Federal Register / Vol. 76, No. 162 / Monday, August 22, 2011 / Rules and Regulations 52259 

[FR Doc. 2011–21353 Filed 8–19–11; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 301 

[TD 9545] 

RIN 1545–BG75 

Interest and Penalty Suspension 

Provisions Under Section 6404(g) of 

the Internal Revenue Code 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations regarding the suspension of 

interest, penalties, additions to tax, or 

additional amounts under section 

6404(g) of the Internal Revenue Code. 

The final regulations explain the general 

rules for suspension and exceptions to 

those general rules, and incorporate a 

special rule from Notice 2007–93, 2007– 

48 IRB 1072, regarding the effective date 

of the changes to section 6404(g) made 

by the Small Business and Work 

Opportunity Tax Act of 2007. The final 


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52260 Federal Register / Vol. 76, No. 162 / Monday, August 22, 2011 / Rules and Regulations 

regulations affect taxpayers who file 

timely individual income tax returns 

and who fail to receive notification from 

the IRS of additional tax liability within 

the time period prescribed by section 

6404(g). 

DATES: Effective Date: These regulations 

are effective on August 22, 2011. 

Applicability date: Section 301.6404– 

4(a)(5) applies to notices under section 

6404(g)(1)(A) that are provided by the 

IRS on or after November 26, 2007, and 

that relate to individual Federal income 

tax returns that were timely filed before 

that date. 

FOR FURTHER INFORMATION CONTACT: 

Nathan Rosen, (202) 622–3630 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document amends the Procedure 

and Administration Regulations (26 CFR 

part 301) by adding rules relating to the 

suspension of interest, penalties, 

additions to tax, or additional amounts 

under section 6404(g). Section 6404(g) 

was added to the Code by section 3305 

of the Internal Revenue Service 

Restructuring and Reform Act of 1998, 

Public Law 105–206 (112 Stat. 685, 743) 

(RRA 98), effective for taxable years 

ending after July 22, 1998. Section 

6404(g) was amended by section 903(c) 

of the American Jobs Creation Act of 

2004, Public Law 108–357 (118 Stat. 

1418, 1652) (AJCA), enacted on October 

22, 2004, and by section 303 of the Gulf 

Opportunity Zone Act of 2005, Public 

Law 109–135 (119 Stat. 2577, 2608–09) 

(GOZA), enacted on December 21, 2005. 

Section 8242 of the Small Business and 

Work Opportunity Tax Act of 2007, 

Public Law 110–28 (121 Stat. 190, 200), 

extended the eighteen-month period 

within which the IRS can, without 

suspension of interest, contact a 

taxpayer regarding possible adjustments 

to the taxpayer’s liability to thirty-six 

months, effective for notices provided 

after November 25, 2007. 

On June 21, 2007, the Treasury 

Department and the IRS published in 

the Federal Register a notice of 

proposed rulemaking and notice of 

public hearing (REG–149036–04), 2007– 

34 IRB 411 (72 FR 34199), corrected at 

(72 FR 41045) (July 26, 2007), under 

section 6404(g). The proposed 

regulations provided guidance regarding 

the suspension of interest, penalties, 

additions to tax, or additional amounts 

under section 6404(g). No comments 

were received in response to the notice 

of proposed rulemaking and no public 

hearing was requested or held. 

Therefore, the proposed regulations are 

adopted as amended by this Treasury 

decision. The revisions are discussed in 

this preamble. 

On June 21, 2007, the Treasury 

Department and the IRS also published 

a separate set of temporary regulations 

(TD 9333), 2007–33 IRB 350 (72 FR 

34176), corrected at 72 FR 41022, and a 

notice of proposed rulemaking by crossreference to temporary regulations 

(REG–149036–04), 2007–33 IRB 365 (72 

FR 34204), corrected at 72 FR 41045, 

under section 6404(g) concerning the 

suspension of interest, penalties, 

additions to tax, or additional amounts 

with respect to listed transactions or 

undisclosed reportable transactions. 

