Internal Revenue Bulletin 2008-27 (PDF rendition): IRS Announcements

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
8-27
July 7, 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. 2008–32, page 6.
Corporations; “outside director” definition.This ruling pro-
vides guidance for determining whether an individual qualifies
as an “outside director” for purposes of section 162(m) of the
Code. The ruling holds that an individual does not qualify as
an “outside director” of a corporation when the individual has
served as the corporation’s interim chief executive officer in
regular and continued service with the full authority vested in
that office.
Rev. Rul. 2008–33, page 8.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for July 2008.
T.D. 9401, page 1.
REG–149405–07, page 73.
Final, temporary, and proposed regulations under section 41
of the Code implement changes to the credit for increasing re-
search activities made by the Tax Relief and Health Care Act of
2006. A public hearing on the proposed regulations is sched-
uled for September 25, 2008.
Notice 2008–55, page 11.
This notice provides guidance regarding the effect of adding
certain liquidity facilities to support certain auction rate pre-
ferred stock on the equity character of the stock for federal
income tax purposes.
EMPLOYEE PLANS
Rev. Rul. 2008–32, page 6.
Corporations; “outside director” definition.This ruling pro-
vides guidance for determining whether an individual qualifies
as an “outside director” for purposes of section 162(m) of the
Code. The ruling holds that an individual does not qualify as
an “outside director” of a corporation when the individual has
served as the corporation’s interim chief executive officer in
regular and continued service with the full authority vested in
that office.
EXEMPT ORGANIZATIONS
Announcement 2008–62, page 74.
The IRS has revoked its determination that The Neil &
Patricia Chiarello Charitable Supporting Organization of West
Milford, NJ; The Jonathan Dreier Foundation of Paradise Valley,
AZ; Fanwood-Scotch Plains Recycling Association, Inc., of
Fanwood, NJ; A Mother’s Love Child Care Center of West
Memphis, AR; Northstar Family Foundation of W. Valley City,
UT; and Metro Fire Dept., Ltd., of Warren, MI, qualify as
organizations described in sections 501(c)(3) and 170(c)(2) of
the Code.
(Continued on the next page)
Finding Lists begin on page ii.

ADMINISTRATIVE
REG–129243–07, page 32.
Proposed regulations under sections 6694 and 6695 of the
Code implement the amendments to the tax return preparer
penalties and the related definitional provisions, as enacted by
the Small Business and Work Opportunity Tax Act of 2007. A
public hearing is scheduled for August 18, 2008.
Rev. Proc. 2008–34, page 13.
This procedure contains revisions to Publication 1239,Speci-
fications for Filing Form 8027, Employer’s Annual Information
Return of Tip Income and Allocated Tips, Electronically(revised
7–2008). Rev. Proc. 2006–29 superseded.
July 7, 20082008–27 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
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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.
2008–27 I.R.B.July 7, 2008

July 7, 20082008–27 I.R.B.
Place missing child here.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 41.—C
redit for
Increasing Re
search
Activities
26 CFR 1.41–1: Credit for increasing research activ-
ities.
T.D. 9401
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Alternative Simplified Credit
Under Section 41(c)(5)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary regulations relating to the
election and calculation of the alternative
simplified credit under section 41(c)(5) of
the Internal Revenue Code. The final and
temporary regulations implement changes
to the credit for increasing research activi-
ties under section 41 made by the Tax Re-
lief and Health Care Act of 2006. The final
and temporary regulations will affect cer-
tain taxpayers claiming credit under sec-
tion 41. The text of these temporary reg-
ulations also serves as the text of the pro-
posed regulations (REG–149405–07) pub-
lished in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on June 17, 2008.
Applicability Date:For dates of appli-
cability, see §§1.41–6T(j), 1.41–8T(b)(5),
and 1.41–9T(d).
FOR FURTHER INFORMATION
CONTACT: David A. Selig (202)
622–3040 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends 26 CFR part
1 to provide rules relating to the alterna-
tive simplified credit (ASC), which may be
elected under
section 41(c)(5) of the Inter-
nal Revenue Co
de (Code).
General Overv
iew
Section 41(a)
provides an incremental
tax credit for
increasing research activities
(research cr
edit), and is based on a percent-
age of a taxpa
yer’s qualified research ex-
penses (QREs
) above a base amount. The
Tax Relief an
d Health Care Act of 2006
(Public Law 1
09–432, 120 Stat. 2922, De-
cember 20, 2
006) (the Act) made certain
changes to t
he research credit, including
the additio
n of another method of com-
putation th
at taxpayers may elect to use
in computi
ng the amount of the research
credit. Th
e relevant Act provisions are ef-
fective ge
nerally for tax years after De-
cember 31,
2006, but provide certain tran-
sitional
rules for fiscal year taxpayers.
Prior to th
e Act changes, there were
two ways a
taxpayer could determine the
research
credit under section 41(a). One
way, comm
only referred to as the regu-
lar credi
t, is determined by following the
rules an
d percentages stated under section
41(a)(1
). Under the regular credit, the base
amount i
s generally determined with refer-
ence to t
he gross receipts of the taxpayer
for the f
our prior taxable years preceding
the tax
able year in which credit is being
determ
ined (credit year) and the QREs and
gross r
eceipts over the five-year base pe-
riod fr
om 1984–1988. The base amount
cannot
be less than 50 percent of the tax-
payer’
s QREs for the credit year. Special
rules
are provided for certain start-up com-
panie
s.
The se
cond way a taxpayer could com-
pute t
he research credit prior to the Act was
to ele
ct, in lieu of the regular credit, the al-
terna
tive incremental credit (AIRC) under
secti
on 41(c)(4). Under the AIRC, the base
amou
nt is determined with reference to the
gros
s receipts of the taxpayer for the four
prio
r taxable years.
The A
ct added a third way, the ASC,
unde
r section 41(c)(5), which a taxpayer
may e
lect to compute the research credit.
Sect
ion 41(c)(5)(A) provides the general
rul
e that, at the election of the taxpayer, the
cre
dit determined under section 41(a)(1)
sha
ll be equal to 12 percent of so much
of the QREs for
the taxable year as ex-
ceeds 50 perce
nt of the average QREs for
the three taxa
ble years preceding the tax-
able year for
which the credit is being de-
termined. Se
ction 41(c)(5)(B) provides a
special rule
that the credit shall be equal
to 6 percent o
ftheQREsforthetaxable
year if the t
axpayer does not have QREs
in each of th
e three taxable years preced-
ing the year
for which credit is being de-
termined.
Section 41(
c)(5)(C) provides that an
ASC electio
n under section 41(c)(5) shall
apply to th
e taxable year for which made
and all suc
ceeding taxable years unless
revoked wi
th the consent of the Secretary.
It further
provides that an ASC election
under sect
ion 41(c)(5) may not be made
for any ta
xable year to which an AIRC
election
under section 41(c)(4) applies.
Explanat
ion of Provisions
The prima
ry objective of these tempo-
rary regu
lations is to provide guidance on
the ASC un
der section 41(c)(5). The tem-
porary r
egulations provide rules for the
ASC simi
lar to some of the rules relat-
ingtoth
e AIRC as contained in §1.41–8
of the cu
rrent regulations. However, be-
cause th
ere are also differences, such as
the for
mula calculation for the ASC, the
ASC rul
es are provided in a new §1.41–9T.
These f
inal and temporary regulations also
make co
nforming and clarifying changes
to §§1.
41–1, 1.41–6, and 1.41–8.
Sectio
n 1.41–9T provides that, at the
electi
on of the taxpayer, the credit deter-
mined
under section 41(a)(1) equals the
amoun
t determined under the ASC under
secti
on 41(c)(5). Generally, a taxpayer
may el
ect the ASC for any taxable year
of the
taxpayer ending after December 31,
2006.
However, for certain transitional
rule
s, see Division A, section 104(b)(3),
(c)(
2), and (c)(4) of the Act. Because the
tran
sitional rules are of limited duration
and h
ave already been described and im-
plem
entedinthe2006versionofForm
676
5, “Credit for Increasing Research Ac-
tiv
ities,” these regulations do not address
the
transitional rules.
The
temporary regulations generally
pro
vide the same rules related to elections
2008–27 I.R.B.1July 7, 2008

and revocations as those provided for the
AIRC in §1.41–8 in the current regula-
tions. If a taxpayer makes an ASC election
under section 41(c)(5), the election applies
to the taxable year for which made and all
subsequent taxable years unless revoked.
An ASC election under section 41(c)(5) is
made by completing the portion of Form
6765, “Credit for Increasing Research
Activities,”(or successor form) relating to
the election of the ASC, and attaching the
completed form to the taxpayer’s timely
filed (including extensions) original return
for the taxable year to which the election
applies. The election may not be revoked
except with the consent of the Commis-
sioner. A taxpayer is deemed to have
requested, and to have been granted, the
consent of the Commissioner to revoke
the election if the taxpayer completes the
portion of Form 6765 (or successor form)
relating to the credit determined under sec-
tion 41(a)(1) or the AIRC and attaches the
completed form to the taxpayer’s timely
filed (including extensions) original return
for the year to which the revocation ap-
plies. As is the case with a revocation of an
AIRC election under §1.41–8, an election
under section 41(c)(5) may not be made or
revokedonanamendedreturn. Accord-
ingly, for purposes of further clarification,
the temporary regulations also provide that
an extension of time to make or revoke
an election under section 41(c)(5) (and
similarly, under section 41(c)(4)) will not
be granted under §301.9100–3.
In the case of a controlled group of cor-
porations, all the members of which are not
included on a single consolidated return,
an election or revocation must be made by
the designated member by satisfying the
requirements described above. The elec-
tion or revocation by the designated mem-
ber is binding on all the members of the
group for the credit year to which the elec-
tion or revocation relates. If the designated
member fails to timely make or revoke an
election, each member of the group must
compute the group credit using the method
used to compute the group credit for the
immediately preceding credit year.
The termdesignated membermeans
that member of the group that is allocated
the greatest amount of the group credit
under §1.41–6(c) based on the amount of
credit reported on the original timely-filed
Federal income tax return (even if that
member subsequently is determined not to
be the designated member). If the mem-
bers of a group compute the group credit
using different methods (the method de-
scribedinsection41(a),theAIRCmethod,
or the ASC method) and at least two mem-
bers of the group qualify as the designated
member, then the termdesignated mem-
bermeans that member that computes the
group credit using the method that yields
the greatest group credit.
The temporary regulations provide sev-
eral special rules. Section 1.41–9T(c) pro-
vides that unless a taxpayer has QREs in
each of the three taxable years preceding
the taxable year for which the credit is be-
ing determined, the credit equals the per-
centage of the QREs for the taxable year
provided by section 41(c)(5)(B)(ii).
The temporary regulations also provide
special rules relating to consistency and
short taxable years. The temporary regula-
tions provide that in computing the credit,
QREs for the three taxable years preced-
ing the credit year must be determined on
a basis consistent with the definition of
QREs for the credit year, without regard
to the law in effect for the three taxable
years preceding the credit year. This con-
sistency requirement applies even if the
period for filing a claim for credit or re-
fund has expired for any of the three tax-
able years preceding the credit year. The
regulations also provide special rules sim-
ilar to the rules in §1.41–3(b) of the ex-
isting regulations for taxpayers that have
a short taxable year. If one or more of
the three taxable years preceding the credit
year is a short taxable year, then the QREs
for such year are deemed to be equal to the
QREs actually paid or incurred in that year
multiplied by 12 and divided by the num-
ber of months in that year. Additionally,
the temporary regulations provide that if a
credit year is a short taxable year, then the
average QREs for the three taxable years
preceding the credit year are modified by
multiplying that amount by the number of
months in the short taxable year and divid-
ing the result by 12.
The regulations also clarify that the av-
erage QREs for the three taxable years pre-
ceding the taxable year for which credit
is being determined will be considered the
base amount for purposes of the computa-
tion under section 41(h)(2). Therefore, if
the research credit expires during the credit
year, the average QREs for the three tax-
able years preceding the credit are multi-
plied by the ratio of the number of days for
which the research credit is effective to the
total number of days in the credit year.
The Treasury Department and the IRS
note that the rules generally applicable un-
der section 6001 provide sufficient detail
about required documentary substantiation
for purposes of the research credit. Section
1.6001–1 requires the keeping of records
“sufficient to establish the amount of ...
credits ... required to be shown ....” The
IRS may deny the credit for failure to pro-
vide sufficient records substantiating the
claimed credit for any method used in de-
termining the research credit.
Effective/Applicability Date
Sections 1.41–6T(j), 1.41–8T(b)(5),
and 1.41–9T(d) of these regulations apply
to taxable years ending after December
31, 2006, the effective date of section
41(c)(5), and terminate on or before June
13, 2011. For certain transitional rules
under section 41, see Division A, sections
104(b)(3), (c)(2), (c)(4), and 123(a) of the
Act.
The IRS and Treasury Department are
committed to providing appropriate relief
to taxpayers that have used methodologies
inconsistent with the short taxable year
rules provided in these regulations on tax
returns filed after the effective date of sec-
tion 41(c)(5) and prior to the publication of
these regulations.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant 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 Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations. For the
applicability of the Regulatory Flexibility
Act, refer to the Special Analyses section
of the preamble to the cross-referenced no-
tice of proposed rulemaking published in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on their impact
on small business.
July 7, 200822008–27 I.R.B.

Drafting Information
The principal author of these regula-
tions is David Selig, Office of the As-
sociate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.41–8T also issued under 26
U.S.C. 41(c)(4)(B);
Section 1.41–9T also issued under 26
U.S.C. 41(c)(5)(C); * * *
Par. 2. Section 1.41–0 is amended by:
1. Revising the introductory text.
2. Revising the paragraph heading for
§1.41–6(j) and adding entries for para-
graphs (j)(1), (j)(2), and (j)(3).
3. Revising the section heading for
§1.41–8 and entries for paragraphs (a) and
(b)(5).
4. Adding §1.41–9.
The additions and revisions read as fol-
lows:
§1.41–0 Table of contents.
This section lists the table of contents
for §§1.41–1 through 1.41–9.
*****
§1.41–6 Aggregation of expenditures.
*****
(j) Effective/applicability date.
(1) In general.
(2) Consolidated group rule.
(3) Taxable years ending on or before
December 31, 2006.
*****
§1.41–8 Alternative incremental credit.
(a) Determination of credit.
(b) * * *
(5) Effective/applicability dates.
§1.41–9 Alternative simplified credit.
[Reserved]. For further guidance, see
the entries for §1.41–9T in §1.41–0T.
Par. 3. Section 1.41–0T is added to read
as follows:
§1.41–0T Table of contents (temporary).
This section lists the table of contents
for §§1.41–6T, 1.41–8T, and 1.41–9T.
§1.41–6T Aggregation of expenditures
(temporary).
(a) [Reserved]. For further guidance,
see the entry for §1.41–6(a) in §1.41–0.
(b) Computation of the group credit.
(1) In general.
(2) [Reserved]. For further guidance,
see the entry for §1.41–6(b)(2) in §1.41–0.
(c) Allocation of the group credit.
(1) [Reserved]. For further guidance,
see the entry for §1.41–6(c)(1) in §1.41–0.
(2) Stand-alone entity credit.
(d) [Reserved]. For further guidance,
see the entry for §1.41–6(d) in §1.41–0.
(e) Example.
(f) through (i) [Reserved]. For further
guidance, see the entries for §1.41–6(f)
through (i) in §1.41–0.
(j) Effective/applicability dates.
§1.41–8T Alternative incremental credit
(temporary).
(a) [Reserved]. For further guidance,
see the entry for §1.41–8(a) in §1.41–0.
(b) Election.
(1) In general.
(2)Timeandmannerofelection.
(3) Revocation.
(4) Special rules for controlled groups.
(i) In general.
(ii) Designated member.
(5) Effective/applicability dates.
§1.41–9T Alternative simplified credit
(temporary).
(a) Determination of credit.
(b) Election.
(1) In general.
(2)Timeandmannerofelection.
(3) Revocation.
(4) Special rules for controlled groups.
(i) In general.
(ii) Designated member.
(c) Special rules.
(d) Effective/applicability dates.
(e) Expiration date.
Par. 4. Section 1.41–1 is amended by
adding a sentence to the end of paragraph
(a) to read as follows:
§1.41–1 Credit for increasing research
activities.
(a) * * * For taxable years ending after
December 31, 2006, and at the election of
the taxpayer, the portion of the credit deter-
mined under section 41(a)(1) may be cal-
culated using either the alternative incre-
mental credit set forth in section 41(c)(4),
or the alternative simplified credit set forth
in section 41(c)(5).
*****
Par. 5. Section 1.41–6 is amended by:
1. Revising paragraph (e) introductory
text and the paragraph heading for para-
graph (j).
2. Adding paragraph (j)(3).
The revision and addition reads as fol-
lows:
§1.41–6 Aggregation of expenditures.
*****
(e)Examples. The following exam-
ples illustrate the provisions of this section.
Unless otherwise stated, no members of a
controlled group are members of a consoli-
dated group, no member of the group made
any basic research payments or paid or in-
curred any amounts to an energy research
consortium, and the group has not made
an AIRC election (except as provided in
Example 6) or an ASC election. For an
example illustrating the calculation of the
alternative simplified credit under section
41(c)(5), which is applicable for taxable
years ending after December 31, 2006, see
§1.41–6T(e).
*****
(j)Effective/applicability dates.***
(3)Taxable years ending on or before
December 31, 2006. Paragraphs (b)(1) and
(c)(2) of this section are applicable for tax-
able years ending on or before December
31, 2006. For taxable years ending after
December 31, 2006, see §1.41–6T.
2008–27 I.R.B.3July 7, 2008

