Internal Revenue Bulletin 2008-5 (PDF rendition): IRS Revenue Rulings

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
8-5
February 4, 2008
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2008–8, page 340.
Cell captive guidance.This ruling explains how arrange-
ments between an individual cell and its owner are analyzed for
purposes of determining whether there is adequate risk shift-
ing and risk distribution to constitute insurance.
Rev. Rul. 2008–9, page 342.
Federal rates; adjusted federal rates; adjusted federal
long-term rate and the long-term exempt rate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for January 2008.
T.D. 9375, page 344.
Final regulations under section 7216 of the Code update the
rules regarding the disclosure and use of tax return information
by tax preparers. Among other things, the regulations finalize
rules for taxpayers to consent to the disclosure or use of their
tax return information by tax return preparers. The regulations
either modify or clarify (i) the scope of the circumstances to
which the rule apply, (ii) the circumstances in which an income
tax return preparer may disclose or use tax return information
without taxpayer consent, and (iii) the circumstances in which
an income tax return preparer may rely upon a taxpayer’s con-
sent to disclose or use information that the income tax return
preparer obtains in connection with the preparation of a return.
The regulations are applicable to disclosures or uses of tax re-
turn information occurring on or after January 1, 2009.
Notice 2008–18, page 363.
This notice alerts life insurance companies to federal income
tax issues that may arise as a result of the adoption of pro-
posed Actuarial Guideline VACARVM and/or a proposed princi-
ples-based approach for calculating statutory reserves for life
insurance proposed Life PBR. This notice identifies areas in
which the Treasury Department and the Service have concerns
and invites comments on these and other issues.
Notice 2008–19, page 366.
Cell captive guidance.This notice requests comments on a
specific framework for determining whether an individual cell
or the protected cell company as a whole is treated as an
insurance company for federal income tax purposes.
Rev. Proc. 2008–12, page 368.
This procedure provides guidance to tax return preparers re-
garding the format and content of consents to disclose and
consents to use tax return information with respect to taxpay-
ers filing a return in the Form 1040 series (e.g.,Form 1040,
Form 1040NR, Form 1040A, or Form 1040EZ) under regula-
tions section 301.7216–3. This procedure also provides spe-
cific requirements for electronic signatures when a taxpayer
executes an electronic consent to the disclosure or use of the
taxpayer’s tax return information.
Announcement 2008–7, page 379.
This document provides advance notice that the Treasury De-
partment and the IRS are considering issuing rules in proposed
regulations (REG–136596–07) regarding the disclosure and
use of tax return information by tax return preparers. The rules
would apply to the marketing of refund anticipation loans (RALs)
and certain other products in connection with the preparation
of a tax return and, as an exception to the general principle
that taxpayers should have control over their tax return informa-
tion that is reflected in final regulations published in T.D. 9375,
provide that a tax return preparer may not obtain a taxpayer’s
consent to disclose or use tax return information for the pur-
pose of soliciting taxpayers to purchase such products. This
document invites comments from the public regarding these
contemplated rules.
(Continued on the next page)
Announcements of Disbarments and Suspensions begin on page 372.
Finding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9375, page 344.
Final regulations under section 7216 of the Code update the
rules regarding the disclosure and use of tax return information
by tax preparers. Among other things, the regulations finalize
rules for taxpayers to consent to the disclosure or use of their
tax return information by tax return preparers. The regulations
either modify or clarify (i) the scope of the circumstances to
which the rule apply, (ii) the circumstances in which an income
tax return preparer may disclose or use tax return information
without taxpayer consent, and (iii) the circumstances in which
an income tax return preparer may rely upon a taxpayer’s con-
sent to disclose or use information that the income tax return
preparer obtains in connection with the preparation of a return.
The regulations are applicable to disclosures or uses of tax re-
turn information occurring on or after January 1, 2009.
Rev. Proc. 2008–12, page 368.
This procedure provides guidance to tax return preparers re-
garding the format and content of consents to disclose and
consents to use tax return information with respect to taxpay-
ers filing a return in the Form 1040 series (e.g.,Form 1040,
Form 1040NR, Form 1040A, or Form 1040EZ) under regula-
tions section 301.7216–3. This procedure also provides spe-
cific requirements for electronic signatures when a taxpayer
executes an electronic consent to the disclosure or use of the
taxpayer’s tax return information.
Announcement 2008–6, page 378.
This announcement contains changes in filing procedures for
Form 1042–S,Foreign Person’s U.S. Source Income Subject
to Withholding, filed electronically or magnetically. These
changes are effective immediately.
Announcement 2008–7, page 379.
This document provides advance notice that the Treasury De-
partment and the IRS are considering issuing rules in proposed
regulations (REG–136596–07) regarding the disclosure and
use of tax return information by tax return preparers. The rules
would apply to the marketing of refund anticipation loans (RALs)
and certain other products in connection with the preparation
of a tax return and, as an exception to the general principle
that taxpayers should have control over their tax return informa-
tion that is reflected in final regulations published in T.D. 9375,
provide that a tax return preparer may not obtain a taxpayer’s
consent to disclose or use tax return information for the pur-
pose of soliciting taxpayers to purchase such products. This
document invites comments from the public regarding these
contemplated rules.
February 4, 20082008–5 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2008–5 I.R.B.February 4, 2008

February 4, 20082008–5 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of February 20
08. See Rev. Rul. 2008-9, page 342.
Section 162.—Trade or
Business Expenses
26 CFR 1.162–1: Business expenses.
(Also §§ 801, 831.)
Cell captive guidance.This ruling ex-
plains how arrangements between an indi-
vidual cell and its owner are analyzed for
purposes of determining whether there is
adequate risk shifting and risk distribution
to constitute insurance.
Rev. Rul. 2008–8
ISSUES
Under the facts described below, do the
arrangements entered into betweenXand
Cell X, and between the subsidiaries ofY
andCell Y,ofProtected Cell Company
constitute insurance for federal income tax
purposes? If so, are amounts paid byXto
Cell Xand by the subsidiaries ofYtoCell
Ydeductible as “insurance premiums” un-
der § 162 of the Internal Revenue Code?
FACTS
Protected Cell Companyis a legal en-
tity formed bySponsorunder the laws
ofJurisdiction A. Pursuant to the laws of
Jurisdiction A,Protected Cell Company
has established multiple accounts, or cells,
each of which has its own name and is
identified with a specific participant, but is
not treated as a legal entity distinct from
Protected Cell Company.Sponsorowns
all the common stock ofProtected Cell
Company. All of the non-voting preferred
stock associated with each cell is owned
by that cell’s participant or participants.
The terms “common stock” and “preferred
stock” as used in theProtected Cell Com-
panyand cell instruments do not necessar-
ily reflect the federal income tax status of
those instruments.
Each cell is funded by its participant’s
capital contribution (the amount paid by
the participa
nt for the preferred stock as-
sociated with
its cell) and by “premiums”
collected wit
h respect to contracts to which
the cell is a p
arty. Each cell is required to
pay out claim
s with respect to contracts to
which it is a p
arty. The income, expense,
assets, liab
ilities, and capital of each cell
are account
ed for separately from the in-
come, expen
se,assets,liabilities,andcap-
ital of any o
ther cell and ofProtected Cell
Companygen
erally. The assets of each
cell are sta
tutorily protected from the cred-
itors of an
y other cell and from the credi-
tors ofPro
tected Cell Company.Protected
Cell Compa
nymaintains non-cellular as-
sets and ca
pital representing the minimum
amount of
capital necessary to maintain its
charter.
Each cell may make distributions
with resp
ect to the class of stock that cor-
responds
to that cell, regardless of whether
distribu
tions are made with respect to any
other cl
ass of stock. In the event a partic-
ipant ce
ases its participation inProtected
Cell Com
pany, the participant is entitled to
areturn
of the assets of the cell in which
it part
icipated, subject to any outstanding
obliga
tions of that cell.
A compa
ny likeProtected Cell Com-
panyis
sometimes referred to as a pro-
tected
cell company, a segregated account
compan
y or segregated portfolio company.
Situation 1
X, a domestic corporation, owns all
the preferred stock issued with respect to
Cell X. Each year,Xenters into a 1-year
contract, or arrangement, wherebyCell X
“insures” the professional liability risks of
X, either directly or as a reinsurer of those
risks. The amountsXpays as “premiums”
under the annual arrangement are estab-
lished according to customary industry
rating formulas. In all respects,XandCell
Xconduct themselves consistently with
the standards applicable to an insurance
arrangement between unrelated parties.
In implementing the arrangement,Cell
Xmay perform any necessary adminis-
trative tasks, or it may outsource those
tasks at prevailing commercial market
rates.Xdoes not provide any guarantee
ofCell X’s performance, and all funds
and business records ofXandCell Xare
separately ma
intained.Cell Xdoes not
loan any funds
toX.Cell Xdoes not enter
into any arran
gements with entities other
thanX.Takin
g into account the total assets
ofCell X,bot
h from capitalcontributions
and from amou
nts received pursuant to
the annual ar
rangement withX,Cell Xis
adequately
capitalized relative to the risks
assumed und
er that arrangement.
Situation 2
The facts are the same as in Situation
1, except thatY, a domestic corporation,
owns all the preferred stock issued with re-
spect toCell Y.
Yalso owns all of the stock
of 12 domestic subsidiaries that provide
professional services. Each subsidiary in
theYgroup has a geographic territory com-
prised of a state in which the subsidiary
provides professional services. The sub-
sidiaries ofYoperate on a decentralized
basis. The services provided by the em-
ployees of each subsidiary are performed
under the general guidance of a supervi-
sory professional for aparticular facility of
the subsidiary. The general categories of
the professional services rendered by each
of the subsidiaries are the same throughout
theYgroup. Together the 12 subsidiaries
have a significant volume of independent,
homogeneous risks.
Each year, each subsidiary ofYenters
into a 1-year contract, or arrangement,
withCell YwherebyCell Y“insures” the
professional liability risks of that sub-
sidiary, either directly or as a reinsurer
of those risks. The amounts charged
each subsidiary as “premiums” under
the annual arrangements are established
according to customary industry rating
formulas. None of the subsidiaries have
liability coverage for less than 5% nor
more than 15% of the total risk insured
byCell Y.Cell Yretains the risk that it in-
sures from the subsidiaries. In all respects,
Y,Cell Y, and each subsidiary, conduct
themselves consistently with the standards
applicable to an insurance arrangement
between unrelated parties. In implement-
ing the arrangement,Cell Ymay perform
all necessary administrative tasks, or it
may outsource those tasks at prevailing
commercial market rates. NeitherYnor
2008–5 I.R.B.340February 4, 2008

any subsidiary ofYguaranteesCell Y’s
performance, and all funds and business
records ofY,Cell Y, and each subsidiary,
are separately maintained.Cell Ydoes not
loan any funds toYor to any subsidiary
ofY.Cell Ydoes not enter into any ar-
rangements with entities other thanYor its
subsidiaries. Taking into account the total
assets ofCell Y, both from capital contri-
butions fromYand from amounts received
pursuant to the annual arrangements with
the subsidiaries ofY,Cell Yis adequately
capitalized relative to the risks assumed
under those arrangements.
LAW
Section 162(a) of the Code provides, in
part, that there shall be allowed as a de-
duction all the ordinary and necessary ex-
penses paid or incurred during the taxable
year in carrying on any trade or business.
Section 1.162–1(a) of the Income Tax Reg-
ulations provides, in part, that among the
items included in business expenses are
insurance premiums against fire, storms,
theft, accident or other similar losses in the
case of a business.
Neither the Code nor the regulations
define the terms insurance or insurance
contract. The United States Supreme
Court, however, has explained that in
order for an arrangement to constitute in-
surance for federal income tax purposes,
both risk shifting and risk distribution
must be present.Helvering v. LeGierse,
312 U.S. 531 (1941).
Risk shifting occurs if a person facing
the possibility of an economic loss trans-
fers some or all of the financial conse-
quences of the potential loss to the insurer,
such that a loss by the insured does not
affect the insured because the loss is off-
set by the insurance payment. Risk dis-
tribution occurs whenthe party assuming
the risk distributes its potential liability
among others, at least in part.Beech Air-
craft Corp. v. United States, 797 F.2d
920, 922 (10
th
Cir. 1986). Risk distribu-
tion “emphasizes the broader, social aspect
of insurance as a method or dispelling the
danger of a potential loss by spreading its
cost throughout a group”,Commissioner
v. Treganowan, 183 F.2d 288, 291 (2d
Cir. 1950), and “involves spreading the
risk of loss among policyholders.”Ocean
Drilling & Exploration Co. v. United
States, 24 Cl. Ct. 714, 731 (1991)aff’d
per curiam, 988 F.2d 1135 (Fed. Cir.
1993). Risk distribution necessarily en-
tails a pooling of premiums, so that a po-
tential insured is not in significant part
paying for its own risks.See Humana, Inc.
v. Commissioner, 881 F.2d 247, 257 (6
th
Cir. 1989).
A transaction between a parent and its
wholly-owned subsidiary does not satisfy
the requirements of risk shifting and risk
distribution if only the risks of the par-
ent are insured.See Stearns-Roger Corp.
v. United States, 774 F.2d 414 (10
th
Cir.
1985);Carnation Co. v. Commissioner,
640F.2d1010(9
th
Cir. 1981),cert. denied
454 U.S. 965 (1981). However, courts
have held that an arrangement between a
parent and its subsidiary can constitute in-
surance when the parent’s premiums are
pooled with those of unrelated parties if (i)
insurance risk is present, (ii) risk is shifted
and distributed, and (iii) the transaction is
of the type that is insurance in the com-
monly accepted sense.See,e.g.,Ocean
Drilling & Exploration Co.;AMERCO,
Inc. v. Commissioner, 979 F.2d 162 (9
th
Cir. 1992); Rev. Rul. 2002–89, 2002–2
C.B. 984. An arrangement between an in-
surance subsidiary and other subsidiaries
of the same parent may qualify as insur-
ance for federal income tax purposes, even
if there are no insured policyholders out-
side the affiliated group, provided the req-
uisite risk shifting and risk distribution are
present.See, e.g.,Humana, Inc. v. Com-
missioner, 881 F.2d 247 (6th Cir. 1989);
Kidde Industries v. U.S.,40Fed. Cl.
(1997); Rev. Rul. 2002–90, 2002–2 C.B.
985.
The qualification of an arrangement as
an insurance contract does not depend on
the regulatory status of the issuer.See,
e.g.,Commissioner v. Treganowan,183
F.2d 288 (2d Cir. 1950) (arrangement with
stock exchange “gratuity fund” treated as
life insurance because the requisite risk
shifting and risk distribution were present).
See alsoRev. Rul. 83–172, 1983–2 C.B.
107 (group issuing workmen’s compen-
sation insurance taxable as an insurance
company even though not recognized as an
insurance company under state law); Rev.
Rul. 83–132, 1983–2 C.B. 270 (non-cor-
porate business entity taxable as an insur-
ance company if it is primarily engaged
in the business of issuing insurance con-
tracts). The same principles apply to de-
termine the insurance contract status of an
arrangement involving a cell of a protected
cell company as apply to determine the sta-
tus of an arrangement with any other is-
suer.
ANALYSIS
In order to determine the nature of an
arrangement for federal income tax pur-
poses, it is necessaryto consider all the
facts and circumstances in a particular
case, including not only the terms of the
arrangement, but also the entire course
of conduct of the parties. Thus, an ar-
rangement that purports to be an insurance
contract but lacks the requisite risk distri-
bution may instead be characterized as a
deposit arrangement, a loan, a contribution
to capital (to the extent of net value, if any)
an indemnity arrangement that is not an
insurance contract, or otherwise, based on
the substance of the arrangement between
the parties. The proper characterization of
the arrangement may determine whether
the issuer qualifies as an insurance com-
pany and whether amounts paid under the
arrangement may be deductible.
Under the facts presented, all the in-
come, expense, assets, liabilities and cap-
ital ofCell Xare separately accounted for
and, upon liquidation, become the prop-
erty ofX, who is the sole shareholder with
respect toCell X. The amountsXpays as
premiums under the 1-year agreement to
“insure” its professional liability risks are
held byCell X, together with any capital
and surplus, for the satisfaction ofX’s
claims. The premiums thatCell Xearns
from its arrangement withXconstitute
100% of its total premiums earned during
the taxable year; the liability coverageCell
Xprovides toXaccounts for all the risks
borne byCell X. In the event of a claim,
paymentwillbemadetoXout ofX’s own
premiums and contributions to the capital
ofCell X; no amount may be paid out of
any other cell in satisfaction of any claims
byX. The arrangement betweenXand
Cell Xis akin to an arrangement between
a parent and its wholly-owned subsidiary,
which, in the absence of unrelated risk,
lacks the requisite risk shifting and risk
distribution to constitute insurance. Be-
causeCell Xdoes not enter into arrange-
ments with any policyholders other than
X, the arrangement betweenXandCell X
is not an insurance contract for federal in-
come tax purposes, andXmay not deduct
February 4, 20083412008–5 I.R.B.

amounts paid pursuant to the arrangement
as “insurance premiums” under § 162.
SeeRev. Rul. 2005–40, 2005–2 C.B. 4
(arrangement lacks necessary risk distri-
bution, and therefore does not qualify as
insurance, if the issuer of the arrangement
contracts with only a single policyholder);
Rev. Rul. 2002–89, 2002–2 C.B. 984
(amounts paid by a domestic parent cor-
poration to its wholly owned insurance
subsidiary are not deductible as insurance
premiums if the parent’s premiums are not
sufficiently pooled with those of unrelated
parties).
All the income, expense, assets, liabili-
ties and capital ofCell Ylikewise are sep-
arately accounted for, and upon liquida-
tion,becomethepropertyofY, who is the
sole shareholder with respect toCell Y.Un-
der the arrangements between the 12 sub-
sidiaries ofYandCell Y, the subsidiaries
shift toCell Ytheir professional liability
risks in exchange for premiums that are
determined at arms-length. Those premi-
ums are pooled such that a loss by one sub-
sidiary is not in substantial part, paid from
its own premiums. The subsidiaries ofY
andCell Yconduct themselves in all re-
spects as would unrelated parties to a tra-
ditional insurance relationship. Had the
subsidiaries ofYentered into identical ar-
rangements with a sibling corporation that
was regulated as an insurance company,
the arrangements would constitute insur-
ance and amounts paid pursuant to the ar-
rangements would be deductible as insur-
ance premiums under § 162.SeeRev.
Rul. 2002–90, 2002–2 C.B. 985. The
fact that the subsidiaries’ risks were in-
stead shifted to a cell of a protected cell
company, and distributed within that cell,
does not change this result. Accordingly,
the arrangements betweenCell Yand each
subsidiary ofYare insurance contracts for
federal income tax purposes; amounts paid
pursuant to those arrangements are insur-
ance premiums, deductible under § 162 if
the requirements for deduction are other-
wise satisfied.
HOLDINGS
In Situation 1, the annual arrangement
betweenCell XandXdoes not consti-
tute insurance for federal income tax pur-
poses. In Situation 2, the arrangements be-
tweenCell Yand each subsidiary ofYdo
constitute insurance for federal income tax
purposes; amounts paid pursuant to those
arrangements are deductible as insurance
premiums under § 162 if the requirements
for deduction are otherwise satisfied.
ADDITIONAL GUIDANCE
The Internal Revenue Service and the
Treasury Department are aware that fur
-
ther guidance may be needed in this are
a.
Notice 2008–19, this Bulletin, reque
sts
comments on further guidance that ad-
dresses when a cell of aProtected Cel
l
Companyis treated as an insurance co
m-
pany for federal income tax purposes
.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Chris Lieu of the Office of the As-
sociate Chief Counsel (Financial Institu-
tions & Products). For further informa-
tion regarding this revenue ruling, contact
Mr. Lieu at (202) 622–3970 (not a toll-free
call).
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of February 2008. See Rev.
Rul. 2008-9, page 342.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of February 2008. See Rev.
Rul. 2008-9, page 342.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of February 2008. See Rev.
Rul. 2008-9, page 342.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of February 2008. See Rev.
Rul. 2008-9, page 342.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
2008–5 I.R.B.342February 4, 2008

sections of the Code, tables set forth the
rates for January 2008.
Rev. Rul. 2008–9
This revenue ruling provides various
prescribed rates for federal income tax
purposes for February 2008 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
REV. RUL. 2008–9 TABLE 1
Applicable Federal Rates (AFR) for February 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR3.11%3.09%3.08%3.07%
110% AFR3.43%3.40%3.39%3.38%
120% AFR3.74%3.71%3.69%3.68%
130% AFR4.06%4.02%4.00%3.99%
Mid-term
AFR
3.51%
3.48%3.46%3.46%
110% AFR3.87%3.83%3.81%3.80%
120% AFR4.22%4.18%4.16%4.14%
130% AFR
4.57%4.52%
4.49%4.48%
150% AFR5.29%5.22%5.19%5.16%
175% AFR
6.18%6.09%6.04%6.01%
Long-term
AFR4.46%4.41%4.39%4.37%
110% AFR4.91%
4.85%
4.82%4.80%
120% AFR
5.36%5.29%5.26%5.23%
130% AFR
5.81%5.73%5.69%5.66%
REV. RUL. 2008–9 TABLE 2
Adjusted AFR for February 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-
term adjusted
AFR
2.84%2.82%2.81%2.80%
Mid-term adjusted AFR3.36%3.33%3.32%3.31%
Long-term adjusted
AFR
4.23%4.19%4.17%
4.15%
February 4, 20083432008–5 I.R.B.

