Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Rules and Regulations 78157 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9509] 

RIN 1545–BE23 

Farmer and Fisherman Income 

Averaging 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations relating to the averaging of 

farm and fishing income in computing 

income tax liability. The regulations 

reflect changes made by the American 

Jobs Creation Act of 2004 and the Tax 

Extenders and Alternative Minimum 

Tax Relief Act of 2008. The regulations 

provide guidance to individuals 

engaged in a farming or fishing business 

who elect to reduce their tax liability by 

treating all or a portion of the current 

taxable year’s farm or fishing income as 

if one-third of it had been earned in 

each of the prior three taxable years. 

DATES: Effective Date: These regulations 

are effective on December 15, 2010. 

Applicability Date: For date of 

applicability, see § 1.1301–1(g). 

FOR FURTHER INFORMATION CONTACT: 

Erika Reigle, (202) 622–4950 (not a tollfree number). 

SUPPLEMENTARY INFORMATION: 

Background and Explanation of 

Provisions 

This document contains amendments 

to 26 CFR part 1. On July 22, 2008, 

temporary regulations (TD 9417) were 

published in the Federal Register (73 

FR 42522) relating to the averaging of 

farm and fishing income in computing 

tax liability. A notice of proposed 

rulemaking (REG–161695–04) crossreferencing the temporary regulations 

also was published in the Federal 

Register (73 FR 42538) on July 22, 2008. 

No comments in response to the notice 

of proposed rulemaking or requests to 

hold a public hearing were received, 

and no hearing was held. This Treasury 

decision adopts the proposed 

regulations with minor changes and 

removes the temporary regulations. 

Section 504 of the Tax Extenders and 

Alternative Minimum Tax Relief Act of 

2008, Div. C of Public Law 110–343 (122 

Stat. 3765), enacted on October 3, 2008, 

provides that a taxpayer may treat 

qualified settlement income received in 

connection with the civil action In re 

Exxon Valdez, No. 8–095–CV (HRH) 

(Consolidated) (D. Alaska), as income 

from a fishing business eligible for 

income averaging. Therefore, these final 

regulations include this qualified 

settlement income in the definition of 

income from a fishing business. 

Qualified settlement income is limited 

to interest and punitive damages. The 

extent to which compensatory damages 

are treated as income from a fishing 

business is determined under the 

generally applicable rules of section 

1301. 

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, and because the 

regulations do not impose a collection 

of information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Code, the notice 

of proposed rulemaking preceding 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 Erika Reigle of the Office 

of Associate Chief Counsel (Income Tax 

& Accounting). However, other 

personnel from the IRS and Treasury 

Department participated in their 

development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

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 * * * 

■ Par. 2. Section 1.1301–1 is amended 

by revising the section heading and 

paragraphs (a), (b)(1), (b)(3), (c)(1), 

(d)(3)(ii), (d)(4), (e), (f)(2), (f)(4), and (g) 

to read as follows: 

§ 1.1301–1 Averaging of farm and fishing 

income. 

(a) Overview. An individual engaged 

in a farming or fishing business may 

make a farm income averaging election 

to compute current year (election year) 

income tax liability under section 1 by 

averaging, over the prior three-year 

period (base years), all or a portion of 

the individual’s current year electible 

farm income as defined in paragraph (e) 

of this section. Electible farm income 

includes income from both farming and 

fishing businesses. An individual who 

makes a farm income averaging 

election— 

(1) Designates all or a portion of the 

individual’s electible farm income for 

the election year as elected farm 

income; and 

(2) Determines the election year 

section 1 tax by calculating the sum of— 

(i) The section 1 tax that would be 

imposed for the election year if taxable 

income for the year were reduced by 

elected farm income; plus 

(ii) The amount by which the section 

1 tax would be increased if taxable 

income for each base year were 

increased by one-third of elected farm 

income. 