Par. 6. Section 1.41–6T is added to read
as follows:
§1.41–6T Aggregation of expenditures
(temporary).
(a) [Reserved]. For further guidance,
see §1.41–6(a).
(b)Computation of the group
credit—(1)In general.Allmembersof
a controlled group are treated as a sin-
gle taxpayer for purposes of computing
the research credit. The group credit is
computed by applying all of the section
41 computational rules on an aggregate
basis. All members of a controlled group
must use the same method of computa-
tion, either the method described in sec-
tion 41(a)(1), the alternative incremental
credit (AIRC) method described in sec-
tion 41(c)(4), or the alternative simplified
credit (ASC) method described in section
41(c)(5), in computing the group credit for
a credit year.
(2) [Reserved]. For further guidance,
see §1.41–6(b)(2).
(c)Allocation of the group credit.(1)
[Reserved]. For further guidance, see
§1.41–6(c)(1).
(2)Stand-alone entity credit.The
termstand-alone entity creditmeans the
research credit (if any) that would be
allowable to a member of a controlled
group if the credit were computed as if
section 41(f)(1) did not apply, except
that the member must apply the rules
provided in §1.41–6(d)(1) (relating to
consolidated groups) and §1.41–6(i) (re-
lating to intra-group transactions). Each
member’s stand-alone entity credit for
any credit year must be computed under
whichever method (the method described
in section 41(a), the method described in
section 41(c)(4), or the method described
in section 41(c)(5)) results in the greatest
stand-alone entity credit for that member,
without regard to the method used to com-
pute the group credit.
(d) [Reserved]. For further guidance,
see §1.41–6(d).
(e)Example.Group alternative sim-
plified credit. The following example il-
lustrates a group computation in a year
for which the ASC method under section
41(c)(5) is in effect. No members of the
controlled group are members of a consol-
idated group and no member of the group
made any basic research payments or paid
or incurred any amounts to an energy re-
search consortium.
Example.(i)Facts. Q, R, and S, all of which are
calendar-year taxpayers, are members of a controlled
group. The research credit under section 41(a)(1)
is not allowable to the group for the 2008 taxable
year (the credit year) because the group’s aggregate
QREs for the credit year are less than the group’s base
amount. The group does not use the AIRC method
of section 41(c)(4) because its aggregate QREs for
the credit year do not exceed 1 percent of the aver-
age annual gross receipts for the four years preceding
the credit year. The group credit is computed using
the ASC rules of section 41(c)(5). Assume that each
member of the group had QREs in each of the three
years preceding the credityear. For purposes of com-
puting the group credit for the credit year, Q, R, and
S had the following:
Q
R
SGroup
Aggregate
Credit Year QREs
$0x$20x$30x$50x
Average QREs for 3 Years Preceding the Credit Year
$10x$20x$10x$40x
(ii)Computation of the group credit. The research
creditallowabletothegroupiscomputedasifQ,R,
and S are one taxpayer. The group credit is equal to 12
percent of so much of the QREs for the credit year as
exceeds 50 percent of the average QREs for the three
taxable years preceding the credit year. The group
credit is 0.12 x ($50x - (0.5 x $40x)), which equals
$3.6x.
(iii)Allocation of the group credit. Under para-
graph (c)(2) of this section, the stand-alone entity
credit for each member of the group must be com-
puted using the method that results in the greatest
stand-alone entity credit for that member. The stand-
alone entity credit for Q is zero under all three meth-
ods. Assume that the stand-alone entity credit for
each of R ($1.2x) and S ($3x) is greatest using the
ASC method. Therefore, the stand-alone entity cred-
its for each of R and S must be computed using the
ASC method. The sum of the stand-alone entity cred-
its of the members of the group is $4.2x. Because
the group credit of $3.6x is less than the sum of the
stand-alone entity credits of all the members of the
group ($4.2x), the group credit is allocated among
the members of the group based on the ratio that each
member’s stand-alone entity credit bears to the sum
of the stand-alone entity credits of all the members of
the group. The $3.6x group credit is allocated as fol-
lows:
Q
R
STotal
Stand-Alone Entity Credit
$0x$1.2x$3x$4.2x
Allocation Ratio (Stand-Alone Entity Credit/Sum of
Stand-Alone Entity Credits)
0/4.21.2/4.23/4.2
Multiplied by: Group Credit
$3.6x$3.6x$3.6x
Equals: Credit Allocated to Member
$0x$1.03x$2.57x$3.6x
(f) through (i) [Reserved]. For further
guidance, see §1.41–6(f) through (i).
(j)Effective/applicability dates.This
section is applicable for taxable years end-
ing after December 31, 2006. For taxable
years ending on or before December 31,
2006, see §1.41–6.
(k)Expiration date. The applicability
of this section will expire on or before June
13, 2011.
Par. 7. Section 1.41–8 is amended by:
1. Revising the section heading and the
heading of paragraph (a).
2. Removing the language “paragraph
(c) of this section” from the first sen-
tence of paragraph (b)(4)(ii) and adding
“§1.41–6(c)” in its place.
3. Revising the paragraph heading and
adding two sentences at the end of para-
graph (b)(5).
July 7, 200842008–27 I.R.B.

The revisions and additions read as fol-
lows:
§1.41–8 Alternative incremental credit.
(a)Determination of credit.***
(b) * * *
(5)Effective/applicability dates. ***
Paragraphs (b)(3) and (b)(4)(ii) of this sec-
tion are applicable for taxable years end-
ing on or before December 31, 2006. For
taxable years ending after December 31,
2006, see §1.41–8T.
Par. 8. Section 1.41–8T is added to read
as follows:
§1.41–8T Alternative incremental credit
(temporary).
(a) [Reserved]. For further guidance,
see §1.41–8(a).
(b)Election—(1) [Reserved]. For fur-
ther guidance, see §1.41–8(b)(1).
(2)Time and manner of election.An
election under section 41(c)(4) is made
by completing the portion of Form 6765,
“Credit for Increasing Research Activi-
ties,”(or successor form) relating to the
election of the AIRC, and attaching the
completed form to the taxpayer’s timely
filed (including extensions) original return
for the taxable year to which the election
applies. An election under section 41(c)(4)
may not be made on an amended return.
An extension of time to make an election
under section 41(c)(4) will not be granted
under §301.9100–3 of this chapter.
(3)Revocation. An election under this
section may not be revoked except with
the consent of the Commissioner. A tax-
payer is deemed to have requested, and
to have been granted, the consent of the
Commissioner to revoke an election under
section 41(c)(4) if thetaxpayer completes
the portion of Form 6765, “Credit for In-
creasing Research Activities,”(or succes-
sor form) relating to the amount deter-
mined under section 41(a)(1) (the regular
credit) or the alternative simplified credit
(ASC) and attaches the completed form
to the taxpayer’s timely filed (including
extensions) original return for the year to
which the revocation applies. An elec-
tion under section 41(c)(4) may not be re-
voked on an amended return. An exten-
sion of time to revoke an election under
section 41(c)(4) will not be granted under
§301.9100–3 of this chapter.
(4)Special rules for controlled
groups—(i) [Reserved]. For further guid-
ance, see §1.41–8(b)(4)(i).
(ii)Designated member. For purposes
of this paragraph (b)(4), for any credit year,
the termdesignated membermeans that
member of the group that is allocated the
greatest amount of the group credit under
§1.41–6(c) based on the amount of credit
reported on the original timely-filed Fed-
eral income tax return (even if that mem-
ber subsequently is determined not to be
the designated member). If the members
of a group compute the group credit using
different methods (the method described
in section 41(a)(1), the AIRC method of
section 41(c)(4), or the ASC method of
section 41(c)(5)) and at least two mem-
bers of the group qualify as the designated
member, then the termdesignated mem-
bermeans that member that computes the
group credit using the method that yields
the greatest group credit. For example, A,
B, C, and D are members of a controlled
group but are not members of a consol-
idated group. For the 2008 taxable year
(the credit year), the group credit using
the method described insection 41(a)(1) is
$10x. Under this method, A would be allo-
cated $5x of the group credit, which would
be the largest share of the group credit un-
der this method. For the credit year, the
group credit using the AIRC method is
$15x. Under the AIRC method, B would
be allocated $5x of the group credit, which
is the largest share of the group credit
computed using the AIRC method. For
the credit year, the group credit using the
ASC method is $10x. Under the ASC
method, C would be allocated $5x of the
group credit, which is the largest share of
the group credit computed using the ASC
method. Because the group credit is great-
est using the AIRC method and B is allo-
cated the greatest amount of credit under
that method, B is the designated member.
Therefore, if B makesa section 41(c)(4)
election on its original timely-filed return
for the credit year, that election is binding
on all members of the group for the credit
year.
(5)Effective/applicability dates.This
section is applicable for taxable years end-
ing after December 31, 2006. For taxable
years ending on or before December 31,
2006, see §1.41–8.
(6)Expiration date. This applicability
of this section expires on or before June 13,
2011.
Par. 9. Sections 1.41–9 and 1.41–9T
are added to read as follows:
§1.41–9 Alternative simplified credit.
[Reserved]. For further guidance, see
§1.41–9T.
§1.41–9T Alternative simplified credit
(temporary).
(a)Determination of credit. At the elec-
tion of the taxpayer, the credit determined
under section 41(a)(1) equals the amount
determined under section 41(c)(5).
(b)Election—(1)In general.Atax-
payer may elect to apply the provisions of
the alternative simplified credit (ASC) in
section 41(c)(5) for any taxable year of the
taxpayer ending after December 31, 2006.
If a taxpayer makes an election under sec-
tion 41(c)(5), the election applies to the
taxable year for which made and all subse-
quent taxable years unless revoked in the
manner prescribed in paragraph (b)(3) of
this section.
(2)Time and manner of election.An
election under section 41(c)(5) is made
by completing the portion of Form 6765,
“Credit for Increasing Research Activi-
ties,” (or successor form) relating to the
election of the ASC, and attaching the
completed form to the taxpayer’s timely
filed (including extensions) original return
for the taxable year to which the election
applies. An election under section 41(c)(5)
may not be made on an amended return.
An extension of time to make an election
under section 41(c)(5) will not be granted
under §301.9100–3 of this chapter.
(3)
Revocation. An election under this
section may not be revoked except with
the consent of the Commissioner. A tax-
payer is deemed to have requested, and
to have been granted, the consent of the
Commissioner to revoke an election under
section 41(c)(5) if the taxpayer completes
the portion of Form 6765 (or successor
form) relating to the credit determined un-
der section 41(a)(1) (the regular credit) or
the alternative incremental credit (AIRC)
and attaches the completed form to the tax-
payer’s timely filed (including extensions)
original return for the year to which the re-
vocation applies. An election under sec-
tion 41(c)(5) may not be revoked on an
2008–27 I.R.B.5July 7, 2008

amended return. An extension of time to
revoke an election under section 41(c)(5)
will not be granted under §301.9100–3 of
this chapter.
(4)Special rules for controlled
groups—(i)In general. In the case of
a controlled group of corporations, all
the members of which are not included
on a single consolidated return, an elec-
tion (or revocation) must be made by the
designated member by satisfying the re-
quirements of paragraph (b)(2) or (b)(3)
of this section (whichever applies), and
such election (or revocation) by the des-
ignated member shall be binding on all
the members of the group for the credit
year to which the election (or revocation)
relates. If the designated member fails
to timely make (or revoke) an election,
each member of the group must compute
the group credit using the method used to
compute the group credit for the immedi-
ately preceding credit year.
(ii)Designated member. For purposes
of this paragraph (b)(4), for any credit year,
the termdesignated membermeans that
member of the group that is allocated the
greatest amount of the group credit un-
der §1.41–6(c) based on the amount of
credit reported on the original timely-filed
Federal income tax return (even if that
member subsequently is determined not to
be the designated member). If the mem-
bers of a group compute the group credit
using different methods (the method de-
scribed in section 41(a), the AIRC method
of section 41(c)(4), or the ASC method of
section 41(c)(5)) and at least two mem-
bers of the group qualify as the designated
member, then the termdesignated mem-
bermeans that member that computes the
group credit using the method that yields
the greatest group credit. For example, A,
B, C, and D are members of a controlled
group but are not members of a consol-
idated group. For the 2008 taxable year
(the credit year), the group credit using
the method described in section 41(a)(1) is
$10x. Under this method, A would be allo-
cated $5x of the group credit, which would
be the largest share of the group credit un-
der this method. For the credit year, the
group credit using the AIRC method is
$10x. Under the AIRC method, B would
be allocated $5x of the group credit, which
is the largest share of the group credit
computed using the AIRC method. For
the credit year, the group credit using the
ASC method is $15x. Under the ASC
method, C would be allocated $5x of the
group credit, which is the largest share of
the group credit computed using the ASC
method. Because the group credit is great-
est using the ASC method and C is allo-
cated the greatest amount of credit under
that method, C is the designated member.
Therefore, if C makesa section 41(c)(5)
election on its original timely-filed return
for the credit year, that election is binding
on all members of the group for the credit
year.
(c)Special rules—(1)Qualified re-
search expenses (QREs) required in all
years. Unless a taxpayer has QREs in
each of the three taxable years preceding
the taxable year for which the credit is
being determined, the credit equals that
percentage of the QREs for the taxable
year provided by section 41(c)(5)(B)(ii).
(2)Section 41(c)(6) applicability.
QREs for the three taxable years preced-
ing the credit year must be determined on
a basis consistent with the definition of
QREs for the credit year, without regard to
the law in effect for the three taxable years
preceding the credit year. This consistency
requirement applies even if the period
for filing a claim for credit or refund has
expired for any of thethree taxable years
preceding the credit year.
(3)Section 41(h)(2) applicability.
Solely for purposes of the computation
under section 41(h)(2), the average QREs
for the three taxable years preceding the
taxable year for which the credit is being
determined shall be treated as the base
amount.
(4)Short taxable years. If one or more
of the three taxable years preceding the
credit year is a short taxable year, then the
QREs for such year are deemed to be equal
to the QREs actually paid or incurred in
that year multiplied by 12 and divided by
the number of months in that year. If a
credit year is a short taxable year, then the
average QREs for the three taxable years
preceding the credit year are modified by
multiplying that amount by the number of
months in the short taxable year and divid-
ing the result by 12.
(5)Controlled groups. For purposes of
computing the group credit under §1.41–6,
a controlled group must apply the rules of
this paragraph (c) on an aggregate basis.
For example, if the controlled group has
QREs in each of the three taxable years
preceding the taxable year for which the
credit is being determined, the controlled
group applies the credit computation pro-
vided by section 41(c)(5)(A) rather than
section 41(c)(5)(B)(ii).
(d)Effective/applicability dates.This
section is applicablefor taxable years end-
ing after December 31, 2006. For certain
transitional rules, see Division A, section
104(b)(3), (c)(2), and (c)(4) of the Tax Re-
lief and Health Care Act of 2006 (Public
Law 109–432, 120 Stat. 2922).
(e)Expiration date. The applicability
of this section expires on or before June 13,
2011.
Steven T. Miller,
Acting Deputy Commissioner
for Services and Enforcement.
Approved June 6, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 13, 2008,
11:51 a.m., and published in the issue of the Federal Register
for June 17, 2008, 73 F.R. 34185)
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2008. See Rev. Rul. 2008-33, page 8.
Section 162.—Trade or
Business Expenses
26 CFR 1.162–27(e): Certain employee remunera-
tion in excess of $1,000,000.
Corporations; “outside director”
definition.This ruling provides guidance
for determining whether an individual
qualifies as an “outside director” for pur-
poses of section 162(m) of the Code. The
ruling holds that an individual does not
qualify as an “outside director” of a cor-
poration when the individual has served as
the corporation’s interim chief executive
officer in regular and continued service
with the full authority vested in that office.
July 7, 200862008–27 I.R.B.

Rev. Rul. 2008–32
ISSUE
Whether a member of a corporation’s
board of directors qualifies as an “out-
side director” under § 162(m)(4)(C)(i) af-
ter serving as an interim chief executive of-
ficer?
FACTS
Company X, a calendar year taxpayer,
is a publicly held corporation within the
meaning of § 162(m)(2). Director A is a
member of Company X’s board of direc-
tors. Director A is not a member of the
compensation committee of Company X’s
board of directors. Company X’s chief ex-
ecutive officer (CEO), Employee E, un-
expectedly resigned on January 7, 2008.
In response to Employee E’s resignation,
the board of directors of Company X ap-
pointed Director A to serve as interim CEO
while the board of directors conducts a
search for a permanent replacement CEO.
The service agreement between Company
X and Director A does not limit Direc-
tor A’s authority as interim CEO and pro-
vides for termination of service upon se-
lection of a permanent CEO. Company X
filed Form 8–K (dated January 7, 2008)
with the United States Securities and Ex-
change Commission (SEC) to report Em-
ployee E’s retirement and Director A’s ap-
pointment as interim CEO, and to explain
that Company X has initiated a search for
a permanent replacement CEO. On Feb-
ruary 1, 2008, the compensation commit-
tee of Company X’s board of directors ap-
proved, and the board of directors ratified,
a compensation plan for the period Direc-
tor A serves as interim CEO. The plan pro-
vides for a base salary of $1,000,000, as
well as participation in Company X’s ex-
ecutive bonus plan, which pays a percent-
age of base salary. The plan provides that
Director A’s compensation will be prorated
based on the length of Director A’s service
as interim CEO.
On December 11, 2008, Company X
announced that Employee F was selected
as Company X’s new CEO. Company
X filed Form 8–K (dated December 11,
2008) with the SEC to report Director A’s
resignation as interim CEO, effective im-
mediately, and Employee F’s appointment
as CEO of Company X.
Other than service as interim CEO,
Director A has not been employed by
Company X (or any member of its affil-
iated group of corporations). Director A
received final, prorated compensation for
services as interim CEO on December
29, 2008. Following December 29, 2008,
Director A does not receive compensation
from Company X, directly or indirectly,
in any capacity other than as a director.
In January 2009, Director A joined the
compensation committee on Company X’s
board of directors.
LAW
Section 162(a)(1) allows as a deduction
all the ordinary and necessary expenses
paid or incurred during the taxable year in
carrying on any trade or business, includ-
ing a reasonable allowance for salaries or
other compensation for personal services
actually rendered.
Section 162(m)(1) provides that, in the
case of any publicly held corporation, no
deduction is allowed for applicable em-
ployee remuneration with respect to any
covered employee to the extent that the
amount of the remuneration for the taxable
year exceeds $1,000,000.
Section 162(m)(2) provides that the
term “publicly held corporation” means
any corporation issuing any class of com-
mon equity securities required to be reg-
istered under section 12 of the Securities
Exchange Act of 1934.
Section 162(m)(3) provides that the
term “covered employee” means any em-
ployee of the taxpayer if (i) as of the close
of the taxable year, such employee is the
chief executive officer of the taxpayer or
is an individual acting in such a capacity,
or (ii) the total compensation of such em-
ployee for the taxable year is required to be
reported to shareholders under the Secu-
rities Exchange Act of 1934 by reason of
such employee being among the 4 highest
compensated officers for the taxable year
(other than the chief executive officer).
Section 162(m)(4)(A) defines “applica-
ble employee remuneration,” with respect
to any covered employee for any taxable
year, generally as the aggregate amount al-
lowable as a deduction for the taxable year
(determined without regard to § 162(m))
for remuneration for services performed
by the employee (whether or not during the
taxable year).
Section 162(m)(4)(C) provides that ap-
plicable employee remuneration does not
include any remuneration payable solely
on account of the attainment of one or
more performance goals, but only if (i)
the performance goals are determined by
a compensation committee of the board of
directors of the taxpayer which is com-
prised solely of 2 or more outside direc-
tors, (ii) the material terms under which the
remuneration is to be paid, including the
performance goals, are disclosed to share-
holders and approved by a majority of the
vote in a separate shareholder vote before
payment of such remuneration, and (iii)
before any payment of such remuneration,
the compensation committee referred to
in clause (i) certifies that the performance
goals and other material terms were in fact
satisfied.
Section 1.162–27(e)(3)(i) of the Regu-
lations provides that a director is an “out-
side director” if the director (A) is not a
current employee of the publicly held cor-
poration; (B) is not a former employee of
the publicly held corporation who receives
compensation for prior services (other than
benefits under a tax-qualified retirement
plan) during the taxable year; (C) has not
been an officer of the publicly held corpo-
ration; and (D) does not receive remunera-
tion from the publicly held corporation, ei-
ther directly or indirectly, in any capacity
other than as a director. For this purpose,
remuneration includes any payment in ex-
change for goods or services.
Section 1.162–27(e)(3)(vi) provides
that whether a director is an employee or
a former officer is determined on the basis
of the facts at the time that the individual
is serving as a director on the compensa-
tion committee. Thus, a director is not
precluded from being an outside director
solely because the director is a former offi-
cer of a corporation that previously was an
affiliated corporation of the publicly held
corporation. For example, a director of a
parent corporation of an affiliated group
is not precluded from being an outside
director solely because that director is a
former officer of an affiliated subsidiary
that was spun off or liquidated. However,
an outside director would no longer be an
outside director if a corporation in which
the director was previously an officer
became an affiliated corporation of the
publicly held corporation.
2008–27 I.R.B.7July 7, 2008