REV. RUL. 2008–9 TABLE 3
Rates Under Section 382 for February 2008
Adjusted federal long-term rate for the current month4.23%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.34%
REV. RUL. 2008–9 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for February 2008
Appropriate percentage for the 70% present value low-income housing credit7.92%
Appropriate percentage for the 30% present value low-income housing credit3.40%
REV. RUL. 2008–9 TABLE 5
Rate Under Section 7520 for February 2008
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest4.2%
Sect
ion 1288.—Treatment
of Or
iginal Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 7216.—Disclosure
or Use of Information by
Preparers of Returns
26 CFR 301.7216–1: Penalty for disclosure or use of
tax return information.
T.D. 9375
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Guidance Necessary to
Facilitate Electronic Tax
Administration—Updating of
Section 7216 Regulations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains reg-
ulations to update the rules regarding the
disclosure and use of tax return informa-
tion by tax return preparers. Among other
things, the regulations finalize rules for
taxpayers to consent to the disclosure or
use of their tax return information by tax
return preparers.
DATES: Effective Date: These regulations
are effective January 7, 2008.
Applicability Date:The regulations ap-
ply to disclosures or uses of tax return in-
formation occurring on or after January 1,
2009.
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Regulations on Procedure and Admin-
istration (26 CFR Part 301) under section
7216 of the Internal Revenue Code. These
regulations strengthen taxpayers’ ability to
control their tax return information by re-
quiring that tax return preparers give tax-
payers specific information, including who
will receive the tax return information and
the particular items of tax return informa-
tion that will be disclosed or used, to allow
taxpayers to make knowing, informed, and
voluntary decisions over the disclosure or
use of their tax information by their tax re-
turn preparer.
Section 7216 imposes criminal penal-
ties on tax return preparers who know-
ingly or recklessly make unauthorized dis-
closures or uses of information furnished
to them in connection with the preparation
of an income tax return. In addition, tax re-
turn preparers are subject to civil penalties
under section 6713 for disclosure or use of
this information unless an exception under
the rules of section 7216(b) applies to the
disclosure or use.
Section 7216 was enacted by section
316 of the Revenue Act of 1971, Public
Law 92–178 (85 Stat. 529). In 1988,
Congress modified the section by limiting
the criminal sanction to knowing or reck-
less, unauthorized disclosures. Public Law
100–647 (102 Stat. 3749). At the same
time, Congress enacted the civil penalty
that is now found in section 6713. Public
Law 100–647, §6242(a) (102 Stat. 3759).
In 1989, Congress further modified section
7216, directing the Treasury Department to
issue regulations permitting disclosures of
tax return information for quality or peer
reviews. Public Law 101–239, §7739(a)
(103 Stat. 3759).
The Treasury Department and the IRS
proposed regulations under section 7216
on December 20, 1972 (37 FR 28070). Fi-
nal regulations were issued on March 29,
1974 (39 FR 11537). These regulations
are divided into three parts: §301.7216–1
for general provisions and definitions;
§301.7216–2 for disclosures and uses
2008–5 I.R.B.344February 4, 2008

that do not require formal taxpayer con-
sent; and §301.7216–3 for disclosures and
uses that require formal taxpayer consent.
Since the regulations were adopted in
1974, the Treasury Department and the
IRS have amended §301.7216–2 on occa-
sion, but §§301.7216–1 and 301.7216–3
have remained unchanged.
A notice of proposed rulemaking
(REG–137243–02, 2006–1 C.B. 317) was
published in theFederal Register(70 FR
72954) on December 8, 2005. Concur-
rently with publication of the proposed
regulations, the IRS published Notice
2005–93, 2005–2 C.B. 1204 (December
07, 2005), setting forth a proposed revenue
procedure that would provide guidance to
tax return preparers regarding the format
and content of consents to disclose and
consents to use tax return information un-
der §301.7216–3.
Written comments were received in re-
sponse to the notice of proposed rulemak-
ing. A public hearing was held on April 4,
2006. Commentators appeared at the pub-
lic hearing and commented on the notice
of proposed rulemaking.
All comments were considered and are
available for public inspection upon re-
quest. This preamble summarizes most
of the comments received by the IRS and
Treasury Department. After consideration
of the written comments and the comments
provided at the public hearing, the pro-
posed regulations under section 7216 are
adopted as revised by this Treasury deci-
sion.
Concurrently with publication of these
regulations, the IRS is publishing a rev-
enue procedure and an advanced notice of
proposed rulemaking. The revenue proce-
dure provides guidance on the format and
content of consents to disclose or use tax
return information under §301.7216–3 for
taxpayers filing a return in the Form 1040
series,e.g.,Form 1040, Form 1040NR,
Form 1040A, or Form 1040EZ. The rev-
enue procedure also provides specific
guidance for electronic signatures when a
taxpayer filing a return in the Form 1040
series executes an electronic consent to
the disclosure or use of the taxpayer’s tax
return information.
The advanced notice of proposed rule-
making requests comments regarding a
proposed rule under §301.7216–3 that
a tax return preparer may not obtain a
consent to disclose or use tax return infor-
mation for the purpose of the tax return
preparer soliciting, or the taxpayer obtain-
ing, a refund anticipation loan (RAL) or
certain other products.
Summary of Comments
1.Preamble.
Some commentators recommended that
the final regulations specify the existing
revenue rulings, notices, and other guid-
ance under section 7216 that continue to
have effect under the final regulations.
While the final regulations do not identify
all guidance that has continuing effect, the
section of this Treasury decision entitled
“Effect on Other Documents” specifies
guidance that Treasury and the IRS have
determined as contrary to the regulations.
One commentator requested that
the preamble of the regulations clarify
whether a tax return preparer may offer
for sale an insurance policy that will re-
imburse the taxpayer additional tax the
taxpayer is required to pay under certain
circumstances involving errors by the tax
return preparer. Section 7216 and the
regulations thereunder govern only a tax
return preparer’s disclosure or use of tax
return information. To the extent that a tax
return preparer offers a product, such as
insurance, where the offer is based on the
disclosure of tax return information to a
third party, or where use of such tax return
information serves as the basis for making
the offer, section 7216 and the regulations
thereunder only govern whether use or
disclosure of the tax return information
requires taxpayer consent.
2.§301.7216–1 Penalty for Disclosure or
Use of Tax Return Information.
A.Statutory provisions.
Some commentators recommended
that Treasury and the IRS seek legislative
changes to section 7216. More specifi-
cally, these commentators recommended
that the amount of the section 7216 crim-
inal penalty be increased, that the amount
of the section 6713 civil penalty be in-
creased, and that the Code be amended to
provide a private right of action against
tax return preparers. Another commenta-
tor recommended amending section 7216
to provide a means to abate the penalty
in cases where reasonable cause and good
faith is established. This commentator
also recommended that Treasury and the
IRS not attempt to regulate the disclosure
or use of tax return information in the
context of a criminal statute, section 7216,
but that only civil penalties should apply.
Requests for statutory changes to sec-
tions 7216 and 6713 are outside of the
scope of these regulations. Section 7216
expressly provides for Treasury to pro-
mulgate regulations to exempt certain
disclosures or uses of information from
the statute’s criminal sanction. Although
Treasury and the IRS do not have the
regulatory authority to provide for a rea-
sonable cause exception under section
7216, the criminal penalty provided for
bythatstatuteispremisedonafindingof
knowing or reckless conduct.
B.Tax return preparer.
One commentator requested expanding
the definition of tax return preparer to in-
clude clerical staff involved in preparation
of a tax return. Because the definition of
tax return preparer in the regulations al-
ready encompasses clerical staff involved
in the preparation of a return, no change is
needed to address this comment.
While approving of the generally broad
scope of the term “tax return preparer,” one
commentator expressed concern that the
term did not cover employees of tax return
preparers who do not personally assist in
the preparation of tax returns or the provi-
sion of auxiliary services. That commenta-
tor recommended that section 7216 should
nonetheless apply to any employee. This
comment was not adopted. The statute ap-
plies only to persons “engaged in the busi-
ness of preparing, or providing services
in connection with the preparation of, re-
turns.” The regulations, however, do not
permit disclosure by one employee of a
tax return preparer to another employee of
the tax return preparer on the basis of em-
ployment status alone. See Treas. Reg.
§301.7216–2(c).
Based on recent amendments to sec-
tion 7701(a)(36) of the Code (which post-
amendment applies more generally to tax
return preparers other than income tax re-
turns), the final regulations were revised to
omit the language in the proposed regula-
tions pertaining to the lack of uniformity
of the definition of tax return preparer pro-
vided in section 7701(a)(36) and the def-
February 4, 20083452008–5 I.R.B.

inition of tax return preparer for purposes
of section 7216.
C.Tax return information.
Some commentators expressed concern
that the definition of tax return informa-
tion encompasses an overly broad amount
of information. One commentator recom-
mended that a taxpayer’s name, address,
telephone number, e-mail address, and
identification number should not be treated
as tax return information. Another com-
mentator recommended that a taxpayer’s
name, address, and other contact informa-
tion should be available for a tax return
preparer to use to provide the taxpayer
with any information that the tax return
preparer believes may be of interest to
the taxpayer. These recommendations re-
garding tax return information were not
adopted becauseinformation revealing the
identity of, or how to contact, a person
is information central to one’s privacy
and deserving of treatment as tax return
information when submitted for, or in
connection with, the preparation of a tax
return. Section 301.7216–2(n), however,
permits tax return preparers to make lim-
ited use of taxpayer’s contact information
to offer tax information or additional tax
return preparation services to previous
customers.
One commentator recommended elimi-
nating language from the regulations pro-
viding that information maintained in a
form that is associated with the tax return
preparation becomes tax return informa-
tion regardless of how the information was
initially obtained. The commentator ques-
tioned whether non-tax return information
could become tax return information as a
result of the manner in which it is stored
andmaintainedbythetaxreturnpreparer.
Treasury and the IRS agree that section
7216 protects only information furnished
to a tax return preparer for, or in connec-
tion with, the preparation of a return and
that information does not become tax re-
turn information merely by the method in
which the information is stored. The lan-
guage in the proposed regulations that is
the subject of the comment was included
to recognize that the protections of section
7216 may extend to information furnished
by persons other than the taxpayer, includ-
ing information furnished by one person
within a firm to a tax return preparer em-
ployed by the same firm. In that situation,
the information in the hands of the tax re-
turn preparer would be tax return informa-
tion even if the person furnishing the infor-
mation had obtained it other than in con-
nection with the preparation of a tax return.
Because this rule is evident from other pro-
visions of the regulations, and the language
commented upon may create confusion,
the language has been removed from these
regulations.
One commentator expressed concern
that the proposed regulations improperly
expand upon section 7216 by defining “tax
return information” to include information
derived or generated from tax return in-
formation. The commentator commented
that section 7216 protects only information
furnished to tax return preparers, and data
that a tax return preparer derives from that
information should not be considered data
furnished to the tax return preparer. The
commentator, therefore, recommended
removing this language from the regula-
tions.
The commentator’s recommendation
was not adopted. Information that a tax re-
turn preparer would typically derive from
other information furnished in connec-
tion with the preparation of a return could
include information on the taxpayer’s en-
titlement to deductions, credits, losses or
gains, the amounts thereof, and the amount
of tax due. It would frustrate the purpose
of the statute not to protect this informa-
tion when a taxpayer has furnished the tax
return preparer the means to derive it.
Similarly, the same commentator stated
that the proposed regulations improperly
expand upon the statute by defining “tax
return information” to include “informa-
tion received by the tax return preparer
from the IRS in connection with the pro-
cessing of such return.” The commentator
recommended eliminating this language
from the regulations. This recommenda-
tion was not adopted. The statute protects
information furnished to a tax return pre-
parer for, or in connection with, prepara-
tion of a return and does not require that
the taxpayer have furnished the informa-
tion.
Some commentators approved of the
proposed regulations’ definition of tax
return information, but expressed concern
that Example 1 in §301.7216–1(b)(3)(ii)
suggests that information supplied to reg-
ister tax preparation software is not tax
return information unless the tax return
preparer states during the registration
process that it will provide updates to
registrants. These commentators, there-
fore, recommended deleting that fact from
the example. This recommendation was
adopted to explicitly provide that all in-
formation furnished to register tax return
preparation software is tax return informa-
tion.
Some commentators expressed concern
that if information furnished to register tax
return preparation software was treated as
tax return information, then tax return pre-
parers would be required to obtain consent
from taxpayers prior to updating the tax re-
turn preparation software. To address this
concern, section 301.7216–2(c) of the reg-
ulations has been revised.
D.Disclosure and use.
One commentator stated that the defi-
nition of “use” is overly broad. The com-
mentator proposed that the “use” of tax re-
turn information should not include tax re-
turn preparers informing taxpayers of the
availability of products and services that
tax return preparers offer that could ben-
efit taxpayers. As an example, the com-
mentator stated that informing a taxpayer
about the availability of a refund antic-
ipation loan based on the taxpayer’s tax
return information should not be a “use”
of tax return information. This recom-
mendation was not adopted. The regula-
tions require consents for tax return pre-
parers to use tax return information so that
taxpayers themselves determine whether
they want additional information regard-
ing products and services that might ben-
efit them. The potential uses of tax return
information should be clearly described by
tax return preparers and the potential uses
mustbeconsentedtobytaxpayersbefore
such uses occur.
Two commentators recommended that
tax return preparers should be responsi-
ble for subsequent disclosures or uses of
tax return information by third parties to
whom tax return preparers made an autho-
rized disclosure of tax return information.
This recommendation was not adopted be-
cause section 7216 does not apply to third
parties who are not tax return preparers.
2008–5 I.R.B.346February 4, 2008

E.Providing auxiliary services.
Section 301.7216–1(b)(2)(iii) of the
proposed regulationsprovides that a per-
son is engaged in the business of providing
auxiliary services in connection with the
preparation of tax returns as described
in paragraph (b)(2)(i)(B) of that section
if, in the course of the person’s business,
the person holds himself out to tax re-
turn preparers or to taxpayers as a person
who performs auxiliary services, whether
or not providing the auxiliary services is
the person’s sole business activity and
whether or not the person charges a fee for
the auxiliary services. One commentator
recommended broadening the definition
of auxiliary services to include analysis
of data for purposes of monitoring the
tax return preparer’s business for fraud
prevention and provision of data storage
services. These services as well as sim-
ilar services are typical of the types of
auxiliary services that can be provided
to tax return preparers as contemplated
by §301.7216–1(b)(2)(iii) and are already
covered by the broad definition of auxil-
iary services in the regulations. The same
commentator also recommended broad-
ening the definition of auxiliary services
to include the analysis of customer ac-
tivity to improve services and assistance
in connection with preparation for tax-
payer audits. These services are already
addressed in other parts of the regulations.
See §§301.7216–2(o) and 301.7216–2(k).
F.Exclusions under §301.7216–1(b)(2)(v).
One commentator recommended
that the express exclusion under
§301.7216–1(b)(2)(v) of the proposed
regulations of certain persons from the
definition of tax return preparer should be
extended to include persons who provide
“a broad range of financial products and
services . . . to customers of tax return
preparers, including savings, transaction,
and retirement accounts.” The commen-
tator’s recommendation was not adopted
as the regulations do not provide an ex-
haustive list of the persons identified as
excluded from the definition of tax re-
turn preparer. To the extent the service
providers suggestedto be excluded by the
commentator provideservices only inci-
dentally related to the preparation of the
return, these persons would be excluded
under the regulation.
G.Hyperlinks.
One commentator recommended that
the regulations should not treat as a disclo-
sure by a tax return preparer the situation
where a taxpayer is transferred from the
tax return preparer’s website to a different
website and the taxpayer separately enters
information on the different website. This
recommendation was not adopted because
the regulations already do not treat this
fact pattern as a disclosure by the tax re-
turn preparer.
3.§301.7216–2 Permissible Disclosures
or Uses Without Consent of the Taxpayer.
A.Disclosures to the IRS.
Section 301.7216–2(b) of the proposed
regulations provides that tax return prepar-
ers may disclose to the IRS any tax return
information the IRS requests to assist in
the administration of electronic filing pro-
grams. One commentator requested lim-
iting this rule to “specific necessary pur-
poses, such as compliance by electronic
return originators.” This recommendation
was not adopted. Return information in the
hands of the IRS is already protected from
unauthorized disclosure.See,e.g., section
6103.
Other commentators expressed con-
cern regarding whether §301.7216–2(b)
permitted disclosures of tax return infor-
mation to the IRS in general. Because
the purpose of these regulations is to pro-
tect taxpayers from the unauthorized uses
and disclosures by tax return preparers,
and because tax return information in the
hands of the IRS is already protected from
unauthorized disclosure, §301.7216–2(b)
has been modified to clarify that return
preparers may disclose any tax return in-
formation to the IRS for any purpose.
B.Use by tax return preparer for purposes
of updating software.
Section 301.7216–2(c)(1) of the final
regulations has been revised to provide
that if a tax return preparer provides soft-
ware to a taxpayer that is used in connec-
tion with the preparation or filing of a tax
return, the tax return preparer may use the
taxpayer’s tax return information to update
the taxpayer’s software for the purpose of
addressing changes in IRS forms, e-file
specifications and administrative, regula-
tory and legislative guidance or to test and
ensure the software’s technical capabilities
without obtaining the taxpayer’s consent
under §301.7216–3.
C.Disclosure to a tax return preparer
within the same firm located outside of
the United States.
Section 301.7216–2(c) of the proposed
regulations generally provides that an
officer, employee, or member of a tax
return preparer in the United States may
disclose tax return information to another
officer, employee, or member of the same
tax return preparer located within the
United States. Section 301.7216–2(c)(1)
of the proposed regulations provides that
the taxpayer must give consent under
§301.7216–3 prior to any disclosure of
tax return information by an officer, em-
ployee, or member of a tax return preparer
in the United States to an officer, em-
ployee, or member of the same tax return
preparer located outside of the United
States or any territory or possession of
the United States. One commentator ex-
pressed concern that this rule was too
strict with respect to multinational compa-
nies and employees on assignment outside
of the United States. This commenta-
tor stated that such taxpayers anticipate
that their tax return information will be
disclosed outside of the United States.
This commentator recommended that con-
sent under §301.7216–3 should not be
required with respect to disclosures when
the taxpayer is a multinational company
or an individual taxpayer employed or on
assignment outside of the United States
and that an engagement letter explaining
potential circumstances involving disclo-
sures overseas ought to be permitted in
these situations.
This recommendation was not adopted.
As explained in the preamble to the pro-
posed regulations, the Treasury Depart-
ment and IRS believe that a separate ex-
planation is required under these circum-
stances in order to advise taxpayers that
their tax return information is being dis-
closed to tax return preparers located out-
side the United States. The final regula-
tions, however, address the commentator’s
February 4, 20083472008–5 I.R.B.

request for additional flexibility with re-
spect to the form and manner of the con-
sent for taxpayers other than individuals.
For tax return preparers providing tax re-
turn preparation services to taxpayers who
do not file an income tax return in the
Form 1040 series,e.g., Form 1040, Form
1040NR, Form 1040A, or Form 1040EZ,
a consent to disclose tax return informa-
tion outside the United States may be in
any format, including an engagement let-
ter to a client, as long as the consent pro-
vides sufficient information to enable the
taxpayer to provide informed consent. For
tax return preparers providing tax return
preparation services to taxpayers who file
an income tax return in the Form 1040 se-
ries, the regulations provide that the Sec-
retary may issue guidance, by publication
in the Internal RevenueBulletin, proscrib-
ing the form and manner of the consent
to disclose tax return information, includ-
ing disclosure of return information out-
side the United States. This rule is consis-
tent with the general rule adopted by these
final regulations with respect to a tax re-
turn preparer’s request for consent to dis-
close tax return information. See section
301.7216–3(a)(3).
Additionally, one commentator rec-
ommended that, rather than provide lim-
itations on the disclosure of tax return
informationbyataxreturnpreparerwithin
the United States to another tax return pre-
parer of the same firm who is located out-
side of the United States, the regulations
should instead permit such disclosures
without consent if the tax return preparer
of the same firm outside of the United
States consents to adhere to the rules of
section 7216. This recommendation was
not adopted because it does not inform
taxpayers that their tax return information
will be disclosed outside of the United
States or allow taxpayers to control the
decision whether their information is dis-
closed overseas.
D.Disclosures to other tax return
preparers.
Section 301.7216–2(d) of the proposed
regulations provides that disclosures be-
tween tax return preparers are authorized
when the disclosures (i) assist in the prepa-
ration of a return; (ii) the services pro-
vided by the recipient of the disclosure are
not substantive determinations or advice
affecting a taxpayer’s reported tax liabil-
ity; and (iii) the disclosure is to a tax re-
turn preparer located in the United States.
Two commentators expressed concern that
the phrase “substantive determinations or
advice” is a vague standard and recom-
mended the use of examples in the regu-
lations that adequately define the phrase.
The final regulations clarify the meaning
of substantive determinations and provide
an example to illustrate the operation of
this rule.
One commentator recommended adopt-
ing the professional ethics rules of the
American Institute of Certified Public Ac-
countants (AICPA) on outsourcing in lieu
of §301.7216–2(d) of the proposed regu-
lations. Rule 102 of the AICPA Code of
Professional Conduct requires that, prior
to sharing confidential client information
(such as a tax return) with a third-party
service provider, an AICPA member must
inform the client, preferably in writing,
that the member may use a third-party
service provider when providing profes-
sional services to the client. Unlike the
rules in the regulations, the AICPA Code
of Professional Conduct does not require
that the client consent to the disclosure of
tax return information when substantive
determinations or advice are sought from
third parties. Under the AICPA rules,
AICPA members who use third-party ser-
vice providers remain responsible for the
work done by the service providers and
they must contract with the third-party
service provider for the service provider to
monitor the confidentiality of the client’s
information to the third-party service
provider. The commentator’s recommen-
dation that the regulations adopt only the
protections of the AICPA ethics rules was
not adopted. The Treasury Department
and the IRS are concerned that taxpayers
and tax return information would not be
adequately protected if a tax return pre-
parer could disclose tax return information
to any third-party service provider without
taxpayer consent to that disclosure.
One commentator recommended mod-
ifying §301.7216–2(d) of the proposed
regulations to allow disclosures between
franchisors and franchisees in the tax re-
turn preparation business according to the
terms of their franchise agreement. The
commentator’s recommendation was not
adopted because the existence of a written
franchise agreement should not affect the
confidentiality of a taxpayer’s tax return
information.
Onecommentatorcritiqued
§301.7216–2(d) because it will limit the
benefits tax return preparation firms may
enjoy from using foreign outsourcing.
Foreign outsourcing is not prohibited
by the final regulations, which permit
the disclosure of tax return information
outside of the United States if the taxpayer
consents to such disclosure. One com-
mentator recommended that tax return
preparers should be allowed to disclose
tax return information to third-party ser-
vice providers subject to the requirements
of the privacy provisions of Title V of
the Gramm-Leach-Bliley Act, Public
Law 106–102 (113 Stat. 1338) (GLBA).
Specifically, the commentator proposed
that the regulations should permit tax
return preparers to: (1) execute a written
contract with a service provider limiting
the service provider’s disclosure or use
of tax return information; (2) select and
retain service providers that are capable
of safeguarding tax return information;
and (3) implement contractual provisions
requiring service providers to develop
and maintain appropriate information
safeguards. This recommendation was
not adopted. While the requirements of
section 7216 and these regulations do not
override any requirements or restrictions
of the GLBA, the sensitivity of tax return
information justifies affording tax return
information stronger protections than
other information subject to the GLBA.
E.Disclosure pursuant to an order of a
court, or an administrative order, demand,
request, summons or subpoena which is
issued in the performance of its duties by a
Federal or State agency, the United States
Congress, a professional association
ethics committee or board, or the Public
Company Accounting Oversight Board
One commentator recommended that
the title of proposed §301.7216–2(f) be re-
vised to add the word “request” following
the word “demand,” to align the subsec-
tion’s title with the regulation’s language
in §301.7216–2(f)(5). This recommenda-
tion was adopted in the final regulation.
One commentator recommended re-
placing the phrase “professional ethics
board” in proposed §301.7216–2(f) with
the phrase “certain professional associ-
2008–5 I.R.B.348February 4, 2008

ation ethics committees or boards.” The
commentator noted that this change would
avoid confusion as to whether the refer-
ence to professional ethics boards means
governmental entitiesthat control licens-
ing for CPAs or whether the phrase would
include professional associations that have
boards or committees that discipline their
members, such as the AICPA or state and
local bar associations. This recommen-
dation was adopted, in part, by changing
thephrase“professional ethics board” to
“professional association ethics commit-
tee or board.” Section 301.7216–2(f)(4)(ii)
separately addresses disclosures to gov-
ernment entities charged with licensing,
registration, or regulation of tax return
preparers.
One commentator recommended per-
mitting disclosure of tax return informa-
tion without taxpayer consent pursuant to
disclosures required by Federal or State
laws and administrative rules, but did not
identify any specificruleorlawthatre-
quired a disclosure in circumstances con-
trary to either the preexisting regulations
or the proposed regulations. Preexisting
regulations already permitted disclosures
pursuant to an order of a court or a Federal
or State agency. These final regulations
permit disclosures pursuant to an order of
a court or an administrative order, demand,
summons or subpoena that is issued in the
performance of its duties by a Federal or
State agency, the United States Congress, a
professional association ethics committee
or board, or the Public Company Account-
ing Oversight Board. The protections of-
fered by limiting disclosures to responses
to specific governmental or quasi-govern-
mental requests provide appropriate pro-
tection for taxpayer privacy.
One commentator expressed concern
about proposed §301.7216–2(f)(5) and the
safeguarding of tax return information re-
ceivedbyaprofessional association board
or committee conducting an ethics inves-
tigation. The commentator recommended
revising §301.7216–2(f)(5) to expressly
prohibit professional associations from
publishing as part of any resulting profes-
sional disciplinary determination the tax
return information of a taxpayer furnished
to them during an ethics investigation of
a preparer unless the taxpayer provides
consent. This recommendation was not
adopted because section 7216 does not
provide for penalties against third parties
who receive tax return information in this
context.
One commentator recommended re-
wording proposed §301.7216–2(f)(6) to
provide the following: “A written request
from the Public Company Accounting
Oversight Board (PCAOB) in connection
with an inspection under section 104 of the
Sarbanes-Oxley Act of 2002, 15 U.S.C.
7214, or an investigation under section
105 of such Act, 15 U.S. 7215, for use
in accordance with such Act.” The com-
mentator noted that this wording describes
more clearly the situations in which dis-
closures to the PCAOB are permitted,
and to permit registered firms and their
associated persons to comply with their
disclosure obligations under the Act. This
recommendation was adopted.
One commentator expressed concern
that permitting the disclosure of tax re-
turn information pursuant to a subpoena
issued by the United States Congress
is inconsistent with the rules regarding
disclosures by the IRS to Congress un-
der section 6103(f). The commentator
stated that the regulations may provide a
method to avoid the specific disclosure
rules of section 6103(f), which are de-
signed to protect taxpayers and prevent
Congressional abuse of returns or return
information. Another commentator rec-
ommended eliminating the term “demand”
in §301.7216–2(f)(4)(i) because the com-
mentator believes the term is too broad
and could permit any Federal agency to
simply ask for tax return information even
if the agency does not have authority to
issue “formal legal orders” compelling the
disclosure. These recommendations were
not adopted. Both Congress and Federal
agencies are presumed to act in accor-
dance with the law and there are other
limitations on their abilities to seek tax
return information.
F.Disclosure for use in securing legal
advice, Treasury investigations, or court
proceedings.
Final section 301.7216–2(g) has been
revised to confirm that a tax return pre-
parer may disclose tax return information
to an attorney for purposes of the preparer
securing legal advice.
G.Taxreturnpreparersworkingforthe
same firm.
Section 301.7216–2(h)(1)(ii) provides
that a tax return preparer’s law or account-
ing firm does not include any related or
affiliated firms. Some commentators ex-
pressed concern that this rule reduces the
application of the §301.7216–2 exceptions
for tax return preparers that are structured
as separate legal entities, but are closely
related. One commentator recommended
that the regulations be revised to provide
that the “same firm” standard be deter-
mined in a manner similar to the rules
for qualified employee plans for a single
employer. This recommendation was not
adopted. Taxpayers should have a clear
understanding with whom they are deal-
ing. Adopting this recommendation would
require that a taxpayer understand com-
plex rules about which separate legal en-
tities are part of the “same firm” as their
tax return preparer to be able to understand
who might receive their tax return infor-
mation. Additionally, a tax return preparer
has the ability to obtain consent from a tax-
payer to disclose tax return information to
a related or affiliated firm.
H.Disclosure or use of tax return
information in preparation for audit.
One commentator recommended that a
tax return preparer should be permitted to
disclose tax return information to another
taxreturnpreparersothatthesecondtax
return preparer can provide assistance in
connection with the audit of a return under
the law of any State or political subdivision
thereof, the District of Columbia, or any
territory or possession of the United States.
This comment was not adopted because
§301.7216–2(k) already permits such dis-
closures.
I.Payment for tax preparation services.
Section 301.7216–2(l) provides that a
tax return preparer may disclose and use,
without the taxpayer’s written consent, tax
return information that the taxpayer pro-
vides to the tax return preparer to pay for
tax preparation services to the extent nec-
essary to process the payment. One com-
mentator recommended applying this rule
to the collection of payments. This rec-
ommendation was adopted. The exception
under §301.7216–2(l) for the collection of
February 4, 20083492008–5 I.R.B.