(b) Individual engaged in a farming or 

fishing business—(1) In general—(i) 

Farming or fishing business. ‘‘Farming 

business’’ has the same meaning as 

provided in section 263A(e)(4) and the 

regulations under that section. Fishing 

business means the conduct of 

commercial fishing as defined in section 

3 of the Magnuson-Stevens Fishery 

Conservation and Management Act (16 

U.S.C. 1802(4)). Accordingly, a fishing 

business is fishing in which the fish 

harvested are intended to or do enter 

commerce through sale, barter, or trade. 

Fishing means the catching, taking, or 

harvesting of fish; the attempted 

catching, taking, or harvesting of fish; 

any activities that reasonably can be 

expected to result in the catching, 

taking, or harvesting of fish; or any 

operations at sea in support of or in 

preparation for the catching, taking, or 

harvesting of fish. Fishing does not 

include any scientific research activity 

conducted by a scientific research 

vessel. Fish means finfish, mollusks, 

crustaceans, and all other forms of 

marine animal and plant life, other than 

marine mammals and birds. Catching, 

taking, or harvesting includes activities 

that result in the killing of fish or the 

bringing of live fish on board a vessel. 

(ii) Exxon Valdez settlement 

payments. For purposes of this section, 

a qualified taxpayer who receives 

qualified settlement income in any 

taxable year is treated as engaged in a 

fishing business, and the income is 

treated as income attributable to a 

fishing business, for that taxable year. A 

qualified taxpayer is an individual 

plaintiff in the civil action In re Exxon 


emcdonald on DSK2BSOYB1PROD with RULES
78158 Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Rules and Regulations 

Valdez, No. 89–095–CV (HRH) 

(Consolidated) (D. Alaska). Qualified 

taxpayer also means any individual who 

is a beneficiary of the estate of such a 

plaintiff, was the spouse or immediate 

relative of that plaintiff, and acquired 

the right to receive the settlement 

income from that plaintiff. Qualified 

settlement income means any interest 

and punitive damage awards that are 

received in connection with the civil 

action In re Exxon Valdez (whether as 

lump-sum or periodic payments, 

whether pre- or post-judgment, and 

whether related to a settlement or to a 

judgment) and that are otherwise 

includible in income. 

(iii) Form of business. An individual 

engaged in a farming or fishing business 

includes a sole proprietor of a farming 

or fishing business, a partner in a 

partnership engaged in a farming or 

fishing business, and a shareholder of 

an S corporation engaged in a farming 

or fishing business. Except as provided 

in paragraph (e)(1)(i) of this section, 

services performed as an employee are 

disregarded in determining whether an 

individual is engaged in a farming or 

fishing business for purposes of section 

1301 of the Internal Revenue Code. 

(iv) Base years. An individual is not 

required to have been engaged in a 

farming or fishing business in any of the 

base years in order to make a farm 

income averaging election. 

* * * * * 

(3) Lessors of vessels used in fishing. 

A lessor of a vessel is engaged in a 

fishing business for purposes of section 

1301 with respect to payments that are 

received under the lease and are based 

on a share of the catch from the lessee’s 

use of the vessel in a fishing business 

(or a share of the proceeds from the sale 

of the catch) if this manner of payment 

is determined under a written lease 

agreement entered into before the lessee 

begins any significant fishing activities 

resulting in the catch. A lessor of a 

vessel is not engaged in a fishing 

business for purposes of section 1301 

with respect to fixed lease payments or 

with respect to lease payments based on 

a share of the lessee’s catch (or a share 

of the proceeds from the sale of the 

catch) if the share is determined under 

either an unwritten agreement or a 

written agreement entered into after the 

lessee begins significant fishing 

activities resulting in the catch. 

(c) Making, changing, or revoking an 

election—(1) In general. A farm income 

averaging election is made by filing 

Schedule J, ‘‘Income Averaging for 

Farmers and Fishermen,’’ with an 

individual’s Federal income tax return 

for the election year (including a late or 

amended return if the period of 

limitation on filing a claim for credit or 

refund has not expired). 

