[Federal Register Volume 74, Number 18 (Thursday, January 29, 2009)]
[Rules and Regulations]
[Pages 5103-5107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-1095]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54, 55, 56, 156, 
157, and 301

[TD 9436]
RIN 1545-BG83


Tax Return Preparer Penalties Under Sections 6694 and 6695; 
Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

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SUMMARY: This document contains corrections to final regulations (TD 
9436) that were published in the Federal Register on Monday, December 
22, 2008 (73 FR 78430) implementing amendments to the tax return 
preparer penalties under sections 6694 and 6695 of the Internal Revenue 
Code and related provisions under sections 6060, 6107, 6109, 6696, and 
7701(a)(36) reflecting amendments to the Code made by section 8246 of 
the Small Business and Work Opportunity Tax Act of 2007 and section 506 
of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. 
The final regulations affect tax return preparers and provide guidance 
regarding the amended provisions.

DATES: This correction is effective January 29, 2009, and is applicable 
on December 22, 2008.

FOR FURTHER INFORMATION CONTACT: Michael E. Hara, (202) 622-4910, and 
Matthew S. Cooper, (202) 622-4940 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are the subject of this document are 
under sections 6060, 6107, 6109, 6694, 6695, 6696, and 7701 of the 
Internal Revenue Code.

Need for Correction

    As published, final regulations (TD 9436) contains errors that may 
prove to be misleading and are in need of clarification.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 20

    Generation-skipping transfer taxes, Reporting and recordkeeping 
requirements.

[[Page 5104]]

26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

26 CFR Part 26

    Generation-skipping transfer taxes, Reporting and recordkeeping 
requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social security, 
Unemployment compensation.

26 CFR Part 40

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 41

    Excise taxes, Motor vehicles, Reporting and recordkeeping 
requirements.

26 CFR Part 44

    Excise taxes, Gambling, Reporting and recordkeeping requirements.

26 CFR Part 53

    Excise taxes, Foundations, Investments, Lobbying, Reporting and 
recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

26 CFR Part 55

    Excise taxes, Investments, Reporting and recordkeeping 
requirements.

26 CFR Part 56

    Excise taxes, Lobbying, Nonprofit organizations, Reporting and 
recordkeeping requirements.

26 CFR Part 156

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 157

    Excise taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Correction of Publication

0
Accordingly, 26 CFR parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54, 55, 
56, 156, 157, and 301 are corrected by making the following correcting 
amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.6107-1 is amended by revising paragraphs (d) (1) and 
(2) to read as follows:


Sec.  1.6107-1  Tax return preparer must furnish copy of return or 
claim for refund to taxpayer and must retain a copy or record.

* * * * *
    (d) * * *
    (1) For the civil penalty for failure to furnish a copy of the 
return or claim for refund to the taxpayers (or nontaxable entity) as 
required under paragraph (a) of this section, see section 6695(a) and 
Sec.  1.6695-1(a).
    (2) For the civil penalty for failure to retain a copy of the 
return or claim for refund, or to retain a record as required under 
paragraph (b) of this section, see section 6695(d) and Sec.  1.6695-
1(d).
* * * * *

0
Par. 3. Section 1.6694-1 is amended as follows:
0
1. The first sentence of paragraph (b)(2) is revised.
0
2. The second sentence of paragraph (f)(4) Example 1. is revised.
0
3. The eighth sentence of paragraph (f)(4) Example 2. is revised.


Sec.  1.6694-1  Section 6694 penalties applicable to tax return 
preparers.

* * * * *
    (b) * * *
    (2) * * * If there is a signing tax return preparer within the 
meaning of Sec.  301.7701-15(b)(1) of this chapter within a firm, the 
signing tax return preparer generally will be considered the person who 
is primarily responsible for all of the positions on the return or 
claim for refund giving rise to an understatement unless, based upon 
credible information from any source, it is concluded that the signing 
tax return preparer is not primarily responsible for the position(s) on 
the return or claim for refund giving rise to an understatement. * * *
* * * * *
    (f) * * *
    (4) * * *

    Example 1. * * * Of this amount, $20,000 relates to research and 
consultation regarding a transaction that is later reported on a 
return, and $1,000 is for the activities relating to the preparation 
of the return. * * *

    Example 2. * * * Because K's signature as the signing tax return 
preparer is on the return, the IRS advises K that K may be subject to 
the section 6694(a) penalty. * * *
* * * * *

0
Par. 4. Section 1.6694-2 is amended by revising the last sentence of 
each paragraph (d)(1), (d)(2), and (d)(3)(ii) to read as follows:


Sec.  1.6694-2  Penalty for understatement due to an unreasonable 
position.