payments is subject to the same limita-
tions as the rule for processing payments.
Only tax return information that the tax-
payer provided to the tax return preparer
to pay for tax return preparation services
maybeusedtocollectpayment.Thislim-
itation precludes tax return preparers from
using any other tax return information to
collect on delinquent payments.
J.Lists for solicitation of tax return
business.
Section 301.7216–2(n) of the proposed
regulations provides that a tax return pre-
parer may compile and maintain a separate
list containing solely the names, addresses,
e-mail addresses, and phone numbers of
taxpayers whose tax returns the tax return
preparer has prepared or processed. The
proposed regulations also state that this list
maybeusedbythecompilersolelytocon-
tact the taxpayers on the list for the pur-
pose of offering tax information or addi-
tional tax return preparation services. One
commentator recommended adding that no
mention of services or products other than
those related to tax preparation services
may be made. Treasury and the IRS agree
that the prohibition on using the list to so-
licit business other than tax return prepa-
ration services could be strengthened, and
have modified §301.7216–2(n) to address
the commentator’s concern.
K.Producing statistical information in
connection with tax return preparation
business.
Section 301.7216–2(o) of the proposed
regulations permits a tax return preparer
to use tax return information to prepare
anonymous statisticalcompilations for
limited purposes related to management or
support of the tax return preparer’s busi-
ness. Two commentators recommended
that the disclosure or use of tax return
information in statistical compilations
should be limited to “internal manage-
ment” because “support” might be read
to allow a tax return preparer to target
specific customers with advertising. This
recommendation was not adopted because
§301.7216–2(o) specifically prohibits the
disclosure or use of statistical compilations
in connection with, or in support of, busi-
nesses other than tax return preparation,
and use of lists to solicit additional tax
return preparation business is specifically
governed, and limited, by §301.7216–2(n).
One commentator recommended that
statistical compilations of tax return in-
formation that do not identify taxpayers
should not be considered “tax return in-
formation” for purposes of section 7216.
The commentator stated that if statisti-
cal information is treated as “tax return
information,” such a rule could prevent
tax return preparers (especially tax re-
turn preparers that are publicly traded)
from reporting essential data to financial
regulators or to market participants to pro-
vide an accurate picture of the tax return
preparer’s performance and financial con-
dition. In response to the concern raised
by the commentator, the final regulation
was modified to provide that the compiler
of the statistical compilation may not dis-
close the compilation, or any part thereof,
to any other person unless the disclosure
of the statistical compilation is made in
order to comply with financial accounting
or regulatory reporting requirements or
occurs in conjunction with the sale or other
disposition of the compiler’s tax return
preparation business.
One commentator recommended that
tax return preparers located within the
same firm should be permitted, without
obtaining consent, to use tax return infor-
mation for “the management, support or
maintenance of the tax return preparer’s
business.” This recommendation was not
adopted. Because the regulations already
permit a tax return preparer to use tax
return information to prepare statistical
compilations for limited purposes related
to management or support of the tax return
preparer’s business, it is unclear how the
commentator’s recommendation would
further aid in the management or support
of a tax return preparer’s business.
One commentator recommended that
the regulations require that “taxpayer iden-
tifying” data, such as names and social
security numbers, be redacted from statis-
tical information. This recommendation
was not adopted. The regulations already
require that statistical compilations must
be “anonymous.”
L.Quality or peer reviews.
Section 301.7216–2(p) of the proposed
regulations provides that a quality or peer
review may be conducted only by attor-
neys, certified public accountants, enrolled
agents, and enrolled actuaries who are eli-
gible to practice before the Internal Rev-
enue Service. Some commentators rec-
ommended that this subsection of the pro-
posed regulations should be revised to per-
mit other professionals to participate in
quality or peer reviews. This recommen-
dation was not adopted. The restriction
helps to prevent unauthorized disclosures
of tax return information by limiting par-
ticipation in such reviews to those persons
subject to Circular 230, 31 C.F.R. Part 10.
M.Extraction of tax return information
within software only for the purposes of
reducing repetitive data entry.
One commentator recommended that
the use of computer software designed to
assist with the preparation of an income tax
return should be allowed without consent
to “extract” certain tax return information
once entered, such as the taxpayer’s name
and address, and reprint such information
in required fields onthe same return in or-
der to eliminate repetitive data entry. This
comment was not adopted because the reg-
ulations do not prohibit such a use of tax
return information where the information
is being used for the permitted purpose of
preparing the taxpayer’s tax return.
4.Proposed §301.7216–3: Disclosures
and Uses Authorized by Taxpayer
Consent.
A.Consent to disclose tax return
information.
Some commentators expressed concern
that the proposed regulations authorize the
IRS to make available for sale to third par-
ties its internal records and data containing
tax return information. This concern re-
flects a fundamental misunderstanding of
the proposed regulations. The proposed
regulations do not address any disclosure
of tax return information by the IRS; the
proposed regulations address only the dis-
closure and use of tax return information
by tax return preparers. Separate laws, in-
cluding section 6103, strictly protect the
confidentiality of returns and return infor-
mation in the hands of IRS employees and
others.
Some commentators expressed concern
that the proposed regulations would loosen
the current rules regarding a tax return
2008–5 I.R.B.350February 4, 2008

preparer’s ability to disclose a client’s tax
return information.This concern is based
on a misunderstanding of the purpose and
content of the proposed and preexisting
regulations. Section 301.7216–3(a)(1) of
the proposed regulations provides that,
unless section 7216 or §301.7216–2 autho-
rizes the disclosure of tax return informa-
tion, a tax return preparer may not disclose
a taxpayer’s tax return information prior
to obtaining consent from the taxpayer.
Since 1974, section 301.7216–3(a)(2) has
provided that, “[i]f a tax return preparer
has obtained from a taxpayer a consent
. . . , he may disclose the tax return
information of such taxpayer to such
third persons as the taxpayer may direct.”
Thus, the proposed regulations contained
the same substantive rule that has been
in place for over 30 years. Throughout
the long-standing existence of former
§301.7216–3(a)(2), there has been no
objection to the provision that allowed
taxpayers to provide informed consent to
taxreturnpreparersdisclosingtaxreturn
information to third parties.
Nonetheless, commentators criticized
the proposed rule, stating that it could al-
low tax return preparers to induce clients
into providing unknowing or inadvertent
consents to sell or otherwise disclose tax
return information. Furthermore, they ar-
gue that disclosure to third parties could
result in identity theft. Thus, one solution
these commentators recommend is to pro-
hibit taxpayers from ever consenting to the
disclosure of their tax return information.
The Treasury Department and IRS did
not adopt the commentators’ recommen-
dation. Rather, the final regulations retain
the general rule that has been in place for
more than 30 years recognizing that tax-
payers should have control over their own
tax return information and that taxpayers
should, with appropriate limits and safe-
guards, be able to direct tax return prepar-
ers to disclose tax return information as
taxpayers see fit. This rule parallels the
statutory rule in section 6103(c) that al-
lows taxpayers to consent to the IRS dis-
closing returns or return information to
third parties of the taxpayer’s choosing.
In addition, this rule is consistent with
the privacy protection regime in the Health
Insurance Portability and Accountability
Act (HIPAA), Public Law 104–191 (110
Stat. 1936). HIPAA permits health care
providers and health plans to disclose in-
formation about health status, provision of
health care, or payment to a third party if
they have obtained authorization from the
individual patient.
While identity theft is a significant con-
cern, Treasury and the IRS do not believe
a generalized concern regarding the poten-
tial for criminal activity by third parties
should preclude taxpayers from being able
to direct the disclosure of tax return infor-
mation to third parties for legitimate rea-
sons of the taxpayer’s own choosing, par-
ticularly in the absence of any evidence
that disclosure of tax return information by
tax return preparers has been a source of
identity theft problems.
While the idea of a complete prohi-
bition on consent to disclosure was re-
jected, Treasury and the IRS did revise
§301.7216–3(b)(5), based on several fac-
tors. These factors include: 1) the fact that
it is not necessary for tax return preparers
to disclose certain taxpayer identifying in-
formation to other tax return preparers who
are assisting them in preparing a return; 2)
the important role a social security num-
ber (SSN) plays in the tax administration
process, and the heightened potential for
misuse when an SSN is readily associated
with confidential information, such as tax
return information; and 3) the heightened
concern about the theft of an individual’s
confidential information resulting from
disclosures outside the United States. Sec-
tion 301.7216–3(b)(4) now provides that
a tax return preparer located within the
United States, including any territory or
possession of the United States, may not
obtain consent to disclose a taxpayer’s
SSN to a tax return preparer located out-
side of the United States or any territory
or possession of the United States. Thus,
if a tax return preparer located within the
United States obtains consent from a tax-
payer to disclose tax return information to
another tax return preparer located outside
of the United States, as provided under
§§301.7216–2(c) and 301.7216–2(d), the
tax return preparer located in the United
States may not disclose the taxpayer’s
SSN, and the tax return preparer must
redact or otherwise mask the taxpayer’s
SSN before the tax return information is
disclosed outside of the United States. If
a tax return preparer located within the
United States initially receives or obtains
a taxpayer’s SSN from another tax return
preparer located outside of the United
States, however, the tax return preparer
within the United States may, without
consent, retransmit the taxpayer’s SSN
to the tax return preparer located outside
the United States that initially provided
the SSN to the tax return preparer lo-
cated within the United States. Where a
taxpayer-client requests that a tax return
preparer within the United States transfer
the return preparation engagement to a tax
return preparer located outside the United
States, the preparer must still redact or
otherwise mask the taxpayer’s SSN before
the information is disclosed and, in this
situation, it will be incumbent upon the
taxpayer to provide the SSN directly to the
tax return preparer located abroad.
Some commentators recommended that
the regulations provide taxpayers with the
ability to informally initiate a request for
the disclosure of tax return information
from their tax return preparers without
formally following the consent rules of
§301.7216–3. This recommendation was
not adopted. As a practical matter, it would
be difficult to distinguish when a taxpayer
informally initiates a request for the dis-
closure of tax return information and when
tax return preparers merely claim that a
taxpayer initiated the request for disclo-
sure. Additionally, tax return preparers
are always free to provide taxpayers their
own returns and taxpayers may disclose
tax return information to others directly.
Other commentators recommended that
the regulations should prohibit disclosure
to third-party solicitors and not allow tax-
payers to consent to disclosures for the
purpose of receiving solicitations because
the risks to the taxpayer of providing con-
sent inadvertently are too great in compar-
ison to the benefit of receiving solicita-
tions from third parties. This recommen-
dation was not adopted because it denies
taxpayers the ability to control and direct
the disclosure of their own tax return in-
formation. If taxpayers do not wish to re-
ceive offers or solicitations from third par-
ties, they can simply refuse to provide the
consent needed for third parties to receive
their tax return information. If a tax re-
turn preparer obtains written consent under
circumstances that make the consent un-
knowing or uninformed, the consent would
be invalid under the requirements of the
regulations.
February 4, 20083512008–5 I.R.B.

B.Consent to use of tax return
information.
Section 301.7216–3 of the preexisting
regulations provides that a consent to use
tax return information does not apply for
purposes of facilitating the solicitation of
the taxpayer’s use of any services or facil-
ities furnished by a person other than the
tax return preparer, unless the other person
andthetaxreturnprepareraremembersof
the same affiliated group of corporations
within the meaning of section 1504. The
proposed regulations removed this “affil-
iated group” limitation because the affil-
iated group concept has little application
in the context of modern return prepara-
tion businesses. The proposed regulations
also reflected a determination by the IRS
and Treasury Department that a taxpayer’s
ability to consent to a preparer’s use of
tax return information to solicit additional
business should not be limited by arbi-
trary factors largely beyond the taxpayer’s
knowledge or control, such as the size, di-
versity, or organizational structure of the
tax return preparer. Some commentators
expressed concern that removal of the “af-
filiated group” limitation would make it
easier for tax return preparers to disclose
tax return information to third parties for
marketing purposes. This comment re-
flects a misunderstanding of the nature of
a consent governing a tax return preparer’s
use of tax return information. Use con-
sents are limited to what a tax return pre-
parer can do with tax return information in
the tax return preparer’s own hands; use
consents cannot be used in connection with
disclosures to third parties. Thus, iden-
tity theft or other abuses by third parties
could not arise from taxpayers providing
use consents to tax return preparers.
Further, prohibiting the commercial use
of tax return information outright would
result in no longer allowing legitimate uses
of tax return information that have evolved
over time as standard commercial prac-
tices. For example, tax return preparers
could not use tax return information to ad-
vise taxpayers of strategies that may pos-
itively affect the taxpayers’ finances such
as individual retirement accounts or qual-
ified tuition programs, or of the taxpay-
ers’ eligibility to participate in government
benefit programs, such as food stamps.
C.Prohibit tax return preparers from
disclosing tax return information for any
reason unrelated to the preparation of a
tax return.
Many commentators recommended
prohibiting tax returnpreparers from dis-
closing tax return information for any
purpose unrelated to the preparation of
tax returns. This recommendation was not
adopted because there are many legitimate
purposes for the disclosure of tax return
information identified in §301.7216–2,
such as the disclosure of tax return in-
formation for the reporting of a crime
or for an ethics investigation. Similarly,
there are legitimate purposes, other than
tax return preparation, when a taxpayer
would choose to consent to the tax return
preparer’s disclosure of tax return infor-
mation.
As an alternative, some commentators
recommended that the regulations prohibit
or greatly restrict the use or disclosure of
tax return information for marketing pur-
poses. They specifically recommended
banning tax return preparers from disclos-
ing tax return information in association
with taxpayers seeking refund anticipation
loans (RALs) and similar products. Trea-
sury and the IRS did not adopt this recom-
mendation because it was not contained in
the proposed regulations and could have
a significant impact on existing business
practices. Concurrently with the publica-
tion of these final regulations, however,
Treasury and the IRS are requesting com-
ments on a proposed rule that, if ultimately
adopted as final, would prohibit tax return
preparers from using or disclosing tax re-
turn information for the purpose of solic-
iting, or the taxpayer obtaining, a RAL or
certain other products.
Commentators also recommended that
disclosure of tax return information by
tax return preparers should be conditioned
upon the existence of an agreement by
third parties receiving the information that
the tax return information will not be used
for any purpose other than the purpose for
which the information was provided. This
recommendation was not adopted because
policing agreements by third parties is
outside the scope of section 7216. Section
7216 governs only the actions of tax return
preparers.
D.Obtaining consent through engagement
letters.
Some commentators recommended that
when the regulations require consent to
disclose or use tax return information, tax
return preparers should be permitted to ob-
tain such consent from “large taxpayers,”
such as large corporations, through an en-
gagement letter. These commentators ob-
served that it is ordinary business practice
for tax return preparers and large taxpayers
to negotiate and set the terms of the provi-
sion of services, including the preparation
of income tax returns, in an engagement
letter. This recommendation was adopted.
Treasury and the IRS agree that requiring
multiple, separate consents would impose
a significant burden and could frustrate
these taxpayers’ ability to comply with tax
laws and other regulatory and reporting re-
quirements. Section 301.7216–3(a)(3) has
been modified to provide a set of require-
ments regarding the format and content of
consents to disclose and use tax return in-
formation with respect to taxpayers filing
income tax returns in the Form 1040 se-
ries,e.g., Form 1040, Form 1040NR, Form
1040A, or Form 1040EZ, and a separate
set of requirements regarding the format
and content of consents to disclose and use
tax return information with respect to tax-
payers filing all other tax returns. Under
§301.7216–3(a)(3)(iii), for tax return pre-
parers providing tax return preparation ser-
vices to taxpayers who do not file an in-
come tax return in the Form 1040 series,
a consent to use or a consent to disclose
may be in any format, including an en-
gagement letter to a client, as long as the
consent complies with the requirements of
§301.7216–3(a)(3)(i).
E.Conditioning services on consent.
Section 301.7216–3(a)(1) provides that
a consent to use or disclose tax return in-
formation must be knowing and voluntary.
Section 301.7216–3(a)(1) has been modi-
fied to clarify that to condition the provi-
sion of services on the taxpayer’s consent
will make the consent involuntary and in-
valid unless §301.7216–3(a)(2) applies.
Section 301.7216–3(a)(2) provides that
a tax return preparermay condition its pro-
vision of preparation services upon a tax-
payer’s consenting to disclosure of the tax-
payer’s tax return information to another
2008–5 I.R.B.352February 4, 2008

tax return preparer for the purpose of per-
forming services that assist in the prepa-
ration of, or provide auxiliary services in
connection with the preparation of, the tax
return of the taxpayer. One commentator
requested a clarification regarding whether
a tax return preparer with offices within
and outside of the United States is permit-
ted to condition its provision of tax prepa-
ration services to a taxpayer outside of the
United States on the taxpayer consenting
to disclosure. The final regulations permit
a tax return preparer with offices within
and outside of the United States to con-
dition its provision of tax preparation ser-
vices to a taxpayer on the taxpayer’s con-
senting to disclosure to a return preparer
located outside the United States. An ex-
ample was added to the final regulations to
clarify this rule.
Other commentators recommended
that the regulations should prohibit tax
return preparers from conditioning the
provision of any services upon consent.
This recommendation was adopted by
inserting the word “any” before “ser-
vices” in §301.7216–3(a)(1), to which
§301.7216–3(a)(2) provides the only ex-
ception.
F.Requests to consent after completed tax
return provided to taxpayer.
Proposed section 301.7216–3(b)(2)
provides that a tax return preparer may not
request a taxpayer’s consent to disclose
or use tax return information after the tax
return preparer provides a completed tax
return to the taxpayer for signature. Com-
mentators suggested that there may be
legitimate circumstances where a request
to consent is necessary in light of taxpayer
preferences and is part of client service
provided by the preparer. Specifically, the
commentators gave the example of a tax-
payer requesting that his or her tax return
preparer disclose the past three years of the
taxpayer’s tax returns to his or her attorney
for purposes of preparing the client’s es-
tate plan. Under the proposed regulation,
a request for consent to disclose would
be untimely in this situation, even though
the taxpayer requests the disclosure as
part of the client service provided by the
tax return preparer. As indicated by the
provisions regarding solicitation of other
business that were included in the previous
final regulations, the Treasury Department
and IRS believe that taxpayers should not
be the subject of repetitive solicitation
requests for business made by tax return
preparers after the tax preparation engage-
ment has ended. Consistent with previous
final regulations, the final regulation in
§301.7216–3(b)(2) has been modified to
state that a tax return preparer may not
request a taxpayer’s consent to disclose
or use tax return information for purposes
of solicitation of business unrelated to
tax return preparation after the tax return
preparer provides a completed tax return
to the taxpayer for signature. Under the
final regulations, the preparer would not
be precluded from requesting consent to
disclose the past three years of the tax-
payer’s tax returns to his or her attorney
for purposes of preparing the client’s estate
plan according to the example provided
by commentators.
G.Prohibition on multiple requests for
consent.
Proposed section 301.7216–3(b)(3)
provides that if a taxpayer declines to pro-
vide consent to a disclosure or use of tax
return information, a tax return preparer
cannot make another request for consent.
Some commentators recommended that
the regulations permit a tax return pre-
parer to clarify the purpose and extent of
the consent if necessary after the taxpayer
declines to provide consent, and that such
a clarification should not be treated as a
second request by the tax return preparer
to obtain a consent. Another commentator
stated that tax return preparers should be
permitted to request consent whenever
they wish so long as the consent properly
describes the nature of, and reasons for,
potential disclosures or uses. The com-
mentators’ recommendations were based
upon the recognition that there may be
legitimate reasons for the preparer to more
thoroughly explain the request for con-
sent and how the consent relates to the
tax preparation engagement. However,
Treasury and the IRS are concerned that
lack of restrictions regarding multiple re-
quests for consent regarding the same or
similar request may cause undue pressure
to consent where there are repetitious re-
quests. In light of these concerns, section
301.7216–3(b)(3) has been modified to
provide that, for purposes unrelated to a
tax preparation engagement, if a taxpayer
declines a request for consent to the dis-
closure or use of tax return information,
the tax return preparer may not solicit
from the taxpayer another consent for a
purpose substantially similar to that of the
rejected request. Under this rule, there is
no prohibition regarding the taxpayer in-
dependently asking the tax return preparer
about a disclosure or use of the taxpayer’s
same tax return information after a de-
clined consent request.
H.Multiple disclosures or multiple uses
within a single consent form.
Section 301.7216–3(c)(1) of the pro-
posed regulations provides that a taxpayer
may consent to multiple disclosures within
the same written document, or multiple
uses within the same written document.
One commentator recommended per-
mitting taxpayers to consent to multiple
disclosuresandmultiple uses with the
same form. Another commentator rec-
ommended prohibiting a taxpayer from
consenting to multiple disclosures within
the same written document, or multiple
uses within the same written document,
in order to avoid potential taxpayer con-
fusion. These recommendations were not
adopted.
The proposed rule was intended to em-
phasize that disclosure and use are two
distinct concepts, and a taxpayer may con-
siderconsentingtooneandnottheother.
The comments to the proposed regulations
demonstrated that there is potential for
confusion regarding the distinction be-
tween disclosure and use. Treasury and
the IRS believe it is appropriate to re-
quire separate consents in situations where
there is a probability that the taxpayer
could become confused over the distinc-
tion between use and disclosure. Section
301.7216–3(c)(1) of the final regulations
provides that for taxpayers who are filers
of returns in the Form 1040 series, the pro-
posed rule is retained. The rule requiring
separate consents is limited to individuals
because use or disclosure of that tax re-
turn information involves situations where
confusion is most likely to occur.
I.Disclosure of all information contained
within a return.
Section 301.7216–3(c)(2) of the pro-
posed regulations provides that a consent
February 4, 20083532008–5 I.R.B.