* * * * * 

(d) * * * 

(3) * * * 

(ii) Example. The rules of this 

paragraph (d)(3) are illustrated by the 

following example: 

Example. (i) T is a fisherman who uses the 

calendar taxable year. In each of the years 

2007, 2008, and 2009, T’s taxable income is 

$20,000, none of which is electible farm 

income. In 2010, T has taxable income of 

$30,000 (prior to any farm income averaging 

election), $10,000 of which is electible farm 

income. T makes a farm income averaging 

election with respect to $9,000 of the 

electible farm income for 2010. Under 

paragraph (a)(2)(ii) of this section, $3,000 of 

elected farm income is allocated to each of 

the base years 2007, 2008, and 2009. Under 

paragraph (a)(2) of this section, T’s 2010 tax 

liability is the sum of the following amounts: 

(A) The section 1 tax on $21,000, which is 

T’s taxable income of $30,000, minus elected 

farm income of $9,000. 

(B) For each of the base years 2007, 2008, 

and 2009, the amount by which the section 

1 tax would be increased if one-third of 

elected farm income were allocated to each 

year. The amount for each year is the section 

1 tax on $23,000 (T’s taxable income of 

$20,000, plus $3,000, which is one-third of 

elected farm income for the 2010 election 

year), minus the section 1 tax on $20,000. 

(ii) In 2011, T has taxable income of 

$50,000, $12,000 of which is electible farm 

income. T makes a farm income averaging 

election with respect to all $12,000 of the 

electible farm income for 2011. Under 

paragraph (a)(2)(ii) of this section, $4,000 of 

elected farm income is allocated to each of 

the base years 2008, 2009, and 2010. Under 

paragraph (a)(2) of this section, T’s 2011 tax 

liability is the sum of the following amounts: 

(A) The section 1 tax on $38,000, which is 

T’s taxable income of $50,000, minus elected 

farm income of $12,000. 

(B) For each of the base years 2008 and 

2009, the amount by which section 1 tax 

would be increased if, after adjustments for 

previous farm income averaging elections 

pursuant to paragraph (d)(3)(i) of this section, 

one-third of 2011 elected farm income were 

allocated to each year. The amount for each 

year is the section 1 tax on $27,000 (T’s 

taxable income of $20,000 increased by 

$3,000 for T’s 2010 farm income averaging 

election and further increased by $4,000, 

which is one-third of elected farm income for 

the 2011 election year), minus the section 1 

tax on $23,000 (T’s taxable income of $20,000 

increased by $3,000 for T’s 2010 farm income 

averaging election). 

(C) For base year 2010, the amount by 

which section 1 tax would be increased if, 

after adjustments for previous farm income 

averaging elections pursuant to paragraph 

(d)(3)(i) of this section, one-third of elected 

farm income were allocated to that year. This 

amount is the section 1 tax on $25,000 (T’s 

2010 taxable income of $30,000 reduced by 

$9,000 for T’s 2010 farm income averaging 

election and increased by $4,000, which is 

one-third of elected farm income for the 2011 

election year), minus the section 1 tax on 

$21,000 (T’s taxable income of $30,000 

reduced by $9,000 for T’s 2010 farm income 

averaging election). 

(4) Deposits into Merchant Marine 

Capital Construction Fund—(i) 

Reductions to taxable income and 

electible farm income. Under section 

7518(c)(1)(A), certain deposits to a 

Merchant Marine Capital Construction 

Fund (CCF) reduce taxable income for 

purposes of the Internal Revenue Code 

(the CCF reduction). The amount of the 

CCF reduction is limited under section 

7518(a)(1)(A) to the taxpayer’s taxable 

income (determined without regard to 

the reduction) attributable to specified 

maritime operations including 

operations in fisheries of the United 

States. The CCF reduction is taken into 

account in determining the taxable 

income used in computations under this 

section. In addition, except to the extent 

the amount described in section 

7518(a)(1)(A) is not attributable to the 

individual’s fishing business, the CCF 

reduction is treated in computing 

electible farm income as an item of 

deduction attributable to the 

individual’s fishing business. 