Section 1.162–27(e)(3)(vii) provides
that, solely for this purpose, “officer”
means an administrative executive who
is or was in regular and continued ser-
vice. The regulationsstate that the term
implies continuity of service and excludes
those employed for a special and single
transaction. An individual who merely
has (or had) the title of officer, but not the
authority of an officer, is not considered
an officer. The regulations further state
that determination of whether an individ-
ual is or was an officer is based on all of
the facts and circumstances in the partic-
ular case, including without limitation the
source of the individual’s authority, the
term for which the individual is elected or
appointed, and the nature and extent of the
individual’s duties.
ANALYSIS
The determination of whether an indi-
vidual is or was an officer is based on all
of the facts and circumstances in the par-
ticular case, including without limitation
the source of the individual’s authority, the
term for which the individual is elected or
appointed, and the nature and extent of the
individual’s duties. Director A was in reg-
ular and continued service from January 7,
2008 through December 11, 2008. Com-
pany X did not employ Director A for a
special and single transaction and Director
A did not merely have the title of officer.
Instead, Company X employed Director A
for an indefinite period to serve as interim
CEO with the full authority vested in that
office. Accordingly, under the facts and
circumstances analysis, Director A was an
officer of Company X.
HOLDING
Under the facts provided in this rev-
enue ruling, a member of the board of
directors who serves as interim chief ex-
ecutive officer is not an “outside direc-
tor” for purposes of § 162(m)(4)(C) and
§ 1.162–27(e)(3).
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Ilya Enkishev of the Office of the
Division Counsel/Associate Chief Coun-
sel (Tax Exempt & Government Entities).
For further information regarding this rev-
enue ruling, contact Mr. Enkishev at (202)
622–6030 (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 July 2008. See Rev.
Rul. 2008-33, page 8.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership C
hange
The adjuste
d applicable federal long-term rate is
set forth fo
r the month of July 2008. See Rev. Rul.
2008-33, pa
ge 8.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2008. See Rev. Rul. 2008-33, page 8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
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 July 2008. See Rev.
Rul. 2008-33, page 8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
Section 642.—Special
Rules for Cred
its and
Deductions
Federal shor
t-term, mid-term, and long-term rates
are set forth
for the month of July 2008. See Rev.
Rul. 2008-33
,page8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
Section 127
4.—Determi-
nation of Is
sue Price in the
Case of Cert
ain Debt Instru-
ments Issue
d for Property
(Also Secti
ons 42, 280G, 382, 412, 467, 468, 482,
483, 642, 80
7, 846, 1288, 7520, 7872.)
Federal rat
es; adjusted federal rates;
adjusted fe
deral long-term rate and the
long-term e
xempt rate.For purposes of
sections 3
82, 642, 1274, 1288, and other
sections o
f the Code, tables set forth the
rates for J
uly 2008.
Rev. Rul. 2
008–33
This reven
ue ruling provides vari-
ous prescr
ibed rates for federal income
tax purpo
ses for July 2008 (the current
month). T
able 1 contains the short-term,
mid-term
, and long-term applicable fed-
eral rate
s (AFR) for the current month
for purpo
ses of section 1274(d) of the
Interna
l Revenue Code. Table 2 contains
the shor
t-term, mid-term, and long-term
adjuste
d applicable federal rates (adjusted
AFR) for
the current month for purposes
of secti
on 1288(b). Table 3 sets forth the
adjust
ed federal long-term rate and the
long-t
erm tax-exempt rate described in
July 7, 200882008–27 I.R.B.

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. Table
5 contains the federal rate for determin-
ing 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. Finally, Table 6
contains the blended annual rate for 2008
for purposes of section 7872.
REV. RUL. 2008–33 TABLE 1
Applicable Federal Rates (AFR) for July 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR2.42%2.41%2.40%2.40%
110% AFR2.67%
2.65%
2.64%2.64%
120% AFR2.91%2.89%2.88%2.87%
130% AFR
3.15%
3.13%3.12%3.11%
Mid-term
AFR
3.45%
3.42%3.41%3.40%
110% AFR3.80%3.76%3.74%3.73%
120% AFR4.14%4.10%4.08%4.07%
130% AFR
4.50%4.45%
4.43%4.41%
150% AFR5.20%5.13%5.10%5.08%
175% AFR
6.08%
5.99%5.95%5.92%
Long-term
AFR4.60%
4.55%4.52%4.51%
110% AFR
5.07%5.01%
4.98%4.96%
120% AFR
5.53%5.46%5.42%5.40%
130% AFR6.01%
5.92%5.88%5.85%
REV. RUL. 2008–33 TABLE 2
Adjusted AFR for July 2008
Period for Compounding
AnnualSemiannu
al
Quarterl
y
Monthly
Short-term adjusted
AFR
2.07%2.06%
2.05%2.05%
Mid-term adjusted AFR3.12%3.10%3.09%3.08%
Long-term adjusted
AFR
4.52%
4.47%
4.45%
4.43%
REV. RUL. 2008–33 TABLE 3
Rates Under Section 382 for July 2008
Adjusted federal long-term rate for the current month
4.52%
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.)4.71%
2008–27 I.R.B.9July 7, 2008

REV. RUL. 2008–33 TABLE 4
Appropriate Percentages UnderSection 42(b)(2) for July 2008
Appropriate percentage for the 70% present value low-income housing credit7.93%
Appropriate percentage for the 30% present value low-income housing credit3.40%
REV. RUL. 2008–33 TABLE 5
Rate Under Sec
tion 7520 for July 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%
REV. RUL. 2008–33 TABLE 6
Blended Annual Rate for 2008
Section 7872(e)(2) blended annual rate for 20082.8%
Section 1288.
—Treatment
of Original Is
sue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2008. See Rev. Rul. 2008-33, page 8.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of July 2008. See Rev. Rul. 2008-33, page 8.
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 July 2008. See Rev. Rul. 2008-33, page 8.
July 7, 2008102008–27 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Auction Rate Preferred
Stock—Effect of Liquidity
Facilities on Equity Character
Notice 2008–55
SECTION 1. Purpose
This notice provides guidance regard-
ing the effect of adding certain liquidity fa-
cilities to support certain auction rate pre-
ferred stock on the equity character of the
stock for Federal income tax purposes un-
der the Internal Revenue Code of 1986, as
amended (the “Code”). (Except as noted,
section references in this notice are to the
Code.) Previously, in Rev. Rul. 90–27,
1990–1 C.B. 50, the Internal Revenue Ser-
vice (“IRS”) ruled that certain auction rate
preferred stock qualified as equity for Fed-
eral income tax purposes, but that ruling
did not address the question of the effect
of guarantees or liquidity facilities on such
equity character. This notice is intended to
provide greater certainty and flexibility re-
garding certain Federal tax issues that have
arisen in connection with efforts to address
liquidity needs in the auction rate securi-
ties market as a result of recent significant
auction failures in this market.
SECTION 2. Background
2.1Certain Auction Rate Preferred
Stock
This notice addresses auction rate pre-
ferred stock issued by eligible issuers
described herein with terms that are de-
scribed generally herein (“auction rate
preferred stock”). In general, auction rate
preferred stock is preferred stock in which
the dividend rate is reset periodically (typ-
ically every seven to 28 days), pursuant to
an auction rate-setting process or a simi-
lar remarketing agent rate-setting process
that is designed to produce the minimum
dividend rate necessary to enable all inter-
ested sellers to sell the preferred stock to
willing buyers at a price equal to the par
amount of the applicable “liquidation pref-
erence” (typically, $25,000), plus accrued
but unpaid dividends. A “failed” auction
or remarketing occurs if the auction or
remarketing fails to produce buyers for all
interested sellers at a dividend rate that is
at or below the maximum dividend rate
specified by the terms of the auction rate
preferred stock. Upon a failed auction or
remarketing, the dividend rate is reset at
a prescribed maximum dividend rate until
the next auction or remarketing. In addi-
tion, in the case of some issues of auction
rate preferred stock, the dividend rate may
escalate further to prescribed increasing
maximum rates based on the continued
occurrence of failed auctions or remarket-
ings for increasing periods of time. The
auction rate preferred stock generally is
perpetual, optionally redeemable by the
issuer at any time, and mandatorily re-
deemable in certain circumstances, such
as upon a failure to meet certain asset
coverage requirements. All redemptions
of auction rate preferred stock are subject
to applicable state law restrictions on re-
demptions of stock.
This notice only addresses auction rate
preferred stock issued in the United States
by closed-end management companies
that are “regulated investment companies”
(as defined in § 851 of the Internal Rev-
enue Code) which invest predominantly in
debt instruments and whose other invest-
ments are incidental to their business of
investing in the debt instruments (“Eligi-
ble Issuers”).
2.2Liquidity Facility
Presently, money market funds cannot
hold auction rate preferred stock because
it lacks the requisite liquidity features nec-
essary to enable it to qualify as an eligi-
ble security for purchase by such funds un-
der the Security and Exchange Commis-
sion’s Rule 2a–7, 17 C.F.R. 270.2a–7, is-
sued under the Investment Company Act
of 1940 (“Rule 2a–7”). In order to address
liquidity needs in theauction rate securi-
ties market in response to recent auction
failures, issuers and third parties seek to
add liquidity facilities to support auction
rate preferred stock and thereby to enable
such stock to become eligible for purchase
by money market funds under Rule 2a–7.
Issuers and other interested parties reason-
ably expect that adding liquidity facilities
to auction rate preferred stock and expand-
ing the investor base for such stock to in-
clude money market fund investors will fa-
cilitate successful auctions.
The liquidity facilities for the auction
rate preferred stock will be provided by
third-party liquidity providers with terms
and parameters that are described gen-
erally herein (“liquidity facilities” and
“liquidity providers,” respectively). In
general, the liquidity facilities will have
terms intended to make the auction rate
preferred stock covered by such liquidity
facilities eligible for purchase by money
market funds under Rule 2a–7. All current
and future holders of auction rate preferred
stock covered by a liquidity facility will
be designated third-party beneficiaries of
the liquidity facility and will have the right
to enforce the liquidity facility directly
against the liquidity provider.
A liquidity facility on auction rate pre-
ferred stock will provide to holders a ten-
der option or right to sell such stock to
the liquidity provider at a price equal to
the stock’s liquidation preference, plus ac-
crued but unpaid dividends, if one of the
following two “trigger events” occurs: (1)
a failed auction or remarketing; or (2) a
failure to renew, replace, or extend an ex-
isting liquidity facility then in place with
the same liquidity provider or another liq-
uidity provider by a date that occurs at least
two auction or remarketing dates before
the termination date of the existing liquid-
ity facility then in place.
In some cases, a liquidity facility for
auction rate preferred stock may include an
agreement by the issuer of the auction rate
preferred stock to redeem the stock pur-
chased by the liquidity provider under the
liquidity facility after a minimum holding
period of six months and after continuous
good faith efforts to resell the stock in the
periodic auctions at a price equal to the liq-
uidation preference, plus accrued but un-
paid dividends. In other cases, a liquid-
ity facility for auction rate preferred stock
may be provided without any contractual
rights of the liquidity provider to require
the issuer of such stock to redeem or re-
purchase any such stock purchased by the
liquidity provider under the liquidity facil-
ity.
Issuers anticipate that liquidity facilities
typically, but not necessarily, will have a
term of not more than 364 days for reg-
ulatory reasons. Issuers expect that they
will be required to arrange for renewal, re-
placement, or extension of such liquidity
facilities at least twoauction or remarket-
2008–27 I.R.B.11July 7, 2008

ing dates before expiration of existing liq-
uidity facilities so that liquidity facilities
will cover the auction rate preferred stock
without interruption to facilitate qualifica-
tion for purchase by money market funds
under Rule 2a–7.
Issuers expect that liquidity providers
will charge commercially reasonable liq-
uidity fees for liquidity facilities, including
commitment fees for the availability of the
liquidity facilities and draw fees for draws
to purchase stock under the liquidity facil-
ities.
SECTION 3. Scope and Application.
3.1In General. The IRS will not chal-
lenge the equity characterization of auc-
tion rate preferred stock, as described in
§ 2.1 of this notice, for Federal income tax
purposes as a result of adding a liquidity
facility, as described in § 2.2 of this notice,
to support the auction rate preferred stock
if the conditions of §§ 3.2 through 3.5 of
this notice are met and if the conditions of
either § 3.6 or § 3.7, as applicable, of this
notice are met.
3.2Certain Overall Limits on Scope.
The issuer of the auction rate preferred
stock must be an Eligible Issuer. The auc-
tion rate preferred stock had to be out-
standing on February 12, 2008 (the date
on which significant auction failures first
occurred) or issued after that date to re-
finance, directly or indirectly, any auc-
tion rate preferred stock that was outstand-
ing on that date, provided that the total
par amount of the liquidation preferences
on all such stock issued for refinancing
purposes is no greater than the total par
amount of the liquidation preferences on
such outstanding refinanced stock. The
liquidity facility must be an initial liquidity
facility with respect to the auction rate pre-
ferred stock that is entered into after Feb-
ruary 12, 2008 and on or before December
31, 2009 or a liquidity facility that renews,
replaces, or extends such an initial liquid-
ity facility, either directly or in a series of
liquidity facilities.
3.3CertainLimitsonDividendPay-
ments. An issuer may pay dividends on
auction rate preferred stock only if it duly
declares such dividends and it pays such
dividends out of legally available funds for
payments in respect of stock under appli-
cable state law.
3.4Unrelated Liquidity Providers and
Related Party Definition. The liquidity
provider must be an “unrelated party” (as
defined below) to the issuer of the auction
rate preferred stock, as determined before
taking into account any purchase of such
stock by the liquidity provider under the
liquidity facility. As used generally in this
notice, the term “related party” means a
party whose relationship to another party
under § 267(b) or § 707(b) would result
in a disallowance of losses, and an “unre-
lated party” is a party other than such a re-
lated party. Sections 3.6, 3.7, and 3.8 of
this notice also include certain provisions
that consider related parties to issuers for
purposes of redemptions or repurchases of
stock or partnership interests from liquid-
ity providers.
3.5Certain Limits on Tender Options
under a Liquidity Facility. The liquidity
facility must provide to holders of auction
rate preferred stock a tender option or right
to sell their stock to the liquidity provider
only if one of the following two trigger
events occurs: (1) a failed auction or re-
marketing; or (2) a failure to renew, re-
place, or extend an existing liquidity fa-
cility then in place with the same liquid-
ity provider or another liquidity provider
by a date that occurs at least two auction
or remarketing dates before the termina-
tion date of the existing liquidity facility
then in place.
3.6Certain Conditions on Rights of a
Liquidity Provider to Require Redemp-
tion or Repurchase of Stock by Issuer.In
the case of a liquidity facility for auction
rate preferred stock in which the liquid-
ity provider has any contractual rights
to require the issuer of such stock or a
related party to such issuer to redeem or
repurchase stock purchased by the liquid-
ity provider under the liquidity facility,
any such contractual rights must be lim-
ited by applicable state law restrictions
on redemptions of stock that apply to any
holder of the auction rate preferred stock
(e.g., state law restrictions on redemptions
of stock which would impair the issuer’s
required capital, surplus, or total assets).
The liquidity provider must hold auction
rate preferred stockpurchased under a liq-
uidity facility for aminimum continuous
holding period of at least six months be-
fore any redemption or repurchase of such
stock by the issuer or a related party to
the issuer. During this required six-month
holding period, the liquidity provider must
offer such stock for resale at each periodic
auction or remarketing duly held under
the terms of the stock to set the dividend
rate at a price equal to the par amount
of the applicable liquidation preference,
plus accrued but unpaid dividends. Except
for any contractual rights provided to the
liquidity provider to require the issuer of
the auction rate preferred stock to redeem
or repurchase stock purchased by the liq-
uidity provider under the liquidity facility,
the liquidity provider and any subsequent
holder of such purchased stock otherwise
must not have any greater rights with re-
spect to such stock than other holders of
the stock under the terms of the liquidity
facility, the terms of such stock, or appli-
cable state law.
3.7Certain Liquidity Facilities With-
out Rights of a Liquidity Provider to Re-
quire Redemption or Repurchase of Stock
by Issuer. In the case of a liquidity fa-
cility for auction rate preferred stock in
which the liquidity provider has no con-
tractual rights to require the issuer of such
stock or a related party to such issuer to
redeem or repurchase stock purchased by
the liquidity provider under the liquidity
facility, any redemption of such stock pur-
chased by the liquidity provider or any
subsequent holder of such purchased stock
must be limited by applicable state law re-
strictions on redemptions of stock that ap-
ply to any holder of the auction rate pre-
ferred stock (e.g., state law restrictions on
redemptions of stock which would impair
the issuer’s required capital, surplus, or to-
tal assets). The liquidity provider and any
subsequent holder of the auction rate pre-
ferred stock must not have any greater re-
demption rights or other rights against the
issuer of such stock or a related party to
such issuer with respect to such stock than
other holders of such stock under the terms
of the liquidity facility, the terms of such
stock, or applicable state law.
3.8Certain Liquidating Partnerships
That Hold Auction Rate Preferred Stock.
The IRS will not challenge the equity char-
acterization of interests in a partnership
for Federal income tax purposes as a result
of adding a liquidity facility, as described
in this § 3.8, to support the variable-rate
interests in the partnership, as described
in this § 3.8, if the conditions of this § 3.8
are met. The partnership must reasonably
expect that at least 95 percent of the assets
July 7, 2008122008–27 I.R.B.