authorizing the disclosure of all informa-
tion contained within a return must set
forthanexplanationofthereasonwhya
consent authorizingamorelimiteddis-
closure of tax return information is unsat-
isfactory for the purpose of the consent.
Some commentators characterized this re-
quirement as burdensome in certain situ-
ations and recommended eliminating this
requirement. Commentators reasoned that
a third-party service provider, such as the
taxpayer’s attorney, may request a copy of
the return and the requirement to provide
an explanation would interject the preparer
between the requirements imposed by the
third-party service provider and the tax-
payer. In light of these concerns, sec-
tion 301.7216–3(c)(2) of the final regu-
lations modifies this provision to provide
that where a consent authorizes the disclo-
sure of a copy of the taxpayer’s tax return
or all information contained within a re-
turn, the consent must provide that the tax-
payer has the ability to request a more lim-
ited disclosure of tax return information as
the taxpayer may direct.
Some commentators concerned with
marketing of tax return information rec-
ommended that disclosure of the entire
tax return should not be permitted under
any circumstances. The commentators’
rationale was that disclosure of the entire
return is never necessary for marketing
purposes. This recommendation was not
adopted because, in general, taxpayers
should have control over their own tax
return information and they should be able
to direct tax return preparers to disclose
tax return information as the taxpayers see
fit.
J.Duration of consent.
Section 301.7216–3(b)(5) of the pro-
posed regulations provides that no consent
to the disclosure or use of tax return infor-
mation may be effective for a period longer
than one year from the date the taxpayer
signed the consent. Some commentators
expressed concern that the duration of con-
sent may need to be effective for a pe-
riod greater than one year. One commenta-
tor observed that when preparing expatri-
ate tax returns, there may be circumstances
when the due date for a foreign tax re-
turn or other related document is more than
one year after the taxpayer signs the con-
sent. Some commentators recommended
that taxpayers should be permitted to es-
tablish the duration of consent, and the
one-year period should apply only if the
taxpayer fails to specify a different dura-
tion of consent. This recommendation was
adopted in the final regulations.
K.Consents read aloud.
Some commentators recommended that
§301.7216–3 require that consents be read
aloud by audio output. This recommenda-
tion was not adopted. This recommenda-
tion would impose a burdensome rule that
is outside the norm of standard practices
for obtaining consent.
5.General Comments.
Several commentators recommended
rejecting all of the provisions of the pro-
posed regulations under section 7216.
The recommendations to reject the pro-
posed regulations were not adopted. The
proposed regulations were finalized to
provide updates relating to uses and dis-
closures of tax return information in the
electronic return preparation context and
create an environment that allows taxpay-
ers to make informed decisions regarding
the disclosure or use of their tax return
information.
Effect on Other Documents
The following publication is obsolete
on or after January 1, 2009: Rev. Rul.
79–114, 1979–1 C.B. 441 (1979).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative 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 sec-
tion 7805(f), the notice of proposed rule-
making preceding these regulations was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Dillon Taylor, formerly of the Of-
fice of the Associate Chief Counsel (Pro-
cedure and Administration). For further
information regardingthese regulations,
contact Lawrence Mack of the Office of
the Associate ChiefCounsel (Procedure
and Administration) at 202–622–4940
(not a toll-free call).
*****
Amendment to the Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301— PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7216–0 is added to
read as follows:
§301.7216–0 Table of contents.
This section lists captions contained in
§§301.7216–1 through 301.7216–3.
§301.7216–1 Penalty for disclosure or use
of tax return information.
(a) In general.
(b) Definitions.
(c) Gramm-Leach-Bliley Act.
(d) Effective date.
§301.7216–2 Permissible disclosures or
uses without consent of the taxpayer.
(a) Disclosure pursuant to other provi-
sions of the Internal Revenue Code.
(b) Disclosures to the IRS.
(c) Disclosures or uses for preparation
of a taxpayer’s return.
(d) Disclosures to other tax return pre-
parers.
(e) Disclosure or use of information in
the case of related taxpayers.
(f) Disclosure pursuant to an order of a
court, or an administrative order, demand,
request, summons or subpoena which is is-
sued in the performance of its duties by a
Federal or State agency, the United States
Congress, a professionalassociation ethics
2008–5 I.R.B.354February 4, 2008

committee or board, or the Public Com-
pany Accounting Oversight Board.
(g) Disclosure for use in securing legal
advice, Treasury investigations or court
proceedings.
(h) Certain disclosures by attorneys and
accountants.
(i) Corporate fiduciaries.
(j) Disclosure to taxpayer’s fiduciary.
(k) Disclosure or use of information in
preparation or audit of State or local tax
returns or assisting a taxpayer with foreign
country tax obligations.
(l) Payment for tax preparation ser-
vices.
(m) Retention of records.
(n) Lists for solicitation of tax return
business.
(o) Producing statistical information
in connection with tax return preparation
business.
(p) Disclosure or use of information for
quality or peer reviews.
(q) Disclosure to report the commission
of a crime.
(r) Disclosure of tax return information
due to a tax return preparer’s incapacity or
death.
(s) Effective date.
§301.7216–3 Disclosure or use permitted
only with the taxpayer’s consent.
(a) In general.
(b) Timing requirements and limita-
tions.
(c) Special rules.
(d) Effective date.
Par. 3. Section 301.7216–1 is revised
to read as follows:
§301.7216–1 Penalty for disclosure or use
of tax return information.
(a)In general. Section 7216(a) pre-
scribes a criminal penalty for tax return
preparers who knowingly or recklessly
disclose or use tax return information for a
purpose other than preparing a tax return.
Aviolationofsection7216isamisde-
meanor, with a maximum penalty of up
to one year imprisonment or a fine of not
more than $1,000, or both, together with
the costs of prosecution. Section 7216(b)
establishes exceptions to the general rule
in section 7216(a) prohibiting disclosure
and use. Section 7216(b) also authorizes
the Secretary to promulgate regulations
prescribing additional permitted disclo-
sures and uses. Section 6713(a) prescribes
a related civil penalty for disclosures and
uses that constitute a violation of section
7216. The penalty for violating section
6713 is $250 for each prohibited disclosure
or use, not to exceed a total of $10,000 for
a calendar year. Section 6713(b) provides
that the exceptions in section 7216(b)
also apply to section 6713. Under section
7216(b), the provisions of section 7216(a)
will not apply to any disclosure or use
permitted under regulations prescribed by
the Secretary.
(b)Definitions. For purposes of sec-
tion 7216 and §§301.7216–1 through
301.7216–3:
(1)Tax return.Thetermtax return
means any return (or amended return) of
income tax imposed by chapter 1 of the In-
ternal Revenue Code.
(2)Tax return preparer—(i)In general.
The termtax return preparermeans:
(A) Any person who is engaged in
the business of preparing or assisting in
preparing tax returns;
(B) Any person who is engaged in the
business of providing auxiliary services in
connection with the preparation of tax re-
turns, including a person who develops
software that is used to prepare or file a
tax return and any Authorized IRSe-file
Provider;
(C) Any person who is otherwise com-
pensated for preparing, or assisting in
preparing, a tax return for any other per-
son; or
(D) Any individual who, as part of their
duties of employment with any person de-
scribed in paragraph (b)(2)(i)(A), (B), or
(C) of this section performs services that
assist in the preparation of, or assist in
providing auxiliary services in connection
with the preparation of, a tax return.
(ii)Business of preparing returns.
A person is engaged in the business of
preparing tax returns as described in para-
graph (b)(2)(i)(A) of this section if, in the
course of the person’s business, the person
holds himself out to tax return preparers
or taxpayers as a person who prepares tax
returns or assists in preparing tax returns,
whether or not tax return preparation is
the person’s sole business activity and
whether or not the person charges a fee for
tax return preparation services.
(iii)Providing auxiliary services.A
person is engaged in the business of pro-
viding auxiliary services in connection
with the preparation of tax returns as de-
scribed in paragraph (b)(2)(i)(B) of this
section if, in the course of the person’s
business, the person holds himself out to
tax return preparers or to taxpayers as a
person who performs auxiliary services,
whether or not providing the auxiliary ser-
vices is the person’s sole business activity
and whether or not the person charges a
fee for the auxiliary services. Likewise, a
person is engaged in the business of pro-
viding auxiliary services if, in the course
of the person’s business, the person re-
ceives a taxpayer’s tax return information
from another tax return preparer pursuant
to the provisions of §301.7216–2(d)(2).
(iv)Otherwise compensated.Atax
return preparer described in paragraph
(b)(2)(i)(C) of this section includes any
person who—
(A) Is compensated for preparing a tax
return for another person, but not in the
course of a business; or
(B) Is compensated for helping, on a ca-
sual basis, a relative, friend, or other ac-
quaintance to prepare their tax return.
(v)Exclusions. A person is not a tax
return preparer merely because he leases
office space to a tax return preparer, fur-
nishes credit to a taxpayer whose tax return
is prepared by a tax return preparer, fur-
nishes information to a tax return preparer
at the taxpayer’s request, furnishes access
(free or otherwise) to a separate person’s
tax return preparation website through a
hyperlink on his own website, or otherwise
performs some service that only inciden-
tally relates to the preparation of tax re-
turns.
(vi)Examples. The application of
§301.7216–1(b)(2) may be illustrated by
the following examples:
Example 1. Bank B is a tax return preparer within
the meaning of paragraph (b)(2)(i)(A) of this section,
and an Authorized IRSe-fileProvider. B employs one
individual, Q, to solicit the necessary tax return infor-
mation for the preparation of a tax return; another in-
dividual, R, to prepare the return on the basis of the in-
formation that is furnished; a secretary, S, who types
the information on the returns into a computer; and
an administrative assistant, T, who uses a computer to
file electronic versions of the tax returns. Under these
circumstances, only R is a tax return preparer for pur-
poses of section 7701(a)(36), but all four employees
are tax return preparers forpurposes of section 7216,
as provided in paragraph (b) of this section.
Example 2. Tax return preparer P contracts with
department store D to rent space in D’s store. D
advertises that taxpayers who use P’s services may
charge the cost of having their tax return prepared
February 4, 20083552008–5 I.R.B.

to their charge account with D. Under these circum-
stances, D is not a tax return preparer because it pro-
vides space, credit, and services only incidentally re-
lated to the preparation of tax returns.
(3)Tax return information—(i)In gen-
eral.Thetermtax return information
means any information, including, but not
limited to, a taxpayer’s name, address, or
identifying number, which is furnished in
any form or manner for, or in connection
with, the preparation of a tax return of the
taxpayer. This information includes infor-
mation that the taxpayer furnishes to a tax
return preparer and information furnished
to the tax return preparer by a third party.
Tax return information also includes in-
formation the tax return preparer derives
or generates from tax return information
in connection with the preparation of a
taxpayer’s return.
(A) Tax return information can be pro-
vided directly by the taxpayer or by an-
other person. Likewise, tax return infor-
mation includes information received by
the tax return preparer from the IRS in
connection with the processing of such re-
turn, including an acknowledgment of ac-
ceptance or notice of rejection of an elec-
tronically filed return.
(B) Tax return information includes sta-
tistical compilationsof tax return informa-
tion, even in a form that cannot be asso-
ciated with, or otherwise identify, directly
or indirectly, a particular taxpayer. See
§301.7216–2(o) for limited use of tax re-
turn information to make statistical com-
pilations without taxpayer consent and to
use the statistical compilations for limited
purposes.
(C) Tax return information does not in-
clude information identical to any tax re-
turn information that has been furnished
to a tax return preparer if the identical in-
formation was obtained otherwise than in
connection with the preparation of a tax re-
turn.
(D) Information is considered “in con-
nection with tax return preparation,” and
therefore tax return information, if the tax-
payer would not have furnished the infor-
mation to the tax return preparer but for the
intention to engage, or the engagement of,
the tax return preparer to prepare the tax
return.
(ii)Examples. The application of this
paragraph (b)(3) may be illustrated by the
following examples:
Example 1. Taxpayer A purchases computer soft-
ware designed to assist with the preparation and fil-
ing of her income tax return. When A loads the soft-
ware onto her computer, it prompts her to register her
purchase of the software. In this situation, the soft-
ware provider is a tax return preparer under paragraph
(b)(2)(i)(B) of this section and the information that A
provides to register her purchase is tax return infor-
mation because she is providing it in connection with
the preparation of a tax return.
Example 2. Corporation A is a brokerage firm
that maintains a website through which its clients may
access their accounts, trade stocks, and generally con-
duct a variety of financial activities. Through its web-
site, A offers its clients free access to its own tax
preparation software. Taxpayer B is a client of A and
has furnished A his name, address, and other informa-
tion when registering for use of A’s website to use A’s
brokerage services. In addition, A has a record of B’s
brokerage account activity, including sales of stock,
dividends paid, and IRA contributions made. B uses
A’s tax preparation software to prepare his tax return.
The software populates some fields on B’s return on
the basis of information A already maintains in its
databases. A is a tax return preparer within the mean-
ing of paragraph (b)(2)(i)(B) of this section because it
has prepared and provided software for use in prepar-
ing tax returns. The information in A’s databases that
the software accesses to populate B’s return,i.e.,the
registration information and brokerage account activ-
ity, is not tax return information because A did not re-
ceive that information in connection with the prepa-
ration of a tax return. Once A uses the information
to populate the return, however, the information as-
sociated with the return becomes tax return informa-
tion. If A retains the information in a form in which A
can identify that the information was used in connec-
tion with the preparation of a return, the information
in that form is tax return information. If, however,
A retains the information in a database in which A
cannot identify whether the information was used in
connection with the preparation of a return, then that
information is not tax return information.
(4)Use—(i)In general.Useoftax
return information includes any circum-
stance in which a tax return preparer refers
to, or relies upon, tax return information as
the basis to take or permit an action.
(ii)Example. The application of this
paragraph (b)(4) may be illustrated by the
following example:
Example. Preparer G is a tax return preparer as
defined by paragraph (b)(2)(i)(A) of this section. If
G determines, upon preparing a return, that the tax-
payer is eligible to make a contribution to an individ-
ual retirement account (IRA), G will ask whether the
taxpayerdesirestomakeacontributiontoanIRA.G
does not ask about IRAs in cases in which the tax-
payer is not eligible to make a contribution. G is
using tax return information when it asks whether a
taxpayer is interested in making a contribution to an
IRA because G is basing the inquiry upon knowledge
gained from information that the taxpayer furnished
in connection with the preparation of the taxpayer’s
return.
(5)Disclosure.Thetermdisclosure
means the act of making tax return infor-
mation known to any person in any manner
whatever. To the extent that a taxpayer’s
use of a hyperlink results in the transmis-
sion of tax return information, this trans-
mission of tax return information is a dis-
closure by the tax return preparer subject
to penalty under section 7216 if not autho-
rized by regulation.
(6)Hyperlink. For purposes of sec-
tion 7216, a hyperlink is a device used to
transfer an individualusing tax preparation
software from a tax return preparer’s web-
page to a webpage operated by another per-
son without the individual having to sepa-
rately enter the web address of the destina-
tion page.
(7)Request for consent.Arequestfor
consent includes any effort by a tax return
preparer to obtain the taxpayer’s consent to
use or disclose the taxpayer’s tax return in-
formation. The act of supplying a taxpayer
with a paper or electronic form that meets
the requirements of a revenue procedure
published pursuant to §301.7216–3(a) is
a request for a consent. When a tax re-
turn preparer requests a taxpayer’s con-
sent, any associated efforts of the tax re-
turn preparer, including, but not limited to,
verbal or written explanations of the form,
are part of the request for consent.
(c)Gramm-Leach-Bliley Act.Any
applicable requirements of the Gramm-
Leach-Bliley Act, Public Law 106–102
(113 Stat. 1338), do not supersede, alter,
or affect the requirements of section 7216
and §§301.7216–1 through 301.7216–3.
Similarly, the requirements of section 7216
and §§301.7216–1 through 301.7216–3
do not override any requirements or re-
strictions of the Gramm-Leach-Bliley
Act, which are in addition to the require-
ments or restrictions of section 7216 and
§§301.7216–1 through 301.7216–3.
(d)Effective/applicability date.This
section applies to disclosures or uses of
tax return information occurring on or af-
ter January 1, 2009.
Par. 4. Section 301.7216–2 is revised
to read as follows:
§301.7216–2 Permissible disclosures or
uses without consent of the taxpayer.
(a)Disclosure pursuant to other pro-
visions of the Internal Revenue Code.
The provisions of section 7216(a) and
§301.7216–1 shall not apply to any dis-
closure of tax return information if the
2008–5 I.R.B.356February 4, 2008

disclosure is made pursuant to any other
provision of the Internal Revenue Code or
the regulations thereunder.
(b)Disclosures to the IRS. The provi-
sions of section 7216(a) and §301.7216–1
shall not apply to any disclosure of tax re-
turn information to an officer or employee
of the IRS.
(c)Disclosures or uses for preparation
of a taxpayer’s return—(1)Updating Tax-
payers’ Tax Return Preparation Software.
If a tax return preparer provides software
to a taxpayer that is used in connection
with the preparation or filing of a tax re-
turn, the tax return preparer may use the
taxpayer’s tax return information to update
the taxpayer’s software for the purpose of
addressing changes in IRS forms, e-file
specifications and administrative, regula-
tory and legislative guidance or to test and
ensure the software’s technical capabili-
ties without the taxpayer’s consent under
§301.7216–3.
(2)Tax return preparers located within
the same firm in the United States.Ifa
taxpayer furnishes tax return information
to a tax return preparer located within the
United States, including any territory or
possession of the United States, an officer,
employee, or member of a tax return pre-
parer may use the tax return information,
or disclose the tax return information to an-
other officer, employee, or member of the
same tax return preparer, for the purpose
of performing services that assist in the
preparation of, or assist in providing auxil-
iary services in connection with the prepa-
ration of, the taxpayer’s tax return. If an
officer, employee, or member to whom the
tax return information is to be disclosed is
located outside of the United States or any
territory or possession of the United States,
the taxpayer’s consent under §301.7216–3
prior to any disclosure is required.
(3)Furnishing tax return information
to tax return preparers located outside the
United States. If a taxpayer initially fur-
nishes tax return information to a tax re-
turn preparer located outside of the United
States or any territory or possession of
the United States, an officer, employee,
or member of a tax return preparer may
use tax return information, or disclose any
tax return information to another officer,
employee, or member of the same tax re-
turn preparer, for the purpose of perform-
ing services that assist in the preparation
of, or assist in providing auxiliary services
in connection with the preparation of, the
tax return of a taxpayer by or for whom the
information was furnished without the tax-
payer’s consent under §301.7216–3.
(4)Examples. The following examples
illustrate this paragraph (c):
Example 1. Preparer P provides tax return prepa-
ration software to Taxpayer T for T to use in the
preparation of its 2009 income tax return. For the
2009 tax year, and using T’s tax return information
furnished while registering for the software, P would
like to update the tax return preparation software that
T is using to account for last minute changes made to
the tax laws for the 2009 tax year. P is not required
to obtain T’s consent to update the tax return prepa-
ration software. P may perform a software update re-
gardless of whether the software update will affect T’s
particular return preparation activities.
Example 2. T is a client of Firm, which is a tax
return preparer. E, an employee at Firm’s State A
office, receives tax return information from T for use
in preparing T’s income tax return. E discloses the tax
return information to P, an employee in Firm’s State B
office; P uses the tax return information to process T’s
income tax return. Firm is not required to receive T’s
consent under §301.7216–3 prior to E’s disclosure of
T’s tax return information to P because the tax return
information is disclosed to an employee employed by
the same tax return preparer located within the United
States.
Example 3. Same facts asExample 2except T’s
tax return information is disclosed to FE who is lo-
cated in Firm’s Country F office. FE uses the tax
return information to process T’s income tax return.
After processing, FE returns the processed tax return
information to E in Firm’s State A office. Because
FE is outside of the United States, Firm is required
to obtain T’s consent under §301.7216–3 prior to E’s
disclosure of T’s tax return information to FE.
Example 4. T, Firm’s client, is temporarily lo-
cated in Country F. She initially furnishes her tax re-
turn information to employee FE in Firm’s Country F
office for the purpose of having Firm prepare her U.S.
income tax return. FE makes the substantive determi-
nations concerning T’s tax liability and forwards T’s
tax return information to FP, an employee in Firm’s
Country P office, for the purpose of processing T’s
tax return information. FP processes the return infor-
mation and forwards it to Partner at Firm’s State A
office in the United States for review and delivery to
T. Because T initially furnished the tax return infor-
mation to a tax return preparer outside of the United
States, T’s prior consent for disclosure or use under
§301.7216–3 was not required. An officer, employee,
or member of Firm in the United States may use T’s
tax return information or disclose the tax return in-
formation to another officer, employee, or member of
Firm without T’s prior consent under §301.7216–3 as
long as any disclosure or use of T’s tax return infor-
mation is within the United States. Firm is required to
receive T’s consent under §301.7216–3 prior to any
subsequent disclosure of T’s tax return information
to a tax return preparer located outside of the United
States.
(d)Disclosures to other tax return
preparers—(1)Preparer-to-preparer dis-
closures. Except as limited in paragraph
(d)(2) of this section, an officer, employee,
or member of a tax return preparer may
disclose tax return information of a tax-
payer to another tax return preparer (other
than an officer, employee, or member of
thesametaxreturnpreparer) located in
the United States (including any territory
or possession of the United States) for the
purpose of preparing or assisting in prepar-
ing a tax return, or obtaining or providing
auxiliary services in connection with the
preparation of any tax return, so long as
the services provided are not substantive
determinations or advice affecting the tax
liability reported by taxpayers. A substan-
tive determination involves an analysis,
interpretation, or application of the law.
The authorized disclosures permitted un-
der this paragraph (d)(1) include one tax
return preparer disclosing tax return in-
formation to another tax return preparer
for the purpose of having the second tax
return preparer transfer that information
to, and compute the tax liability on, a tax
return of the taxpayer by means of elec-
tronic, mechanical, or other form of tax
return processing service. The authorized
disclosures permitted under this paragraph
(d)(1) also include disclosures by a tax
return preparer to an Authorized IRSe-file
Provider for the purpose of electronically
filing the return with the IRS. Authorized
disclosures also include disclosures by
a tax return preparer to a second tax re-
turn preparer for thepurpose of making
information concerning the return avail-
able to the taxpayer. This would include,
for example, whether the return has been
accepted or rejected by the IRS, or the
status of the taxpayer’s refund. Except as
provided in paragraph (c) of this section,
a tax return preparer may not disclose tax
return information to another tax return
preparer for the purpose of the second
tax return preparer providing substantive
determinations without first receiving the
taxpayer’s consent in accordance with the
rules under §301.7216–3.
(2)Disclosures to contractors.Ataxre-
turn preparer may disclose tax return infor-
mation to a person under contract with the
tax return preparer in connection with the
programming, maintenance, repair, test-
ing, or procurement of equipment or soft-
ware used for purposes of tax return prepa-
ration only to the extent necessary for the
person to provide the contracted services,
and only if the tax return preparer ensures
February 4, 20083572008–5 I.R.B.