(ii) Example. The rules of this 

paragraph (d)(4) are illustrated by the 

following example: 

Example. (i) T is a fisherman who uses the 

calendar taxable year. In each of the years 

2007, 2008, and 2009, T’s taxable income 

(before taking any CCF reduction into 

account) is $20,000. For taxable year 2008, all 

of T’s income is described in section 

7518(a)(1)(A) and is attributable to T’s fishing 

business. T makes a $5,000 deposit into a 

CCF for taxable year 2008. In 2010, T has 

total taxable income of $30,000 (before taking 

any CCF reduction into account). T’s 

electible farm income for 2010 (before taking 

the CCF reduction into account) is $10,000, 

all of which is described in section 

7518(a)(1)(A) and is attributable to T’s fishing 

business. For taxable year 2010, T makes a 

$4,000 deposit into a CCF. 

(ii) The amount of the 2010 CCF deposit 

reduces taxable income. Accordingly, T’s 

taxable income for 2010 is $26,000 ($30,000– 

$4,000). In addition, the entire amount of the 

CCF reduction is treated as an item of 

deduction attributable to T’s fishing business. 

Accordingly, T’s electible farm income for 

2010 is $6,000 ($10,000–$4,000). Similarly, 

the amount of the 2008 CCF deposit reduces 

T’s taxable income for 2008. Accordingly, T’s 

taxable income for 2008 is $15,000 ($20,000– 

$5,000). 

(iii) T makes an income averaging election 

with respect to all $6,000 of the electible 

farm income for 2010. Under paragraph 

(a)(2)(ii) of this section, $2,000 of elected 

farm income is allocated to each of the base 

years 2007, 2008, and 2009. Under paragraph 

(a)(2) of this section, T’s 2010 tax liability is 

the sum of the following amounts: 

(A) The section 1 tax on $20,000, which is 

T’s taxable income of $26,000 ($30,000 


emcdonald on DSK2BSOYB1PROD with RULES
Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Rules and Regulations 78159 

reduced by the $4,000 CCF deposit), minus 

elected farm income of $6,000. 

(B) For each of the base years 2007, 2008, 

and 2009, the amount by which section 1 tax 

would be increased if one-third of elected 

farm income were allocated to each year. The 

amount for base years 2007 and 2009 is the 

section 1 tax on $22,000, (T’s taxable income 

of $20,000, plus $2,000, which is one-third 

of elected farm income for the election year), 

minus the section 1 tax on $20,000. The 

amount for base year 2008 is the section 1 tax 

on $17,000, which is T’s taxable income of 

$15,000 ($20,000 reduced by the $5,000 CCF 

deposit), plus $2,000 (one-third of elected 

farm income for the election year), minus the 

section 1 tax on $15,000. 

(e) Electible farm income—(1) 

Identification of items attributable to a 

farming or fishing business—(i) In 

general. Farm and fishing income 

includes items of income, deduction, 

gain, and loss attributable to an 

individual’s farming or fishing business. 

Farm and fishing losses include, to the 

extent attributable to a farming or 

fishing business, any net operating loss 

carryover or carryback or net capital loss 

carryover to an election year. Income, 

gain, or loss from the sale of 

development rights, grazing rights, and 

other similar rights is not treated as 

attributable to a farming business. In 

general, farm and fishing income does 

not include compensation received as 

an employee. However, a shareholder of 

an S corporation engaged in a farming 

or fishing business may treat 

compensation received from the 

corporation as farm or fishing income if 

the compensation is paid by the 

corporation in the conduct of the 

farming or fishing business. If a 

crewmember on a vessel engaged in 

commercial fishing (within the meaning 

of section 3 of the Magnuson-Stevens 

Fishery Conservation and Management 

Act, 16 U.S.C. 1802(4)) is compensated 

by a share of the boat’s catch of fish or 

a share of the proceeds from the sale of 

the catch, the crewmember is treated for 

purposes of section 1301 as engaged in 

a fishing business and the compensation 

is treated for such purposes as income 

from a fishing business. 