of the partnership will consist of auction
rate preferred stock described in § 2.1 of
this notice that meets the conditions of
§ 3.2 and § 3.3 of this notice and tem-
porary investments of proceeds received
from dispositions of such stock pend-
ing redemption of partnership interests.
The partnership must issue two classes
of equity interests: (1) interests that are
entitled to a preferred variable return on
capital payable out of partnership income
(“variable-rate interests”); and (2) residual
inverse interests that are entitled to all
remaining income of the partnership. The
variable-rate interests must be supported
by liquidity facilities that have terms and
limitations that are comparable to liquidity
facilities described in § 2.2 of this notice
and that meet the conditions of § 3.2, § 3.4,
§ 3.5, and § 3.7 of this notice (i.e., certain
time limitations for liquidity facilities,
limitations requiring liquidity providers
to be unrelated parties to the partnership,
permissible trigger events for liquidity
facilities, and the absence of contractual
rights of the liquidity provider to require
the partnership or a related party to the
partnership to redeem or repurchase the
variable-rate interests in the partnership).
The partnership must offer to sell the auc-
tion rate preferred stock that it holds at
each periodic auction or remarketing duly
held under the terms of the stock to set
the dividend rates on such stock at a price
equal to the par amount of the applica-
ble liquidation preference on such stock,
plus accrued but unpaid dividends. The
partnership must apply proceeds received
from sales, redemptions, or other disposi-
tions of auction rate preferred stock that
it holds promptly to redeem partnership
interests and the partnership must not
reinvest such disposition proceeds, except
only for temporary reinvestments of such
disposition proceeds for a reasonable pe-
riod pending redemption of partnership
interests. A partnership that meets the
requirements of this § 3.8 and that other-
wise constitutes a partnership for Federal
income tax purposes is treated as eligible
to make a monthly closing election under
Rev. Proc. 2003–84, 2003–2 C.B. 1159,
as in effect on June 13, 2008 (“Rev. Proc.
2003–84”). In applying the 95 percent
qualified income test under § 4.02 of Rev.
Proc. 2003–84, any dividends paid by an
Eligible Issuer under this notice shall be
treated as qualified income for this pur-
pose.
SECTION 4. No Inferences on Law
This notice provides administrative re-
lief in furtherance of public policy in light
of significant liquidity needs in the auction
rate securities market as a result of recent
significant auction failures in this market.
Except with respect to the administrative
relief expressly provided in this notice, no
inferences should be drawn from this no-
tice regarding the debt or equity character
of any security, material modifications or
exchanges of any security under § 1001,
or any other Federal tax issues regarding
any security. In addition, this notice is not
intended to address any other Federal tax
issue implicated in the described transac-
tions to add liquidity facilities to auction
rate preferred stock.
SECTION 5. Effective Date
This notice is effective on June 13,
2008. This notice applies to auction rate
preferred stock and to liquidity facilities
within the time limitations and other limi-
tations set forth in § 3.2 of this notice. This
notice also applies to certain partnerships
and liquidity facilities within comparable
time limitations and other limitations set
forth in §3.2 of this notice as applied to
certain partnerships and liquidity facilities
under § 3.8 of this notice.
SECTION 6. Drafting Information
The principal author of this notice is
Alfred C. Bishop of the Office of Associate
Chief Counsel (Corporate). For further
information regarding this notice, please
contact Mr. Bishop at (202) 622–7930 (not
a toll-free call).
NOTE:Use this revenue procedure to prepare Forms 8027, Employer’s Annual Information Return of Tip Income and Allocated
Tips, for submission to Internal Revenue Service (IRS) using the FIRE (Filing Information Returns Electronically) System. Please
read this publication carefully. Persons required to file may be subject to penalties if they do not follow the instructions in this revenue
procedure.
Note: Electronic filing is the ONLY acceptable method for filing Form 8027 with
IRS/ECC-MTB.
Significant changes were made to the record layout. Please review this publication
carefully before submitting your information.
26 CFR 601.206: Tax forms and instructions.
Rev. Proc. 2008–34
2008–27 I.R.B.13July 7, 2008

TABLE OF CONTENTS
Part A. General
SEC. 1. PURPOSE.................................................................................................. 15
SEC. 2. NATURE OF CHANGES...................................................................................... 15
SEC. 3. WHERE TO FILE AND HOW TO CONTACT THE IRS, ENTERPRISE COMPUTING CENTER —
MARTINSBURG
........................................................................................ 15
SEC. 4. FILING REQUIREMENTS AND DUE DATES................................................................... 16
SEC. 5. FORM 8508, REQUEST FOR WAIVERFROM FILING INFORMATION RETURNS
ELECTRONICALLY
.................................................................................... 17
SEC. 6. FORM 4419, APPLICATION FOR FILING INFORMATION RETURNS ELECTRONICALLY......................... 17
SEC. 7. STATE ABBREVIATIONS.................................................................................... 17
SEC. 8. EXTENSION OF TIME....................................................................................... 18
SEC. 9. PENALTIES................................................................................................ 19
SEC. 10. CORRECTED RETURNS, PAPER FORMS, AND COMPUTER-GENERATED FORMS.............................. 20
SEC. 11. VALIDATION OF FORM 8027 AT IRS/ECC-MTB.............................................................. 20
SEC. 12. DEFINITION OF TERMS................................................................................... 20
Part B. Electronic Filing Specifications
SEC. 1. GENERAL................................................................................................. 21
SEC. 2. ELECTRONIC FILING APPROVAL PROCEDURE.............................................................. 22
SEC. 3. TEST FILES................................................................................................ 22
SEC. 4. ELECTRONIC SUBMISSIONS................................................................................ 22
SEC. 5. PIN REQUIREMENTS....................................................................................... 23
SEC. 6. ELECTRONIC FILING SPECIFICATIONS..................................................................... 23
SEC. 7. CONNECTING TO THE FIRE SYSTEM........................................................................ 23
SEC. 8. COMMON PROBLEMS AND QUESTIONS ASSOCIATED WITH ELECTRONIC FILING............................ 25
Part C.Filing Specifications and Record Layout
SEC. 1. RECORD FORMAT AND LAYOUT............................................................................ 26
July 7, 2008142008–27 I.R.B.

Part A. General
Sec. 1. Purpose
.01Form 8027 is used by large food or beverage establishments when the employer is required to make annual reports to the IRS
on receipts from food or beverage operations and tips reported by employees.
Note: All employees receiving $20.00 or more a month in tips must report 100% of their tips to their employer.
.02The Internal Revenue Service Enterprise Computing Center — Martinsburg (IRS/ECC-MTB) has the responsibility of process-
ing Forms 8027 submitted electronically. The purpose of this revenueprocedure is to provide the specifications for filing Form 8027,
Employer’s Annual Information Return of Tip Income and AllocatedTips, electronically. This revenue procedure is updated when
legislative changes occur or reporting procedures are modified.
.03This revenue procedure supersedes the following: Rev. Proc.2006–29 published in Internal Revenue Bulletin 2006–27, dated
July 3, 2006, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, Mag-
netically or Electronically. This revenue procedure is effective for Forms 8027 due the last day of February 2009 and any returns filed
thereafter.
Sec. 2. Nature of Changes
Please read the publication carefully and inits entirety before attempting to prepare your electronic file for submission. Major
changes have been emphasized by using italics. The changes are as follows:
.01IRS/ECC-MTB no longer accepts any form of magnetic media. Electronic filing through the FIRE System is the only method
to report Form 8027 to IRS/ECC-MTB.
.02Title of Publication 1239 was changed to reflect the elimination of magnetic media filing.
.03Form 4804, Transmittal of Information Returns Reported Magnetically, is obsolete. This form was only required for magnetic
media reporting which is no longer a valid method of reporting information returns.
.04Form 8809, Application for Extension of Time To File Information Returns, is available as a fill-in form on the FIRE System
and is highly encouraged in lieu of the paper Form 8809. (See Part B, Sec. 1.)
.05Additional and clarifying information was added to Part A, Sec.4 concerning good faith agreements and determination letters.
.06Several sections have been deleted due to the elimination of magnetic media filing and others combined for greater clarity.
Please review the entire Publication for all relevant changes.
.07Test files can be submitted through the FIRE System. See Part B, Sec. 3 for details.
.08Special characters of any kind in name and address fields are not acceptable. See note with example in Part C, Sec. 01.
.09The following changes were made to the record layout:
(a)An additional indicator was added to the Final Return Indicator field, position 371.
(b)An additional indicator was added to the Liable/Not Liable Indicator field, position 374.
(c)The new field, Tax Year, was added to positions 375–378.
(d)The new field, Prior Year Indicator, was added to position 379.
(e)The new field, Test File Indicator, was added to position 380.
(f)The new field, Record Sequence Number, was added to positions 411–418.
Sec.3.WheretoFileandHowtoContacttheIRS, Enterprise Computing Center — Martinsburg
.01All correspondence concerning Forms 8027 processed at IRS/ECC-MTB should be sent to the following address:
IRS-Enterprise Computing Center — Martinsburg
Information Reporting Program
240 Murall Drive
Kearneysville WV 25430
.02Requests for paper forms and publications should be requested by calling the “Forms Only Number” toll-free number
1–800–TAX–FORM (1–800–829–3676).
.03Questions pertaining to electronic filing of Forms W-2mustbe directed to the Social Security Administration (SSA). Filers
can call 1–800–SSA–6270 to obtain the telephone number of the SSA Employer Services Liaison Officers for their area.
.04A taxpayer or authorized representative may request a copy of a tax return or a Form W-2 filed with a return by submitting
Form 4506, Request for Copy of Tax Return, to IRS. This form may be obtained by calling1–800–TAX–FORM (1–800–829–3676).
.05Electronic Products and Services Support,Information Reporting Branch, CustomerService Section (IRB/CSS), located at
IRS/ECC-MTB, answers electronic, paper filing, and tax law questions from the payer community relating to thecorrect preparation
and filing of business information returns (Forms 1096, 1098, 1099, 5498, 8027, and W-2G). IRB/CSS also answers questions relating
2008–27 I.R.B.15July 7, 2008

to the electronic filing of Forms 1042-S and to the tax law criteria and paper filing instructions for Forms W-2 and W-3. Inquiries
dealing with backup withholding and reasonable cause requirements due to missing and incorrect taxpayer identification numbers are
also addressed by IRB/CSS. Assistance is available year-round to payers, transmitters,and employers nationwide, Monday through
Friday, 8:30 a.m. to 4:30 p.m. Eastern Time, by calling toll-free1–866–455–7438orviae-mailatm
ccirp@irs.gov.Donotinclude
SSNsorEINsine-mailsorattachmentssincethisisnotasecureline.The Telecommunications Device for the Deaf (TDD) toll
number is304–267–3367.Call as soon as questions arise to avoid the busy filingseasons at the end of January and February. Recipi-
ents of information returns (payees) should continue to contact 1–800–829–1040 with any questions on how to report the information
returns data on their tax returns.
.06The telephone numbers and web addresses for questionsabout specifications for electronic submissions are:
Information Reporting Program Customer Service Section
TOLL-FREE 1–8
66–455–7438 or outside the U.S. 1–304–263–8700
e-mail at m
ccirp@irs.gov
304–267–336
7—TDD
(Telecommunication Device for the Deaf)
Fax Machine
Toll-free within the U.S. — 877–477–0572
Outside the U.S. — 304–264–5602
Electronic Filing — FIRE System
h
ttp://fire.irs.gov
TO OBTAIN FORMS:
1–800–TAX–FORM (1–800–829–3676)
w
ww.irs.gov—IRS website access to forms
Sec. 4. Filing Requirements and Due Dates
.01Section 6011(e)(2)(A) of the Internal Revenue Code requires that any person, including corporations, partnerships, individuals,
estates, and trusts, required to file 250 or more information returns must file suchreturns electronically.
.02The filing requirements apply separately to both original and corrected returns.
.03The above requirements do not apply if you establish undue hardship (see Part A, Sec. 5).
.04 DO NOT SUBMIT THE SAME INFORMATION ON PAPER FORMS THAT YOU SUBMIT ELECTRONICALLY,
SINCE THIS WOULD RESULT IN DUPLICATE FILING.This does not mean that corrected documents are not to be filed. If a
return has been prepared and submitted improperly, you must file a corrected return as soon as possible. Refer to Part A, Sec. 10 for
requirements and instructionsfor filing corrected returns.
.05If an allocation of tips is based on a good faith agreement, a copy of this agreement must be submitted within 3 business days
after receiving acknowledgement that IRS hasaccepted the electronically filed Form 8027.Mail or Fax a copy of this agreement using
the contact information in Part A, Sec. 3. In your transmittal (e.g., fax transmittal or cover letter), include the words “Form 8027
attachment(s)” and the following information: name of establishment, establishment number, TCC and the tax year of the Form 8027.
.06Employers can request a lower rate (but not lower than 2%) for tip allocation purposes by submitting an application to the
IRS. See Sec. 31.6053–3(h)(4) of Employment Tax Regulations. Detailed instruction for requesting a lower rate can be found in the
Instructions for Form 8027. The IRS will issue a determination letter to notify the employer when and for how long a reduced rate is
effective. If a lower rate is used on the Form 8027 based on the IRS determination letter, a copy of this letter must be submitted within
3businessdays after receiving acknowledgement that IRS has accepted the electronically filed Form 8027. Mail or Fax a copy of this
agreement using the contact information in Part A, Sec. 3. In your transmittal (e.g., fax transmittal or cover letter), include the words
“Form 8027 attachment(s)” and the following information: name of establishment, establishment number, TCC and the tax year of
the Form 8027.
.07Electronic reporting to IRS for Form 8027 must be on a calendar year basis. The due date for paper reported Forms 8027 is the
last day of February. However, Forms 8027 filedelectronicallyare due March 31.
.08If the due date falls on a Saturday, Sunday, or legal holiday, filing Form 8027 on the next day that is not a Saturday, Sunday, or
legal holiday will be considered timely.
July 7, 2008162008–27 I.R.B.

Sec. 5. Form 8508, Request for Waiver From Filing Information Returns Electronically
.01If an employer is required to file electronically but fails to do so and does not have an approved waiver on record, the employer
will be subject to a penalty of $50 per return in excess of 250.
.02If employers are required to file original or corrected returns electronically, but such filing would create a hardship, they may
request a waiver from these filing requirements by submitting Form 8508, Request for Waiver From Filing Information Returns Elec-
tronically, to IRS/ECC-MTB. Form 8508 can be obtained on the IRS website at w
ww.irs.govor by calling toll-free 1–800–829–3676.
.03Even though an employer may submit as many as 249 corrections on paper, IRS encourages electronic filing of corrections.
Once the 250 threshold has been met, filers are required to submit any additional returns electronically. However, if a waiver for an
original filing is approved, any corrections for the same type of returns will be covered under that waiver.
.04Generally, only the employer may sign the Form 8508. A transmitter may sign if given power of attorney; however, a letter
signed by the employer stating this fact must be attached to the Form 8508.
.05A transmitter must submit a separate Form 8508 for each employer. Do not submit a list of employers.
.06All information requested on the Form 8508 must be provided to IRS for the request to be processed.
.07The waiver, if approved, will provide exemption from electronic filing for the current tax year only. Employers may not apply
for a waiver for more than one tax year.
.08Form 8508 may be photocopied or computer-generated as long as itcontains all the information requested on the original form.
.09Filers are encouraged to submit Form 8508 to IRS/ECC-MTB at least 45 days before the due date of the returns.
.10All requests for a waiver should be sent using the following address:
IRS-Enterprise Computing Center — Martinsburg
Information Reporting Program
Attn: Extension of Time Coordinator
240 Murall Drive
Kearneysville, WV 25430
.11 File Form 8508 for Forms W-2 with IRS/ECC-MTB, not SSA.
.12Waivers are evaluated on a case-by-case basis and are approved or denied based on criteria set forth under section 6011(e) of
the Internal Revenue Code. The transmitter must allow a minimum of 30 days for IRS/ECC-MTB to respond to a waiver request.
.13If a waiver request is approved, the transmitter should keep the approval letter on file.
.14An approved waiver from filing Forms 8027 electronically does not provide exemption from all filing. The employer must
timely file Form 8027 on acceptable paper forms with the Cincinnati Service Center.The transmitter should also send a copy of
the approved waiver to the Cincinnati Service Center where the paper returns are filed.
Sec. 6. Form 4419, Application for FilingInformation Returns Electronically
.01For the purposes of this revenue procedure, the EMPLOYER is the organization supplying the information and the TRANS-
MITTER is the organization preparing the electronic file and/or sending the file to IRS/ECC-MTB. The employer and the transmitter
may be the same entity. Employers or their transmitters are required to complete Form 4419, Application for Filing Information Re-
turns Electronically.
.02Form 4419 can be submitted at any time during the year; however, it should be submitted to IRS/ECC-MTB at least 30 days
before the due date of the return(s). IRS willact on an application and notify the applicant, in writing, of authorization to file. A
five-character alpha/numeric Transmitter Control Code (TCC) will be assigned and included in an acknowledgment letter within 15
to 45 days of receipt of the application. Electronic returns may not be filed with IRS until the application has been approved and a
TCC assigned. Include your TCC in any correspondence with IRS/ECC-MTB.
.03If you file information returns other than Form 8027 electronically, you must obtain a separate TCC for those types of returns.
The TCC assigned for Forms 8027 is to be used for the processing of these forms only.
.04After you have received approval to file electronically, you do not need to reapply each year; however, notify IRS in writing if:
(a)You change your name or the name of your organization, so that your files may be updated to reflect the proper name;
(b)You discontinue filing for two years (your TCC may have been reassigned).
.05IRS/ECC-MTB encourages filers who plan to submit for multiple employers to submit one application and to use one TCC for
all employers.
.06Approval to file does not imply endorsementby IRS/ECC-MTB of any computer software or of the quality of tax preparation
services provided by a service bureau or software vendor.
Sec. 7. State Abbreviations
.01The following state and U.S. possession abbreviations are to be used when developing the state code portion of address fields.
2008–27 I.R.B.17July 7, 2008

StateCodeStateCodeStateCode
AlabamaALKentuckyKYNo. Mariana IslandsMP
AlaskaAKLouisianaLAOhioOH
American SamoaASMaineMEOklahomaOK
ArizonaAZMarshall IslandsMHOregonOR
ArkansasARMarylandMDPennsylvaniaPA
CaliforniaCAMassachusettsMAPuerto RicoPR
ColoradoCOMichiganMIRhode IslandRI
ConnecticutCTMinnesotaMNSouth Caroli
na
SC
DelawareDEMississippiMSSouth DakotaSD
District of ColumbiaDCMissouriMOTennesseeTN
Federated States of Micronesia FMMontanaMTTexasTX
FloridaFLNebraskaNEUtahUT
GeorgiaGANevadaNVVermontVT
GuamGUNew Hampsh
ire
NHVirginiaVA
HawaiiHINew JerseyNJ(U.S.) Virgin IslandsVI
IdahoIDNew MexicoNMWashingtonWA
IllinoisILNew YorkNYWest VirginiaWV
IndianaINNorth CarolinaNCWisconsinWI
IowaIANorth DakotaNDWyomingWY
KansasKS
.02Filers must adhere to the city, state, and ZIP Code format for U.S. addresses. This also includes American Samoa, Federated
States of Micronesia, Guam, Marshall Islands, Commonwealth of the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin
Islands.
Note: A Form 8027 is required only for establishments in the 50 states and the District of Columbia.
Sec. 8. Extension of Time
.01An extension of time to file may be requested for Form 8027.
.02A paper Form 8809, Application for Extension of Time To File Information Returns, should be submitted to IRS/ECC-MTB.
Thisformmaybeusedtorequestanextensionoftimetofileinformation returns submitted on paperor electronically. All requests
for an extension of time filed on Form 8809 should be sent using the following address:
IRS-Enterprise Computing Center - Martinsburg
Information Reporting Program
Attn: Extension of Time Coordinator
240 Murall Drive
Kearneysville, WV 25430
Note: Due to the large volume of mail received by IRS/ECC-MTB and the time factor involved in processing Extension of
Time (EOT) requests, it is imperative that the attention line be present on all envelopes or packages containing Form 8809.
.03The fill-in Form 8809 may be completed online via the FIRE System. (See Part B, Sec. 7, for instructions on connecting to the
FIRE System.) At the Main Menu, click “Extension of Time Request” and then click “Fill-in Extension Form”. This option is only
used to request an automatic 30-day extension. Extension requests completed online via the FIRE System receive an instant response.
If you are requesting an additional extension, you must submit apaper Form 8809. Requests for an additional extension of time to
file information returns are not automatically granted. Requests for additional time are granted only in cases of extreme hardship or
catastrophic event. The IRS will only send a letter of explanation approving or denying your additional extension request. (Refer to
.06 of this Section.)
.04Filers requesting an extension of time for multiple employers may submit one Form 8809 and attach a list of the employer
names and their Employer Identification Numbers (EINs).The listing must be attached to ensure the extension is recorded for all
employers.Form 8809 may be computer-generated or photocopied. Besure that all the pertinent information is included.
July 7, 2008182008–27 I.R.B.

