33636 Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Rules and Regulations

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8953]

RIN 1545–AV61

Eligibility Requirements After Denial of

the Earned Income Credit

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations and removal of

temporary regulations.

SUMMARY: This document contains final

regulations that provide guidance to

taxpayers who have been denied the

earned income credit (EIC) as a result of

the deficiency procedures and wish to

claim the EIC in a subsequent year. The

temporary regulations apply to

taxpayers claiming the EIC for taxable

years beginning after December 31,

1997, where the taxpayer’s EIC claim

was denied for a taxable year beginning

after December 31, 1996.

DATES: Effective date: These regulations

are effective June 25, 2001.

Applicability dates: For dates of

applicability, see § 1.32–3(f) of these

regulations.

FOR FURTHER INFORMATION CONTACT:

Karin Loverud at 202–622–6080 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) under

control number 1545–1575. Responses

to this collection of information are

mandatory.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number

assigned by the Office of Management

and Budget.

The burden is reflected in the burden

of Form 8862.

Comments and suggestions for

reducing the burden imposed by this

regulation should be sent to the Internal

Revenue Service, Attn: IRS Reports

Clearance Officer, W:CAR:MP:FP,

Washington, DC 20224, and to the

Office of Management and Budget, Attn:

Desk Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to this

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

Section 32(k) was added by the

Taxpayer Relief Act of 1997. Section

32(k)(2) provides that, in the case of a

taxpayer who is denied the EIC as a

result of the deficiency procedures, no

EIC is allowed for any subsequent

taxable year unless the taxpayer

provides such information as the

Secretary may require to demonstrate

eligibility for the credit. On June 25,

1998, temporary regulations (TD 8773)

relating to earned income credit

eligibility requirements under section

32(k)(2) were published in the Federal

Register (63 FR 34594). A notice of

proposed rulemaking (REG–116608–97)

cross-referencing the temporary

regulations was published in the

Federal Register for the same day (63

FR 34615).

No written comments responding to

the notice of proposed rulemaking were

received. No public hearing was

requested or held.

As part of an audit pertaining to the

IRS’s management of the EIC eligibility

program, the Treasury Inspector General

for Tax Administration recommended

that the Treasury and the IRS reconsider

(1) the time at which the taxpayer

should be required to establish

eligibility to claim the EIC, and (2)

whether the eligibility requirement

should pertain to the reason the EIC was

denied. For example, under the

temporary regulations, a taxpayer who

is denied the credit on the basis of a

child who is determined not to be a

qualifying child must establish

eligibility the next time the taxpayer

claims the EIC, regardless of whether

the taxpayer is claiming the credit on

the basis of one or more qualifying

children or on the basis of no qualifying

children. Treasury and the IRS believe

that the purpose of the eligibility

requirement (to prevent erroneous

claims) is better effectuated if the

taxpayer establishes eligibility the next

time the taxpayer claims the credit with

one or more qualifying children, rather

than the next time the taxpayer claims

the credit.

The IRS is currently exploring

whether, and to what extent, its system

is capable of undertaking such a change.

If a change is made, it would not affect

the method of establishing eligibility,

that is, the taxpayer would continue to

be required to attach a completed Form

8862 to his or her tax return. The

Treasury and the IRS do not expect any

change will affect returns for tax year

2001.

If a change is made, the IRS expects

to inform taxpayers of the change in two

specific ways. First, the IRS would

revise Letter 3094, which informs the

taxpayer of the eligibility requirements.

Second, the IRS would revise the

instructions for Form 8862 to clarify the

return to which it must be attached. In

addition, the IRS would include

information regarding the change in all

IRS taxpayer publications that deal with

the EIC eligibility requirements.

The proposed regulations under

section 32(k)(2) are adopted as revised

by this Treasury decision. The revisions

are discussed below.

Explanation of Revisions

To permit the IRS to make changes to

the EIC eligibility program as indicated

above, § 1.32–3(c) is revised to state that

the Form 8862 instructions will instruct

the taxpayer when to file Form 8862. A

new sentence is added to § 1.32–3(c) to

the effect that, if the taxpayer attaches

Form 8862 to an incorrect return, the

taxpayer will nevertheless be required

to attach Form 8862 to the correct

return.

The IRS and Treasury will consider

written comments pertaining to these

revisions. Submissions should be sent

to: CC:ITA:RU (TD8953), room 5226,

Internal Revenue Service, POB 7604,

Ben Franklin Station, Washington, DC

20044. Submissions may be hand

delivered Monday through Friday

between the hours of 8 a.m. and 5 p.m.

to: CC:ITA:RU (TD 8953), Courier’s

Desk, Internal Revenue Service, 1111

Constitution Avenue, NW., Washington,

DC. Alternatively, taxpayers may submit

comments electronically via the Internet

by selecting the ‘‘Tax Regs’’ option on

the IRS Home Page, or by submitting

comments directly to the IRS Internet

site at http://www.irs.gov/tax_regs/

regslist.html.

Special Analyses

It has been determined that these final

regulations are 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.