* * * * *
    (d) * * *
    (1) * * * For an exception to the section 6694(a) penalty for 
reasonable cause and good faith, see paragraph (e) of this section.
    (2) * * * For purposes of determining whether the tax return 
preparer has a reasonable basis for a position, a tax return preparer 
may rely in good faith without verification upon information furnished 
by the taxpayer and information and advice furnished by another 
advisor, another tax return preparer, or other party (including another 
advisor or tax return preparer at the tax return preparer's firm), as 
provided in Sec. Sec.  1.6694-1(e) and 1.6694-2(e)(5).
    (3) * * *
    (ii) * * * In addition, disclosure of a position is adequate in the 
case of a nonsigning tax return preparer if, with respect to that 
position, the tax return preparer complies with the provisions of 
paragraph (d)(3)(ii)(A) or (B) of this section, whichever is 
applicable.
* * * * *

0
Par. 5. Section 1.6694-3 is amended by revising the first two sentences 
of paragraph (c)(2) to read as follows:


Sec.  1.6694-3  Penalty for understatement due to willful, reckless, or 
intentional conduct.

* * * * *
    (c) * * *
    (2) A tax return preparer is not considered to have recklessly or 
intentionally disregarded a rule or regulation if the position contrary 
to the rule or regulation has a reasonable basis as defined in Sec.  
1.6694-2(d)(2) and is adequately disclosed in accordance with 
Sec. Sec.  1.6694-2(d)(3)(i)(A) or (C) or 1.6694-2(d)(3)(ii). In the 
case of a position contrary to a regulation, the position must 
represent a good faith challenge to the validity of the regulation and, 
when disclosed in accordance with Sec. Sec.  1.6694-2(d)(3)(i)(A) or 
(C) or 1.6694-2(d)(3)(ii), the tax return preparer must identify the 
regulation being challenged. * * *
* * * * *

0
Par. 6. Section 1.6695-1 is amended by revising paragraph (a)(2)(ii) to 
read as follows:

[[Page 5105]]

Sec.  1.6695-1  Other assessable penalties with respect to the 
preparation of tax returns for other persons.

    (a) * * *
    (2) * * *
    (ii) In order faithfully to carry out their official duties, have 
so arranged their affairs that they have less than full knowledge of 
the property that they hold or of the debts for which they are 
responsible, if information is deleted from the copy in order to 
preserve or maintain this arrangement.
* * * * *

0
Par. 7. Section 1.6696-1 is amended by revising the introductory text 
of paragraph (g)(1)(i) to read as follows:


Sec.  1.6696-1  Claims for credit or refund by tax return preparers or 
appraisers.

* * * * *
    (g) Time for filing claim. (1)(i) Except as provided in section 
6694(c)(1) and Sec.  1.6694-4(a)(4)(ii) and (5), and in section 6694(d) 
and Sec.  1.6694-1(d):
* * * * *

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

0
Par. 8. The authority citation for part 20 is amended by revising an 
entry for Section 20.6109-1 and removing an entry for Section 20.6695-2 
in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 20.6109-1 also issued under 26 U.S.C. 6109(a). * * *

0
Par. 9. Section 20.6694-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  20.6694-1  Section 6694 penalties applicable to tax return 
preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of estate tax returns or claims for 
refund, see Sec.  1.6694-1 of this chapter.
* * * * *

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

0
Par. 10. The authority citation for part 25 is amended by revising an 
entry for Sec.  25.6109-1 and removing an entry for Sec.  25.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 25.6109-1 also issued under 26 U.S.C. 6109(a). * * *

0
Par. 11. Section 25.6694-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  25.6694-1  Section 6694 penalties applicable to tax return 
preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of gift tax returns or claims for 
refund, see Sec.  1.6694-1 of this chapter.
* * * * *

PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX 
REFORM ACT OF 1986

0
Par. 12. The authority citation for part 26 is amended by revising an 
entry for Sec.  26.6109-1 and removing an entry for Sec.  26.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 26.6109-1 also issued under 26 U.S.C. 6109(a). * * *


0
Par. 13. Section 26.6694-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  26.6694-1  Section 6694 penalties applicable to tax return 
preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of generation-skipping transfer tax 
returns or claims for refund, see Sec.  1.6694-1 of this chapter.
* * * * *

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE 
SOURCE

0
Par. 14. The authority citation for part 31 is amended by removing an 
entry for Sec.  31.6695-2 in numerical order to read as follows:

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


0
Par. 15. Section 31.6694-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  31.6694-1  Section 6694 penalties applicable to tax return 
preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of employment tax returns or claims 
for refund of employment tax under chapters 21 through 25 of subtitle C 
of the Internal Revenue Code, see Sec.  1.6694-1 of this chapter.
* * * * *