.05Requests for extensions of time for multiple employers will be responded to with oneapproval letter, accompanied by a list of
employers covered under that approval.
.06 As soon as it is apparentthat an extension of time to file is needed, Form 8809 may be submitted. When granted, the extension
will be for 30 days. It will take a minimum of 30 days for IRS/ECC-MTB to respond to an extension request. Under certain circum-
stances, a request for an extension of time could be denied. When adenial letter is received, any additional or necessary information
may be resubmitted within 20 days. When requesting an extension of time,do nothold your files waiting for a response.
.07While very difficult to obtain, if an additional extension of time is needed, a second Form 8809 must be submitted before the
end of the initial extension period. Line 7 on the form should be checked to indicate that an additional extension is being requested.
A second 30-day extension will be approved only in cases of extreme hardship or catastrophic events.
.08Form 8809 must be postmarked no later than the due date of the return for which an extension is requested. If requesting an
extension of time to file several types of forms, use one Form 8809, but the Form 8809 must be postmarked no later than the earliest
due date. For example, if requesting an extension of time to file both Forms 8027 and 5498, submit Form 8809 postmarked on or
before the last day of February.
.09If an extension request is approved, the approval letter should be kept on file. The approval letter or copy of the approval letter
for extension of time shouldnotbe sent to IRS/ECC-MTB with the electronic file. When submitting Form 8027 onpaper onlyto the
Cincinnati Service Center, attach a copy of the approval letter.If an approval letter has not been received, send a copy of the timely
filed Form 8809.
.10Request an extension for only one tax year.
.11The extension request must be signed by the employer or a person who is duly authorized to signa return, statement or other
document for the employer.
.12Failure to properly complete and sign the Form 8809 may cause delays in processing the request or result in a denial. Carefully
read and follow the instructions on the back of the Form 8809.
.13Form 8809 may be obtained by calling1–800–TAX–FORM (1–800–829–3676) or downloading from w
ww.irs.gov.
Note: An extension of time to file is not an extension to furnish Form W-2 to the employee.
.14Request an extension of time to furnish the statements to recipients of Forms W-2 by submitting a letter to IRS/ECC-MTB (See
Part A, Sec. 3) containing the following information:
(a)Employer name
(b)EIN
(c)Address
(d)Type of return (W-2)
(e)Specify that the extension request is to provide W-2 statements to recipients.
(f)Reason for delay
(g)Signature of employer or person duly authorized.
Requests for an extension of time to furnish the statements for Forms W-2 to recipients are not automatically approved; however,
if approved, generally an extension will allow a maximum of 30 additional days from the due date to furnish the statements to the
recipients. The request must be postmarked no later than the date on which the statements are due to the recipients.
Sec. 9. Penalties
.01The Revenue Reconciliation Act of 1989 changed the penalty provisions for any documents, including corrections, which are
filed after the original filing date for the return. The penalty for failure to file correct information returns is “time sensitive,” in that
prompt correction of failures to file, or prompt correction of errors on returns that were filed, can lead to reduced penalties.
- The penalty generally is $50 for each information return that isnot filed, or is not filed correctly, by the prescribed filing date,
with a maximum penalty of $250,000 per year($100,000 for certain small businesses with average annual gross receipts, over
the most recent 3-year period, not in excess of $5,000,000). The penalty generally is reduced to:
- $30 for each failure to comply if the failure is corrected more than 30 days after the return was due, but on or before August
1 of the calendar year in which the return was due, with a maximum penalty of $150,000 per year ($50,000 for certain small
businesses with average annual gross receipts, over the most recent 3-year period, not in excess of $5,000,000).
- $15 for each failure to comply if the failure is corrected within 30 days after the date the return was due, with a maximum
penalty of $75,000 per year ($25,000 for certain small businesses with average annual gross receipts, over the most recent
3-year period, not in excess of $5,000,000).
.02Penalties can be waived if failures were due to reasonable causeand not to willful neglect. In addition, section 6721(c) of the
Code provides a de minimis rule that if:
(a)information returns have been filed but were filed with incomplete or incorrect information, and
2008–27 I.R.B.19July 7, 2008

(b)the failures are corrected on or before August 1 of the calendar year in which the returns were due, then the penalty for
filing incorrect returns (but not the penalty for filing late) will not apply to the greater of 10 returns or one-half of 1 percent
of the total number of information returns you are required to file for the calendar year.
.03 Intentional Disregard of Filing Requirements —If any failure to file a correct information return is due to intentional disre-
gard of the filing and correct information requirements, the penalty is at least $100 per information return with no maximum penalty.
Sec. 10. Corrected Returns, Paper Forms,andComputer-GeneratedForms
.01If returns must be corrected, approved electronic filers must provide such corrections electronically for 250 or more forms. If
your information is filed electronically, corrected returns are identified by using the “Corrected 8027 Indicator” in field position 370
of the employer record.
.02A correction file must be identified by entering the correction indicator “G” in position 370.
.03When replacing a correction file that was bad, you must submit a replacement file. Since you are replacing a correction file
you must enter the correction indicator “G” in position 370.
.04If corrections are not submitted electronically, employers mustsubmit them on official Forms 8027. Substitute forms that have
been previously approved by IRS,or computer-generated forms that are exact facsimiles of the official form (except for minor page
size or print style deviations), may be submitted without obtaining IRS approval before using the form.
.05Employers/establishments may send corrected paper Forms 8027 to IRS at the address shown in Part A, Sec. 10.06. Corrected
paper returns are identified by marking the “AMENDED” check box on Form 8027.
.06If you are filing more than one paper Form 8027, you must attacha completed Form 8027-T, Transmittal of Employer’s Annual
Information Return of Tip Income and Allocated Tips, to the Forms 8027 and send to:
Department of the Treasury
Internal Revenue Service Center
Cincinnati, OH 45999
IRS/ECC-MTB processes Forms 8027 submitted electronically only. Do not send paper Forms 8027 to IRS/ECC-MTB.
.07If part of a submission is filed electronically and the rest of the submission is filed on paper Forms 8027, send the paper forms to
the Cincinnati Service Center. For example, you filed your Forms 8027 electronically with IRS/ECC-MTB, and later you found that
some of the forms you filed needcorrecting. Because of the low volume of corrections, you submit the corrections on paper Forms
8027. You must send these corrected Forms 8027 along with Form 8027-T to the Cincinnati Service Center.
Sec. 11. Validation of Form 8027 at IRS/ECC-MTB
.01The accuracy of data reported on Form 8027 will be validated at the IRS Service Center. All fields indicated as “Required” in
the record layout must contain valid information. If the IRS identifies an error, you will be notified and required to provide correct
information.
.02The address for the establishment must agree with the state and ZIP Code. If there are inconsistencies or if the ZIP code does
not agree with the address the record will error out.
.03All alpha characters must be in upper case.
.04The following is clarification of monetary amount requirements:
(a)Charged Receipts (positions260–271) must exceed Charged Tips (positions 248–259).
(b)Total Tips Reported (positions 308–319) must equal the combined amount of the Indirect Tips (positions 284–295) and
Direct Tips (positions 296–307).
(c)Gross Receipts (positions 320–331) must exceed all other monetary amounts with the exception of Charged Receipts. It is
possible to equal Charged Receipts if all transactions were conducted on charge cards.
(d)The Tip Percentage Rate Times Gross Receipts (332–343) must equal the Gross Receipts times the Tip Rate. Normally, the
Tip Rate is 8%. The Tip Rate must be entered as 0800 in positions 344–347 unless you have been granted a lower rate by
the IRS.
(e)Generally, you would have allocated tips if the Total Tips Reported (positions 308–319) is less than the Tip Percentage Rate
Times Gross Receipts (positions 332–343). The difference must be entered as Allocated Tips (positions348–359).
Sec. 12. Definition of Terms
ELEMENTDESCRIPTION
CorrectionA correction is an information return submitted by the employer/transmitter to correct
an information return that was previouslysubmitted to and successfully processed by
IRS, but contained erroneous information.
July 7, 2008202008–27 I.R.B.

ELEMENTDESCRIPTION
EINA nine-digit Employer Identification Number which has been assigned by IRS to the
reporting entity.
Employees hours workedThe average number of employee hours worked per business day during a month is figured
by dividing the total hours worked during the month by all your employees who are
employed in a food or beverage operation by the average number of days in the month that
each food or beverage operation at which these employees worked was open for business.
EmployerThe organization supplying their information. Use the same name and EIN you used on
your Forms W-2 and Forms 941.
EstablishmentA large food or beverage establishment that provides food or beverage for consumption on
the premises; where tipping is a customarypractice; and where there are normally more
than 10 employees who work more than 80 hours on a typical business day during the
preceding calendar year.
FileFor the purpose of this revenue procedure,a file is the Form 8027 information submitted
electronically by an Employer or Transmitter.
More than 10 employeesAn employer is considered to have more than 10 employees on a typical business day
during the calendar year if half the sum of: the average number of employee hours worked
per business day in the calendar month in which the aggregate gross receipts from food
and beverage operations were greatest,plusthe average number of employee hours
worked per business day in the calendar monthin which the total aggregate gross receipts
from food and beverage operations were the least,equalsmore than 80 hours.
ReplacementA replacement is an information return file sent by the employer/transmitterat the
requestof IRS/ECC-MTB because of errors encountered while processing the filer’s
original file or correction file.
TransmitterPerson or organization preparing electronic file(s). May be employer or agent of employer.
Transmitter Control Code (TCC)A five-character alpha/numeric code assigned byIRS to the transmitter prior to actual
filing electronically. This number is inserted in the record and must be present. An
application (Form 4419)must be filed with IRS to receive this number.
Part B. Electronic Filing Specifications
Note:The FIRE System DOES NOT provide fill-in forms, except forForm 8809, Application for Extension of Time To File In-
formation Returns.Filers must program files according to the Record Layout Specifications contained in this publication.
Sec. 1. General
.01Electronic filing of Forms 8027 information returns, originalsand replacements, is a reporting method for filers submitting 250
or more Forms 8027. Payers who are under the filing thresholdrequirement, are encouraged to file electronically.
.02All electronic filing of information returns are received at IRS/ECC-MTB via the FIRE (Filing Information Returns Elec-
tronically) System. To connect to the FIRE System, point your browser to h
ttp://fire.irs.gov. The system is designed to support the
electronic filing of information returns only.
.03The electronic filing of information returns is not affiliated with any other IRS electronic filing programs. Filers must obtain
separate approval to participate in each program. Only inquiries concerning electronic filing of information returns should be directed
to IRS/ECC-MTB.
.04Files submitted to IRS/ECC-MTB electronically must be in standard ASCII code. Do not submit paper forms with the same
information as electronically submittedfiles. This would create duplicate reporting resulting in penalty notices.
.05Form 8809, Application for Extension of Time To File Information Returns, is available as a fill-in form via the FIRE System.
If you do not already have a User ID and password refer to Section 7. At the Main Menu, click “Extension of Time Request” and
then click “Fill-in Extension Form”. This option is only used to request an automatic 30-day extension and must be completed by the
due date of the return for each payer requesting an extension. Print the approval page for your records. Refer to Part A, Sec. 8 for
additional details.
2008–27 I.R.B.21July 7, 2008

Sec. 2. Electronic Filing Approval Procedure
.01Filers must obtain a Transmitter Control Code (TCC) prior to submitting files electronically. Filer
s who previously had a TCC
for magnetic media filing of Form 8027 may use their assigned TCC for electronic filing. Refer to Part A,
Sec. 6, for information on
how to obtain a TCC.
.02Once a TCC is obtained, electronic filers assign their own user ID, password and PIN (Personal Ident
ification Number) and do
not need prior or special approval. See Part B, Sec. 5, for more information on the PIN.
.03If a filer is submitting files for more than one TCC, it is not necessary to create a separate logon and
password for each TCC.
.04For all passwords, it is the user’s responsibility to remember the password and not allow the passwo
rd to be compromised.
Passwords are user assigned at first logon and must be 8 alpha/numeric characters containing at leas
t 1 uppercase, 1 lowercase, and 1
numeric. However, filers who forget their password or PIN, can calltoll-free 1–866–455–7438for a
ssistance. Users can change their
passwords at any time from the main menu. The FIRE System may require users to change their passwords
on a yearly basis.
Sec. 3. Test Files
.01Filers are not required to submit a test file; however, the submission of a test file is encouraged for all new electronic filers to
test hardware and software. If filers wish to submit an electronic test file for Tax Year2008(returns to be filed in2009), itmustbe
submitted to IRS/ECC-MTBno earlier thanNovember 1, 2008, andno later thanFebruary 15, 2009.
.02Filers who encounter problems while transmitting the electronic test file can contact IRS/ECC-MTBtoll-free 1–866–455–7438
for assistance.
.03Within 5 days, the results of the electronic transmission will be e-mailed to you providing you provide an accurate e-mail
address on the “Verify Your Filing Information” screen. If you are using e-mail filtering software, configure your software to accept
e-mail from f
ire@irs.govand irs.e-helpmail@irs.gov. If after receiving the e-mail it indicates that your file is bad, you must log into
the FIRE System and go to the CHECK FILE STATUS area of the FIRE System to determine what the errors are in your file. If you
do not receive an e-mail in 5 business days, log back into the FIRE System and click on CHECK FILE STATUS to view the results
of your file.
Sec. 4. Electronic Submissions
.01Electronically filed information may be submitted to IRS/ECC-MTB 24 hours a day, 7 days a week. Technical assistance will
be available Monday through Friday between 8:30 a.m. and 4:30 p.m. Eastern time by callingtoll-free 1–866–455–7438.
.02 The FIRE System will be down from the last week of December through the first week of January.This allows IRS/ECC-
MTB to update its system to reflect current year changes.
.03If you are sending files larger than 10,000 records electronically, data compression is encouraged. If you are considering
sending files larger than 5 million records, please contact IRS/ECC-MTB for specifics. WinZip and PKZip are the only acceptable
compression packages. IRS/ECC-MTB cannot accept self-extracting zip files or compressed files containing multiple files. The time
required to transmit information returns electronically will vary depending upon the type of connection to the Internet and if data
compression is used.The time required to transmit a file can be reduced by as much as 95 percent by using compression.
.04Transmitters may create files using self assigned files name(s). Files submitted electronically will be assigned a new unique
file name by the FIRE System. The file name assigned by the FIRE System will consist of submission type (ORIG [original], TEST
[test], CORR [correction], and REPL [replacement]), the filer’s TCC and a four-digit number sequence. The sequence number will
be incremented for every file sent. For example, if it is your first original file for the calendar year and your TCC is 44444, the
IRS assigned file name would be ORIG.44444.0001.Record the file name.This information will be needed by IRS/ECC-MTB to
identify the file, if assistance is required.
.05If a file was submitted timely and is bad, the filer will have up to60 days from the date the file was sent to transmit an acceptable
file. If an acceptable file is not received within 60 days,then the payer could be subject to late filing penalties.
.06The following definitions have been provided to help distinguish between a correction and a replacement:
•Acorrectionis an information return submitted by the transmitter to correct an information return that was previously submitted
to and successfully processed by IRS/ECC-MTB, but contained erroneous information.(See Note.)
Note:Corrections should only be made to forms that have been submitted incorrectly, not the entire file.
•Areplacementis an information return file sent by the filer because the CHECK FILE STATUS option on the FIRE System
indicated the original/correction file was bad. After the necessary changes have been made, the file must be transmitted through
the FIRE System. (See Note.)
Note: Filers should never transmit anything to IRS/ECC-MTB as a “Replacement” file unless the CHECK FILE STATUS
option on the FIRE System indicates the file is bad.
.07Prior year data may be submitted, however, each taxyear must be submitted in a separate file transmission.
July 7, 2008222008–27 I.R.B.