that all individuals who are to receive dis-
closures of tax return information receive
a written notice that informs them of the
applicability of sections 6713 and 7216 to
them and describes the requirements and
penalties of sections 6713 and 7216. Con-
tractors receiving tax return information
pursuant to this section are tax return pre-
parers under section 7216 because they
are performing auxiliary services in con-
nection with tax return preparation. See
§301.7216–1(b)(2)(i)(B) and (D).
(3)Examples. The following examples
illustrate this paragraph (d):
Example 1. E, an employee at Firm’s State A of-
fice, receives tax return information from T for Firm’s
use in preparing T’s income tax return. E makes sub-
stantive determinations and forwards the tax return
information to P, an employee at Processor; Proces-
sor is located in State B. P places the tax return in-
formation on the income tax return and furnishes the
finished product to E. E is not required to receive T’s
prior consent under §301.7216–3 before disclosing
T’s tax return information to P because Processor’s
services are not substantive determinations and the
tax return information remained in the United States
at Processor’s State B office during the entire course
of the tax return preparation process.
Example 2. Firm, a tax return preparer, offers in-
come tax return preparation services. Firm’s contract
with its software provider, Contractor, requires Firm
to periodically randomly select certain taxpayers’ tax
return information solely for the purpose of testing
the reliability of the software sold to Firm. Under its
agreement with Contractor, Firm discloses tax return
information to Contractor’s employee, C, who ser-
vices Firm’s contract without providing Contractor
or C with a written notice that describes the require-
ments of and penalties under sections 7216 and 6713.
C uses the tax return information solely for quality
assurance purposes. Firm’s disclosure of tax return
informationtoCwasanimpermissibledisclosurebe-
cause Firm failed to ensure that C received a written
notice that describes the requirements and penalties
of sections 7216 and 6713.
Example 3. E, an employee of Firm in State A
in the United States, receives tax return information
from T for use in preparing T’s income tax return.
After E enters T’s tax return information into Firm’s
computer, that information is stored on a computer
server that is physically located in State A. Firm
contracts with Contractor, located in Country F, to
prepare its clients’ tax returns. FE, an employee of
Contractor, uses a computer in Country F and in-
puts a password to view T’s income tax information
stored on the computer server in State A to prepare
T’s tax return. A computer program permits FE to
view T’s tax return information, but prohibits FE
from downloading or printing out T’s tax return
information from the computer server. Because Firm
is disclosing T’s tax return information outside of the
United States, Firm is required to obtain T’s consent
under §301.7216–3 prior to the disclosure to FE. As
provided in §301.7216–3(b)(5), however, Firm may
not obtain consent to disclose T’s social security
number (SSN) to a tax return preparer located outside
of the United States or any territory or possession of
the United States.
Example 4. A, an employee at Firm A, receives
tax return information from T for Firm’s use in
preparing T’s income tax return. A forwards the tax
return information to B, an employee at another firm,
Firm B, to obtain advice on the issue of whether
T may claim a deduction for a certain business ex-
pense. A is required to receive T’s prior consent
under §301.7216–3 before disclosing T’s tax return
information to B because B’s services involve a
substantive determination affecting the tax liability
that T will report.
(e)Disclosure or use of information in
the case of related taxpayers. (1) In prepar-
ing a tax return of a second taxpayer, a tax
return preparer may use, and may disclose
to the second taxpayer in the form in which
it appears on the return, any tax return in-
formation that the tax return preparer ob-
tained from a first taxpayer if—
(i) The second taxpayer is related to the
first taxpayer within the meaning of para-
graph (e)(2) of this section;
(ii) The first taxpayer’s tax interest in
the information is not adverse to the sec-
ond taxpayer’s tax interest in the informa-
tion; and
(iii) The first taxpayer has not expressly
prohibited the disclosure or use.
(2) For purposes of paragraph (e)(1)(i)
of this section, a taxpayer is related to an-
other taxpayer if they have any one of the
following relationships: husband and wife,
child and parent, grandchild and grandpar-
ent, partner and partnership, trust or es-
tate and beneficiary, trust or estate and
fiduciary, corporation and shareholder, or
members of a controlled group of corpora-
tions as defined in section 1563.
(3) See §301.7216–3 for disclosure or
use of tax return information of the tax-
payer in preparing the tax return of a sec-
ond taxpayer when the requirements of this
paragraph are not satisfied.
(f)Disclosure pursuant to an order of a
court, or an administrative order, demand,
request, summons or subpoena which is
issued in the performance of its duties
by a Federal or State agency, the United
States Congress, a professional associ-
ation ethics committee or board, or the
Public Company Accounting Oversight
Board. The provisions of section 7216(a)
and §301.7216–1 will not apply to any
disclosure of tax return information if the
disclosure is made pursuant to any one of
the following documents:
(1) The order of any court of record,
Federal, State, or local.
(2) A subpoena issued by a grand jury,
Federal or State.
(3) A subpoena issued by the United
States Congress.
(4) An administrative order, demand,
summons or subpoena that is issued in the
performance of its duties by—
(i) Any Federal agency as defined in
5 U.S.C. 551(1) and 5 U.S.C. 552(f), or
(ii) A State agency, body, or commis-
sion charged under the laws of the State or
a political subdivision of the State with the
licensing, registration, or regulation of tax
return preparers.
(5) A written request from a profes-
sional association ethics committee or
board investigating the ethical conduct of
the tax return preparer.
(6) A written request from the Public
Company Accounting Oversight Board
in connection with an inspection under
section 104 of the Sarbanes-Oxley Act of
2002, 15 U.S.C. 7214, or an investigation
under section 105 of such Act, 15 U.S.C.
7215, for use in accordance with such Act.
(g)Disclosure for use in securing legal
advice, Treasury investigations or court
proceedings. Ataxreturnpreparermay
disclose tax return information—
(1) To an attorney for purposes of secur-
ing legal advice;
(2) To an employee of the Treasury De-
partment for use in connection with any in-
vestigation of the tax return preparer (in-
cluding investigations relating to the tax
return preparer in its capacity as a practi-
tioner) conducted by the IRS or the Trea-
sury Department; or
(3) To any officer of a court for use in
connection with proceedings involving the
tax return preparer (including proceedings
involving the tax return preparer in its ca-
pacity as a practitioner), or the return pre-
parer’s client, before the court or before
any grand jury that may be convened by
the court.
(h)Certain disclosures by attorneys and
accountants. The provisions of section
7216(a) and §301.7216–1 shall not apply
to any disclosure of tax return information
permitted by this paragraph (h).
(1) (i) A tax return preparer who is law-
fully engaged in the practice of law or ac-
countancy and prepares a tax return for a
taxpayer may use the taxpayer’s tax re-
turn information, or disclose the informa-
tion to another officer, employee or mem-
ber of the tax return preparer’s law or ac-
2008–5 I.R.B.358February 4, 2008

counting firm, consistent with applicable
legal and ethical responsibilities, who may
use the tax return information for the pur-
pose of providing other legal or account-
ing services to the taxpayer. As an ex-
ample, a lawyer who prepares a tax return
for a taxpayer may use the tax return in-
formation of the taxpayer for, or in con-
nection with, rendering legal services, in-
cluding estate planning or administration,
or preparation of trial briefs or trust instru-
ments, for the taxpayer or the estate of the
taxpayer. In addition, the lawyer who pre-
pared the tax return may disclose the tax
return information to another officer, em-
ployee or member of the same firm for the
purpose of providing other legal services
to the taxpayer. As another example, an
accountant who prepares a tax return for a
taxpayer may use the tax return informa-
tion, or disclose it to another officer, em-
ployee or member of the firm, for use in
connection with the preparation of books
and records, working papers, or account-
ing statements or reports for the taxpayer.
In the normal course of rendering the legal
or accounting services to the taxpayer, the
attorney or accountant may make the tax
return information available to third par-
ties, including stockholders, management,
suppliers, or lenders, consistent with the
applicable legal andethical responsibili-
ties, unless the taxpayer directs otherwise.
For rules regarding disclosures outside of
the United States, see §301.7216–2(c) and
(d).
(ii) A tax return preparer’s law or ac-
counting firm does not include any related
or affiliated firms. For example, if law
firm A is affiliated with law firm B, offi-
cers, employees and members of law firm
A must receive a taxpayer’s consent un-
der §301.7216–3 before disclosing the tax-
payer’s tax return information to an officer,
employee or member of law firm B.
(2) A tax return preparer who is law-
fully engaged in the practice of law or ac-
countancy and prepares a tax return for a
taxpayer may, consistent with the applica-
ble legal and ethical responsibilities, take
the tax return information into account,
and may act upon it, in the course of per-
forming legal or accounting services for
a client other than the taxpayer, or dis-
close the information to another officer,
employee or member of the tax return pre-
parer’s law or accounting firm to enable
that other officer, employee or member to
take the information into account, and act
upon it, in the course of performing legal or
accounting services for a client other than
the taxpayer. This is permissible when the
information is, or may be, relevant to the
subject matter of the legal or accounting
services for the other client, and consid-
eration of the information by those per-
forming the services is necessary for the
proper performance of the services. In no
event, however, may the tax return infor-
mation be disclosed to a person who is
not an officer, employee or member of the
law or accounting firm, unless the disclo-
sure is exempt from the application of sec-
tion 7216(a) and §301.7216–1 by reason
of another provision of §§301.7216–2 or
301.7216–3.
(3)Examples. The application of this
paragraph may be illustrated by the follow-
ing examples:
Example 1. A, a member of an accounting firm,
renders an opinion on a financial statement of M Cor-
poration that is part of a registration statement filed
with the Securities and Exchange Commission. After
the registration statement is filed, but before its effec-
tive date, B, a member of the same accounting firm,
prepares an income tax return for N Corporation. In
the course of preparing N’s income tax return, B dis-
covers that N does business with M and concludes
that the information given by N should be consid-
ered by A to determine whether the financial state-
ment opined on by A contains an untrue statement of
material fact or omits a material fact required to keep
the statement from being misleading. B discloses to
A the tax return information of N for this purpose. A
determines that there is an omission of material fact
and that an amended statement should be filed. A so
advises M and the Securities and Exchange Commis-
sion. A explains that the omission was revealed as a
result of confidential information that came to A’s at-
tention after the statement was filed, but A does not
disclose the identity of the taxpayer or the tax return
information itself. Section 7216(a) and §301.7216–1
do not apply to B’s disclosure of N’s tax return in-
formation to A and A’s use of the information in ad-
vising M and the Securities and Exchange Commis-
sion of the necessity for filing an amended statement.
Section 7216(a) and §301.7216–1 would apply to a
disclosure of N’s tax return information to M or to
the Securities and Exchange Commission unless the
disclosure is exempt from the application of section
7216(a) and §301.7216–1 by reason of another provi-
sion of either this section or §301.7216–3.
Example 2. A, a member of an accounting firm,
is conducting an audit of M Corporation, and B, a
member of the same accounting firm, prepares an in-
come tax return for D, an officer of M. In the course
of preparing the return, B obtains information from
D indicating that D, pursuant to an arrangement with
a supplier doing business with M, has been receiving
from the supplier a percentage of the amounts that the
supplier invoices to M. B discloses this information
to A who, acting upon it, searches in the course of
the audit for indications of a kickback scheme. As
a result, A discovers information from audit sources
that independently indicate the existence of a kick-
back scheme. Without revealing the tax return infor-
mation A has received from B, A brings to the at-
tention of officers of M the audit information indi-
cating the existence of the kickback scheme. Section
7216(a) and §301.7216–1 do not apply to B’s disclo-
sure of D’s tax return information to A, A’s use of D’s
information in the course of the audit, and A’s dis-
closure to M of the audit information indicating the
existence of the kickback scheme. Section 7216(a)
and §301.7216–1 would apply to a disclosure to M,
or to any other person not an employee or member
of the accounting firm, of D’s tax return information
furnished to B.
(i)Corporate fiduciaries.Atrustcom-
pany, trust department of a bank, or other
corporate fiduciary that prepares a tax re-
turn for a taxpayer for whom it renders
fiduciary, investment, or other custodial or
management services may, unless the tax-
payer directs otherwise—
(1) Disclose or use the taxpayer’s tax
return information in the ordinary course
of rendering such services to or for the
taxpayer; or
(2) Make the information available to
the taxpayer’s attorney, accountant, or in-
vestment advisor.
(j)Disclosure to taxpayer’s fiduciary.
If, after furnishing tax return informa-
tion to a tax return preparer, the taxpayer
dies or becomes incompetent, insolvent,
or bankrupt, or the taxpayer’s assets are
placed in conservatorship or receivership,
the tax return preparer may disclose the in-
formation to the duly appointed fiduciary
of the taxpayer or his estate, or to the duly
authorized agent of the fiduciary.
(k)Disclosure or use of information in
preparation or audit of State or local tax
returns or assisting a taxpayer with foreign
country tax obligations. The provisions of
paragraphs (c) and (d) of this section shall
apply to the disclosure by any tax return
preparer of any tax return information in
the preparation of, or in connection with
the preparation of, any tax return of the
taxpayer under the law of any State or po-
litical subdivision thereof, of the District
of Columbia, of any territory or possession
of the United States, or of a country other
than the United States. The provisions of
section 7216(a) and §301.7216–1 shall not
apply to the use by any tax return preparer
of any tax return information in the prepa-
ration of, or in connection with the prepa-
ration of, any tax return of the taxpayer un-
der the law of any State or political subdi-
vision thereof, of the District of Columbia,
February 4, 20083592008–5 I.R.B.

of any territory or possession of the United
States, or of a country other than the United
States. The provisions of section 7216(a)
and §301.7216–1 shall not apply to the dis-
closure or use by any tax return preparer
of any tax return information in the audit
of, or in connection with the audit of, any
tax return of the taxpayer under the law of
any State or political subdivision thereof,
the District of Columbia, or any territory
or possession of the United States.
(l)Payment for tax preparation ser-
vices. A tax return preparer may use and
disclose, without the taxpayer’s written
consent, tax return information that the
taxpayer provides to the tax return pre-
parer to pay for tax preparation services to
the extent necessary to process or collect
the payment. For example, if the taxpayer
gives the tax return preparer a credit card
to pay for tax preparation services, the
tax return preparer may disclose the tax-
payer’s name, credit card number, credit
card expiration date, and amount due for
tax preparation services to the credit card
company, as necessary, to process the pay-
ment. Any tax return information that the
taxpayer did not give the tax return pre-
parer for the purpose of making payment
for tax preparation services may not be
used or disclosed by the tax return pre-
parer without the taxpayer’s prior written
consent, unless otherwise permitted under
another provision of this section.
(m)Retention of records.Ataxreturn
preparer may retain tax return information
of a taxpayer, including copies of tax re-
turns, in paper or electronic format, pre-
paredonthebasisofthetaxreturninfor-
mation, and may use the information in
connection with the preparation of other
tax returns of the taxpayer or in connec-
tion with an examination by the Internal
Revenue Service of any tax return or sub-
sequent tax litigation relating to the tax re-
turn. The provisions of paragraph (n) of
this section regarding the transfer of a tax-
payer list also apply to the transfer of any
records and related papers to which this
paragraph applies.
(n)Lists for solicitation of tax return
business. A tax return preparer may com-
pile and maintain a separate list contain-
ing solely the names, addresses, e-mail ad-
dresses, and phone numbers of taxpayers
whose tax returns the tax return preparer
has prepared or processed. This list may
be used by the compiler solely to con-
tact the taxpayers on the list for the pur-
pose of offering tax information or addi-
tional tax return preparation services to
such taxpayers. The compiler of the list
may not transfer the taxpayer list, or any
part thereof, to any other person unless
the transfer takes place in conjunction with
the sale or other disposition of the com-
piler’s tax return preparation business. A
person who acquires a taxpayer list, or a
part thereof, in conjunction with a sale or
other disposition of a tax return prepara-
tion business is subject to the provisions of
this paragraph with respect to the list. The
termlist,asusedinthisparagraph(n),in-
cludes any record or system whereby the
names and addresses of taxpayers are re-
tained. The provisions of this paragraph
(n) also apply to the transfer of any records
and related papers to which this paragraph
(n) applies.
(o)Producing statistical information
in connection with taxreturn preparation
business. A tax return preparer may use,
for the limited purpose specified in this
paragraph (o), tax return information to
produce a statistical compilation of data
described in §301.7216–1(b)(3)(i)(B). The
purpose and use of the statistical compi-
lation must relate directly to the internal
management or support of the tax return
preparer’s tax return preparation business.
The tax return preparer may not disclose
or use the tax return information in con-
nection with, or in support of, businesses
other than tax return preparation. The
compiler of the statistical compilation may
not disclose the compilation, or any part
thereof, to any other person unless disclo-
sure of the statistical compilation is made
in order to comply with financial account-
ing or regulatory reporting requirements
or occurs in conjunction with the sale or
other disposition of the compiler’s tax re-
turn preparation business. A person who
acquires a compilation, or a part thereof,
in conjunction with a sale or other disposi-
tion of a tax return preparation business is
subject to the provisions of this paragraph
(o) with respect to the compilation as if
the acquiring person had compiled it.
(p)Disclosure or use of information for
quality or peer reviews. The provisions of
section 7216(a) and §301.7216–1 shall not
apply to any disclosure for the purpose of
a quality or peer review to the extent nec-
essary to accomplish the review. A qual-
ity or peer review is a review that is un-
dertaken to evaluate, monitor, and improve
the quality and accuracy of a tax return pre-
parer’s tax preparation, accounting, or au-
diting services. A quality or peer review
may be conducted only by attorneys, cer-
tified public accountants, enrolled agents,
and enrolled actuaries who are eligible to
practice before the Internal Revenue Ser-
vice. See Department of the Treasury Cir-
cular 230, 31 CFR part 10. Tax return in-
formation may also be disclosed to per-
sons who provide administrative or sup-
port services to an individual who is con-
ducting a quality or peer review under this
paragraph (p), but only to the extent nec-
essary for the reviewer to conduct the re-
view. Tax return information gathered in
conducting a review may be used only for
purposes of a review. No tax return infor-
mation identifying a taxpayer may be dis-
closed in any evaluative reports or recom-
mendations that may be accessible to any
person other than the reviewer or the tax
return preparer being reviewed. The tax
return preparer being reviewed will main-
tain a record of the review including the in-
formation reviewed and the identity of the
persons conducting the review. After com-
pletion of the review, no documents con-
taining information that may identify any
taxpayer by name or identification number
may be retained by a reviewer or by the re-
viewer’s administrative or support person-
nel. Any person (including administrative
and support personnel) receiving tax return
information in connection with a quality or
peer review is a tax return preparer for pur-
poses of sections 7216(a) and 6713(a).
(q)Disclosure to report the commis-
sion of a crime. The provisions of section
7216(a) and §301.7216–1 shall not apply
to the disclosure of any tax return infor-
mation to the proper Federal, State, or lo-
cal official in order, and to the extent nec-
essary, to inform the official of activities
that may constitute, or may have consti-
tuted, a violation of any criminal law or to
assist the official in investigating or pros-
ecuting a violation of criminal law. A dis-
closure made in thebona fidebut mistaken
belief that the activities constituted a vio-
lation of criminal law is not subject to sec-
tion 7216(a) and §301.7216–1.
(r)Disclosure of tax return information
due to a tax return preparer’s incapacity or
death. In the event of incapacity or death
of a tax return preparer, disclosure of tax
return information may be made for the
2008–5 I.R.B.360February 4, 2008

purpose of assisting the tax return preparer
or his legal representative (or the represen-
tative of a deceased tax return preparer’s
estate) in operating the business. Any per-
son receiving tax return information un-
der the provisions of this paragraph (r) is
a tax return preparer for purposes of sec-
tions 7216(a) and 6713(a).
(s)Effective/applicability date.This
section applies to disclosures or uses of
tax return information occurring on or af-
ter January 1, 2009.
Par. 5. Section 301.7216–3 is revised
to read as follows:
§301.7216–3 Disclosure or use permitted
only with the taxpayer’s consent.
(a)In general—(1)Taxpayer con-
sent. Unless section 7216 or §301.7216–2
specifically authorizes the disclosure or
use of tax return information, a tax re-
turn preparer may not disclose or use a
taxpayer’s tax return information prior
to obtaining a written consent from the
taxpayer, as described in this section. A
tax return preparer may disclose or use tax
return information as the taxpayer directs
as long as the preparer obtains a written
consent from the taxpayer as provided in
this section. The consent must be know-
ing and voluntary. Except as provided in
paragraph (a)(2) of this section, condition-
ing the provision of any services on the
taxpayer’s furnishing consent will make
the consent involuntary, and the consent
will not satisfy the requirements of this
section.
(2)Taxpayer consent to a tax return pre-
parer furnishing tax return information to
another tax return preparer.(i)Ataxre-
turn preparer may condition its provision
of preparation services upon a taxpayer’s
consenting to disclosure of the taxpayer’s
tax return information to another tax re-
turn preparer for the purpose of perform-
ing services that assist in the preparation
of, or provide auxiliary services in connec-
tion with the preparation of, the tax return
of the taxpayer.
(ii)Example. The application of this
paragraph (a)(2) may be illustrated by the
following example:
Example. Preparer P, who is located within the
United States, is retained by Company C to provide
tax return preparation services for employees of
Company C. An employee of Company C, Employee
E, works for C outside of the United States. To pro-
vide tax return preparation services for E, P requires
the assistance of and needs to disclose E’s tax return
informationtoataxreturnpreparerwhoworksfor
P’s affiliate located in the country where E works. P
may condition its provision of tax return preparation
services upon E consenting to the disclosure of E’s
taxreturninformationtothetaxreturnpreparerin
the country where E works.
(3)The form and contents of taxpayer
consents—(i)In general. All consents to
disclose or use tax return information must
satisfy the following requirements—
(A) A taxpayer’s consent to a tax return
preparer’s disclosure or use of tax return
information must include the name of the
tax return preparer and the name of the
taxpayer.
(B) If a taxpayer consents to a disclo-
sure of tax return information, the con-
sent must identify the intended purpose
of the disclosure. Except as provided in
§301.7216–3(a)(3)(iii), if a taxpayer con-
sents to a disclosure of tax return informa-
tion, the consent must also identify the spe-
cific recipient (or recipients) of the tax re-
turn information. If the taxpayer consents
to use of tax return information, the con-
sent must describe the particular use au-
thorized. For example, if the tax return
preparer intends to use tax return informa-
tion to generate solicitations for products
or services other than tax return prepara-
tion, the consent must identify each spe-
cific type of product or service for which
the tax return preparer may solicit use of
the tax return information. Examples of
products or services that must be identified
include, but are not limited to, balance due
loans, mortgage loans, mutual funds, indi-
vidual retirement accounts, and life insur-
ance.
(C) The consent must specify the tax
return information to be disclosed or used
by the return preparer.
(D)Ifataxreturnpreparertowhomthe
tax return information is to be disclosed
is located outside of the United States,
the taxpayer’s consent under §301.7216–3
prior to any disclosure is required. See
§301.7216–2(c) and (d).
(E) A consent to disclose or use tax re-
turn information must be signed and dated
by the taxpayer.
(ii)The form and contents of taxpayer
consents with respect to taxpayers fil-
ingareturnintheForm1040series—
guidance describing additional require-
ments for taxpayer consents with respect
to Form 1040 series filers. The Secre-
tary may issue guidance, by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b) of this chapter), de-
scribing additional requirements for tax
return preparers regarding the format and
content of consents to disclose and use tax
return information with respect to taxpay-
ers filing a return in the Form 1040 series,
e.g., Form 1040, Form 1040NR, Form
1040A, or Form 1040EZ.
(iii)The form and contents of taxpayer
consents with respect to all other taxpay-
ers. A consent to disclose or use tax return
information with respect to a taxpayer not
filing a return in the Form 1040 series
may be in any format, including an en-
gagement letter to a client, as long as the
consent complies with the requirements
of §301.7216–3(a)(3)(i). Additionally,
the requirements of §301.7216–3(c)(1)
are inapplicable to consents to disclose or
use tax return information with respect to
taxpayers not filing a return in the Form
1040 series. Solely for purposes of a con-
sent issued under §301.7216–3(a)(3)(iii),
in lieu of identifying specific recipi-
ents of an intended disclosure under
§301.7216–3(a)(3)(i)(B), a consent may
allow disclosure to a descriptive class of
entities engaged by a taxpayer or the tax-
payer’s affiliate for purposes of services
in connection with the preparation of tax
returns, audited financial statements, or
other financial statements or financial in-
formation as required by a government
authority, municipality or regulatory body.
(iv)Examples. The application of
§301.7216–3(a)(3)(iii) may be illustrated
by the following examples:
Example 1. Consistent with applicable legal and
ethical responsibilities, Preparer Z sends its client, a
corporation, Taxpayer C, an engagement letter. Part
of the engagement letter requests the consent of Tax-
payer C for the purpose of disclosing tax return infor-
mation to an investment banking firm to assist the in-
vestment banking firm in securing long term financ-
ing for Taxpayer C. The engagement letter includes
language and information that meets the requirements
of §301.7216–3(a)(3)(i), including: (I) Preparer Z’s
name, Taxpayer C’s name, and a signature and date
line for Taxpayer C; and (II) a statement that “Tax-
payer C authorizes Preparer Z to disclose the portions
of Taxpayer C’s 2009 tax return information to the
firm retained by Taxpayer C necessary for the pur-
poses of assisting Taxpayer C secure long term fi-
nancing.” The engagement letter satisfies the require-
ments of §301.7216–3(a)(3) for the disclosure of the
information provided therein for the specific purpose
stated.
Example 2. Consistent with applicable legal and
ethical responsibilities, Preparer N sends its client, a
corporation, Taxpayer D, an engagement letter. Part
of the engagement letter requests the consent of Tax-
February 4, 20083612008–5 I.R.B.