(ii) Gain or loss on sale or other 

disposition of property—(A) In general. 

Gain or loss from the sale or other 

disposition of property that was 

regularly used in the individual’s 

farming or fishing business for a 

substantial period of time is treated as 

attributable to a farming or fishing 

business. For this purpose, the term 

property does not include land, but does 

include structures affixed to land. 

Property that has always been used 

solely in the farming or fishing business 

by the individual is deemed to meet 

both the regularly used and substantial 

period tests. Whether property not used 

solely in the farming or fishing business 

was regularly used in the farming or 

fishing business for a substantial period 

of time depends on all of the facts and 

circumstances. 

(B) Cessation of a farming or fishing 

business. If gain or loss described in 

paragraph (e)(1)(ii)(A) of this section is 

realized after cessation of a farming or 

fishing business, the gain or loss is 

treated as attributable to a farming or 

fishing business only if the property is 

sold within a reasonable time after 

cessation of the farming or fishing 

business. A sale or other disposition 

within one year of cessation of the 

farming or fishing business is presumed 

to be within a reasonable time. Whether 

a sale or other disposition that occurs 

more than one year after cessation of the 

farming or fishing business is within a 

reasonable time depends on all of the 

facts and circumstances. 

(2) Determination of amount that may 

be elected farm income—(i) Electible 

farm income. (A) The maximum amount 

of income that an individual may elect 

to average (electible farm income) is the 

sum of any farm and fishing income and 

gains, minus any farm and fishing 

deductions or losses (including loss 

carryovers and carrybacks) that are 

allowed as a deduction in computing 

the individual’s taxable income. 

(B) Individuals conducting both a 

farming business and a fishing business 

must calculate electible farm income by 

combining income, gains, deductions, 

and losses derived from the farming 

business and the fishing business. 

(C) Except as otherwise provided in 

paragraph (d)(4) of this section, the 

amount of any CCF reduction is treated 

as a deduction from income attributable 

to a fishing business in calculating 

electible farm income. 

(D) Electible farm income may not 

exceed taxable income, and electible 

farm income from net capital gain 

attributable to a farming or fishing 

business may not exceed total net 

capital gain. Subject to these limitations, 

an individual who has both ordinary 

income and net capital gain from a 

farming or fishing business may elect to 

average any combination of the ordinary 

income and net capital gain. 

(ii) Examples. The rules of this 

paragraph (e)(2) are illustrated by the 

following examples: 

Example 1. A has ordinary income from a 

farming business of $200,000 and deductible 

expenses from a farming business of $50,000. 

A’s taxable income is $150,000 ($200,000– 

$50,000). Under paragraph (e)(2)(i) of this 

section, A’s electible farm income is 

$150,000, all of which is ordinary income. 

Example 2. B has capital gain of $20,000 

that is not from a farming or fishing business, 

capital loss from a farming business of 

$30,000, and ordinary income from a farming 

business of $100,000. Under section 1211(b), 

B’s allowable capital loss is limited to 

$23,000. B’s taxable income is $97,000 

(($20,000–$23,000) + $100,000). B has a 

capital loss carryover from a farming 

business of $7,000 ($30,000 total loss ¥ 

$23,000 allowable loss). Under paragraph 

(e)(2)(i) of this section, B’s electible farm 

income is $77,000 ($100,000 ordinary income 

from a farming business, minus $23,000 

capital loss from a farming business), all of 

which is ordinary income. 