Sec. 5. PIN Requirements
.01Filers will be prompted to create a PIN consisting of 10 numericcharacters when establishing their initial logon name and
password.
.02The PIN is required each time an ORIGINAL, CORRECTION, or REPLACEMENT file is sent electronically and is permission
to release the file. It is not needed for a TEST file. An authorized agent may enter their PIN, however, the payer is responsible for the
accuracy of the returns. The payer will be liable for penalties forfailure to comply with filing requirements. If you forget your PIN
,
please calltoll-free 1–866–455–7438for assistance.
Sec. 6. Electronic Filing Specifications
.01The FIRE System is designed exclusively for the filing of Forms 8027, 1098, 1099, 5498, W-2G, and 1042-S.
.02A transmitter must have a TCC (see Part A,Sec. 6) before a file can be transmitted.
.03Within 5 days, the results of the electronic transmission will be e-mailed to you providing you provide an accurate e-mail
address on the “Verify Your Filing Information” screen. If you are using e-mail filtering software, configure your software to accept
e-mail from f
ire@irs.govand irs.e-helpmail@irs.gov. If after receiving the e-mail it indicates that your file is bad, you must log into
the FIRE System and go to the CHECK FILE STATUS area of the FIRE System to determine what the errors are in your file. If you
do not receive an e-mail in 5 business days, log back into the FIRE System and click on CHECK FILE STATUS to view the results
of your file.
Sec. 7. Connecting to the FIRE System
.01Point your browser to http://fire.irs.govto connect to the FIRE System.
.02If you are running pop-up blocking software, disable it if you have problems uploading the file.
.03Before connecting, have your TCC and TIN available.
.04Your browser must support SSL 128-bit encryption.
F
irsttimeconnectiontotheFIRESystem(If you have logged on previously, skip to Subsequent Connections to the FIRE
System.)
Click“Create New Account”.
Fill out the registration form and click“Submit”.
Enter yourUser ID(most users logon with their first and last name).
Enter and verify yourpassword(the password is user assigned and must be 8 alpha/numerics,
containing at least 1 uppercase, 1 lowercase and1numeric).FIREmayrequireyoutochange
the password once a year.
Click“Create”.
If you receive the message“Account Created”,click“OK”.
Enter and verify your 10-digit self-assigned PIN (Personal Id
entification Number).
Click“Submit”.
If you receive the message“Your PIN has been successfully created!”,click“OK”.
Read the bulletin(s) and/or click“Click here to continue”.
S
ubsequentconnectionstotheFIRESystem
Click“Log On”.
Enter yourUser ID(most users logon with their first and last name).
Enter yourpassword(the password is user assigned and is case sensitive).
Read the bulletins and/or click“Click here to continue”.
U
ploadingyourfiletotheFIRESystem
At Menu Options:
Click“Send Information Returns”
Enter yourTCC:
Enter yourTIN:
Click“Submit”.
2008–27 I.R.B.23July 7, 2008

Uploadingyourf
iletotheFIRESystem
The system will t
hen display the company name, address, city, state, ZIP Code, phone number,
contact and e-ma
il address. This information will be used to e-mail the transmitter regarding this
transmission. U
pdate as appropriate and/or Click“Accept”.
Note: Please ensure that the e-mail is accurate so that the correct person receives the e-mail
and it does not return to us undeliverable. If you are using SPAM filtering software, please
configure it to allow an e-mail from f
ire@irs.govand irs.e-helpmail@irs.gov.
Click one of the following:
Original File
Correction File
Test File(Th
is option will only be available November through
mid-Februa
ry.)
Replacement File(Click on the file to be replaced.)
•Electronic Replacement(file was originally transmitted on this system)
Click the file to be replaced.
•Mag Media R
eplacement(file was originally sent on some type of magnetic media). Enter
the alpha
character from the letter (L–2494) that was returned. It is located on the top right on
the lette
r under “Refer Reply To:” For example, if the letter indicates TCC 44444A, the alpha
code that
would be entered is “A”. Click“Submit”.
Enter your 10-digit PIN.
Click“S
ubmit”.
Click“Browse”to locate the file and open it.
Click“Upload”.
When the upload is complete, the screenwill display the total bytes received and tell you the name of the file you just
uploaded.
If you have more files to upload for that TCC:
Click“
File Another?”;otherwise,
Click“Main Menu”.
If you d
o not receive an e-mail in 5 business days or your e-mail indicates the file is bad, log back into the FIRE System and
click
on CHECK FILE STATUS to view the results of your file.
CheckingyourFILESTATUS
At the Main Menu:
Click
“Check File Status”.
Enter yourTCC:
Enter yourTIN:
Click“Search”.
If “Results” indicate:
“Go
od, Released”— File has been released to our mainline processing.
“B
ad”— Correct the errors and timely resubmit the file as a “replacement”.
July 7, 2008242008–27 I.R.B.

CheckingyourFILESTATUS
“Not yet proces
sed”— File has been received, but we do not have results
available yet.
Please check back in a few days.
Click on the desired file for a detailed report of your transmission.
When you are finished, click onMain Menu.
Click“Log Out
”.
Close your Web Browser.
Sec. 8. Common Problems and Questions Associated with Electronic Filing
.01The following are the major errors associated with electronic filing:
N
ON-FORMATERRORS
1. SPAM filte
rs are not set to receive e-mail from f
ire@irs.govandirs.e-helpmail@irs.gov.
If you want to receive e-mails concerning your files, processingresults, reminders and notices, set your SPAM filter to receive
e-mail from f
ire@irs.govand irs.e-helpmail@irs.gov.
2. Incorrect e-mail provided.
When the “Verify Your Filing Information” screen is displayed, make sure your correct e-mail is displayed. If not, please
update with the correct e-mail.
3. Transmitter does not check the FIRE System to determine file acceptability.
The results of your file transfer are posted to the FIRE System within 5 business days. If the correct e-mail address was provided
on the “Verify Your Filing Information” screen when the file was sent, an e-mail will be sent regarding your FILE STATUS. If the
results in the e-mail indicate “Good, Released” and you agree with the “Count of Payees”, then you are finished with this file. If
you have any other results, please follow the instructions in the Check File Status option. If the file contains errors, you can get an
online listing of the errors. Date received and number of payee records is also displayed.
4. Replacement file is not submitted timely.
If your fil
e is bad, correct the file and timely resubmit as a replacement.
5. Transmitter compresses several files into one.
Only compress one file at a time. For example, if you have 10 uncompressed files to send, compress each file separately and
send 10 separate compressed files.
6. Transmitter sends an original file that is good, and then sends a correction file for the entire file even though there are
only a few changes.
The correction file, containing the proper coding, should only contain the records requiring correction, not the entire file.
7. File is formatted as EBCDIC.
All files submitted electronically must be in standard ASCII code. All alpha characters must be uppercase.
8. Transmitter has one TCC number, but is filing for multiple companies, which TIN should be used when logging
into the system to send the file?
When sending the file electronically, you will need to enter theTIN of the company assigned to the TCC. When you upload the
file, it will contain the TINs for the other companies that you are filing for. This is the information that will be passed forward.
9. Transm
itter sent the wrong file, what should be done?
Call us as soon as possibletoll-free 1–866–455–7438.We may be able to stop the file before it has been processed.Please do not
send a replacement for a file that is marked as a good file.
2008–27 I.R.B.25July 7, 2008

Part C.Filing Specifications and Record Layout
.01If the file does not meet these specifications, IRS/ECC-MTB will request a replacement file. Filers are encouraged to submit a
test prior to submitting the actual file. Contact IRS/ECC-MTBtoll-free 1–866–455–7438for further information.
Note 1: For tax year 2008 filed in calendaryear 2009, IRS/ECC-MTB will no longer accept tape cartridges. Electronic filing will
be the ONLY acceptable method for filing Form 8027.
Note 2: The only allowable characters in name and address fields are alphas, numeric characters, and blanks. Punctuation such as
periods, hyphens, ampersands, slashes and commas are not allowed and will cause your file to be rejected. For example, O’Hurley’s
Bar & Grill, 210 N. Queen St., Suite #300 must be entered as OHurleys Bar Grill 210 N Queen St Suite 300.
Sec. 1. Record Format and Layout
FORM 8027 RECORD FORMAT
Field
PositionField TitleLength Description and Remarks
1Establishment
Type
1
Required.This number identifies the kind of establishment. Enter the number
which describes the type of establishment, as shown below:
1. for an establishment that serves evening meals only (with or without
alcoholic beverages).
2. for an establishment that serves evening meals and other meals (with or
without alcoholic beverages).
3. for an establishment that serves only meals other than evening meals (with or
without alcoholic beverages).
4. for an establishment that serves food,ifatall,onlyasanincidentalpartof
the business of serving alcoholic beverages.
2–6Establishment
Serial
Numbers
5Required.These five-digit Serial Numbers are for identifying individual
establishments of an employer reporting under the same EIN. The employer
shall assign each establishment a unique number.Numeric characters only.
7–46Establishment
Name
40
Required.Enter the name of the establishment. Left-justify and fill unused
positions with blanks.Allowable characters are alphas, numeric, and
blanks.
47–86Establishment
Street
Address
40
Required.Enter the mailing address of the establishment. Street address
should include number, street, apartment or suite number (use P O Box only if
mail is not delivered to street address). Left-justify and blank fill.Allowable
characters are alphas,numeric, and blanks.
87–111Establishment
City
25Required.Enter the city, town, or post office. Left-justify and blank fill.
Allowable characters are alphas, numeric, and blanks.
112–113Establishment
State
2
Required.Enter the state code from the state abbreviations table in Part A,
Sec. 7.
114–122Establishment
ZIP Code
9
Required.Enter the complete nine-digit ZIP Code of the establishment. If
using a five-digit ZIP Code, left-justify the five-digit ZIP Code and fill the
remaining four positions with blanks.
Note: Must be nine numeric characters or 5 numeric characters and four blanks. Do not enter the dash.
123–131Employer
Identification
Number
9
Required.Enter the nine-digit number assigned to the employer by IRS.Do
not enter hyphens, alphas, all 9s or all zeros.
132–171Employer
Name
40
Required.Enter the name of the employer as it appears on your tax forms (e.g.,
Form 941). Any extraneous information must be deleted. Left-justify and blank
fill.Allowable characters are alphas, numeric, and blanks.
July 7, 2008262008–27 I.R.B.

FORM 8027 RECORD FORMAT
Field
PositionField TitleLength Description and Remarks
172–211Employer
Street
Address
40
Required.Enter mailing address of employer. Street address should include
number, street, apartment or suite number (use P O Box only if mail is not
delivered to street address). Left-justify and blank fill.Allowable characters
are alphas, numeric, and blanks.
212–236Employer
City
25Required.Enter the city, town, or post office. Left-justify and blank fill.
Allowable characters are alphas, numeric, and blanks.
237–238Employer
State
2
Required.Enter the state code from the state abbreviations table in Part A,
Sec. 7.
239–247Employer ZIP
Code
9
Required.Enter the complete nine-digit ZIP Code of the establishment. If
using a five-digit ZIP Code, left-justify the five-digit ZIP Code and fill the
remaining four positions with blanks.
Note: Must be nine numeric characters or 5 numeric characters and four blanks. Do not enter the dash.
248–259
Charged Tips12
Required.Enter the total amount of tips that are shown on charge receipts
for the calendar year. Amount must be entered in U.S. dollars and cents. The
right-most two positions represent cents. Right-justify and zero fill.If no
entry, zero fill. Numeric charactersonly. Do not enter decimal points,
dollars signs, or commas.
260–271Charged
Receipts
12
Required.Enter the total sales for the calendar year other than carry-out
sales or sales with an added service charge of 10 percent or more, that are on
charge receipts with a charged tip shown. This includes credit card charges,
other credit arrangements, and charges to a hotel room unless the employer’s
normal accounting practice consistently excludes charges to a hotel room. Do
not include any state or local taxes in the amount reported. Amount must be
entered in U.S. dollars and cents. The right-most two positions represent cents.
Right-justify and zero fill.If no entry, zero fill. Numeric characters only. Do
not enter decimal points,dollars signs, or commas.
272–283Service
Charge Less
Than 10
Percent
12
Required.Enter the total amount of service charges less than 10 percent added
to customer’s bills and were distributed to your employees for the calendar
year. In general, service charges addedto the bill are not tips since the customer
does not have a choice. These service charges are treated as wages and are
included on Form W-2. Amount must be entered in U.S. dollars and cents.
The right-most two positions represent cents. Right-justify and zero fill.If no
entry, zero fill.Numeric characters only. Do not enter decimal points,
dollars signs, or commas.
284–295
Indirect Tips
Reported
12
Required.Enter the total amount of tips reported by indirectly tipped
employees (e.g., bussers, service bartenders, cooks) for the calendar year. Do
not include tips received by employeesin December of the prior tax year but not
reported until January. Include tips received by employees in December of the
tax year being reported, but not reported until January of the subsequent year.
Amount must be entered in U.S. dollars and cents. The right-most two positions
represent cents. Right-justify and zero fill.If no entry, zero fill. Numeric
characters only. Do not enter decimal points, dollars signs, or commas.
296–307Direct Tips
Reported
12
Required.Enter the total amount of tips reported by directly tipped employees
(e.g., servers, bartenders) for the calendar year. Do not include tips received
by employees in December of the prior tax year but not reported until January.
Include tips received by employees in December of the tax year being reported,
but not reported until January of the subsequent year. Amount must be entered
in U.S. dollars and cents. The right-most two positions represent cents.
Right-justify and zero fill.If no entry, zero fill. Numeric characters only. Do
not enter decimal points,dollars signs, or commas.
2008–27 I.R.B.27July 7, 2008

FORM 8027 RECORD FORMAT
Field
PositionField TitleLength Description and Remarks
308–319Total Tips
Reported
12
Required.Enter the total amount of tips reported by all employees (both
indirectly tipped and directly tipped) for the calendar year. Do not include
tips received in December of the prior taxyear but not reported until January.
Include tips received in December of the tax year being reported, but not
reported until January of the subsequent year. Amount must be entered in U.S.
dollars and cents. The right-most two positions represent cents. Right-justify
and zero fill.If no entry, zero fill. Numeric characters only. Do not enter
decimal points, dollars signs, or commas.
320–331Gross
Receipts
12
Required.Enter the total gross receipts from the provision of food and/or
beverages for this establishment for the calendar year. Do not include receipts
for carry-out sales or sales with an added service charge of 10 percent or more.
Do not include in gross receipts chargedtips (field positions 248–259) shown
on charge receipts unless you have reduced the cash sales amount because you
have paid cash to tipped employees for tips they earned that were charged.
Do not include state or local taxes in gross receipts. If you do not charge
separately for food or beverages along with other services (such as a package
deal for food and lodging), make a good faith estimate of the gross receipts
attributable to the food or beverages.This estimate must reflect the cost of
providing the food or beverages plus a reasonable profit factor. Include the
retail value of complimentary food or beverages served to customers if tipping
for them is customary and they are provided in connection with an activity
engaged in for profit whose receipts would not be included as gross receipts
from the provision of food or beverages (e.g., complimentary drinks served to
customers at a gambling casino). Amount must be entered in U.S. dollars and
cents. The right-most two positions represent cents. Right-justify and zero
fill.If no entry, zero fill. Numeric characters only. Do not enter decimal
points, dollars signs, or commas.
332–343Tip
Percentage
Rate Times
Gross
Receipts
12
Required.Enter the amount determined by multiplying Gross Receipts for
the year (field positions 320–331) by the Tip Percentage Rate (field positions
344–347). For example, if the value of Gross Receipts is “000045678900”
and Tip Percentage Rate is “0800”, multiply $456,789.00 by .0800 to get
$36,543.12 and enter “000003654312”. If tips are allocated using other than
the calendar year, enter zeros; this mayoccur if you allocated tips based on
the time period for which wages were paid or allocated on a quarterly basis.
Amount must be entered in U.S. dollars and cents. The right-most two positions
represent cents. Right-justify and zero fill.If no entry, zero fill. Numeric
characters only. Do not enter decimal points, dollars signs, or commas.
344–347Tip
Percentage
Rate
4
Required.Enter 8 percent (0800) unless a lower rate has been granted by the
IRS.The determination letter must follow the electronic submission. See Part
A, Sec. 4, .06 for details.Numeric characters only. Do not enter decimal
points, dollars signs, or commas.
348–359
Allocated
Tips
12
Required.If Tip Percentage Rate times Gross Receipts (field positions
332–343) is greater than Total Tips Reported (field positions 308–319), then
the difference becomes Allocated Tips. Otherwise, enter all zeros. If tips are
allocated using other than the calendar year, enter the amount of allocated tips
from your records. Amount must be entered in U.S. dollars and cents. The
right-most two positions represent cents. Right-justify and zero fill.If no
entry, zero fill. Numeric charactersonly. Do not enter decimal points,
dollars signs, or commas.
July 7, 2008282008–27 I.R.B.

FORM 8027 RECORD FORMAT
Field
PositionField TitleLength Description and Remarks
360Allocation
Method
1
Required.Enter the allocation method used if Allocated Tips (field positions
348–359) are greater than zero as follows:
0) if allocated tips are equal to zero.
1) for allocation based on hours worked.
2) for allocation based on gross receipts.
3) for allocation based ona good faith agreement.The good faith agreement
must follow the electronic submission. See Part A, Sec. 4, .05 for details.
Note: The method of allocation of tips based on the number of hours worked as described in Section 31.6053–3(f)(1)(iv)
may be utilized only by an employer that employs less than the equivalent of 25 full-time employees at the establishment
during the payroll period. Section 31.6053–3(j)(19) provides that an employer is considered to employ less than the
equivalent of 25 full-time employees at anestablishment during a payroll period ifthe average number of employee hours
worked per business day during the payroll period is less than 200 hours.
361–364Number of
Directly
Tipped
Employees
4
Required.Enter the total number (must be greater than zero) of directly tipped
employees employed by the establishment for the calendar year. Right-justify
and zero fill.Numeric characters only.
365–369
Transmitter
Control Code
(TCC)
5Required.Enter the 5-digit Transmitter Control Code assigned by the IRS.
370Corrected
8027
Indicator
1
Required.Enterblankfororiginalreturn.Enter“G”forcorrectedreturn.A
corrected return must be a complete newreturn replacing the original return.
371Final Return
Indicator
1
Required.Enter the appropriate code:
F) if this is the last time you will file Form 8027
N) if this isnotthe last time you will file Form 8027
Do not enter a blank.
372Charge Card
Indicator
1
Required.Enter the appropriate code:
1) if your establishment accepts credit cards, debit cards or other charges.
2) if your establishment does not accept credit cards, debit cards or other
charges.
373ATIP
Indicator
1
Required.Enter “T” if you are participating in the Attributed Tip Income
Program; otherwise, enter a blank.
374Liable/Not
Liable
Indicator
1
Required.Enter the appropriate code:
N) if you are not liable to file Form 8027
Y) if you are liable to file Form 8027
Do not enter a blank.
375–378Tax Year4
Required.Enter the 4-digit tax year.
379Prior Year
Indicator
1
Required.Enter a “P”onlyif reporting prior year data; otherwise, enter
ablank.
380Test File
Indicator
1
Required for test files only.Enter “T” if this is a test file; otherwise, enter
ablank.
381–410Reserved30Enter blanks.
2008–27 I.R.B.29July 7, 2008

FORM 8027 RECORD FORMAT
Field
PositionField TitleLength Description and Remarks
411–418Record
Sequence
Number
8
Required.Enter the number of the record as it appears within your file. The first
record in your file will be “1” and each record, thereafter, must be incremented
by one in ascending numerical sequence, i.e., 2, 3, 4, etc. Right-justify numbers
with leading zeros in the field. For example the first record in the file would
appear as “00000001”, followed by “00000002”, “00000003” and so on until
you reach the final record of the file.
419–420Blank2Enter blanks or CR/LF characters.
FORM 8027 RECORD LAYOUT
Establishment
Type
Establishment
Serial Numbers
Establishment
Name
Establishment
Street Address
12–67–4647–86
Establishment
City
Establishment
State
Establishment
ZIP Code
Employer
Identification
Number
87–111112–113114–122123–131
Employer
Name
Employer
Street Address
Employer
City
Employer
State
132–171172–211212–236237–238
Employer
ZIP Code
Charged
Tips
Charged
Receipts
Service Charge
Less Than 10
Percent
239–247
248–259
260–271272–283
Indirect Tips
Reported
Direct Tips
Reported
Total Tips
Reported
Gross
Receipts
284–295
296–307308–319320–331
Tip Percentage
Rate Times Gross Receipts
Tip Percentage
RateAllocated TipsAllocation Method
332–343344–347
348–359
360
Number of Directly
Tipped Employees
Transmitter Control
Code (TCC)
Corrected 8027
IndicatorFinal Return Indicator
361–364
365–369
370371
July 7, 2008302008–27 I.R.B.