Those temporary and proposed 

regulations are not the subject of this 

Treasury decision, and were published 

as final regulations on June 16, 2010 (TD 

9488), 2010–28 IRB 51 (75 FR 33992). 

Explanation of Revisions 

The final regulations include new 

§ 301.6404–4(a)(5) to address the 

matters that were the subject of Notice 

2007–93. In general, section 6404(g) 

provides that if an individual taxpayer 

files a Federal income tax return on or 

before the due date for that return 

(including extensions), and if the IRS 

does not timely provide a notice to that 

taxpayer specifically stating the 

taxpayer’s liability and the basis for that 

liability, then the IRS must suspend any 

interest, penalty, addition to tax, or 

additional amount with respect to any 

failure relating to the return that is 

computed by reference to the period of 

time the failure continues and that is 

properly allocable to the suspension 

period. A notice is timely if provided 

before the close of the 18-month period 

(36-month period, in the case of notices 

provided after November 25, 2007, 

subject to the provisions of § 301.6404– 

4(a)(5)) beginning on the later of the 

date on which the return is filed or the 

due date of the return without regard to 

extensions. The suspension period 

begins on the day after the close of the 

18-month period (or 36-month period) 

and ends 21 days after the IRS provides 

the notice. This suspension rule applies 

separately with respect to each item or 

adjustment. 

Notice 2007–93 set forth a special rule 

for notices under section 6404(g)(1) that 

(i) are provided by the IRS on or after 

November 26, 2007, and (ii) relate to 

individual Federal income tax returns 

that were timely filed before that date. 

Under the special rule: 

1. If, as of November 25, 2007, the 18- 

month notification deadline had passed 

and the IRS had not provided notice to 

the taxpayer, the suspension described 

in section 6404(g)(1)(A) would begin on 

the day after the close of the 18-month 

period. The suspension would end 21 

days after the date on which the notice 

was provided. 

2. In all other cases, the suspension 

would begin on the day after the close 

of the 36-month notification period 

described in section 6404(g)(1)(A) and 

end 21 days after the date on which the 

notice was provided. 

The final regulations incorporate 

substantially without change the special 

rule of Notice 2007–93 at § 301.6404– 

4(a)(5). 

In addition, § 301.6404–4(b)(2) was 

revised to remove the reference to 

section 6501(c)(1) and the meaning of 

fraud, as fraud is not defined in section 

6501(c)(1) but is instead generally 

described under case law and other 

guidance. Thus, fraud for purposes of 

§ 301.6404–4(b)(2) has the same 

meaning as that provided in case law 

and other guidance. 

Finally, minor editorial changes were 

made to clarify the terms of section 

6404(g) and to modify a reference to 

official IRS forms. 

Effect on Other Documents 

The following publication is obsolete 

as of August 22, 2011: 

Notice 2007–93 (2007–48 IRB 1072). 

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 

has also 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 these 

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 was 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

Drafting Information 

The principal author of these 

regulations is Nathan Rosen of the 

Office of Associate Chief Counsel 

(Procedure and Administration). 

List of Subjects in 26 CFR Part 301 

Income taxes, Penalties, Reporting 

and recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 301 is 

amended as follows: 

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Federal Register / Vol. 76, No. 162 / Monday, August 22, 2011 / Rules and Regulations 52261 

PART 301—PROCEDURE AND 

ADMINISTRATION 

■ Paragraph 1. The authority citation 

for part 301 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805. * * * 

■ Par. 2. Section 301.6404–0 is 

amended as follows: 

■ 1. Revise the introductory text. 

■ 2. Revise entries for § 301.6404–4(a) 

and (b)(1) through (b)(4). 

■ 3. Revise entries for § 301.6404–4(c) 

and (d). 

The revisions read as follows: 

§ 301.6404–0 Table of contents. 

This section lists the paragraphs 

contained in §§ 301.6404–1 through 

301.6404–4. 

* * * * * 

§ 301.6404–4 Suspension of interest and 

certain penalties when the Internal Revenue 

Service does not timely contact the 

taxpayer. 

(a) Suspension. 

(1) In general. 

(2) Treatment of amended returns and 

other documents. 