payer D for the purpose of disclosing tax return infor-
mation to Preparer N’s affiliated firms located outside
of the United States for the purposes of preparation of
Taxpayer D’s 2009 tax return. The engagement let-
ter includes language and information that meets the
requirements of §301.7216–3(a)(3)(i), including: (I)
Preparer N’s name, Taxpayer D’s name, and a sig-
nature and date line for Taxpayer D; (II) a statement
that “Taxpayer D authorizes Preparer N to disclose
Taxpayer D’s 2009 tax return information to Preparer
N’s affiliates located outside of the United States for
the purposes of assisting Preparer N prepare Taxpayer
D’s 2009 tax return”; and (III) a statement that, in
providing consent, Taxpayer D acknowledges that its
tax return information for 2009 will be disclosed to
tax return preparers located abroad. The engagement
letter satisfies the requirements of §301.7216–3(a)(3)
for the disclosure of the information provided therein
for the specific purpose stated.
(b)Timing requirements and limita-
tions—(1)No retroactive consent.A
taxpayer must provide written consent be-
fore a tax return preparer discloses or uses
the taxpayer’s tax return information.
(2)Time limitations on requesting con-
sent in solicitation context.Ataxreturn
preparer may not request a taxpayer’s con-
sent to disclose or use tax return informa-
tion for purposes of solicitation of business
unrelated to tax return preparation after the
tax return preparer provides a completed
taxreturntothetaxpayerforsignature.
(3)No requests for consent after an un-
successful request. With regard to tax re-
turn information for each income tax re-
turn that a tax return preparer prepares, if
a taxpayer declines a request for consent
to the disclosure or use of tax return infor-
mation for purposes of solicitation of busi-
ness unrelated to tax return preparation, the
tax return preparer may not solicit from
the taxpayer another consent for a purpose
substantially similar to that of the rejected
request.
(4)No consent to the disclosure of a
taxpayer’s social security number to a re-
turn preparer outside of the United States.
A tax return preparer located within the
United States, including any territory or
possession of the United States, may not
obtain consent to disclose the taxpayer’s
social security number (SSN) to a tax re-
turn preparer located outside of the United
States or any territory or possession of the
United States. Thus, if a tax return pre-
parer located within the United States (in-
cluding any territory or possession of the
United States) obtains consent from a tax-
payer to disclose tax return information to
another tax return preparer located outside
of the United States, as provided under
§§301.7216–2(c) and 301.7216–2(d), the
tax return preparer located in the United
States may not disclose the taxpayer’s
SSN, and the tax return preparer must
redact or otherwise mask the taxpayer’s
SSN before the tax return information is
disclosed outside of the United States. If
a tax return preparer located within the
United States initially receives or obtains
a taxpayer’s SSN from another tax return
preparer located outside of the United
States, however, the tax return preparer
within the United States may, without
consent, retransmit the taxpayer’s SSN
to the tax return preparer located outside
the United States that initially provided
the SSN to the tax return preparer located
within the United States.
(5)Duration of consent. A consent doc-
ument may specify the duration of the tax-
payer’s consent to the disclosure or use of
tax return information. If a consent agreed
to by the taxpayer does not specify the du-
ration of the consent, the consent to the
disclosure or use of tax return information
will be effective for a period of one year
from the date the taxpayer signed the con-
sent.
(c)Special rules—(1)Multiple dis-
closures within a single consent form or
multiple uses within a single consent form.
A taxpayer may consent to multiple uses
within the same written document, or mul-
tiple disclosures within the same written
document. A single written document,
however, cannot authorize both uses and
disclosures; rather one written document
must authorize the uses and another sep-
arate written document must authorize
the disclosures. Furthermore, a consent
that authorizes multiple disclosures or
multiple uses must specifically and sepa-
rately identify each disclosure or use. See
§301.7216–3(a)(3)(iii) for an exception to
this rule for certain taxpayers.
(2)Disclosure of entire return.Acon-
sent may authorize the disclosure of all in-
formation contained within a return. A
consent authorizing the disclosure of an
entire return must provide that the taxpayer
has the ability to request a more limited
disclosure of tax return information as the
taxpayer may direct.
(3)Copy of consent must be provided
to taxpayer. The tax return preparer must
provide a copy of the executed consent to
the taxpayer at the time of execution. The
requirements of this paragraph (c)(3) may
alsobesatisfiedbygivingthetaxpayerthe
opportunity, at the time of executing the
consent, to print the completed consent or
save it in electronic form.
(d)Effective/applicability date.This
section applies to disclosures or uses of
tax return information occurring on or af-
ter January 1, 2009.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved December 21, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on January 3,
2008, 8:58 a.m., and published in the issue of the Federal
Register for January 7, 2008, 73 F.R. 1058)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of February 2008. See Rev. Rul. 2008-9, page 342.
2008–5 I.R.B.362February 4, 2008

Part III. Administrative, Procedural, and Miscellaneous
Life Insurance Reserves —
Proposed AG VACARVM and
Life PBR
Notice 2008–18
SECTION 1. PURPOSE
The purpose of this notice is to alert life
insurance companies to federal income
tax issues that may arise as a result of the
adoption of proposed Actuarial Guideline
VACARVM (Proposed AG VACARVM)
and/or a proposed principles-based ap-
proach for calculatingstatutory reserves
for life insurance (Proposed Life PBR).
This notice identifies areas in which the
Treasury Department and Internal Rev-
enue Service (IRS) have concerns, and
invites comments on these and other is-
sues.
SECTION 2. BACKGROUND
.01 In general, a life insurance company
must pay tax on its life insurance company
taxable income, which is defined in sec-
tion 801(b) to mean life insurance gross in-
come less life insurance deductions. Life
insurance gross income is defined in sec-
tion 803(a) to mean the sum of (i) pre-
miums, (ii) net decreases in certain re-
serves under section 807(a), and (iii) other
amounts generally included by a taxpayer
in gross income. Section 805(a)(2) au-
thorizes a deduction for the net increase
in certain reserves under section 807(b).
The reserves taken into account under sec-
tion 807(a) and (b) include life insurance
reserves. Accordingly, clear reflection of
taxable income of a life insurance com-
pany requires an appropriate measurement
of the company’s life insurance reserves.
.02 Methods of computing life insur-
ance reserves are set forth section 807(d).
Section 807(d)(1) provides generally that
the amount of the life insurance reserve
for any contract shall be the greater of the
net surrender value of such contract under
section 807(e)(1) or the federally pre-
scribed reserve determined under section
807(d)(2). This amount cannot, however,
exceed the amount that would be taken
into account with respect to that contract
in determining statutory reserves (i.e.,
the aggregate reserve amount set forth
in the issuer’s annual statement). Sec-
tion 807(e)(1) states that the net surrender
value of any contract shall be determined
with regard to any penalty or charge that
would be imposed on surrender but with-
out regard to any market value adjustment
on surrender. Section 807(d)(2) provides
that the federally prescribed reserve for a
contract is computed using (a) a tax reserve
method, (b) the greater of the applicable
Federal interest rate or the prevailing State
assumed rate, and (c) the prevailing com-
missioners’ standardtables for mortality
and morbidity.
.03 With respect to annuity con-
tracts, section 807(d)(3)(A)(ii) and
807(d)(3)(B)(ii) requires the use of a tax
reserve method that is the Commission-
ers’ Annuity Reserve Valuation Method
(CARVM) prescribed by the National
Association of Insurance Commissioners
(NAIC) which is in effect on the date of the
issuance of the contract. Likewise, with
respect to life insurance contracts, section
807(d)(3)(A)(i) and 807(d)(3)(B)(i) re-
quires the use of a tax reserve method that
is the Commissioners’ Reserve Valuation
Method (CRVM) prescribed by the NAIC
which is in effect on the date of the is-
suance of the contract. Other parameters,
such as the interest rate and appropriate
mortality tables, are likewise generally
determined as of the date the contract is
issued.
.04 Under section 816, an insurance
company is a life insurance company if the
sum of (1) its life insurance reserves, plus
(2) unearned premiums, and unpaid losses
(whether or not ascertained), on noncan-
cellable life, accident, or health policies
not included in life insurance reserves,
comprise more than 50 percent of its to-
tal reserves. Life insurance reserves are
defined as amounts (1) computed or esti-
mated on the basis of recognized mortality
or morbidity tables and assumed rates of
interest, and (2) set aside to mature or liq-
uidate, either by payment or reinsurance,
future unaccrued claims arising from life
insurance, annuity, and noncancellable
accident and health insurance contracts
(including life insurance or annuity con-
tracts combined with noncancellable ac-
cident and health insurance) involving, at
the time with respect to which the reserve
is computed, life, accident, or health con-
tingencies. Reserves must be required by
law to qualify as life insurance reserves.
.05 Section 7702(a) defines a life insur-
ance contract as any contract that is a life
insurance contract under the applicable
law, but only if such contract (1) meets the
cash value accumulation test of section
7702(b); or (2)(A) meets the guideline
premium requirements of section 7702(c),
and (B) falls within the cash value corri-
dor of section 7702(d). A contract meets
the guideline premium requirements if
the sum of the premiums paid under such
contract does not at any time exceed the
guideline premium limitation as of such
time. The term “guideline premium limi-
tation” means, as of any date, the greater
of the guideline single premium, or the
sum of the guideline level premiums to
such date. The term “guideline single
premium” means the premium at issue
with respect to future benefits under the
contract. The determination of the guide-
line single premium is based, in part, on
reasonable mortality charges that meet the
requirements (if any) prescribed in reg-
ulations and that (except as provided in
regulations) do not exceed the mortality
charges specified in the prevailing com-
missioners’ standard tables (as defined
in section 807(d)(5)) as of the time the
contract is issued.
.06 Two reserve methodology projects
are underway with the American Acad-
emy of Actuaries (AAA) and National
Association of Insurance Commission-
ers (NAIC). Proposed AG VACARVM
would set forth a new Actuarial Guideline
that would constitute CARVM for vari-
able annuities.See“Actuarial Guideline
VACARVM—CARVM for Variable An-
nuities Redefined,” NAIC, 9/29/2007. An
Actuarial Guideline is an interpretation
by the NAIC of existing state valuation
law and regulations. Proposed Life PBR
would set forth a principles-based ap-
proach for calculatingstatutory reserves
on life insurance contracts. This second
project would take the form of a sec-
tion of a proposed valuation manual that
would be adopted pursuant to a proposed
change to the standard valuation law.
See“VM–20: Requirements for Princi-
February 4, 20083632008–5 I.R.B.

ples-Based Reserves for Life Products,”
NAIC, 9/29/2007.
.07 The purpose of Proposed
AG VACARVM is to interpret the
standards for the valuation of reserves
for variable annuity and other contracts
involving certain guaranteed benefits
similar to those offered with variable
annuities. The aggregate reserve for
contracts falling within the scope of
Proposed AG VACARVM would equal
the greater of a standard scenario amount
and a conditional tail expectation (CTE)
amount. The standard scenario amount
would be the aggregate amount of
the reserves determined by applying a
standard scenario to each of the contracts
falling within the scope of the guideline.
The CTE amount would represent the
average of a specified percent of the
largest accumulated deficiencies produced
by a projection of the contracts falling
within the scope of the guidance (and the
assets supporting those contracts) over a
range of stochastically generated scenarios
using prudent estimate assumptions. For
example, CTE (70) would equal the
average of the largest 30 percent of the
present value of accumulated deficiencies.
Proposed AG VACARVM would include
a methodology for allocating the aggregate
reserve to the contracts falling within the
scope of the Guideline. Once effective,
Proposed AG VACARVM would affect
all contracts issued on or after January 1,
1981.
.08 The purpose of Proposed Life PBR
would be to define the minimum valu-
ation standard under a principles-based
approach for individual life insurance poli-
cies. The reported aggregate reserve for
policies falling within the scope of Pro-
posed Life PBR would equal an amount
computed using a stochastic method
(stochastic reserve), but not less than
an amount calculated using a seriatim,
deterministic method (deterministic re-
serve). The deterministic reserve would
be determined using a seriatim (i.e.,con-
tract-by-contract) approach based on a
projection of net cash flows over a single
scenario, using prudent estimate assump-
tions for parameters or variables that are
not prescribed. The stochastic reserve
would be calculated in the aggregate based
on a projection of net cash flows over
a range of stochastically generated sce-
narios, using prudent estimate assumed
values for all parameters and variables that
are not prescribed or stochastically mod-
eled, and then applying a prescribed CTE
level. Proposed Life PBR would require
that a reserve based on company-specific
and industry experience serve as the ba-
sis for identifying (i.e., mapping to) the
NAIC prescribed table that must be used.
Like Proposed AG VACARVM, Proposed
Life PBR would include a methodology
for allocating the aggregate reserve to the
contracts falling within the scope of Life
PBR. A company would be permitted to
exclude certain policies from the stochas-
tic modeling requirement if the policies
met certain prescribed conditions.
SECTION 3. DISCUSSION
The Treasury Department and IRS
are mindful that if sections 807, 816 and
7702 are not amended by Congress in
anticipation of Proposed AG VACARVM
andProposedLifePBR,taxpayerswill
need timely guidance on how to file
their federal income tax returns once
Proposed AG VACARVM and Proposed
Life PBR have been adopted. The
Treasury Department and IRS believe
that the issues raised in this notice are
most appropriately considered together
to the extent they affect both projects.
Although these projects remain in
development, the following paragraphs set
forth a preliminary, nonexclusive list of
federal income tax issues that have been
identified. The paragraphs also identify
some of the approaches that the Treasury
Department and IRS may consider to
address these issues, subject to further
study and public comment.
.01Continued taxation of issuers under
Part 1 of Subchapter L.Some commen-
tators have asked whether reserves deter-
mined under Proposed AG VACARVM or
Proposed Life PBR would constitute “life
insurance reserves” within the meaning of
section 816(b). The Treasury Department
and IRS think it would be inappropriate to
apply a literal application of the 50-percent
reserve ratio test of section 816(a), such
that all life insurance companies would be
taxed under part 2 of subchapter L, rather
than part 1 of that subchapter, due solely to
changes in the methodology of determin-
ing such reserves for purposes of statutory
accounting. To prevent this result, if Pro-
posed AG VACARVM or Proposed Life
PBR is adopted, the Treasury Department
and IRS may publish guidance that would
(i) require the continued use of statutory
reserves for purposes of the reserve ratio
test, even if those reserves are determined
under Proposed AG VACARVM or Pro-
posed Life PBR; (ii) require the contin-
ued use of CARVM or CRVM, as applica-
ble, under such terms as applied before the
adoption of Proposed AG VACARVM or
Proposed Life PBR; (iii) apply principles
similar to those of Prop. Reg. § 1.801–4(g)
to ensure that reserves with respect to life
insurance and annuity contracts are appro-
priately accounted for in the reserve ratio
test of section 816(a); or (iv) require the
use of only the standard scenario amount
(in the case of Proposed AG VACARVM)
or deterministic reserve (in the case of Pro-
posed Life PBR) for purposes of the re-
serve ratio test.
.02Qualification of contracts as life
insurance contracts.Likewise, some com-
mentators have asked whether the adop-
tion of Proposed Life PBR would render
it impossible for issuers of life insur-
ance contracts to satisfy the requirement
of section 7702(c)(3)(B) that reasonable
mortality charges not exceed the mortality
charges specified in “the commissioners’
standard mortality tables” as defined in
section 807(d)(5). The Treasury Depart-
ment and IRS think it is inappropriate
for a change in statutory accounting un-
der section 807(d) to effect a wholesale
change in the standards for qualification
of contracts as “life insurance contracts”
under section 7702. To prevent this result,
if Proposed Life PBR is adopted, the Trea-
sury Department and IRS may (i) exercise
the authority under section 7702(c)(3)(B)
either to prescribe mortality tables or to
permit the continued use of the 1980 Com-
missioners’ Standard Ordinary mortality
and morbidity tables (1980 CSO tables) or
the 2001 Commissioners’ Standard Ordi-
nary mortality and morbidity tables (2001
CSO tables), as appropriate, to satisfy the
reasonable mortalitycharge requirement
of that section; or (ii) provide a reasonable
interpretation of the prevailing commis-
sioners’ standard mortality tables under
section 807 that would not render the cross
reference in section 7702(c)(3)(B) mean-
ingless. See section 3.05, below.
.03Contract-by-contract versus aggre-
gate reserves. The Treasury Department
and IRS believe that the standard scenario
2008–5 I.R.B.364February 4, 2008

or deterministic reserve determined under
Proposed AG VACARVM or Proposed
Life PBR would more closely resemble
the methodology in effect when Congress
enacted section 807 in 1984 than would
the CTE amount or stochastic reserve. For
example, a reserve determined under the
standard scenario or under the determin-
istic reserve methodology (i) would be
determined on a contract-by-contract ba-
sis; (ii) would be based upon an expected
value, rather than the worst case tail of a
distribution of outcomes; and (iii) in the
case of Proposed AG VACARVM, would
be determined based on standard, indus-
try-wide interest rate and mortality factors,
rather than on prudent estimates that vary
from company to company. Both Pro-
posedAGVACARVMandProposedLife
PBR would provide a methodology for
apportioning stochastically-determined
reserve amounts among individual con-
tracts. The Treasury Department and IRS,
however, are concerned more fundamen-
tally that because the CTE amount (under
Proposed AG VACARVM) or stochas-
tic reserve (under Proposed Life PBR)
would not represent an expected value of a
company’s obligations with respect to the
underlying contracts, some or all of these
amounts are nondeductible “solvency” or
“contingency” reserves. If this concern is
not satisfied, the Treasury Department and
IRS may (i) permit a contract-by-contract
apportionment of a stochastically-de-
termined reserve, but with appropriate
adjustments so that reserve reflects an ex-
pected value of the company’s obligations
(for example, by adjusting the CTE from
65 to 0, assuming that the chosen scenar-
ios have a uniform probability distribution
and the scenarios not chosen have a zero
probability); (ii) conclude that the method-
ology of Proposed AG VACARVM or
Proposed Life PBR is so different from
that which was in effect when Congress
enacted section 807 in 1984 that taxpay-
ers must continue to apply section 807
as if Proposed AG VACARVM or Pro-
posed Life PBR had not been adopted; or
(iii) interpret the statutory cap under sec-
tion 807(d)(1) and CARVM/CRVM under
section 807(d)(2) to encompass only the
standard scenario amount (in the case of
Proposed AG VACARVM) or the deter-
ministic reserve (in the case of Proposed
Life PBR).
.04Prevailing state assumed interest
rate. Section 807(d)(2)(B) requires that
the tax reserve with respect to a contract
be determined using the greater of the ap-
plicable Federal interest rate (AFR) or the
prevailing State assumed rate. It has been
suggested that in the case of Proposed Life
PBR, the absence of a single, prescribed
interest rate means that taxpayers should
be allowed to determine tax reserves sim-
ply using the AFR. This approach, how-
ever, would nullify an important safeguard
against situations where the AFR is an in-
appropriately low rate for determining a
fair valuation of the tax reserve with re-
spect to a contract. Rather than interpret
the term “prevailing State assumed interest
rate” to refer to a null set, the Treasury De-
partment and IRS may require the use of a
rate that is the greater of the AFR and some
other objective rate or rates, such as (i) the
rate implicit in the aggregate reserves that
are determined stochastically; (ii) the rate
used by the company in pricing the con-
tract; or (iii) the rate used to determine the
deterministic reserve.
.05Prevailing mortality tables.The
Treasury Department and IRS are con-
cerned that determining an aggregate re-
serve stochastically and, after the fact, us-
ing the reserve so determined to “map” to
one of a large number of NAIC-approved
mortality tables would not satisfy the re-
quirement of section 807(d)(2) that the
prevailing commissioners’ standard tables
be used for purposes of determining the
tax reserve for a contract. If this concern is
not satisfied, the Treasury Department and
IRS may interpret the prevailing commis-
sioners’ standard mortality tables under
section 807(d)(5) to mean either (i) the
2001 CSO mortality tables; (ii) the mortal-
ity tables, if any, which served as the basis
for pricing the particular contract; (iii) if
more than one standard mortality table or
option could apply to a particular contract,
whichever table generally would yield the
lowest reserve for the contract (see sec-
tion 807(d)(5)(E)); or (iv) in the case of
Proposed AG VACARVM, the mortality
tables used for purposes of determining
the standard scenario amount with respect
to a contract,
.06Transition rules: application
to in-force contracts.If Proposed
AG VACARVM or Proposed Life PBR
is adopted, it is anticipated the new
rules would apply for federal income
tax purposes only to contracts that are
issued after the date of adoption and not
to previously issued contracts that are
in force on that date, regardless of the
applicability of the new rules to previously
issued contracts for regulatory purposes.
The Treasury Department and IRS assume
this approach would render moot any
issue concerning the applicability of a
10-year spread undersection 807(f) for
adjustments resulting from the adoption of
these proposed rules.
.07Tax principles that override statu-
tory accounting. Notwithstanding the
deference accorded statutory accounting
under subchapter L, the Treasury Depart-
ment and IRS do not anticipate changes
to existing guidance that requires that tax
principles override statutory accounting
principles in appropriate cases.See, e.g.,
§ 1.801–4(e) (enumerating reserves and
liabilities that do not qualify as life in-
surance reserves for federal income tax
purposes).
.08Tax administration. As a matter
of tax administration, the Treasury De-
partment and IRS are concerned that the
degree of discretion that would be vested
in taxpayers to determine the CTE amount
(under Proposed AG VACARVM) or the
stochastic reserve (under Proposed Life
PBR) could render those amounts diffi-
cult or impossible for examiners to audit.
These concerns will weigh heavily in the
resolution of the issues identified in sec-
tions 3.01 through 3.07, and may weigh
in favor of recognizing only the standard
scenario amount (in the case of Proposed
AG VACARVM) or the deterministic re-
serve(inthecaseofProposedLifePBR).
SECTION 4. REQUEST FOR
COMMENTS
.01 The Treasury Department and IRS
request comments on the issues raised
in this notice, and on any other issues
that will need to be addressed if Pro-
posed AG VACARVM or Proposed Life
PBR are adopted by one or more states
and Congress has not amended sections
807, 816 and 7702. In addition, com-
ments are requested regarding the fol-
lowing issues: (i) What is the status of
any efforts to model the effects of Pro-
posed AG VACARVM or Proposed Life
PBR, either on a company-by-company
basis, a product-by-product basis, or
February 4, 20083652008–5 I.R.B.

industry-wide? (ii)What is the relevance
of a tax or regulatory characterization of
Proposed AG VACARVM and Proposed
Life PBR as CARVM or CRVM,
respectively, for purposes of applying
section 807? Does such a characterization
limit or broaden the discretion of the
Treasury Department and IRS to provide
guidance? (For example, if Proposed
AG VACARVM and Proposed Life
PBR are characterized as CARVM or
CRVM, respectively, for regulatory
purposes, could the Treasury Department
and IRS nevertheless conclude they
do not constitute CARVM or CRVM
as Congress envisioned those terms to
apply in 1984; alternatively, if Proposed
AG VACARVM and Proposed Life PBR
were not characterized as CARVM or
CRVM, respectively, for purposes of
applying section 807, could Proposed
AG VACARVM and Proposed Life PBR
nonetheless be required as the appropriate
tax reserve method under the authority
of section 807(d)(3)(A)(iv)); (iii) what
criteria or other parameters would limit
the selection of scenarios taken into
account in determining the CTE amount
(under Proposed AG VACARVM) or the
stochastic reserve (under Proposed Life
PBR); and (iv) In the case of Proposed Life
PBR, what is the appropriate treatment
of company-specific expense, lapse and
margin assumptions for purposes of
applying section 807? For example, are
such assumptions permitted to be taken
into account at all, either for purposes
of the federally-prescribed reserve or
the statutory reserve cap? If so, what
limits apply to a taxpayer’s discretion with
respect to those assumptions, and would a
10-year spread result under section 807(f)
from the unlocking of those assumptions
in later years?
.02 The Treasury Department and IRS
are concerned about the use of a gross
premium valuation methodology in the
case of Proposed Life PBR, because such
a methodology generally is not permitted
under existing authorities.See, e.g.,Mary-
land Casualty Co. v. U.S., 251 U.S. 342
(1920), § 1.801–4(e), Rev. Rul. 77–451,
1977–2 C.B. 224. In general, a gross
premium valuation takes into account the
present value of all cash flows under the
contract, including future death benefits,
future surrender benefits, premiums, fu-
ture profits, and future expenses. Thus, a
reserve determined using a gross premium
valuation may include amounts, such as
future expenses and margins, that are not
now included in life insurance reserves for
federal income tax purposes. How will a
gross premium valuation under Proposed
Life PBR differ from current valuation
methods? Is the discretion to permit a
gross premium valuation methodology for
federal income tax purposes limited by
sections 461 and 811, or by the deficiency
reserve rule of section 807(d)(3)(C)?
Are similar issues raised in the case of
Proposed AG VACARVM? If not, are ex-
pense, policy owner behavior, surrender
rates, and other parameters nonetheless
included in the valuation of reserves under
Proposed AG VACARVM?
03. The Treasury Department and the
IRS are concerned that, except in the case
of the standard scenario under Proposed
AG VACARVM, the proposed methods
contemplate revising certain parameters
and assumptions on an annual basis. How
is this procedure consistent with the exist-
ing statutory framework that contemplates
that such parameters and assumptions are
determined as of the date a contract is
issued, and, in general, are not adjusted
thereafter? Would such annual changes in
assumptions constitute a change of basis
subject to a 10-year spread under section
807(f)?
.04 Comments should be submitted in
writing on or before May 5, 2008, and
should contain a reference to this Notice
2008–18. Comments may be submitted
to CC:PA:LPD:PR (Notice 2008–18),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Alternatively
comments may be submitted electroni-
cally via the following e-mail address:
Notice.Comments@irscounsel.treas.gov.
Please include “Notice 2008–18” in
the subject line of any electronic
communications.
.05 Submissions may be hand-delivered
Monday through Friday between the hours
of8a.m. and4p.m. toCC:PA:LPD:PR
(Notice 2008–18), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC 20224. All
comments will be available for public in-
spection and copying.
DRAFTING INFORMATION
The principal author of this notice is
James A. Polfer of the Office of the Asso-
ciate Chief Counsel (Financial Institutions
& Products). For further information re-
garding this notice, contact Mr. Polfer at
(202) 622–3970 (not a toll-free call).
Cell Captive Insurance
Arrangements: Insurance
Company Characterization
and Certain Federal Tax
Elections
Notice 2008–19
SECTION 1. PURPOSE
Rev. Rul. 2008–8, this Bulletin, pro-
vides guidance on the standards for deter-
mining whether an arrangement between
a participant and cell of a Protected Cell
Company (defined below) constitutes in-
surance for federal income tax purposes,
and whether amounts paid to the cell are
deductible as “insurance premiums” under
§ 162 of the Internal Revenue Code. The
purpose of this notice is to request com-
ments on further guidance to address is-
sues that arise if those arrangements do
constitute insurance, specifically (a) the
status of such a cell as an insurance com-
pany within the meaning of §§ 816(a) and
831(c), and (b) some of the consequences
of a cell’s status as an insurance company.
SECTION 2. BACKGROUND
.01 Under §§ 816(a) and 831(c), an in-
surance company is any company more
than half the business of which during the
taxable year is the issuing of insurance
or annuity contracts or the underwriting
of risks underwritten by insurance com-
panies. Although its name, charter pow-
ers, and subjection to State insurance laws
are significant in determining the business
which a company is authorized and in-
tends to carry on, it is the character of
the business actually done in the taxable
year which determines whether a company
is taxable as an insurance company under
the Internal Revenue Code. Treas. Reg.
§ 1.801–3(a)(1).
2008–5 I.R.B.366February 4, 2008