FORM 8027 RECORD LAYOUT – Continued
Charge Card
IndicatorATIP Indicator
Liable/Not Liable
IndicatorTax YearPrior Year Indicator
372373374
375–378
379
Test File IndicatorReservedRecord Sequence NumberBlank or CR/LF
380381–410411–418419–420
2008–27 I.R.B.31July 7, 2008

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Tax Return Preparer Penalties
Under Sections 6694 and
6695
REG–129243–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations implementing amend-
ments to the tax return preparer penalties
under sections 6694 and 6695 of the In-
ternal Revenue Code (Code) and related
provisions under sections 6060, 6107,
6109, 6696, and 7701(a)(36) reflecting
amendments to the Code made by section
8246 of the Small Business and Work Op-
portunity Tax Act of 2007. The proposed
regulations affect tax return preparers and
provide guidance regarding the amended
provisions. This document also provides
notice of a public hearing on these pro-
posed regulations.
DATES: Written or electronic comments
must be received by August 18, 2008. Out-
lines of topics to be discussed at the public
hearing scheduled for Monday, August 18,
2008, must be received by Monday, Au-
gust 4, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–129243–07), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–129243–07),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
via the Federal eRulemaking Portal at
http://www.regulations.gov/Regs(IRS
REG–129243–07). The public hearing
will be held in the IRS Auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Michael E. Hara, (202)
622–4910, and Matthew S. Cooper, (202)
622–4940; concerning submissions of
comments, the hearing, and/or to be placed
on the building access list to attend the
hearing, Regina Johnson, (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collec-
tion of information should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Reg-
ulatory Affairs, Washington, DC 20503,
with copies to the Internal Revenue Ser-
vice, Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by August
18, 2008. Comments are specifically re-
quested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collection of information
in this proposed regulation is in
§§1.6060–1(a)(1),1.6107–1,
1.6694–2(c)(3),20.6060–1(a)(1),
20.6107–1, 25.6060–1(a)(1), 25.6107–1,
26.6060–1(a)(1), 26.6107–1, 31.6060–1(a)
(1),31.6107–1,40.6060–1(a)(1),
40.6107–1, 41.6060–1(a)(1), 41.6107–1,
44.6060–1(a)(1), 44.6107–1, 53.6060–1(a)
(1),53.6107–1,54.6060–1(a)(1),
54.6107–1, 55.6060–1(a)(1), 55.6107–1,
56.6060–1(a)(1), 56.6107–1, 156.6060–1
(a)(1), 156.6107–1, 157.6060–1(a)(1),
and 157.6107–1. This information is
necessary to make the record of the name,
taxpayer identification number, and
principal place of work of each tax return
preparer, make each return or claim for
refund prepared available for inspection
by the Commissioner of Internal
Revenue, and to document that the tax
return preparer advised the taxpayer
of the penalty standards applicable to
the taxpayer in order for the tax return
preparer to avoid penalties under section
6694. The collection of information is
required to comply with the provisions of
section 8246 of the Small Business and
Work Opportunity Tax Act of 2007. The
likely respondents are tax return preparers
and their employers.
Estimated total annual reporting bur-
den: 10,679,320 hours.
Estimated average annual burden per
respondent: 15.6 hours.
Estimated number of respondents:
684,268.
Estimated frequency of responses:
127,801,426.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Background
This document contains proposed
amendments to the Income Tax Regu-
lations (26 CFR part 1), the Estate Tax
Regulations (26 CFR part 20), the Gift Tax
Regulations (26 CFR part 25), the Gener-
ation-Skipping Transfer Tax Regulations
(26 CFR part 26), the Employment Tax
and Collection of Income Tax at Source
Regulations (26 CFR part 31), the Excise
Tax Procedural Regulations (26 CFR part
40), the Highway Use Tax Regulations,
(26 CFR part 41), the Wagering Tax Reg-
July 7, 2008322008–27 I.R.B.

ulations (26 CFR part 44), the Foundation
and Similar Excise Tax Regulations (26
CFR part 53), the Pension Excise Tax
Regulations (26 CFR part 54), the Excise
Tax on Real Estate Investment Trusts and
Regulated Investment Companies Regula-
tions (26 CFR part 55), the Public Charity
Excise Tax Regulations (26 CFR part 56),
the Excise Tax on Greenmail Regulations
(26 CFR part 156), the Excise Tax on
Structured Settlement Factoring Transac-
tions Regulations (26 CFR part 157), and
the Regulations on Procedure and Admin-
istration (26 CFR part 301) implementing
the amendments to tax return preparer
penalties under sections 6694 and 6695
(and the related provisions under sections
6060, 6107, 6109, 6696, and 7701(a)(36))
made by section 8246 of the Small Busi-
ness and Work Opportunity Tax Act of
2007, Public Law 110–28 (121 Stat. 190)
(May 25, 2007) (the 2007 Act).
In accordance with the 2007 Act,
these proposed regulations amend exist-
ing regulations defining income tax return
preparers to broaden the scope of that
definition to include preparers of estate,
gift, and generation-skipping transfer tax
returns, employment tax returns, excise
tax returns, and returns of exempt organi-
zations. These proposed regulations also
revise current regulations to amend the
standards of conduct that must be met to
avoid imposition of the tax return preparer
penalty under section 6694. In addition,
these proposed regulations reflect changes
to the computation of the section 6694 tax
return preparer penalty made by the 2007
Act. These regulations also amend current
regulations under the penalty provisions
ofsection6695toconformthemwith
changes made by the 2007 Act expanding
the scope of that statute beyond income
tax returns. The Treasury Department and
the IRS intend to finalize these proposed
regulations by the end of 2008, with the
expectation that the final regulations will
be applicable to returns and claims for
refund filed (and advice given) after the
date that final regulations are published
in theFederal Register, but in no event
sooner than December 31, 2008.
History of the Tax Return Preparer
Penalty Provisions
The 2007 Act amended section 6694
to expand the definition of tax return pre-
parer, broaden the scope of the tax return
preparer penalties to include preparers of
returns other than income tax returns, re-
vise the standards of conduct that tax re-
turn preparers must meet to avoid imposi-
tion of penalties, and change the compu-
tation of the tax return preparer penalties.
The 2007 Act did not amend a number of
other Code sections related to tax return
preparer conduct, nor did it directly ad-
dress the tax regulations, published guid-
ance, and case law that have developed
since enactment of the preparer penalty
regime as part of the Tax Reform Act of
1976, Public Law 94–455 (90 Stat. 1688)
(October 4, 1976) (the 1976 Act).
The Treasury Department and the IRS
believe that the recent amendments to
the tax return preparer penalty provisions
necessitate a comprehensive review and
overhaul of all the tax return preparer
penalties and related regulatory provi-
sions. These proposed regulations are
the first significant step in this process.
Because the proposedregulations were
drafted with consideration of the existing
regulations and the legislative history of
the statutory provisions that were amended
by the 2007 Act, a brief review of the leg-
islative and regulatory history leading up
to the recent amendments is appropriate
in order to place the proposed regulatory
changes reflecting the 2007 Act amend-
ments in context.
TheTaxReformActOf1976
The provisions in section 7701(a)(36)
defining income tax return preparers, and
the provisions in sections 6694, and 6695,
imposing various penalties on income tax
return preparers, were first enacted by the
1976 Act. Sections 6107 and 6109, im-
posing an obligation on return preparers to
furnish and maintain copies of returns and
include an identifying number on those re-
turns, were also enacted by the 1976 Act.
As originally enacted, section
7701(a)(36)(A) defined the termincome
tax return preparerto mean any person
who prepared for compensation, or who
employed one or more persons to prepare
for compensation, any income tax return
or income tax claim for refund, or a “sub-
stantial portion” of such return or claim.
Section 7701(a)(36)(B) excluded from the
definition of income tax return preparer
persons who merely provided mechanical
assistance in the preparation of a return or
claim for refund, or who prepared returns
and claims as an employee of the taxpayer
or in a fiduciary capacity. The legislative
history to the 1976 Act explained that
whether or not a portion of a return consti-
tuted a substantial portion of a tax return
was to be determined by examining both
the length and complexity of that partic-
ular portion of the return and the amount
of tax liability involved. The legislative
history noted, however, that the filling out
of a single schedule would generally not
be considered a substantial portion of that
return unless that particular schedule was
the dominant portion of the entire tax re-
turn. The legislative history also provided
that a person who prepared a return for
compensation may be an income tax re-
turn preparer even though that person did
not actually place figures on a taxpayer’s
return. See S. Rep. No. 94–938, 94
th
Cong., 2
d
Sess. 349–359 (1976).
As originally enacted, section 6694(a)
imposed a “first tier” penalty of $100 if any
part of an understatement was due to the
negligent or intentional disregard of rules
or regulations by an income tax return pre-
parer. Section 6694(b) imposed a “sec-
ond tier” penalty of $500 if any part of
an understatement was due to a willful at-
tempt in any manner to understate tax li-
ability by an income tax return preparer.
Section 6695(b) imposed a penalty of $25
if an income tax return preparer failed to
sign a return or claim for refund in the
manner prescribed by regulations. Sec-
tions 6695(a), (c), (d), and (e) also imposed
penalties of $25 if an income tax return
preparer failed to comply with the vari-
ous identification rules in sections 6107(a),
6109(a)(4), 6107(b) and 6060.
The House and Senate Reports to
the 1976 Act, H. Rep. No. 94–658,
94
th
Cong., 1
st
Sess. at 274 (1975) and
S. Rep. No. 94–938 at 349–50, and the
Joint Committee on Taxation’s General
Explanation of the Tax Reform Act of
1976, 94
th
Cong., 2
d
Sess. at 346 (1976),
explained the need for the new tax return
preparer penalty regime by noting the
significant number of fraudulent returns
and tax return preparers engaged in
abusive practices. The legislative history
further explained that, under prior law, it
was often difficult for the IRS to detect
any individual case of improper return
preparation. This was because the IRS
2008–27 I.R.B.33July 7, 2008

generally had no way of knowing whether
the return was prepared by the taxpayer
or by a tax return preparer who may have
engaged in abusive practices involving a
number of returns. Further, even when the
IRS could trace the improper preparation
of tax returns to an individual tax return
preparer, the only sanctions available
were criminal penalties, which were often
considered inappropriate, cumbersome,
and ineffective deterrents because of
the cost and length of time involved in
prosecuting those cases. The legislative
history makes clear that Congress intended
the tax return preparer penalties to aid
the IRS in detecting returns that were
incorrectly prepared and to deter tax return
preparers from engaging in improper
conduct. See S. Rep. No. 94–938, at
350–51 (1976).
Regulations implementing certain of
the amendments made by the 1976 Act
were published on December 29, 1976,
as T.D. 7451, 1977–1 C.B. 371 [41 FR
56631], and later amended on March 31,
1977, by T.D. 7473, 1977–1 C.B. 386 [42
FR 17124]. Additional regulations were
published on April 1, 1977, as T.D. 7475,
1977–1 C.B. 401 [42 FR 17452], and
November 23, 1977, as T.D. 7519, 1978–1
C.B. 319 [42 FR 17452] (the November
1977 final regulations).
The November 1977 final regulations
applied the tax return preparer penalty pro-
visions to persons who did not sign the re-
turn or claim for refund, or make or con-
trol the entries on the return or claim for re-
fund, including tax professionals who ren-
dered advice that was directly related to
the determination of the existence, char-
acterization, or amount, of an entry on a
return or claim for refund. By including
a broad definition of tax return preparer,
the Treasury Department and the IRS in-
tended the regulations to increase advi-
sor care and to monitor careless or de-
ceptive members of the profession. The
November 1977 final regulations reflected
the considered view that excluding non-
signing tax professionals from the reach of
section 6694 could result in a lack of ac-
countability for positions taken on a return,
as taxpayers could escape penalty liability
because they employed tax return prepar-
ers, tax return preparers could escape li-
ability because theyrelied on nonsigning
tax professionals’ opinions, and nonsign-
ing tax professionals could escape liabil-
ity because they would not be considered
tax return preparers. The November 1977
final regulations also reflected a concern
with the possible exemption of tax attor-
neys and other professionals involved in
preparing more complex returns while at
the same time subjecting to penalties pre-
parers of less sophisticated returns who did
not rely on the work of others.
The November 1977 final regulations
also adopted the safe harbor provisions
of §301.7701–15(b)(2), which excluded
from the definition of a tax return preparer
persons providing tax advice (other than
those signing the return) if the amounts
of gross income, deductions, or credits
giving rise to the understatement were
less than $2,000; or less than $100,000
and also less than 20 percent of the gross
income (or, for an individual, the individ-
ual’s adjusted gross income) shown on the
return or claim for refund.
Omnibus Budget Reconciliation Act of
1989
Sections 6694 and 6695 were amended
by the Improved Penalty Administration
and Compliance Tax Act of 1989, enacted
as title G of the Omnibus Budget Reconcil-
iation Act of 1989 (OBRA 1989), Public
Law 101–239 (103 Stat. 2106) (Decem-
ber 19, 1989). The OBRA 1989 amended
section 6694(a) to remove the prior link to
negligence or intentional disregard of rules
or regulations and instead impose a $250
penalty on an income tax return preparer
who understated a taxpayer’s tax liability
on an income tax return or claim for re-
fund if the understatement was due to a po-
sition for which there was not a “realistic
possibility” of being sustained on its mer-
its, and the tax return preparer knew or rea-
sonably should have known of such posi-
tion. The revised section 6694(a) penalty
did not apply, however, if the position was
“not frivolous” and was adequately dis-
closed, or if there was reasonable cause for
the position taken and the tax return pre-
parer acted in good faith. The OBRA 1989
also amended section 6694(b) to impose
a $1,000 penalty on a tax return preparer
who understated a taxpayer’s tax liability
on an income tax return or claim for re-
fund if the understatement was due to the
tax return preparer’s willful attempt to un-
derstate tax liability or the tax return pre-
parer’s reckless or intentional disregard of
rules or regulations.
TheOBRA1989alsomadeuniform
the tax return preparer penalties that ap-
ply for each failure by a tax return pre-
parer to: (1) furnish a copy of a return or
claim for refund to the taxpayer under sec-
tion 6695(a); (2) sign the return or claim
for refund under section 6695(b); (3) fur-
nish his or her identification number under
section 6695(c); or (4) file a correct infor-
mation return under section 6695(e). The
unified penalty amount was $50 for each
failure, with a limit of $25,000 for the total
amount of penalties that could be imposed
for any single type of failure.
The OBRA 1989 also consolidated the
negligence, substantial understatement
and valuation misstatement penalties ap-
plicable to taxpayers. These penalties
were consolidatedinto a single accu-
racy-related penaltyregime under section
6662. The new accuracy-related penalty
for a substantial understatement of in-
come tax generally would not be imposed,
however, if (1) there was “substantial
authority” for the taxpayer’s treatment
of the item giving rise to the understate-
ment, or (2) relevant facts affecting the
tax treatment of the item were adequately
disclosed in the return or in a statement
attached to the return and there was a “rea-
sonable basis” for the tax treatment of the
item.
By adopting the “realistic possibility”
standard for tax return preparers, and the
higher “substantial authority” standard for
taxpayers with respect to undisclosed posi-
tions, OBRA 1989 created a disparity be-
tween the penalty treatment of tax return
preparers and most taxpayers subject to in-
come tax.
Regulations were published on Decem-
ber 31, 1991, as T.D. 8382, 1992–1 C.B.
392 [56 FR 67509], which amended the
regulations under section 6694 to conform
the income tax return preparer regulations
with the statutory changes made by OBRA
1989 and to make other changes.
The Small Business and Work Opportunity
Tax Act of 2007
Section 8246 of the 2007 Act amended
sections 6694 and 7701(a)(36) and made
conforming changes to other Code provi-
sions to make tax return preparer penalties
applicable to a broader range of tax returns.
July 7, 2008342008–27 I.R.B.