Example 3. C has ordinary income from a 

fishing business of $200,000 and ordinary 

loss from a farming business of $60,000. C’s 

taxable income is $140,000 ($200,000 ¥ 

$60,000). Under paragraph (e)(2)(i)(B) of this 

section, C must deduct the farm loss from the 

fishing income in determining C’s electible 

farm income. Therefore, C’s electible farm 

income is $140,000 ($200,000–$60,000), all 

of which is ordinary income. 

Example 4. D has ordinary income from a 

farming business of $200,000 and ordinary 

loss of $50,000 that is not from a farming or 

fishing business. D’s taxable income is 

$150,000 ($200,000 ¥ $50,000). Under 

paragraph (e)(2)(i)(D) of this section, electible 

farm income may not exceed taxable income. 

Therefore, D’s electible farm income is 

$150,000, all of which is ordinary income. 

Example 5. E has capital gain from a 

farming business of $50,000, capital loss of 

$40,000 that is not from a farming or fishing 

business, and ordinary income from a 

farming business of $60,000. E’s taxable 

income is $70,000 (($50,000 ¥ $40,000) + 

$60,000). Under paragraph (e)(2)(i)(D) of this 

section, electible farm income may not 

exceed taxable income, and electible farm 

income from net capital gain attributable to 

a farming or fishing business may not exceed 

total net capital gain. Therefore, E’s electible 

farm income is $70,000 of which $10,000 is 

capital gain and $60,000 is ordinary income. 

(f) * * * 

(2) Changes in filing status. An 

individual is not prohibited from 

making a farm income averaging 

election solely because the individual’s 

filing status is not the same in an 

election year and the base years. For 

example, an individual who is married 

and files a joint return in the election 

year, who filed as single in one or more 

of the base years, may elect to average 

farm or fishing income, by using the 

single filing status to compute the 

increase in section 1 taxes for the base 

years in which the individual filed as 

single. 

* * * * * 

(4) Alternative minimum tax. A farm 

income averaging election is 

disregarded in computing the tentative 

minimum tax and the regular tax under 

section 55 for the election year or any 

base year. The election is taken into 


emcdonald on DSK2BSOYB1PROD with RULES
78160 Federal Register / Vol. 75, No. 240 / Wednesday, December 15, 2010 / Rules and Regulations 

account, however, in determining the 

regular tax liability under section 53(c) 

for the election year. 

* * * * * 

(g) Effective/applicability date. This 

section applies for taxable years 

beginning after December 15, 2010. See 

the provisions of §§ 1.1301–1 and 

1.1301–1T as in effect on December 14, 

2010 for rules that apply for taxable 

years beginning on or before December 

15, 2010. In addition, a taxpayer may 

apply paragraph (b)(1)(ii) of this section 

in taxable years beginning after 

December 31, 2003. 

§ 1.1301–1T [Removed] 

■ Par. 3. Section 1.1301–1T is removed. 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: December 7, 2010. 

Michael Mundaca, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2010–31497 Filed 12–14–10; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9510] 

RIN 1545–BJ54 

Requirement of a Statement Disclosing 

Uncertain Tax Positions 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation. 

SUMMARY: This document contains final 

regulations allowing the IRS to require 

corporations to file a schedule 

disclosing uncertain tax positions 

related to the tax return as required by 

the IRS. 

DATES: Effective date: This regulation is 

effective on December 15, 2010. 

Applicability date: For dates of 

applicability, see § 1.6012–2(a)(5). 

FOR FURTHER INFORMATION CONTACT: 

Kathryn Zuba at (202) 622–3400 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to the Income Tax Regulations (26 CFR 

part 1) under section 6012 relating to 

the returns of income corporations are 

required to file. Section 6011 provides 

that persons liable for a tax imposed by 

Title 26 shall make a return when 

required by regulations prescribed by 

the Secretary of the Treasury according 

to the forms and regulations prescribed 

by the Secretary. Treasury Regulation 

§ 1.6011–1 requires every person liable 

for income tax to make the returns 

required by regulation. Section 6012 

requires corporations subject to an 

income tax to make a return with 

respect to that tax. Treasury Regulation 

§ 1.6012–2 sets out the corporations that 

are required to file returns and the form 

those returns must take. 