.02 A taxpayer that qualifies as an in-
surance company is treated as a corpora-
tion under § 7701(a)(3), even if it would
not otherwise be classified as a corporation
for state law purposes or under other pro-
visions of the Code. Thus, for example,
in Rev. Rul. 83–132, 1983–2 C.B. 270,
a non-corporate business entity was held
to be an insurance company, and there-
fore a “corporation” within the meaning of
§ 7701(a)(3), because its primary and pre-
dominant business activity was underwrit-
ing insurance risks.
.03 An insurance company is subject to
taxundereitherPartIorPartIIofSub-
chapter L, as applicable, and is eligible to
make a number of elections. For exam-
ple, § 831(b) permits certain small insur-
ance companies other than life insurance
companies to elect to be taxed only on tax-
able investment income (and not on under-
writing income); § 846(e) permits an insur-
ance company to compute discounted un-
paid losses using the company’s historical
payment patterns, rather than the historical
payment patterns determined by the Secre-
tary under § 846(d); and § 953(d) generally
permits a controlled foreign corporation to
elect to be treated as a domestic corpora-
tion if it would qualify to be taxed under
subchapter L (that is, as an insurance com-
pany) if it were a domestic corporation.
See alsoRev. Proc. 2003–47, 2003–2 C.B.
55 (setting forth procedural rules regarding
the election under § 953(d)).
.04 A number of jurisdictions have
statutes that provide for the chartering of
a legal entity commonly known as a pro-
tected cell company, segregated account
company or segregated portfolio com-
pany (“Protected Cell Company”). Rev.
Rul. 2008–8, this Bulletin, sets forth facts
that are typical of arrangements involving
Protected Cell Companies and provides
guidance on how to determine whether
such an arrangement qualifies as insurance
for federal income tax purposes.
.05 Section 3 of this Notice sets forth
proposed guidance that would address (a)
when a cell of a Protected Cell Company
is treated as an insurance company for fed-
eral income tax purposes, and (b) some of
the consequences of the treatment of a cell
as an insurance company. The proposed
guidance, if adopted, may take the form of
a regulation, revenue ruling, revenue pro-
cedure, or other Internal Revenue Bulletin
publication.
SECTION 3. PROPOSED GUIDANCE
.01In general. The proposed guidance
would include a rule to the effect that a
cell of a Protected Cell Company would be
treated as an insurance company separate
from any other entity if:
(a) the assets and liabilities of the cell
are segregated from the assets and liabil-
ities of any other cell and from the assets
and liabilities of the Protected Cell Com-
pany such that no creditor of any other
cell or of the Protected Cell Company may
look to the assets of the cell for the satisfac-
tion of any liabilities, including insurance
claims (except to the extent that any other
cell or the Protected Cell Company has a
direct creditor claim against such cell); and
(b) based on all the facts and circum-
stances, the arrangements and other activ-
ities of the cell, if conducted by a corpora-
tion, would result in its being classified as
an insurance company within the meaning
of §§ 816(a) or 831(c).
.02Effect of insurance company treat-
ment at the cell level. Consistent with the
proposed rule:
(a) Any tax elections that are available
by reason of a cell’s status as an insurance
company would be made by the cell (or,
in certain circumstances, by the parent of
a consolidated group) and not by the Pro-
tected Cell Company of which it is a part;
(b) The cell would be required to apply
for and receive an employer identification
number (EIN) if it is subject to U.S. tax
jurisdiction;
(c) The activities of the cell would be
disregarded for purposes of determining
the status of the Protected Cell Company
as an insurance company for federal in-
come tax purposes;
(d) The cell (or, in certain circum-
stances, the parent of a consolidated group)
would be required to file all applicable
federal income tax returns and pay all
required taxes with respect to its income;
and
(e) A Protected Cell Company would
not take into account any items of income,
deduction, reserve or credit with respect
to any cell that is treated as an insurance
company under section 3.01.
.03No inference. No inference should
be drawn regarding the treatment of a cell
that does not meet the requirements to be
treated as an insurance company separate
from any other entity under section 3.01
or regarding the treatment of the Protected
Cell Company of which it is a part.
.04Effective date. The proposed guid-
ance would be effective for the first taxable
year beginning more than 12 months after
the date the guidance is published in final
form.
SECTION 4. REQUEST FOR
COMMENTS
Statutes under which Protected Cell
Companies are chartered differ among var-
ious jurisdictions, and cell arrangements
differ among taxpayers due to variations
in contractual terms. In order to ensure
that entity classification and federal tax
elections for Protected Cell Companies are
both legally correct and administrable in
all cases, the Service requests comments
on the proposed guidance described in
section 3 of this Notice. In particular, the
Service requests comments on (a) what
transition rules may be appropriate or nec-
essary for Protected Cell Companies, or
cells of such companies, if a Protected
Cell Company is not currently follow-
ing the rule in section 3.01, or if a cell
of such a company qualifies as an in-
surance company for some taxable years
but not for others; (b) what reporting, if
any, would be necessary on the part of
an individual cell to ensure that a Pro-
tected Cell Company has the information
needed to comply with section 3.02(c)
and (e); (c) whether different or special
rules should apply with respect to foreign
entities, including controlled foreign cor-
porations; (d) whether further guidance
would be needed concerning the proper
treatment of Protected Cell Companies
and their cells under the rules regarding
consolidated returns. The Service also
requests comments on what guidance,
if any, would be appropriate concerning
similar segregated arrangements that do
not involve insurance. Written comments
may be submitted to the Office of the
Associate Chief Counsel (Financial In-
stitutions & Products), Attention: Chris
Lieu (Notice 2007–YY), Room 3552,
CC:FIP:4, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224. Alternatively, taxpayers
may submit comments electronically to
Notice.Comments@irscounsel.treas.gov.
The Service requests any comments by
May 4, 2008.
February 4, 20083672008–5 I.R.B.

DRAFING INFORMATION
The principal author of this notice is
Chris Lieu of the Office of the Associate
Chief Counsel (Financial Institutions &
Products). For further information regard-
ing this notice, contact Mr. Chris Lieu at
(202) 622–3970 (not a toll-free call).
26 CFR 301.7216: Disclosure or use of information
by preparers of returns.
(Also 26 CFR 301.7216–3; section 6713).
Rev. Proc. 2008–12
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance to tax return preparers regarding the
format and content of consents to disclose
and consents to use tax return information
with respect to taxpayers filing a return
in the Form 1040 series,e.g., Form 1040,
Form 1040NR, Form 1040A, or Form
1040EZ, under section 301.7216–3 of the
Regulations on Procedure and Adminis-
tration (26 CFR Part 301). This revenue
procedure also provides specific require-
ments for electronic signatures when a
taxpayer executes an electronic consent to
the disclosure or use of the taxpayer’s tax
return information.
SECTION
2. BACKGROUND
.01 In general, section 7216(a) of the
Internal Revenue Code imposes crimi-
nal penalties on tax return preparers who
knowingly or recklessly make unautho-
rized disclosures or uses of information
furnished in connection with the prepara-
tion of an income tax return. A violation
of section 7216 is a misdemeanor, with
a maximum penalty of up to one year
imprisonment or a fine of not more than
$1,000, or both, together with the costs of
prosecution. Section 7216(b) establishes
exceptions to the general rule in section
7216(a) and also authorizes the Secretary
to promulgate regulations prescribing ad-
ditional permitted disclosures and uses.
.02 Section 6713(a) prescribes a related
civil penalty for unauthorized disclosures
or uses of information furnished in connec-
tion with the preparation of an income tax
return. The penalty for violating section
6713 is $250 for each disclosure or use, not
to exceed a total of $10,000 for a calendar
year. Section 6713(b) provides that the ex-
ceptions in section 7216(b) also apply to
section 6713.
.03 Section 301.7216–3 provides that,
unless section 7216 or § 301.7216–2
specifically permits the disclosure or use
of tax return information, a tax return pre-
parer may not disclose or use a taxpayer’s
tax return information prior to obtain-
ing a consent from the taxpayer. Sec-
tion 301.7216–3(a) provides that consent
must be knowing and voluntary. Section
301.7216–3(a)(3)(i) prescribes the form
and content requirements that all consents
to disclose or use must include.
.04 Section 301.7216–3(a)(3)(ii) pro-
vides that the Secretary may, by publi-
cation in the Internal Revenue Bulletin,
prescribe additional requirements for tax
return preparers regarding the format and
content of consents to disclose and con-
sentstousetaxreturninformationwith
respect to taxpayers filing a return in the
Form 1040 series, as well as the require-
ments for a valid signature on an electronic
consent under section 7216. This rev-
enue procedure provides such additional
requirements.
SECTION 3. SCOPE
This revenue procedure applies to
all tax return preparers, as defined in
§ 301.7216–1(b)(2), who seek consent to
disclose or use tax return information pur-
suant to § 301.7216–3 with respect to tax-
payers who file a return in the Form 1040
series,e.g., Form 1040, Form 1040NR,
Form 1040A, or Form 1040EZ.
SECTION 4. FORM AND CONTENT
OF A CONSENT TO DISCLOSE OR A
CONSENT TO USE FORM 1040 TAX
RETURN INFORMATION
.01 Separate Written Document. Ex-
cept as provided by § 301.7216–3(c)(1)
(special rule for multiple disclosures or
uses within a single consent form), and
described in section 4.05, below, a tax-
payer’s consent to each separate disclo-
sure or use of tax return information must
be contained on a separate written doc-
ument, which can be furnished on paper
or electronically. For example, the sepa-
rate written document may be provided as
an attachment to an engagement letter fur-
nished to the taxpayer.
.02 A consent furnished to the taxpayer
on paper must be provided on one or more
sheets of 8
1
/2inch by 11 inch or larger
paper. All of the text on each sheet of
paper must pertain solely to the disclosure
or use the consent authorizes, and the sheet
or sheets, together, must contain all the
elements described in section 4.04 and, if
applicable, comply with section 4.06. All
of the text on each sheet of paper must also
be in at least 12-point type (no more than
12 characters per inch).
.03 An electronic consent must be pro-
vided on one or more computer screens.
All of the text placed by the preparer on
each screen must pertain solely to the dis-
closure or use of tax return information au-
thorized by the consent, except for com-
puter navigation tools. The text of the
consent must meet the following specifi-
cations: the size of the text must be at
least the same size as, or larger than, the
normal or standard body text used by the
website or software package for direction,
communications or instructions and there
must be sufficient contrast between the text
and background colors. In addition, each
screen or, together, the screens must—
(1) contain all the elements described
in section 4.04 and, if applicable, comply
with section 4.06,
(2)beabletobesignedasrequiredby
section 5 and dated by the taxpayer, and
(3)beabletobeformattedinareadable
and printer-friendly manner.
.04 Requirements for Every Consent.
In addition to the requirements provided in
§ 301.7216–3, consents to disclose or use
Form 1040 series tax return information
must satisfy the following requirements—
(1) Mandatory statements in the con-
sent. The following statements must be
included in a consent under the circum-
stances described below, except that a tax
return preparer may substitute the pre-
parer’s name where “we” or “our” is used.
(a) Consent to disclose tax return in-
formation in context other than tax prepa-
ration or auxiliary services. Unless a tax
return preparer is obtaining a taxpayer’s
consent to disclose the taxpayer’s tax re-
turn information to another tax return pre-
parer for the purpose of performing ser-
vices that assist in the preparation of, or
provide auxiliary services (as defined in
§ 301.7216–1(b)(2)(ii)) in connection with
2008–5 I.R.B.368February 4, 2008

the preparation of, the tax return of the
taxpayer, any consent to disclose tax re-
turn information must contain the follow-
ing statements in the following sequence:
Federal law requires this consent
form be provided to you. Unless au-
thorized by law, we cannot disclose,
without your consent, your tax return
information to third parties for purposes
other than the preparation and filing of
your tax return. If you consent to the
disclosure of your tax return informa-
tion, Federal law may not protect your
taxreturninformationfromfurtheruse
or distribution.
You are not required to complete this
form. If we obtain your signature on
this form by conditioning our services
on your consent, your consent will not
be valid. If you agree to the disclosure
of your tax return information, your
consent is valid for the amount of time
that you specify. If you do not specify
the duration of your consent, your con-
sent is valid for one year.
(b) Consent to disclose tax return in-
formation in tax preparation or auxiliary
services context. If a tax return pre-
parer is obtaining a taxpayer’s consent
to disclose the taxpayer’s tax return in-
formation to another tax return preparer
for the purpose of performing services
that assist in the preparation of, or pro-
vide auxiliary services (as defined in
§ 301.7216–1(b)(2)(ii)) in connection with
the preparation of, the tax return of the tax-
payer, any consent to disclose tax return
information must contain the following
statements in the following sequence:
Federal law requires this consent
form be provided to you. Unless au-
thorized by law, we cannot disclose,
without your consent, your tax return
information to third parties for purposes
other than the preparation and filing of
your tax return. If you consent to the
disclosure of your tax return informa-
tion, Federal law may not protect your
taxreturninformationfromfurtheruse
or distribution.
You are not required to complete this
form. Because our ability to disclose
yourtaxreturninformationtoanother
tax return preparer affects the service
that we provide to you and its cost, we
may decline to provide you with service
or change the terms of service that we
provide to you if you do not sign this
form. If you agree to the disclosure of
your tax return information, your con-
sent is valid for the amount of time that
you specify. If you do not specify the
duration of your consent, your consent
is valid for one year.
(c) Consent to use. All consents to
use tax return information must contain the
following statements in the following se-
quence:
Federal law requires this consent
form be provided to you. Unless autho-
rized by law, we cannot use, without
your consent, your tax return informa-
tion for purposes other than the prepa-
ration and filing of your tax return.
You are not required to complete this
form. If we obtain your signature on
this form by conditioning our services
on your consent, your consent will not
be valid. Your consent is valid for the
amount of time that you specify. If you
do not specify the duration of your con-
sent, your consent is valid for one year.
(d) All consents must contain the fol-
lowing statement:
If you believe your tax return informa-
tion has been disclosed or used improp-
erly in a manner unauthorized by law or
without your permission, you may con-
tact the Treasury Inspector General for
Tax Administration (TIGTA) by tele-
phone at 1–800–366–4484, or by email
atcomplaints@tigta.treas.gov.
(e) Mandatory statement in any con-
sent to disclose tax return information to
a tax return preparer located outside of
the United States. If a tax return pre-
parer to whom the tax return information
is to be disclosed is located outside of the
United States, the taxpayer’s consent un-
der § 301.7216–3 prior to any disclosure is
required.See§ 301.7216–2(c) and (d). All
consents for disclosure of tax return infor-
mation to a tax return preparer outside of
the United States must contain the follow-
ing statement:
This consent to disclose may result in
your tax return information being dis-
closed to a tax return preparer located
outside the United States.
(2) Affirmative consent. All consents
must require the taxpayer’s affirmative
consent to a tax return preparer’s disclo-
sure or use of tax return information. A
consent that requires the taxpayer to re-
move or “deselect” disclosures or uses that
the taxpayer does not wish to be made,
i.e., an “opt-out” consent, is not permitted.
(3) Signature. All consents to disclose
or use tax return information must be
signed by the taxpayer.
(a) For consents on paper, the tax-
payer’s consent to a disclosure or use must
contain the taxpayer’s signature.
(b) For electronic consents, a taxpayer
must sign the consent by any method pre-
scribedinsection5,below.
(4) Incomplete consents. A tax return
preparer shall not present a consent form
with blank spaces related to the purpose of
the consent to the taxpayer for signature.
.05 Special rule for multiple disclosures
within a single consent form or multiple
uses within a single consent form. Section
301.7216–3(c)(1) provides that a taxpayer
may consent to multiple uses within the
same written document, or multiple disclo-
sures within the same written document.
Multiple disclosure consents and multiple
use consents must provide the taxpayer
with the opportunity, within the separate
written document, to affirmatively select
each separate disclosure or use. Further,
the taxpayer must be provided the informa-
tion in section 4.04 for each separate dis-
closure or use. The mandatory statements
required in section 4.04(1) relating to use
or disclosure need only be stated once in
a multiple disclosure or multiple use con-
sent.
.06 Disclosure of entire return. If, un-
der § 301.7216–3(c)(2), a consent autho-
rizes the disclosure of a copy of the tax-
payer’s entire tax return or all information
contained within a return, the consent must
provide that the taxpayer has the ability to
request a more limited disclosure of tax re-
turn information as the taxpayer may di-
rect.
SECTION 5. ELECTRONIC
SIGNATURES
01. If a taxpayer furnishes consent to
disclose or use tax return information elec-
tronically, the taxpayer must furnish the
tax return preparer with an electronic sig-
nature that will verify that the taxpayer
consented to the disclosure or use. The
regulations under § 301.7216–3(a) require
that the consent be knowing and volun-
tary. Therefore, for an electronic consent
to be valid, it must be furnished in a man-
February 4, 20083692008–5 I.R.B.

ner that ensures affirmative, knowing con-
sent to each disclosure or use.
.02Ataxreturnpreparerseekingtoob-
tain a taxpayer’s consent to the disclosure
or use of tax return information electroni-
cally must obtain the taxpayer’s signature
on the consent in one of the following man-
ners:
(a) Assign a personal identification
number (PIN) that is at least 5 characters
long to the taxpayer. To consent to the dis-
closure or use of the taxpayer’s tax return
information, the taxpayer may type in the
pre-assigned PIN as the taxpayer’s signa-
ture authorizing the disclosure or use. A
PIN may not be automatically furnished
by the software so that the taxpayer only
has to click a button for consent to be fur-
nished. The taxpayer must affirmatively
enter the PIN for the electronic signature
to be valid;
(b) Have the taxpayer type in the tax-
payer’s name and then hit “enter” to au-
thorize the consent. The software must not
automatically furnish the taxpayer’s name
so that the taxpayer only has to click a but-
ton to consent. The taxpayer must affir-
matively type the taxpayer’s name for the
electronic consent to be valid; or
(c) Any other manner in which the tax-
payer affirmatively enters 5 or more char-
acters that are unique to that taxpayer that
are used by the tax return preparer to verify
the taxpayer’s identity. For example, en-
tryofaresponsetoaquestionregardinga
shared secret could be the type of informa-
tion by which the taxpayer authorizes dis-
closure or use of tax return information.
SECTION 6. EXAMPLES
.01 The application of this revenue pro-
cedure is illustrated by the following ex-
amples:
(1)Example 1. Preparer P offers tax prepara-
tion services over the Internet. P wishes to use in-
formation the taxpayer provides during tax prepa-
ration of the taxpayer’s Form 1040 to generate tar-
geted banner advertisements (i.e., electronic adver-
tisements appearing on the computer screen based on
the taxpayer’s tax return information). In the course
of advertising services and products, P wishes also to
disclose to other third parties information that the tax-
payer provides.
(a) P posts, in pertinent part, the following con-
sent on the computer screen for taxpayers to indicate
approval. If a taxpayer does not indicate approval,
the tax return preparation software does not permit
the taxpayer to use the software.
PRIVACY STATEMENT
Your privacy is very important to us
at P. We are providing this statement
to inform you about the types of infor-
mation we collect from you, and how
we may disclose or use that information
in connection with the services we pro-
vide. This Privacy Statement describes
the privacy practices of our company
as required by applicable laws. . . .
During the course of providing our ser-
vices to you, we may offer you vari-
ous other services that may be of inter-
est to you based on our determination
of your needs through analysis of your
data. Your use of the services we offer
constitutes a consent to our disclosure of
tax information to the service providers.
If at any time you wish to limit your re-
ceipt of promotional offers based upon
information you provide, you may call
us at the following. . . .
(b) Beneath this Privacy Statement, the following
acknowledgment line appears next to two button im-
ages stating “yes” and “no:”
“I have read the Privacy Statement and agree to it
by clicking here.”
(c) If the taxpayer clicks “no,” a message ap-
pears on the screen informing the taxpayer that tax
return preparation will not proceed without the tax-
payer agreeing to the company’s Privacy Statement.
(d) P has failed to comply with the requirements
of § 301.7216–3 and this revenue procedure. P has at-
tempted to obtain consent from the taxpayer by mak-
ing the use of the program contingent on the tax-
payer’s consent to P’s disclosure and use of the tax-
payer’s tax return information for purposes other than
tax preparation (e.g., for use in displaying targeted
banner advertisement). Thus, the consent is not vol-
untary, as required by § 301.7216–3(a). P has also
failed to identify the tax return information that it will
disclose or use, as required by § 301.7216–3(a)(3)(C),
to identify the purposes of the disclosures and uses, as
required by section § 301.7216–3(a)(3)(B), and to the
extent that P intends to disclose the entire return based
on the consent, P’s consent has not provided that the
taxpayer has the ability to request a more limited dis-
closure of tax return information as the taxpayer may
direct as required by section 4.06. The single docu-
ment attempts to have the taxpayer consent to both
disclosures and uses, in violation of section 4.05. P
has not used the mandatory statements required by
section 4.04(1). The consent is not signed by the tax-
payer because P has not provided a means for the tax-
payer to electronically sign the consent in a form au-
thorized by section 5. Finally, the consent is not dated
as required by section 4.03(2).
(2)Example 2. Preparer Q offers tax preparation
services over the Internet and wishes to use targeted
banner advertisements during tax return preparation.
Q contracts with Bank A regarding the advertisement
of Individual Retirement Accounts (IRAs). Preparer
Q displays advertisements to the taxpayer only if the
taxpayer’s tax return information indicates that the
services are relevant to the taxpayer (i.e.,theyaretar-
geted banner advertisements). A taxpayer using Q’s
software must enter a password to begin the process
of preparing a return.
(a) Before the taxpayer starts providing tax return
information, the following screen appears on Q’s tax
preparation program.
CONSENT TO USE OF TAX
RETURN INFORMATION
Federal law requires this consent
form be provided to you. Unless au-
thorized by law, we cannot use, without
your consent, your tax return informa-
tion for purposes other than the prepa-
ration and filing of your tax return.
You are not required to complete this
form. If we obtain your signature on
this form by conditioning our services
on your consent, your consent will not
be valid. Your consent is valid for the
amount of time that you specify. If you
do not specify the duration of your con-
sent, your consent is valid for one year.
For your convenience, Q has entered
into arrangements with certain banks re-
garding the provision of Individual Re-
tirement Accounts (IRAs). To deter-
mine whether this service may be of in-
terest to you, Q will need to use your tax
return information.
If you would like Q to use your tax
return information to determine whether
this service is relevant to you while we
are preparing your return, please check
the corresponding box if you are inter-
ested, provide the information requested
below, and sign and date this consent to
the use of your tax return information.
□I, [INSERT NAME] authorize Q
to use the information I provide to Q
during the preparation of my tax return
for 2006 to determine whether to offer
me an opportunity to invest in an IRA.
Signature: [INSERT SIGNATURE
AS PRESCRIBED UNDER SECTION
5]
2008–5 I.R.B.370February 4, 2008

Date: [INSERT DATE]
If you believe your tax return in-
formation has been disclosed or used
improperly in a manner unautho-
rized by law or without your per-
mission, you may contact the Trea-
sury Inspector General for Tax Ad-
ministration (TIGTA) by telephone
at 1–800–366–4484, or by email at
complaints@tigta.treas.gov.
(b) If the taxpayer selects the consent above, the
taxpayer is directed to print the screen. Later, after the
taxpayer has entered data to prepare his or her 2006
tax return, the following screen is displayed:
CONSENT TO DISCLOSURE OF
TAX RETURN INFORMATION
Federal law requires this consent
form be provided to you. Unless au-
thorized by law, we cannot disclose,
without your consent, your tax return
information to third parties for purposes
other than the preparation and filing of
your tax return. If you consent to the
disclosure of your tax return informa-
tion, Federal law may not protect your
tax return information from further use
or distribution.
You are not required to complete this
form. If we obtain your signature on
this form by conditioning our services
on your consent, your consent will not
be valid. If you agree to the disclosure
of your tax return information, your con-
sent is valid for the amount of time that
you specify. If you do not specify the
duration of your consent, your consent
is valid for one year.
You have indicated that you are inter-
ested in obtaining information on IRAs.
To provide you with this information, Q
must forward your tax return informa-
tion, as indicated below, to the bank that
provides this service.
If you would like Q to disclose your
tax return information to the bank pro-
viding this service, please check the cor-
responding box for the service in which
you are interested, provide the informa-
tion requested below, and sign and date
your consent to the disclosure of your
tax return information.
□I, [INSERT NAME], authorize Q
to disclose to Bank A that portion of
my tax return information for 2006 that
is necessary for Bank A to contact me
and provide information on obtaining an
IRA or altering my contribution to an
IRA for 2006.
Signature: [INSERT SIGNATURE
AS PRESCRIBED UNDER SECTION
5]
Date: [INSERT DATE]
If you believe your tax return in-
formation has been disclosed or used
improperly in a manner unautho-
rized by law or without your per-
mission, you may contact the Trea-
sury Inspector General for Tax Ad-
ministration (TIGTA) by telephone
at 1–800–366–4484, or by email at
complaints@tigta.treas.gov.
If the taxpayer consents to the disclosure of the
tax return information using the screen above, the
taxpayer is directed to print the screen. Q will then
transmit only that portion of the taxpayer’s tax return
information for 2006 that is necessary for the bank
authorized in the consent, Bank A, to provide the ser-
vice.
(c) These two consent documents, above, satisfy
the requirements of §301.7216–3(c) and this revenue
procedure for the disclosure or use of the information
provided therein for the specific purposes stated.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective af-
ter December 31, 2008.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Dillon Taylor, formerly of the
Office of Associate Chief Counsel (Pro-
cedure and Administration). For further
information regarding this revenue proce-
dure, contact Lawrence Mack of the Office
of Associate Chief Counsel (Procedure
and Administration) at 202–622–4940
(not a toll-free call).
February 4, 20083712008–5 I.R.B.