0
Par. 16. Section 31.6694-3 is amended by revising paragraph (a) to read 
as follows:


Sec.  31.6694-3  Penalty for understatement due to willful, reckless, 
or intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of employment tax under chapters 21 through 25 of 
subtitle C of the Internal Revenue Code (Code) shall be subject to 
penalties under section 6694(b) of the Code in the manner stated in 
Sec.  1.6694-3 of this chapter.
* * * * *

PART 40--EXCISE TAX PROCEDURAL REGULATIONS

0
Par. 17. The authority citation for part 40 is amended by revising an 
entry for Sec.  40.6109-1 and removing an entry for Sec.  40.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 40.6109-1 also issued under 26 U.S.C. 6109(a). * * *


0
Par. 18. Section 40.6060-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6060-1  Reporting requirements for tax return preparers.

    (a) In general. A person that employs one or more tax return 
preparers to prepare a return or claim for refund of any tax to which 
this part 40 applies other than for the person, at any time during a 
return period, shall satisfy the recordkeeping and inspection 
requirements in the manner stated in Sec.  1.6060-1 of this chapter.
* * * * *

0
Par. 19. Section 40.6107-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6107-1  Tax return preparer must furnish copy of return to 
taxpayer and must retain a copy or record.

    (a) In general. A person who is a signing tax return preparer of 
any return or claim for refund of any tax to which this part 40 applies 
shall furnish a completed copy of the return or claim for refund to the 
taxpayer and retain a completed copy or record in the manner stated in 
Sec.  1.6107-1 of this chapter.
* * * * *

0
Par. 20. Section 40.6109-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6109-1  Tax return preparers furnishing identifying numbers 
for returns or claims for refund.

    (a) In general. Each return or claim for refund of any tax to which 
this part 40 applies prepared by one or more signing tax return 
preparers must include the identifying number of the preparer required 
by Sec.  1.6695-1(b) of this chapter

[[Page 5106]]

to sign the return or claim for refund in the manner stated in Sec.  
1.6109-2 of this chapter.
* * * * *

0
Par. 21. Section 40.6694-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6694-1  Section 6694 penalties applicable to tax return 
preparer.

    (a) In general. For general definitions regarding section 6694 
penalties applicable to preparers of returns or claims for refund of 
any tax to which this part 40 applies, see Sec.  1.6694-1 of this 
chapter.
* * * * *

0
Par. 22. Section 40.6694-2 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6694-2  Penalties for understatement due to an unreasonable 
position.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties under section 6694(a) in the manner stated in 
Sec.  1.6694-2 of this chapter.
* * * * *

0
Par. 23. Section 40.6694-3 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6694-3  Penalties for understatement due to willful, reckless, 
or intentional conduct.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties under section 6694(b) in the manner stated in 
Sec.  1.6694-3 of this chapter.
* * * * *

0
Par. 24. Section 40.6694-4 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6694-4  Extension of period of collection when tax return 
preparer pays 15 percent of a penalty for understatement of taxpayer's 
liability and certain other procedural matters.

    (a) In general. For rules relating to the extension of period of 
collection when a tax return preparer who prepared a return or claim 
for refund of any tax to which this part 40 applies pays 15 percent of 
a penalty for understatement of taxpayer's liability and procedural 
matters relating to the investigation, assessment and collection of the 
penalties under section 6694(a) and (b), the rules under Sec.  1.6694-4 
of this chapter will apply.
* * * * *

0
Par. 25. Section 40.6695-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6695-1  Other assessable penalties with respect to the 
preparation of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of any tax to which this part 40 applies shall be 
subject to penalties for failure to furnish a copy to the taxpayer 
under section 6695(a) of the Internal Revenue Code (Code), failure to 
sign the return under section 6695(b) of the Code, failure to furnish 
an identification number under section 6695(c) of the Code, failure to 
retain a copy or list under section 6695(d) of the Code, failure to 
file a correct information return under section 6695(e) of the Code, 
and negotiation of a check under section 6695(f) of the Code, in the 
manner stated in Sec.  6695-1 of this chapter.
* * * * *

0
Par. 26. Section 40.6696-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  40.6696-1  Claims for credit or refund by tax return preparers.