(i) Amended returns filed on or after 

December 21, 2005, that show an 

increase in tax liability. 

(ii) Amended returns that show a 

decrease in tax liability. 

(iii) Amended returns and other 

documents as notice. 

(iv) Joint return after filing separate 

return. 

(3) Separate application. 

(4) Duration of suspension period. 

(5) Certain notices provided on or 

after November 26, 2007. 

(i) Eighteen-month period has closed. 

(ii) All other cases. 

(6) Examples. 

(7) Notice of liability and the basis for 

the liability. 

(i) In general. 

(ii) Tax attributable to TEFRA 

partnership items. 

(iii) Examples. 

(8) Providing notice. 

(i) In general. 

(ii) Providing notice in TEFRA 

partnership proceedings. 

(b) Exceptions. 

(1) Failure to file tax return or to pay 

tax. 

(2) Fraud. 

(3) Tax shown on return. 

(4) Gross misstatement. 

(i) Description. 

(ii) Effect of gross misstatement. 

* * * * * 

(c) Special rules. 

(1) Tentative carryback and refund 

adjustments. 

(2) Election under section 183(e). 

(i) In general. 

(ii) Example. 

(d) Effective/applicability date. 

§ 301.6404–0T [Removed] 

■ Par. 3. Section 301.6404–0T is 

removed. 

■ Par. 4. Section 301.6404–4 is 

amended as follows: 

■ 1. Add paragraphs (a) and (b)(1) 

through (b)(4). 

■ 2. Add paragraph (c). 

■ 3. Paragraph (d) is amended by adding 

a second sentence. 

The additions and revisions read as 

follows: 

§ 301.6404–4 Suspension of interest and 

certain penalties when the Internal Revenue 

Service does not timely contact the 

taxpayer. 

(a) Suspension.—(1) In general. 

Except as provided in paragraph (b) of 

this section, if an individual taxpayer 

files a return of tax imposed by subtitle 

A on or before the due date for the 

return (including extensions) and the 

Internal Revenue Service does not 

timely provide the taxpayer with a 

notice specifically stating the amount of 

any increased liability and the basis for 

that liability, then the IRS must suspend 

the imposition of any interest, penalty, 

addition to tax, or additional amount, 

with respect to any failure relating to 

the return that is computed by reference 

to the period of time the failure 

continues to exist and that is properly 

allocable to the suspension period. The 

notice described in this paragraph (a) is 

timely if provided before the close of the 

18-month period (36-month period in 

the case of notices provided after 

November 25, 2007, subject to the 

provisions of paragraph (a)(5)) 

beginning on the later of the date on 

which the return is filed or the due date 

of the return without regard to 

extensions. 

(2) Treatment of amended returns and 

other documents.—(i) Amended returns 

filed on or after December 21, 2005, that 

show an increase in tax liability. If a 

taxpayer, on or after December 21, 2005, 

provides to the IRS an amended return 

or one or more other signed written 

documents showing an increase in tax 

liability, the date on which the return 

was filed will, for purposes of this 

paragraph (a), be the date on which the 

last of the documents was provided. 

Documents described in this paragraph 

(a)(2)(i) are provided on the date that 

they are received by the IRS. 

(ii) Amended returns that show a 

decrease in tax liability. If a taxpayer 

provides to the IRS an amended return 

or other signed written document that 

shows a decrease in tax liability, any 

interest, penalty, addition to tax, or 

additional amount will not be 

suspended if the IRS at any time 

proposes to adjust the changed item or 

items on the amended return or other 

signed written document. 

(iii) Amended returns and other 

documents as notice.—(A) As to the 

items reported, an amended return or 

one or more other signed written 

documents showing that the taxpayer 

owes an additional amount of tax for the 

taxable year serves as the notice 

described in paragraph (a)(1) of this 

section with respect to the items 

reported on the amended return. 