A proposed regulation under section 

6012 (REG–119046–10) was published 

in the Federal Register on September 9, 

2010. Requirement of a Statement 

Disclosing Uncertain Tax Positions, 75 

FR 54802 (proposed Sept. 9, 2010). The 

IRS received one written comment 

concerning the proposed regulation, and 

a public hearing regarding the proposed 

regulation was held on October 19, 

2010. Neither of the two speakers at the 

public hearing had comments relating to 

the proposed regulation, although both 

organizations the speakers represented 

had previously submitted written 

comments concerning the draft 

Schedule UTP and instructions. 

Announcement 2010–30, 2010–19 IRB 

668. After considering the comments, 

the proposed regulation is adopted by 

this Treasury decision with one nonsubstantive change related to the 

effective date. While the proposed 

regulation applied to returns filed for 

tax years beginning after December 15, 

2009 and ending after the date the 

regulations were published in the 

Federal Register, the final regulation 

applies to returns filed for tax years 

beginning on or after January 1, 2010. 

Explanation and Summary of 

Comments 

This rule will authorize the IRS to 

require certain corporations, as set out 

in forms, publications, instructions, or 

other guidance, to provide information 

concerning uncertain tax positions 

concurrent with the filing of a return. 

On September 24, 2010, the IRS released 

Schedule UTP with accompanying 

instructions that explain how the IRS 

plans to implement the authority 

provided by this regulation. One 

commentator asked that the proposed 

regulation not be adopted because 

Schedule UTP would require the 

disclosure of privileged information. If 

the regulation is adopted, the 

commentator recommended it should 

state that taxpayer may assert any 

applicable privileges to providing 

information sought by Schedule UTP 

and that any disclosure of information 

on that schedule will not constitute a 

waiver of any applicable privilege. 

The final regulation does not adopt 

this recommendation. The regulation 

addresses the IRS’s authority to require 

certain corporations to provide 

information concerning uncertain tax 

positions. The IRS has decided to 

require the filing of Schedule UTP based 

on its determination that the 

information about uncertain tax 

positions taken in a tax return required 

by the schedule is essential to achieving 

an effective and efficient self-assessment 

tax system. Provisions relating to the 

assertion of privilege are not included in 

this regulation, since it does not affect 

the existence of any applicable 

privileges taxpayers may have 

concerning information requested by a 

return or how they may assert those 

privileges. 

Special Analyses 

It has been determined that this final 

rule is not a significant regulatory action 

as defined in Executive Order 12866. 

Therefore, a regulatory assessment is not 

required. 

This regulation will only affect 

taxpayers that prepare or are required to 

issue audited financial statements. 

Small entities rarely prepare or are 

required to issue audited financial 

statements due to the expense involved. 

It is hereby certified that this regulation 

will not have a significant economic 

impact on a substantial number of small 

entities pursuant to the Regulatory 

Flexibility Act (5 U.S.C. chapter 6). 

Accordingly, a regulatory flexibility 

analysis is not required. Pursuant to 5 

U.S.C. 553(d)(3), it has been determined 

that there is good cause for the effective 

date of this final rule, which is less than 

30 days after the date of publication. 

Pursuant to section 7805(f) of the 

Internal Revenue Code, the notice of 

proposed rulemaking preceding this 

regulation was 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 Kathryn Zuba of the 

Office of the Associate Chief Counsel 

(Procedure and Administration). 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

■ Accordingly, 26 CFR part 1 is 

amended as follows: 


emcdonald on DSK2BSOYB1PROD with RULES