in tax attributable to such carryback. Such examination shall be made within 90 days from the date on which an application for a tentative carryback adjustment is filed or from the last day of the month in which falls the last date prescribed by law (including any extension of time granted the taxpayer) for filing the return for the taxable year of the loss from which such carryback results, whichever is the later. Section 6411(b) also provides that the Secretary may disallow, without further action, any application that contains. errors of computation that cannot be corrected within such 90-day period or material omissions. Such section further provides that the decrease in tax attributable to the carryback shall be applied against any unpaid amount of the decreased tax and any remainder shall be credited against any unsatisfied amount of any tax for the taxable year immediately preceding the taxable year of the loss, the time for payment of which tax is extended under section 6164. Any remainder shall, within such 90-day period, be either credited against any tax or installment thereof then due from the taxpayer, or refunded to the taxpayer. Section 1.6411-2(b) of the Income Tax Regulations provides that, in determining decreases in tax attributable to a carryback, items shall be taken into account only to the extent that they were reported on the return, or were reflected in amounts assessed (or collected without assessment) as deficiencies, or in amounts abated, credited, refunded, or otherwise repaid, before the date the application for a tentative carryback adjustment was filed. Section 1.6411-3 of the regulations provides that the District Director or Director of a Service Center, in determining decreases in tax attributable to a carryback, will not change an amount claimed on the return because the Director asserts that the taxpayer has claimed an excessive amount; likewise, the Director will not include in gross income any amount not so included by the taxpayer, even though the Director believes that such amount is subject to tax and properly should be included in gross income. If the Director determines that an application for a tentative carryback adjustment contains material omissions, or errors of computation that cannot be corrected within the 90 day period, the application may be disallowed in whole or in part without further action. The Director's action in disallowing in whole or in part, any application for a tentative carryback adjustment shall be final and may not be challenged in any proceeding. Section 1.6411-3(d) (3) of the regulations provides that any remaining decrease in tax attributable to the carryback may, within the 90-day period, in the discretion of the Director, be credited against any tax or installment thereof then due from the taxpayer, and if not so credited, shall be refunded to the taxpayer within such 90-day period. Section 6411(b) of the Code was enacted as part of the Tax Adjustment Act of 1945, Pub. L. 172, 1945 C.B. 532, a postwar tax package designed to improve the cash position of businesses whose financial position would be strained during the reconversion period. The 90-day period was enacted to speed up refunds attributable to net operating loss carrybacks. It was not intended that the 90-day requirement would prevent such refunds from being made after the 90day period. See H.R. Rep. No. 849, 79th Cong., 1st Sess. (1945), 1945 C.B. 566. HOLDINGS Question 1 The Service is required to refund the decrease in tax shown on the Form 1139. However, see Rev. Rul. 60-215, 1960-1 C.B. 642, which holds that the 50 percent fraud penalty imposed by section 6653 (b) of the Code is applicable to a deficiency assessed to recover an erroneous allowance of a tentative carryback adjustment made under the provisions of section 6411 where such allowance was induced by fraud. Question 2 The Service is required to allow the decrease in tax shown on the Form 1139, even though the 90-day period has lapsed since the timely filing of the application. This Revenue Ruling is equally applicable to the filing of Form 1045, Application for Tentative Refund from Carryback of Net Operating Loss ***. Section 6416.-Certain Taxes on 26 CFR 48.6416(b)-2: Tax payments deemed to be overpayments by reason of certain uses, sales, or resales. Effect of Tax Reform Act of 1976 on Rev. Rul. 73-342, relating to installation of wrecker bodies and cranes on truck chassis. See Rev. Rul. 78-308, page 259. Chapter 66.-Limitations Subchapter A.-Limitations on Assessment and Collection Section 6501.-Limitations on 26 CFR 301.6501(a)-1: Period of limitations upon assessment and collection. Whether expenses otherwise deductible under section 2053 (b) of the Code will be |