(B) Example. An individual taxpayer 

timely files a Federal income tax return for 

taxable year 2008 on April 15, 2009. On 

January 19, 2010, the taxpayer mails to the 

IRS an amended return reporting an 

additional item of income and an increased 

tax liability for taxable year 2008. The IRS 

receives the amended return on January 21, 

2010. The amended return will be treated for 

purposes of this paragraph (a) as filed on 

January 21, 2010, the date the IRS received 

it. Pursuant to paragraph (a)(2)(iii) of this 

section, the amended return serves as the 

notice described in paragraph (a)(1) of this 

section with respect to the item reported on 

the amended return. Accordingly, because 

the filing of the amended return and the 

provision of notice occur simultaneously, no 

suspension of any interest, penalty, addition 

to tax or additional amount will occur under 

this paragraph (a) with respect to the item 

reported on the amended return. 

(iv) Joint return after filing separate 

return. A joint return filed under section 

6013(b) is subject to the rules for 

amended returns described in this 

paragraph (a)(2). The IRS will not 

suspend any interest, penalty, addition 

to tax, or additional amount on a joint 

return filed under section 6013(b) after 

the filing of a separate return unless 

each spouse’s separate return, if 

required to be filed, was timely. 

(3) Separate application. This 

paragraph (a) shall be applied separately 

with respect to each item or adjustment. 

(4) Duration of suspension period. 

The suspension period described in 

paragraph (a)(1) of this section begins 

the day after the close of the 18-month 

period (36-month period, in the case of 

notices provided after November 25, 

2007, subject to the provisions of 

paragraph (a)(5)) beginning on the later 

of the date on which the return is filed 

or the due date of the return without 

regard to extensions. The suspension 

period ends 21 days after the earlier of 

the date on which the IRS mails the 

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52262 Federal Register / Vol. 76, No. 162 / Monday, August 22, 2011 / Rules and Regulations 

required notice to the taxpayer’s last 

known address, the date on which the 

required notice is hand-delivered to the 

taxpayer, or the date on which the IRS 

receives an amended return or other 

signed written document showing an 

increased tax liability. 

(5) Certain notices provided on or 

after November 26, 2007. If the IRS 

provides the notice described in 

paragraph (a)(1) of this section to a 

taxpayer on or after November 26, 2007, 

and the notice relates to an individual 

Federal income tax return that was 

timely filed before that date, the 

following rules will apply: 

(i) Eighteen-month period has closed. 

If, as of November 25, 2007, the 18- 

month period described in paragraph 

(a)(1) of this section has closed and the 

IRS has not provided the taxpayer with 

the notice described in that paragraph 

(a)(1), the suspension described in 

paragraph (a)(1) of this section will 

begin on the day after the close of the 

18-month period. The suspension will 

end on the date that is 21 days after the 

notice is provided. 

(ii) All other cases. In all other cases, 

the suspension described in paragraph 

(a)(1) of this section will begin on the 

day after the close of the 36-month 

period described in that paragraph (a)(1) 

and end on the date that is 21 days after 

the notice described in paragraph (a)(1) 

of this section is provided. 

(6) Examples. The following 

examples, which assume that no 

exceptions in section 6404(g)(2) to the 

general rule of suspension apply, 

illustrate the rules of this paragraph (a). 

Example 1. An individual taxpayer timely 

files a Federal income tax return for taxable 

year 2005 on April 17, 2006. On December 

11, 2007, the taxpayer mails to the IRS an 

amended return reporting an additional item 

of income and an increased tax liability for 

taxable year 2005. The IRS receives the 

amended return on December 13, 2007. On 

January 16, 2008, the IRS provides the 

taxpayer with a notice stating that the 

taxpayer has an additional tax liability based 

on the disallowance of a deduction the 

taxpayer claimed on his original return and 

did not change on his amended return. The 

date the amended return was received 

substitutes for the date that the original 

return was filed with respect to the 

additional item of tax liability reported on 

the amended return. Thus, the IRS will not 

suspend any interest, penalty, addition to 

tax, or additional amount with respect to the 

additional item of income and the increased 

tax liability reported on the amended return. 