Part IV. Items o
fGeneralInterest
Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Reinstatements, Suspensions,
Censures, Disbarments, and Resignations
Announcement 2008-5
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Reinstatement To Practice Before the Internal Revenue
Service
Under Title 31, Code of Federal Reg-
ulations, Part 10, The Director, Office of
Professional Responsibility, may entertain
a petition for reinstatement for any attor-
ney, certified public accountant, enrolled
agent, or enrolled actuary censured, sus-
pended, or disbarred, from practice before
the Internal Revenue Service.
The following individuals’ eligibility to
practice before the Internal Revenue Ser-
vice has been restored:
NameAddressDesignationDate of Reinstatement
Cohen, PeterEdison, NJCPAJune 01, 2004
Brunelle, Roswell J.Queensbury, NYCPAJune 10, 2004
Cohick, Jeffrey S.Newville, PAEnrolled AgentOctober 30, 2004
Cotroneo, NicholasMcLean, VACPAFebruary 28, 2007
Layson, David A.Corydon, INAttorneyOctober 06, 2007
Tomasulo, Maria V.Wantagh, NYCPAOctober 16, 2007
Emeziem, Kelechi C.Antioch, CAAttorneyOctober 17, 2007
Johnston, Gregory A.Muscatine, IAAttorneyOctober 17, 2007
Shapiro, Sidney C.West Palm Beach, FLCPAOctober 29, 2007
Hubbard, Cynthia A.Geneva, ILAttorneyOctober 31, 2007
Moss, Steve E.Henderson, NCCPANovember 29, 2007
Schaffer, Robert J.Baiting Hollow, NYCPADecember 04, 2007
Woods, Dalton C.Carrollton, TXEnrolled AgentDecember 04, 2007
Brown, Arthur I.Miami, FLCPADecember 14, 2007
2008–5 I.R.B.372February 4, 2008

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Bauman, John J.Battle Creek, MICPAIndefinite
from
October 1, 2007
Montgomery, Dwight M.Redlands, CAAttorneyIndefinite
from
October 1, 2007
Deku, John V.Toledo, OHAttorneyIndefinite
from
October 8, 2007
Ying, William F.Beverly Hills, CACPAIndefinite
from
October 9, 2007
Brill, Ann M.Sheboygan, WICPAIndefinite
from
October 10, 2007
Benvin, Anne C.Phoenix, AZEnrolled AgentIndefinite
from
October 22, 2007
Kingman, William B.San Antonio, TXAttorneyIndefinite
from
October 22, 2007
Nurney, J. ChristopherHatboro, PACPAIndefinite
from
October 22, 2007
Wren, Gary M.Redding, CAEnrolled AgentIndefinite
from
October 29, 2007
Beck, Brian S.Boston, MACPAIndefinite
from
November 1, 2007
Draper, Jeffrey L.Olathe, KSCPAIndefinite
from
November 1, 2007
Ehrlich, Gary P.Chevy Chase, MDCPAIndefinite
from
November 1, 2007
February 4, 20083732008–5 I.R.B.

NameAddressDesignationDate of Suspension
Garrison, John C.Prairie Village, KSCPAIndefinite
from
November 1, 2007
Greenslit, WayneKeene, NHCPAIndefinite
from
November 1, 2007
Moran, Philip D.Salem, MAAttorneyIndefinite
from
November 1, 2007
Wright, CoryReno, NVCPAIndefinite
from
November 1, 2007
Turbeville, Mary A.Geyserville, CAEnrolled AgentIndefinite
from
November 16, 2007
Saffold, Rodger P.Cleveland, OHCPAIndefinite
from
December 1, 2007
Voss, Patrick W.Metairie, LACPAIndefinite
from
December 1, 2007
Rosner, Ronald I.Manahawkin, NJCPAIndefinite
from
December 13, 2007
Johnson, Jr., StanleyMiami, FLAttorneyIndefinite
from
December 14, 2007
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Crotts, William P.Phoenix, AZAttorneyIndefinite
from
October 16, 2007
Daugherty, Troy L.Olathe, KSAttorneyIndefinite
from
October 16, 2007
2008–5 I.R.B.374February 4, 2008

NameAddressDesignationDate of Suspension
Driscoll, Jr., Wilfred C.Somerset, MAAttorneyIndefinite
from
October 16, 2007
Shah, Ashok S.Manalapan, NJCPAIndefinite
from
October 16, 2007
Sheline, Calvin L.Camp Verde, AZCPAIndefinite
from
October 16, 2007
Bosse, Leigh D.Hillsborough, NHAttorneyIndefinite
from
October 24, 2007
Webb, James E.Nashville, TNCPAIndefinite
from
October 25, 2007
Gottschalk, Don E.Cedar Falls, IAAttorneyIndefinite
from
October 31, 2007
Joy, Steven B.Paton, IAAttorneyIndefinite
from
October 31, 2007
Smallwood, Teresa L.Durham, NCAttorneyIndefinite
from
November 2, 2007
Donaldson, James F.Denver, COAttorneyIndefinite
from
November 15, 2007
Roux, Johnathan M.Fair Oaks, CACPAIndefinite
from
November 20, 2007
Linville, Wiley T.Denver, COAttorneyIndefinite
from
December 4, 2007
Andrade, Sergio R.Inver Grove Hghts, MNAttorneyIndefinite
from
December 13, 2007
Arzani, Mitzi H.Charlotte, NCCPAIndefinite
from
December 13, 2007
Catron, Stephen B.Knoxville, TNAttorneyIndefinite
from
December 13, 2007
Coulagouri, Louis A.Moorestown, NJAttorneyIndefinite
from
December 13, 2007
February 4, 20083752008–5 I.R.B.

NameAddressDesignationDate of Suspension
Crown, Charles K.Blakeslee, PACPAIndefinite
from
December 13, 2007
George, Philip J.Great Falls, VAAttorneyIndefinite
from
December 13, 2007
Heitz, John P.Oneill, NEAttorneyIndefinite
from
December 13, 2007
Jones, William F.Park Rapids, MNAttorneyIndefinite
from
December 13, 2007
Khoury, Arthur M.Lawrence, MAAttorneyIndefinite
from
December 13, 2007
McGree, Charles A.Fort Payne, ALAttorneyIndefinite
from
December 13, 2007
Nason, George H.Franklin, TNAttorneyIndefinite
from
December 13, 2007
Owen, Thomas A.Arlington, TXAttorneyIndefinite
from
December 13, 2007
Ozulumba, MichaelBoston, MAAttorneyIndefinite
from
December 13, 2007
Phillips, Mark A.Elm Grove, WIAttorneyIndefinite
from
December 13, 2007
Simpson, Joseph H.Amite, LAAttorneyIndefinite
from
December 13, 2007
Sipes, Laura A.St. Charles, MOAttorneyIndefinite
from
December 13, 2007
Sullivan, Joseph O.Warwick, NYAttorneyIndefinite
from
December 13, 2007
Szegda, Michael A.Old Tappan, NJAttorneyIndefinite
from
December 13, 2007
Misch, Paul M.Akron, OHAttorneyIndefinite
from
December 17, 2007
2008–5 I.R.B.376February 4, 2008

NameAddressDesignationDate of Suspension
Brenner, Allen L.Long Beach, NYAttorneyIndefinite
from
December 20, 2007
Cook, Rirchard B.Cockeysville, MDAttorneyIndefinite
from
December 20, 2007
Shang, Wade V.S. San Francisco, CACPAIndefinite
from
December 20, 2007
Suspensions From Practice Before the Internal Revenue
Service After Appeal
Under Title 31, Code of Federal Regu-
lations, Part 10, after a decision is issued
by an Administrative Law Judge, either
party may appeal to the Secretary of the
Treasury. The following individuals have
been placed under suspension from prac-
tice before the Internal Revenue Service
AFTERan appeal:
NameAddressDesignationEffective Date
Andrews, Ted E.Avon, INCPAIndefinite
from
October 19, 2007
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Ruocchio, RaymondHavertown, PACPAApril 30, 2007
Roseman, Eric W.Scottsdale, AZCPAAugust 20, 2007
Solomon, StanleyBrooklyn,NYCPASeptember 04, 2007
Marks, RobertMedfield, MAAttorneyOctober 15, 2007
February 4, 20083772008–5 I.R.B.

Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Villarreal, RicardoHouston, TXEASeptember 24, 2007
Meisgeier, Deborah K.Richmond, TXEAOctober 16, 2007
O’Brien, Colleen D.Winter Park, FLCPAOctober 24, 2007
Staver, Peter J.Southgate, MIAttorneyNovember 06, 2007
Weiss, IraPittsburgh, PAAttorneyNovember 29, 2007
Orr, William S.Kerrville, TXCPADecember 04, 2007
Whitsitt, RichardPanama City, FLCPADecember 04, 2007
Update to Publication 1187,
Specifications for Filing Form
1042–S, Foreign Person’s
U.S. Source Income Subject
to Withholding,Electronically
or Magnetically, revised
September 2006
Announcement 2008–6
This announcement supersedes An-
nouncement 2007–110 and incorporates
additional changes to Publication 1187,
Specifications for Filing Form 1042–S,
Foreign Person’s U.S. Source Income
Subject to Withholding, Electronically or
Magnetically,revised September 2006.
Continue to use this Publication along
with the changes listed below for your Tax
Year 2007 filing. The following changes
are effective for Tax Year 2007 filed in
calendar year 2008.
•An explanatory note was added to the
Recipient ‘Q’ Record which reads: If
you are a nominee that is the withhold-
ing agent under Code Section 1446, en-
ter the Publicly Traded Partnership’s
(PTP) name and other information in
the NQI/FLW-THR fields; positions
401–666.
•In the Recipient ‘Q’ Record, a new
field, NQI/FLW-THR State Code, was
added to positions 643–644. Enter the
two-alpha character state code (see ta-
ble Part A, Sec. 14). If a state code or
APO/FPO is not applicable then blank
fill.
•Additional instructions were added
to the Recipient ‘Q’ Record,
NQI/FLW-THR Country Code, po-
sitions 647–648. The instructions
read: Enter the two-character Coun-
try Code abbreviation, where the
NQI/FLW-THR is located. Enter
blanks if the NQI/FLW-THR has a
U.S. address.
•The Field Title was changed and ad-
ditional instructions were added to the
Recipient ‘Q’ Record, NQI/FLW-THR
Postal Code/ZIP Code, positions
649–657. The instructions read: En-
ter the alpha/numeric foreign postal
code or U.S. ZIP Code for all U.S.
addresses including territories, posses-
sions and APO/FPO. Enter the code
in the left most position and blank fill
the remaining positions.DO NOTuse
hyphens or blanks between numbers or
letters (e.g.if the postal code written
as A6B 3C5 input as A6B3C5).
Left-justify.
•Some of the Canadian Province codes
have changed. Use the chart below to
code your file.
2008–5 I.R.B.378February 4, 2008

Province CodeProvince
ABAlberta
BCBritish Columbia
MBManitoba
NBNew Brunswick
NLNewfoundland & Labrador
NSNova Scotia
NTNorthwest Territories
NUNunavut
ONOntario
PEPrince Edward Island
QCQuebec
SKSaskatchewan
YTYukon Territory
If you have questions concerning the
filing of Form 1042–S,Foreign Per-
son’s U.S. Source Income Subject to
Withholding, please contact the Internal
Revenue Service ECC-MTB toll-free at
866–455–7438.
Guidance Regarding
Marketing of Refund
Anticipation Loans (RALs)
and Certain Other Products
in Connection With the
Preparation of a Tax Return
Announcement 2008–7
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Advance notice of proposed
rulemaking (ANPRM).
SUMMARY: This document describes
rules that the Treasury Department and
the IRS are considering proposing, in a
notice of proposed rulemaking, regarding
the disclosure and use of tax return infor-
mation by tax return preparers. The rules
would apply to the marketing of refund an-
ticipation loans (RALs) and certain other
products in connection with the prepara-
tion of a tax return and, as an exception to
the general principle that taxpayers should
have control over their tax return informa-
tion that is reflected in final regulations
published in T.D. 9375 which is published
elsewhere in this issue of the Bulletin,
provide that a tax return preparer may not
obtain a taxpayer’s consent to disclose or
use tax return information for the purpose
of soliciting taxpayers to purchase such
products. This document invites com-
ments from the public regarding these
contemplated rules. All materials submit-
ted will be available for public inspection
and copying.
DATES: Written or electronic comments
must be received by April 7, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–136596–07),
Room 5203, Internal Revenue Service, PO
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–136596–07),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC, or sent electroni-
cally via the Federal eRulemaking Por-
talathttp://www.regulations.gov(IRS
REG–136596–07).
FOR FURTHER INFORMATION
CONTACT: Concerning submissions
of comments, Kelly Banks at (202)
622–7180; concerning the proposals,
Lawrence Mack at (202) 622–4940 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document describes rules that the
Treasury Department and the IRS are con-
sidering proposing in a notice of proposed
rulemaking regarding the marketing of re-
fund anticipation loans (RALs) and certain
other products identified below in connec-
tion with the preparation of a tax return.
The proposed rules would amend the
Regulations on Procedure and Adminis-
tration (26 CFR Part 301) under section
7216 of the Internal Revenue Code. Sec-
tion 7216 was enacted by section 316 of
the Revenue Act of 1971, Public Law
92–178 (85 Stat. 529, 1971), and has
been amended several times since 1971.
Section 7216 imposes criminal penalties
on tax return preparers who knowingly or
recklessly make unauthorized disclosures
or uses of information furnished to them
in connection with the preparation of an
income tax return. In addition, tax return
preparers are subject to civil penalties un-
der section 6713 for disclosure or use of
this information unless an exception under
the rules of section 7216(b) applies to the
disclosure or use.
A notice of proposed rulemaking
(REG–137243–02, 2006–1 C.B. 317) was
published in theFederal Register(70 FR
72954) on December 8, 2005. Concurrent
with publication of the proposed regula-
tions, the IRS published Notice 2005–93,
2005–2 C.B. 1204 (December 07, 2005),
setting forth a proposed revenue proce-
dure that would provide guidance to tax
return preparers regarding the format and
content of consents to use and consents
to disclose tax return information under
§ 301.7216–3.
Among other recommendations re-
ceivedinresponsetothenoticeofpro-
posed rulemaking published on December
8, 2005, a number of commentators rec-
ommended that the regulations prohibit or
substantially restrict the disclosure or use
of tax return information for marketing
purposes. As described in the preamble
of the final regulations published in T.D.
9375 which is published elsewhere in this
February 4, 20083792008–5 I.R.B.

issue of the Bulletin, these commentators
specifically recommended banning tax re-
turn preparers from disclosing or using tax
return information for the purpose of so-
liciting refund anticipation loans (RALs)
and similar products. The Treasury De-
partment and the IRS did not adopt this
recommendation in the final regulations
that are being published concurrently with
this ANPRM because of the significant
policy issues that need to be considered
and because they had not previously pro-
posed a rule regarding the use or disclosure
of tax return information for purposes of
marketing of RALs and similar products.
This ANPRM addresses two major ar-
eas of concern that have been raised and
describes rules thatthe Treasury Depart-
ment and the IRS are considering propos-
ing regarding the marketing of RALs and
certain other products identified below in
connection with the preparation of a tax re-
turn. It also solicits comments on specific
issues as described herein.
Concerns Raised by RALs and Certain
Other Products
Financial Incentive To Inflate Refunds
The Treasury Department and the IRS
are concerned that RALs and certain other
products may provide tax preparers with a
financial incentive to take improper tax re-
turn positions in order to inappropriately
inflate refund claims. In general, RAL
amounts are capped by the amount of the
refund claimed on a tax return. There-
fore, a preparer who inappropriately in-
flates the amount of a refund is able, di-
rectly or indirectly through arrangement
with a RAL provider, to collect a higher
fee. Additionally, a significant number of
RALs are made to taxpayers who claim
the earned income tax credit (EITC). The
Treasury Department and the IRS are con-
cerned that the financial benefits of selling
a RAL to a taxpayer can create an incen-
tive for the preparer to not fully comply
with due diligence requirements designed
to ensure the accuracy of EITC claims.See
section 6695(g).
Even when a flat fee is charged for
RALs, it may be possible that a finan-
cial incentive to inappropriately inflate the
amount of a refund exists. As an exam-
ple, some merchants who offer tax prepa-
ration services may encourage customers
to obtain RALs and spend the funds on the
merchant’s products or services. To the ex-
tent that the preparer prepares a return that
claims an inappropriately large refund, the
taxpayer is enabled to purchase more of the
merchant’s products or services.
The Treasury Department and the IRS
are concerned that overall tax compliance
suffers when tax advisors or tax prepar-
ers benefit directlyfrom maximizing a re-
fund in preparing a tax return. Treasury
Department Circular 230 restricts the abil-
ity of tax practitioners to charge contingent
fees in certain circumstances when there
are tax administration concerns.See31
C.F.R. § 10.27. The Treasury Department
and the IRS are considering whether simi-
lar restrictions should be placed on use or
disclosure of tax return information by pre-
parers who receive a financial benefit from
the sale of an ancillary product, such as a
RAL, rather than directly from the deter-
mination of a taxpayer’s tax liability.
There are two other products that poten-
tially raise similar concerns — refund an-
ticipation checks (RACs) and audit insur-
ance. A RAC is a post-refund product that
allows taxpayers to pay for return prepa-
ration services out of their refunds. As
with a RAL, a taxpayer will only qualify
to purchase a RAC if a refund is claimed
on the return. Audit insurance is a type
of insurance that covers professional fees
and other expenses incurred in respond-
ing to or defending against an audit by the
IRS. Taxpayers who purchase audit insur-
ance may be encouraged to take aggressive
tax reporting positions if they believe the
insurance will provide protection against
the risk of an adjustment. The Treasury
Department and the IRS generally believe
that arrangements thatcreate financial in-
centives for taxpayers or tax preparers to
exploit the audit selection process under-
mine tax compliance.
Potential for Inappropriate Use by Tax
Preparers
In responding to the proposed regula-
tions, some commentators expressed con-
cern that tax preparers are inappropriately
profiting from marketing RALs and cer-
tain other products to relatively unsophis-
ticated taxpayers whodo not comprehend
the full costs of the products. These com-
mentators noted that RALs are marketed
primarily to low-income taxpayers who re-
ceive the EITC, that these taxpayers gen-
erally have relatively low levels of finan-
cial expertise, and that these taxpayers are
more likely than other taxpayers to rely
on the advice of their preparers. These
commentators urged the IRS to amend the
proposed regulations to protect these tax-
payers from exploitation. The National
Taxpayer Advocate also expressed similar
concerns.SeeNational Taxpayer Advo-
cate FY 2007 Objectives Report to Con-
gress, vol. II,The Role of the IRS in the
Refund Anticipation Loan Industry,at 18
(June 30, 2006).
As a general rule, the Treasury Depart-
ment and the IRS believe that taxpayers
should have the ability to control the use
or disclosure of their tax return informa-
tion. Taxpayer control, however, must be
balanced against the ability of the govern-
ment to effectively administer the inter-
nal revenue laws, which includes guarding
against (1) the potential lessening of tax
compliance, (2) the potential exploitation
of taxpayers described by certain commen-
tators, and (3) the potential existence of
inappropriate financial incentives for tax
preparers to inflate tax refunds.
Explanation of Contemplated Rules
Sections 7216 and 6713 provide a broad
prohibition against the disclosure and use
oftaxreturninformationbyreturnprepar-
ers. Statutory exceptions are provided for
a “disclosure” pursuant to any other pro-
vision of the Internal Revenue Code or an
order of a court and for a “use” by a pre-
parer to assist the taxpayer in preparing his
or her state and local tax returns and dec-
larations of estimated tax. The statutory
language also authorizes the Secretary to
prescribe regulations permitting additional
exceptions. Thus, tax return preparers may
use or disclose tax return information be-
yond the statutory exceptions only if, and
to the extent that, Treasury regulations ex-
pressly authorize such acts.
Among other exceptions, the regula-
tions under section 7216 generally pro-
vide that preparers may use or disclose
tax return information if the taxpayer pro-
vides consent. As a general rule, taxpay-
ers should have the ability to control the
use or disclosure of their tax return infor-
mation. To address the tax administra-
tion concerns described above, the Trea-
sury Department and the IRS are consider-
ing proposing regulations that would cre-
ate an exception from the general consent
framework prescribed by § 301.7216–3 for
2008–5 I.R.B.380February 4, 2008

RALs, RACs, audit insurance, and simi-
lar products. This exception would effec-
tively separate the act of return prepara-
tion from the act of marketing or purchas-
ing certain financial products by prohibit-
ing the use of information obtained during
the tax-preparation process for the non-tax
administration purpose of marketing: (i) a
RAL or a substantially similar product or
service; (ii) a RAC or a substantially sim-
ilar product or service; or (iii) audit insur-
ance or a substantially similar product or
service.
Proposed Effective Date
The Treasury Department and the IRS
anticipate that these new proposed rules
wouldapplyforreturnsfiledonorafter
January 1
st
of the year following the date
of publication in theFederal Registeras
final or temporary regulations.
Request for Comments
Before a notice of proposed rulemak-
ing is issued, consideration will be given
to any written comments (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
All comments will be available for public
inspection and copying.
Specifically, comments are encouraged
on the following questions:
1. If RALs and certain other products
create a direct financial incentive
for preparers to inflate tax refunds,
are there alternative approaches that
would eliminate or reduce this incen-
tive?
2. If the marketing of RALs and certain
other products exploit or have the
potential to exploit certain taxpay-
ers, is the approach described in this
ANPRM better viewed as protecting
taxpayers from exploitation or as
restricting taxpayers’ ability to control
their tax return information? If the
latter, is there an alternative approach
that would address the concerns
described above?
3. Should RACs be treated the same way
as RALs and audit insurance, or do
RACs present lesser concerns?
4. Are there other products that present
significant concerns for tax compli-
ance or taxpayer exploitation that
should be addressed by regulation?
Drafting Information
The principal author of this ad-
vance notice of proposed rulemaking is
Dillon Taylor, formerly of the Office of the
Associate Chief Counsel (Procedure and
Administration). For further information,
contact Lawrence Mack of the Office of
Associate Chief Counsel (Procedure and
Administration) at 202–622–4940 (not a
toll-free call).
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on January 3,
2008, 8:58 a.m., and published in the issue of the Federal
Register for January 7, 2008, 73 F.R. 1131)
February 4, 20083812008–5 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2008–5 I.R.B.iFebruary 4, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–5
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
Proposed Regulations:
REG-111583-07, 2008-4 I.R.B.319
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
Revenue Rulings— Continued:
2008-6, 2008-3 I.R.B.271
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
Treasury Decisions:
9375, 2008-5 I.R.B.344
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
February 4, 2008ii2008–5 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–5
Notices:
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
Proposed Regulations:
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
Revenue Procedures:
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
Revenue Rulings:
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
2008–5 I.R.B.iiiFebruary 4, 2008

February 4, 20082008–5 I.R.B.

INTERNAL REVENUE BULLETIN
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