    (a) In general. The rules under Sec.  1.6696-1 of this chapter will 
apply for claims for credit or refund by a tax return preparer who 
prepared a return or claim for refund of any tax to which this part 40 
applies.
* * * * *

PART 41--EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES

0
Par. 27. The authority citation for part 41 is amended by removing an 
entry for Sec.  41.6695-2 in numerical order to read as follows:

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


0
Par. 28. Section 41.6695-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  41.6695-1  Other assessable penalties with respect to the 
preparation of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of excise tax under section 4481 of the Internal 
Revenue Code (Code) shall be subject to penalties for failure to 
furnish a copy to the taxpayer under section 6695(a) of the Code, 
failure to sign a return under section 6695(b) of the Code, failure to 
furnish an identification number under section 6695(c) of the Code, 
failure to retain a copy or list under section 6695(d) of the Code, 
failure to file a correct information return under section 6695(e) of 
the Code, and negotiation of a check under section 6695(f) of the Code, 
in the manner stated in Sec.  6695-1 of this chapter.
* * * * *

PART 44--TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955

0
Par. 29. The authority citation for part 44 is amended by revising an 
entry for Sec.  44.6109-1 and removing an entry for Sec.  44.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 44.6109-1 also issued under 26 U.S.C. 6109(a). * * *


0
Par. 30. Section 44.6695-1 is amended by revising paragraph (a) to read 
as follows:


Sec.  44.6695-1  Other assessable penalties with respect to the 
preparation of tax returns for other persons.

    (a) In general. A person who is a tax return preparer of any return 
or claim for refund of tax on wagers under sections 4401 or 4411 of the 
Internal Revenue Code (Code) shall be subject to penalties for failure 
to furnish a copy to the taxpayer under section 6695(a) of the Code, 
failure to sign the return under section 6695(b) of the Code, failure 
to furnish an identification number under section 6695(c) of the Code, 
failure to retain a copy or list under section 6695(d) of the Code, 
failure to file a correct information return under section 6695(e) of 
the Code, and negotiation of a check under section 6695(f) of the Code, 
in the manner stated in Sec.  6695-1 of this chapter.
* * * * *

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

0
Par. 31. The authority citation for part 53 is amended by revising an 
entry for Sec.  53.6109-1 and removing an entry for Sec.  53.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 53.6109-1 also issued under 26 U.S.C. 6109(a). * * *

PART 54--PENSION EXCISE TAXES

0
Par. 32. The authority citation for part 54 is amended by revising an 
entry for Sec.  54.6109-1 and removing an entry for Sec.  54.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 54.6109-1 also issued under 26 U.S.C. 6109(a). * * *


0
Par. 33. In FR Doc. E8-29750 appearing on page 78430 in the Federal 
Register of Monday, December 22, 2008, the following correction is 
made:

[[Page 5107]]

Sec.  54.6694-3  [Corrected]

    On page 78458, in the third column, in paragraph 107, the 
instruction ``Section 56.6694-3 is added to read as follows:'' is 
removed and the language ``Section 54.6694-3 is added to read as 
follows:'' is added in its place.

PART 55--EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED 
INVESTMENT COMPANIES

0
Par. 34. The authority citation for part 55 is amended by revising an 
entry for Sec.  55.6109-1 and removing an entry for Sec.  55.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 55.6109-1 also issued under 26 U.S.C. 6109(a). * * *

PART 56--PUBLIC CHARITY EXCISE TAXES

0
Par. 35. The authority citation for part 56 is amended by revising an 
entry for Sec.  56.6109-1 and removing an entry for Sec.  56.6695-2 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 56.6109-1 also issued under 26 U.S.C. 6109(a). * * *

PART 156--EXCISE TAX ON GREENMAIL

0
Par. 36. The authority citation for part 156 is amended by revising an 
entry for Sec.  156.6109-1 and removing an entry for Sec.  156.6695-2 
in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 156.6109-1 also issued under 26 U.S.C. 6109(a). * * *

PART 157--EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING 
TRANSACTIONS

0
Par. 37. The authority citation for part 157 is amended by revising an 
entry for Sec.  157.6109-1 and removing an entry for Sec.  157.6695-2 
in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 157.6109-1 also issued under 26 U.S.C. 6109(a). * * *

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 38. The authority citation for part 301 continues to read in part 
as follows:

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


0
Par. 39. Section 301.7701-15 is amended by revising paragraph 
(f)(1)(xi)(B) to read as follows:


Sec.  301.7701-15  Tax return preparer.

* * * * *
    (f) * * *
    (1) * * *
    (xi) * * *
    (B) A waiver of restriction on assessment after initiation of an 
audit of the taxpayer or another taxpayer if a determination in the 
audit of the other taxpayer affects, directly or indirectly, the 
liability of the taxpayer for tax.
* * * * *

LaNita Van Dyke,
Chief, Publications and Regulations Branch Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
[FR Doc. E9-1095 Filed 1-28-09; 8:45 am]
BILLING CODE 4830-01-P