The suspension period for the additional tax 

liability based on the IRS’s disallowance of 

the deduction begins on October 17, 2007, so 

the IRS will suspend any interest, penalty, 

addition to tax, and additional amount with 

respect to the disallowed deduction and 

additional tax liability from that date through 

February 6, 2008, which is 21 days after the 

IRS provided notice of the additional tax 

liability and the basis for that liability. The 

suspension period in this example begins 18 

months after filing the return (not 36 months) 

because, as of November 25, 2007, the 18- 

month period beginning on the date the 

return was filed had closed without the IRS 

giving notice of the additional liability. Thus, 

under the rules in paragraph (a)(5) of this 

section, the suspension period begins 18 

months from the April 17, 2006 return filing 

date. 

Example 2. An individual taxpayer files a 

Federal income tax return for taxable year 

2008 on April 15, 2009. The taxpayer 

consents to extend the time within which the 

IRS may assess any tax due on the return 

until June 30, 2013. On December 20, 2012, 

the IRS provides a notice to the taxpayer 

specifically stating the taxpayer’s liability 

and the basis for the liability. The suspension 

period for the liability identified by the IRS 

begins on April 15, 2012, so the IRS will 

suspend any interest, penalty, addition to 

tax, and additional amount with respect to 

that liability from that date through January 

10, 2013, which is 21 days after the IRS 

provided notice of the additional tax liability 

and the basis for that liability. 

(7) Notice of liability and the basis for 

the liability.—(i) In general. Notice to 

the taxpayer must be in writing and 

specifically state the amount of the 

liability and the basis for the liability. 

The notice must provide the taxpayer 

with sufficient information to identify 

which items of income, deduction, loss, 

or credit the IRS has adjusted or 

proposes to adjust, and the reason for 

that adjustment. Notice of the reason for 

the adjustment does not require a 

detailed explanation or a citation to any 

Internal Revenue Code section or other 

legal authority. The IRS need not 

incorporate all of the information 

necessary to satisfy the notice 

requirement within a single document 

or provide all of the information at the 

same time. Documents that may contain 

information sufficient to constitute 

notice, either alone or in conjunction 

with other documents, include, but are 

not limited to, statutory notices of 

deficiency; examination reports (for 

example, Form 4549, Income Tax 

Examination Changes or Form 886–A, 

Explanation of Items); Form 870, Waiver 

of Restriction on Assessments and 

Collection of Deficiency in Tax and 

Acceptance of Overassessment; notices 

of proposed deficiency that allow the 

taxpayer an opportunity for review in 

the Office of Appeals (30-day letters); 

notices pursuant to section 6213(b) 

(mathematical or clerical errors); and 

notice and demand for payment of a 

jeopardy assessment under section 

6861. 

(ii) Tax attributable to TEFRA 

partnership items. Notice to the partner 

or the tax matters partner (TMP) of a 

partnership subject to the unified audit 

and litigation procedures of subchapter 

C of chapter 63 of subtitle F of the 

Internal Revenue Code (TEFRA 

partnership procedures) that provides 

specific information about the basis for 

the adjustments to partnership items is 

sufficient notice if a partner could 

reasonably compute the specific tax 

attributable to the partnership item 

based on the proposed adjustments as 

applied to the partner’s individual tax 

situation. Documents provided by the 

IRS during a TEFRA partnership 

proceeding that may contain 

information sufficient to satisfy the 

notice requirements include, but are not 

limited to, a Notice of Final Partnership 

Administrative Adjustment (FPAA); 

examination reports (for example, Form 

4605–A or Form 886–A); or a letter that 

allows the partners an opportunity for 

review in the Office of Appeals (60-day 

letter). 

(iii) Examples. The following 

examples illustrate the rules of this 

paragraph (a)(7). 

Example 1. During an audit of Taxpayer 

A’s 2005 taxable year return, the IRS 

questions a charitable deduction claimed on 

the return. The IRS provides A with a 30-day 

letter that proposes to disallow the charitable 

contribution deduction resulting in a 

deficiency of $1,000 and informs A that A 

may file a written protest of the proposed 

disallowance with the Office of Appeals 

within 30 days. The letter includes as an 

attachment a copy of the revenue agent’s 

report that states, ‘‘It has not been established 

that the amount shown on your return as a 

charitable contribution was paid during the 

tax year. Therefore, this deduction is not 

allowable.’’ The information in the 30-day 

letter and attachment provides A with notice 

of the specific amount of the liability and the 

basis for that liability as described in this 

paragraph (a)(7). 