It is hereby certified that these

regulations will not have a significant

economic impact on a substantial

number of small entities. This

certification is based upon the fact that

Federal Register / Vol. 66, No. 122 / Monday, June 25, 2001 / Rules and Regulations 33637

the underlying statute applies only to

individuals. Therefore, a regulatory

flexibility analysis under the Regulatory

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

not required.

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 Karin Loverud, Office of

Division Counsel/Associate Chief

Counsel (Tax Exempt and Government

Entities). However, other personnel

from the IRS and the Treasury

Department participated in their

development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping

requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 602

are 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 1.32–3 is added to read

as follows:

§ 1.32–3 Eligibility requirements after

denial of the earned income credit.

(a) In general. A taxpayer who has

been denied the earned income credit

(EIC), in whole or in part, as a result of

the deficiency procedures under

subchapter B of chapter 63 (deficiency

procedures) is ineligible to file a return

claiming the EIC subsequent to the

denial until the taxpayer demonstrates

eligibility for the EIC in accordance with

paragraph (c) of this section. If a

taxpayer demonstrates eligibility for a

taxable year in accordance with

paragraph (c) of this section, the

taxpayer need not comply with those

requirements for any subsequent taxable

year unless the Service again denies the

EIC as a result of the deficiency

procedures.

(b) Denial of the EIC as a result of the

deficiency procedures. For purposes of

this section, denial of the EIC as a result

of the deficiency procedures occurs

when a tax on account of the EIC is

assessed as a deficiency (other than as

a mathematical or clerical error under

section 6213(b)(1)).

(c) Demonstration of eligibility. In the

case of a taxpayer to whom paragraph

(a) of this section applies, and except as

otherwise provided by the

Commissioner in the instructions for

Form 8862, ‘‘Information To Claim

Earned Income Credit After

Disallowance,’’ no claim for the EIC

filed subsequent to the denial is allowed

unless the taxpayer properly completes

Form 8862, demonstrating eligibility for

the EIC, and otherwise is eligible for the

EIC. If any item of information on Form

8862 is incorrect or inconsistent with

any item on the return, the taxpayer will

be treated as not demonstrating

eligibility for the EIC. The taxpayer

must follow the instructions for Form

8862 to determine the income tax return

to which Form 8862 must be attached.

If the taxpayer attaches Form 8862 to an

incorrect tax return, the taxpayer will

not be relieved of the requirement that

the taxpayer attach Form 8862 to the

correct tax return and will, therefore,

not be treated as meeting the taxpayer’s

obligation under paragraph (a) of this

section.

(d) Failure to demonstrate eligibility.

If a taxpayer to whom paragraph (a) of

this section applies fails to satisfy the

requirements of paragraph (c) of this

section with respect to a particular

taxable year, the IRS can deny the EIC

as a mathematical or clerical error under

section 6213(g)(2)(K).

(e) Special rule where one spouse

denied EIC. The eligibility requirements

set forth in this section apply to

taxpayers filing a joint return where one

spouse was denied the EIC for a taxable

year prior to marriage and has not

established eligibility as either an

unmarried or married taxpayer for a

subsequent taxable year.

(f) Effective date. This section applies

to returns claiming the EIC for taxable

years beginning after December 31,

1997, where the EIC was denied for a

taxable year beginning after December

31, 1996.

§ 1.32–3T [Removed]

Par. 3. Section 1.32–3T is removed.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 5. In § 602.101, paragraph (b) is

amended by:

1. Removing the entry for 1.32–3T

from the table.

2. Adding an entry for 1.32–3 to read

as follows:

§ 602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section where

identified and described

Current OMB

control No.

*****

1.32–3 ................................... 1545–1575

*****

Approved: June 20, 2001.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Mark A. Weinberger,

Assistant Secretary of the Treasury.

[FR Doc. 01–15907 Filed 6–22–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Parts 1, 25, 54, 62, 64, 66, 67,

72, 100, 114, 117, 120, 151, 154, 159,

164, and 165

[USCG–2001–9286]

Technical Amendments;

Organizational Changes;

Miscellaneous Editorial Changes and

Conforming Amendments

AGENCY: Coast Guard, DOT.

ACTION: Final rule.

SUMMARY: This rule makes editorial and

technical changes throughout title 33 of

the Code of Federal Regulations (CFR) to

update the title before it is recodified on

July 1, 2001. It corrects addresses,

updates cross-references, makes

conforming amendments, and makes

other technical corrections. This rule

will have no substantive effect on the

regulated public.

DATES: This final rule is effective June

30, 2001.

ADDRESSES: Documents as indicated in

this preamble are available for

inspection or copying at the Docket

Management Facility, (USCG–2001–

9286), U.S. Department of

Transportation, room PL–401, 400

Seventh Street SW., Washington, DC,

20590–0001, between 9 a.m. and 5 p.m.,

Monday through Friday, except Federal

holidays. You may also find this docket

on the Internet at http://dms.dot.gov.

FOR FURTHER INFORMATION CONTACT: If

you have questions on this rule, call