Example 2. Taxpayer B is a partner in 

partnership P, a TEFRA partnership for 

taxable year 2005. B claims a distributive 

share of partnership income on B’s Federal 

income tax return for 2005 timely filed on 

April 17, 2006. On October 1, 2007, during 

the course of a partnership audit of P for 

taxable year 2005, the IRS provides P’s TMP 

with a 60-day letter proposing to adjust P’s 

income by $10,000. The IRS previously had 

provided the TMP with a copy of the 

examination report explaining that the 

adjustment was based on $10,000 of 

unreported net income. On October 31, 2007, 

P’s TMP informs B of the proposed 

adjustment as required by § 301.6223(g)–1(b). 

By accounting for B’s distributive share of the 

$10,000 of unreported income from P with 

B’s other income tax items, B can determine 

B’s tax attributable to the $10,000 partnership 

adjustment. The information in the 60-day 

letter and the examination report allows B to 

compute the specific amount of the liability 

attributable to the adjustment to the 

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Federal Register / Vol. 76, No. 162 / Monday, August 22, 2011 / Rules and Regulations 52263 

partnership item and the basis for that 

adjustment and therefore satisfies the notice 

requirement of paragraph (a). Because the IRS 

provided that notice to the TMP, B’s agent 

under the TEFRA partnership provisions, 

within 18 months of the April 17, 2006 filing 

date of B’s return, any interest, penalty, 

addition to tax, or additional amount with 

respect to B’s tax liability attributable to B’s 

distributive share of the $10,000 of 

unreported partnership income will not be 

suspended under section 6404(g). 

(8) Providing notice.—(i) In general. 

The IRS may provide notice by mail or 

in person to the taxpayer or the 

taxpayer’s representative. If the IRS 

mails the notice, it must be sent to the 

taxpayer’s last known address under 

rules similar to section 6212(b), except 

that certified or registered mail is not 

required. Notice is considered provided 

as of the date of mailing or delivery in 

person. 

(ii) Providing notice in TEFRA 

partnership proceedings. In the case of 

TEFRA partnership proceedings, the IRS 

must provide notice of final partnership 

administrative adjustments (FPAA) by 

mail to those partners specified in 

section 6223. Within 60 days of an 

FPAA being mailed, the TMP is 

required to forward notice of the FPAA 

to those partners not entitled to direct 

notice from the IRS under section 6223. 

Certain partners with small interests in 

partnerships with more than 100 

partners may form a Notice Group and 

designate a partner to receive the FPAA 

on their behalf. The IRS may provide 

other information after the beginning of 

the partnership administrative 

proceeding to the TMP who, in turn, 

must provide that information to the 

partners specified in § 301.6223(g)–1 

within 30 days of receipt. Pass-thru 

partners who receive notices and other 

information from the IRS or the TMP 

must forward that notice or information 

within 30 days to those holding an 

interest through the pass-thru partner. 

Information provided by the IRS to the 

TMP is deemed to be notice for 

purposes of this section to those 

partners specified in § 301.6223(g)–1 as 

of the date the IRS provides that notice 

to the TMP. A similar rule applies to 

notice provided to the designated 

partner of a Notice Group, and to notice 

provided to a pass-thru partner. In the 

foregoing situations, the TMP, 

designated partner, and pass-thru 

partner are agents for direct and indirect 

partners. Consequently, notice to these 

agents is deemed to be notice to the 

partners for whom they act. 

(b) Exceptions.—(1) Failure to file tax 

return or to pay tax. Paragraph (a) of this 

section does not apply to any penalty 

imposed by section 6651. 

(2) Fraud. Paragraph (a) of this section 

does not apply to any interest, penalty, 

addition to tax, or additional amount for 

a year involving a false or fraudulent 

return. If a taxpayer files a fraudulent 

return for a particular year, paragraph 

(a) of this section may apply to any 

other tax year of the taxpayer that does 

not involve fraud. Fraud affecting a 

particular item on a return precludes 

paragraph (a) of this section from 

applying to any other items on that 

return. 

(3) Tax shown on return. Paragraph (a) 

of this section does not apply to any 

interest, penalty, addition to tax, or 

additional amount with respect to any 

tax liability shown on a return. 

(4) Gross misstatement.—(i) 

Description. Paragraph (a) of this section 

does not apply to any interest, penalty, 

addition to tax, or additional amount 

with respect to a gross misstatement. A 

gross misstatement for purposes of this 

paragraph (b) means: 

(A) a substantial omission of income 

as described in section 6501(e)(1) or 

section 6229(c)(2); 

(B) a gross valuation misstatement 

within the meaning of section 

6662(h)(2)(A) and (B); or 

(C) a misstatement to which the 

penalty under section 6702(a) applies. 

(ii) Effect of gross misstatement. If a 

gross misstatement occurs, then 

paragraph (a) of this section does not 

apply to any interest, penalty, addition 

to tax, or additional amount with 

respect to any items of income omitted 

from the return and with respect to 

overstated deductions, even though one 

or more of the omitted items would not 

constitute a substantial omission, gross 

valuation misstatement, or misstatement 

to which section 6702(a) applies. 

* * * * * 

(c) Special rules.—(1) Tentative 

carryback and refund adjustments. If an 

amount applied, credited or refunded 

under section 6411 exceeds the 

overassessment properly attributable to 

a tentative carryback or refund 

adjustment, any interest, penalty, 

addition to tax, or additional amount 

with respect to the excess will not be 

suspended. 

(2) Election under section 183(e).—(i) 

In general. If a taxpayer elects under 

section 183(e) to defer the determination 

of whether the presumption that an 

activity is engaged in for profit applies, 

the 18-month (or 36-month) notification 

period described in paragraph (a)(1) of 

this section will be tolled for the period 

to which the election applies. If the 18- 

month (or 36-month) notification period 

has passed as of the date the section 

183(e) election is made, the suspension 

period described in paragraph (a)(4) of 

this section will be tolled for the period 

to which the election applies and will 

resume the day after the tolling period 

ends. Tolling will begin on the date the 

election is made and end on the later of 

the date the return for the last taxable 

year to which the election applies is 

filed or is due without regard to 

extensions. 

(ii) 

Example. In taxable year 2007, taxpayer 

begins training and showing horses. On 

January 4, 2011, the taxpayer elects under 

section 183(e) to defer the determination of 

whether the horse-related activity will be 

presumed (under section 183(d)) to be 

engaged in for profit. Accordingly, under 

section 183(e)(1), a determination of whether 

the section 183(d) presumption applies will 

not occur before the close of the 2013 taxable 

year. Assume that in 2014, the IRS is 

considering issuing a notice of deficiency for 

taxable year 2009 regarding tax deductions 

claimed for the horse-related activity. 

Pursuant to paragraph (c)(2)(i) of this section, 

the 36-month notification period under 

paragraph (a)(1) of this section will be tolled 

with respect to taxable year 2009 for the 

period to which the section 183(e) election 

applies. This tolling of the notification period 

begins on January 4, 2011 (the date the 

taxpayer made the section 183(e) election) 

and ends on the later of April 15, 2014, or 

the date the taxpayer’s return for taxable year 

2013 is filed. 

(d) Effective/applicability date. * * * 

Paragraphs (a), (b)(1) through (b)(4), and 

(c) are effective on August 22, 2011. 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: July 15, 2011. 

Emily S. McMahon, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2011–21164 Filed 8–19–11; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2011–0744] 

RIN 1625–AA08 

Special Local Regulation for Marine 

Events; Mattaponi Madness Drag Boat 

Race, Mattaponi River, Wakema, VA 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary Final rule. 

SUMMARY: The Coast Guard will 

establish special local regulations 

during the Mattaponi Madness Drag 

mstockstill on DSK4VPTVN1PROD with RULES