The 2007 Act’s amendments to section
6694 also changed the standards of con-
duct that tax return preparers must meet in
order to avoid imposition of penalties in
the event that a return prepared results in
an understatement of tax. For undisclosed
positions, the 2007 Act replaced the “real-
istic possibility” standard with a standard
requiring the tax return preparer to “rea-
sonably believe that the tax treatment of
the position is more likely than not” the
proper treatment. For disclosed positions,
the 2007 Act replaced the “not-frivolous”
standard with a standard requiring the tax
return preparer to have a “reasonable ba-
sis” for the tax treatment of the position.
The 2007 Act also increased the first-
tier penalty under section 6694(a) from
$250 to the greater of $1,000 or 50 percent
of the income derived (or to be derived)
by the tax return preparer from the prepa-
ration of a return or claim for refund with
respect to which the penalty was imposed.
In addition, the 2007 Act increased the
second-tier penalty under section 6694(b)
from $1,000 to the greater of $5,000 or
50 percent of the income derived (or to be
derived) by the tax return preparer. The
amendments made by the 2007 Act are ef-
fective for tax returns prepared after the
date of enactment, May 25, 2007.
Notice 2008–13
Notice 2008–13, 2008–3 I.R.B. 282,
was released on December 31, 2007 and
provided interim guidance under the 2007
Act regarding: (1) the relevant categories
of tax returns or claims for refund for
purposes of applying the penalty under
section 6694(a); (2) the definition of
“tax return preparer” under sections 6694
and 7701(a)(36); (3) the date a return is
deemed prepared; (4) the standards of con-
duct applicable to tax return preparers for
disclosed and undisclosed positions taken
on tax returns; and (5) the penalty compli-
ance obligations applicable to tax return
preparers. Additional guidance was pro-
vided in Notice 2008–12, 2008–3 I.R.B.
280, with respect to the implementation of
the tax return preparer signature require-
ment of section 6695(b), and in Notice
2008–11, 2008–3 I.R.B. 279, which clari-
fied the earlier transition relief provided in
Notice 2007–54, 2007–27 I.R.B. 12 (July
2, 2007). Notice 2008–46, 2008–18 I.R.B.
868, was released on April 16, 2008 and
added certain returns and documents to
Exhibits 1, 2, and 3 of Notice 2008–13.
Explanation of Provisions
In developing these proposed regula-
tions, the Treasury Department and the
IRS recognize that the majority of tax re-
turn preparers serve the interests of their
clients and the tax system by preparing
complete and accuratereturns. Tax return
preparers are criticalto ensuring compli-
ance with the Federal tax laws and are an
important component in the IRS’s admin-
istration of those laws. The proposed regu-
lations intend to balance the interests of the
IRS in curtailing the activities of noncom-
pliant tax return preparers against the bur-
den imposed on all tax return preparers in
complying with the requirements imposed
by the 2007 Act and these proposed regu-
lations.
The Treasury Department and the IRS
also recognize that the government has a
number of tools to monitor and sanction
tax return preparers, and will continue
to coordinate the application of penalties
under sections 6694, 6695, 6695A, 6700,
6701, 6702, and Circular 230, as well as
other applicable penalties and criminal
sanctions.
The IRS will assess penalties under sec-
tion 6694 in appropriate cases. In keep-
ing with a balanced enforcement program
for tax return preparers, the IRS intends to
modify its internal guidance so that a re-
ferral by revenue agents to the IRS Office
of Professional Responsibility (OPR) will
not beper semandatory when the IRS as-
sesses a tax return preparer penalty under
section 6694(a) against a tax return pre-
parer who is also a practitioner within the
meaning of Circular 230. This change is
consistent with the general administrative
recommendations made in the legislative
history of the amendments made by OBRA
1989 to the section 6694 penalty. See
H.R. Conf. Rep. 101–386, 101
st
Cong., 1
st
Sess. at 662 (1989). In matters involving
non-willful conduct, the IRS will generally
look for a pattern of failing to meet the
required penalty standards under section
6694(a) before making a referral to OPR,
although any egregious conduct subjecting
a tax return preparer to penalty may also
form a basis for a referral to OPR.
Proposed Changes
The following is a summary of the pro-
posed changes to the existing regulations
affecting tax return preparers. The changes
included in these proposed regulations are
discussed in order of the Code sections
to which they relate. When appropriate,
cross-references to definitional sections
are included. Significantly, the definition
of tax return preparer, which maintains
the concepts in the existing regulations of
signing and nonsigning tax return prepar-
ers, is located at the end of these proposed
regulations in §301.7701–15, and that
section is cross-referenced in the relevant
sections of the regulations under sections
6694 and 6695.
Furnishing of Copy of the Tax Return
Section 1.6107–1(a), which requires
signing tax return preparers to furnish the
taxpayer a copy of the prepared return, is
proposed to be amended to provide that
for electronically filed Forms 1040EZ,
“Income Tax Return for Single and Joint
Filers With No Dependents,”and Forms
1040A,“U.S. Individual Income Tax Re-
turn,”filed for the 2009, 2010 and 2011
taxable years, the return information may
be provided on a replica of a Form 1040,
“U.S. Individual Income Tax Return,”that
provides all of the return information. For
other electronically filed returns, the in-
formation may be provided on a replica
of an official form that provides all of the
information. This amendment addresses
the IRS’ transitional issues in implement-
ing the Modernized e-File platform for the
Form 1040 series of returns.
Date Return is Prepared
Proposed §1.6694–1(a)(2) defines the
date a return or claim for refund is prepared
as the date it is signed by the tax return
preparer, and also provides that if the tax
return preparer fails to sign the return when
otherwise required to do so, the date the
return is deemed prepared is the date the
return is filed. In the case of a nonsigning
tax return preparer, the relevant date is the
date the person provides the advice on the
position that results in the understatement.
This date will be determined based on all
the facts and circumstances.
2008–27 I.R.B.35July 7, 2008

Defining the Preparer Within a Firm
Current §1.6694–1(b)(1) provides a
“one preparer per firm” rule. Specifically,
if a signing tax return preparer is associ-
ated with a firm, that individual, and no
other individual in the firm, is treated as
a tax return preparer with respect to the
return or claim for purposes of section
6694. Under the current regulations, if
two or more individuals associated with a
firm are tax return preparers with respect
to a return or claim for refund, and none
of them is the signing tax return preparer,
only one of the individuals is a nonsigning
tax return preparer with respect to that re-
turn or claim for purposes of section 6694.
In such a case, ordinarily, the individual
who is a tax return preparer for purposes
of section 6694 is the individual with
overall supervisory responsibility for the
advice given by the firm with respect to
the return or claim. The “one preparer per
firm” rule and the corollary rule included
in §1.6694–2(d)(5) of the current regula-
tions precluding a tax return preparer from
relying on the advice of an individual asso-
ciated with the tax return preparer’s same
firm for purposes of penalty protection
were intended to eliminate the adminis-
trative difficulty of attempting to apply
the section 6694 penalty on an intra-firm
basis.
The Treasury Department and the IRS
believe that the amendments to section
6694 made by the 2007 Act, together with
the evolution in existing business practices
and the increased complexity of the Fed-
eral tax law that has created an increased
need for specialization, require reconsid-
eration of the “one preparer per firm” rule.
Specifically, the Treasury Department and
the IRS believe this evolution requires
the adoption of a framework that centers
onthereturnorclaimforrefundona
position-by-position basis, with the focus
of any penalty on the position(s) giving
rise to the understatement on the return
or claim for refund and any responsible
parties with respect to such position(s).
Thus the Treasury Department and the IRS
believe that the “one preparer per firm”
rule is no longer appropriate and have
proposed to adopt a framework defining a
preparer-per-position within a firm.
Under both the current and the proposed
regulations, an individual is a tax return
preparer subject to section 6694 if the indi-
vidual is primarily responsible for the po-
sition on the return or claim for refund giv-
ing rise to the understatement.
Under proposed §1.6694–1(b)(1), only
one person within a firm will be consid-
ered primarily responsible for each posi-
tion giving rise to an understatement and,
accordingly, be subject to the penalty. In
the course of identifying the individual
who is primarily responsible for the po-
sition, the IRS may advise multiple indi-
viduals within the firm that it may be con-
cluded that they are the individual within
the firm who is primarily responsible. In
some circumstances, there may be more
than one tax return preparer who is primar-
ily responsible for the position(s) giving
rise to an understatement if multiple tax re-
turn preparers are employed by, or associ-
ated with, different firms.
Proposed §1.6694–1(b)(2) provides
that the individual who signs the return or
claim for refund as the tax return preparer
will generally be considered the person
that is primarily responsible for all of the
positions on the return or claim for refund
giving rise to an understatement. The “one
preparer per firm” rule, however, is revised
by these proposed regulations if it is con-
cluded based upon information received
from the signing tax return preparer (or
other relevant information from a source
other than the signing tax return preparer)
that another person within the signing tax
return preparer’s same firm was primarily
responsible for the position(s) giving rise
to the understatement. In this situation, the
“one preparer per firm” rule in the current
regulations could unduly limit the IRS to
assessing the penalty against a person who
may have overall responsibility in terms
of signing the return, but who may lack
detailed knowledge of, or responsibility
for, a problematic return position, and who
reasonably relied on another professional
at the same firm with greater knowledge
of, and responsibility for, the accuracy of a
position giving rise to the understatement.
The Treasury Department and the IRS
believe that amending the regulations to
better target the person or persons respon-
sible for the position(s) giving rise to the
understatement will further compliance
and result in more equitable administration
of the tax return preparer penalty regime.
Proposed §1.6694–1(b)(3) establishes a
similar rule for situations when there are
one or more nonsigning tax return prepar-
ers at the same firm. If there are one or
more nonsigning tax return preparers at
the firm and no signing tax return preparer
within the firm, the individual within the
firm with overall supervisory responsibil-
ity for the position(s) giving rise to the
understatement is the tax return preparer
who is primarily responsible for the posi-
tion for purposes of section 6694. Addi-
tionally, if after the application of proposed
§1.6694–1(b)(2) it is concluded that the
signer is not primarily responsible for the
position or the IRS cannot conclude which
individual (as between the signing tax re-
turn preparer and other persons within the
firm) is primarily responsible for the posi-
tion, the individual nonsigning tax return
preparer within the firm with overall su-
pervisory responsibility for the position(s)
is the tax return preparer who is primarily
responsible for the position(s) giving rise
to the understatement.
This rule in proposed §1.6694–1(b)(3)
is intended to address the potential for
uncertainty regarding the identification of
the primarily responsible tax return pre-
parer prior to the time of the expiration
of the period of limitations on making an
assessment under section 6694(a). The
proposed rule is distinguished from the
current “one preparer per firm” rule in
the current regulations because under
theproposedruletheIRSmayassess
the penalty against either the signing tax
return preparer or the nonsigning tax re-
turn preparer with overall supervisory
responsibility for theposition(s) giving
rise to an understatement depending on
the facts and circumstances. Specifically,
when the facts indicate that the signing
tax return preparer is the primarily respon-
sible tax return preparer under proposed
§1.6694–1(b)(1) and (b)(2), the IRS may
assess the section 6694 penalty against
that individual when appropriate under the
statute and regulations. In situations when
the facts indicate that the nonsigning tax
return preparer with overall supervisory
responsibility is the primarily responsi-
ble tax return preparer under proposed
§1.6694–1(b)(1) and (b)(3), the IRS may
assess the section 6694 penalty against that
individual when appropriate. In situations
when it is unclear which individual, as be-
tween the signer and other nonsigning tax
return preparers at the firm, the IRS may
assess the section 6694 penalty against the
nonsigning tax return preparer with over-
July 7, 2008362008–27 I.R.B.

all supervisory responsibility with respect
to the position giving rise to the under-
statement when appropriate. The Treasury
Department and the IRS specifically re-
quest comments regarding the approach
taken in these proposed regulations and
any recommendations to improve this rule.
As described in this preamble, con-
forming rules are included in §1.6694–1(f)
of the proposed regulations regarding
computation of the “income derived (or to
be derived)” from the firm and the individ-
ual(s) associated with the firm, in order to
ensure that the same income is not counted
twice in determining the amount of in-
come subject to the section 6694 penalty.
Reliance on Information Provided
Section 1.6694–1(e) of the current reg-
ulations allows a tax return preparer gen-
erally to rely in good faith without verifi-
cation upon information furnished by the
taxpayer. Proposed §1.6694–1(e) allows
similar reliance, but provides that a tax re-
turn preparer may not rely on information
provided by taxpayers with respect to legal
conclusions on Federal tax issues.
The proposed regulations expand on the
current regulations to provide that a tax re-
turn preparer may rely in good faith and
without verification on information fur-
nished by another advisor, another tax re-
turn preparer, or other party (even when
the advisor or tax return preparer is within
the tax return preparer’s same firm). Simi-
larly, a tax return preparer may rely in good
faith without verification upon a tax re-
turn that has been previously prepared by
a taxpayer or another tax return preparer
and filed with the IRS. The tax return pre-
parer, however, may not ignore the impli-
cations of information furnished to the tax
return preparer or actually known by the
tax return preparer, and must make rea-
sonable inquiries if the information as fur-
nished appears to be incorrect or incom-
plete. The Treasury Department and the
IRS believe that this expansion of the cur-
rent rules regarding reliance is necessary
given the heightened standards imposed on
tax return preparers by the 2007 Act and
the increased complexity of the tax law,
which often requires signing and nonsign-
ing tax return preparers to rely on the work
of others in ensuring compliance.
Income Derived Determination in
Computing Penalty Amount
Proposed §1.6694–1(f) defines “in-
come derived (or to be derived)” with
respect to a return or claim for refund as
all compensation the tax return preparer
receives or expects to receive with respect
to the engagement of preparing the return
or claim for refund or providing tax ad-
vice (including research and consultation)
with respect to the position(s) taken on
the return or claim for refund that gave
rise to the understatement. In the situa-
tion of a tax return preparer who is not
compensated directly by the taxpayer, but
rather by a firm that employs the tax re-
turn preparer or with whom the tax return
preparer is associated, income derived (or
to be derived) means all compensation
the tax return preparer receives from the
firm that can be reasonably allocated to
the engagement of preparing the return or
claim for refund or providing tax advice
(including research and consultation) with
respect to the position(s) taken on the re-
turn or claim for refund that gave rise to
the understatement. In the situation where
a firm that employs the individual tax re-
turn preparer (or the firm with which the
individual tax return preparer is associ-
ated) is subject to a penalty under section
6694(a) or (b), income derived (or to be
derived) means all compensation the firm
receives or expects to receive with respect
to the engagement of preparing the return
or claim for refund or providing tax ad-
vice (including research and consultation)
with respect to the position(s) taken on the
return or claim for refund that gave rise to
the understatement.
If the tax return preparer or the tax re-
turn preparer’s firm has multiple engage-
ments related to the same return or claim
for refund, only those engagements relat-
ing to the position(s) taken on the return or
claim for refund that gave rise to the un-
derstatement are considered for purposes
of computing the income derived (or to
be derived). In the situation of a tax re-
turn preparer who is not compensated di-
rectly by the taxpayer, but rather by a firm
that employs the tax return preparer or with
whom the tax return preparer is associated,
income derived (or to be derived) means
all compensation the tax return preparer re-
ceives from the firm that can be reasonably
allocated to the relevant firm engagements.
The proposed regulations also provide
that only compensation for time spent
on tax advice that is given with respect
to events that have occurred at the time
the advice is rendered and that relates to
the position(s) giving rise to the under-
statement will be taken into account for
purposes of calculating the section 6694
penalty. This rule is intended to be con-
sistent with the definition of tax return
preparer in §301.7701–15(b)(2)(i).
The proposed regulations provide that
it may be concluded, based upon informa-
tion received from the tax return preparer,
that an appropriate allocation of compen-
sation attributable to the position(s) giv-
ing rise to the understatement on the return
or claim for refund is less than the total
amount of compensation associated with
the engagement. For example, it may be
concluded that the number of hours of the
engagement spent on the position(s) giving
rise to the understatement may be less than
the total hours associated with the engage-
ment. If this is concluded, the amount of
the penalty will be calculated based upon
the compensation attributable to the posi-
tion(s) giving rise to the understatement.
Otherwise, the total amount of compen-
sation from the engagement will be the
amount of income derived for purposes of
calculating the penalty under section 6694.
The proposed regulations also clar-
ify that the amount of penalties assessed
against the individual and the firm shall
not exceed 50 percent of the income de-
rived (or to be derived) by the firm from
the relevant engagement(s) relating to the
position(s) giving rise to an understate-
ment. The portion of the total amount of
penalty assessed against the individual tax
return preparer shall not exceed 50 percent
of the individual’s compensation attribut-
able to the engagement that relates to the
position(s) giving rise to an understate-
ment. In other words, the same income
will not be taken into consideration more
than once in calculating the penalty against
an individual tax return preparer and the
individual tax return preparer’s firm. The
Treasury Department and the IRS also an-
ticipate that Circular 230 will be revised to
state that the IRS generally will not stack
the section 6694 penalty and monetary
penalties under 31 U.S.C. section 330 with
respect to the same conduct.
2008–27 I.R.B.37July 7, 2008

Firm Liability
Proposed §§1.6694–2(a)(2) and
1.6694–3(a)(2) are the same as
§§1.6694–2(a)(2) and 1.6694–3(a)(2)
of the current regulations regarding
when a firm is liable for the section
6694(a) or (b) penalty with one excep-
tion. Proposed §§1.6694–2(a)(2)(iii) and
1.6694–3(a)(2)(iii) provide that a firm is
also subject to the penalty when the firm’s
review procedures were disregarded by
the firm through willfulness, recklessness,
or gross indifference (including ignoring
facts that would lead a person of reason-
able prudence and competence to investi-
gate or ascertain) in the formulation of the
advice, or the preparation of the return or
claim for refund, that included the position
for which the penalty is imposed.
Reasonable Belief of More Likely Than
Not
Proposed §1.6694–2(b)(1) provides
that the “reasonable belief that the position
would more likely than not be sustained
on its merits” standard will be satisfied
if the tax return preparer analyzes the
pertinent facts and authorities and, in
reliance upon that analysis, reasonably
concludes in good faith that the position
has a greater than 50 percent likelihood of
being sustained on its merits. Whether a
tax return preparer meets this standard will
be determined based upon all facts and
circumstances, including the tax return
preparer’s due diligence. In determining
the level of diligence in a particular case,
the IRS will take into account the tax re-
turn preparer’s experience with the area of
tax law and familiarity with the taxpayer’s
affairs, as well as the complexity of the
issues and facts in the case. The proposed
regulations also provide that a tax return
preparer may meet the “reasonable belief
that the position would more likely than
not be sustained on its merits” standard if
a position is supported by a well-reasoned
construction of the applicable statutory
provision despite the absence of other
types of authority, or if the tax return
preparer relies on information or advice
furnished by a taxpayer, advisor, another
tax return preparer, or other party (even
when the advisor or tax return preparer is
within the tax return preparer’s same firm),
as provided in proposed §1.6694–1(e).
Proposed §1.6694–2(b)(2) provides
that a tax return preparer may not rely on
unreasonable assumptions, while proposed
§1.6694–2(b)(3) states that the authorities
contained in §1.6662–4(d)(3)(iii) (or any
successor provision) are to be considered
in determining whether a position satis-
fies the “more likely than not” standard.
Proposed §1.6694–2(b)(4) also provides
examples that illustrate positions meeting
the “reasonable belief that the position
would more likely than not be sustained
on its merits” standard.
Reasonable Basis
Proposed §§1.6694–2(c)(1) and (2) es-
tablish that the “reasonable basis” stan-
dard that must be met for disclosed po-
sitions is the same standard as defined in
§1.6662–3(b)(3) (or any successor provi-
sion). The proposed regulations also pro-
vide that, to meet the “reasonable basis”
standard, a tax return preparer may rely in
good faith, without verification, upon in-
formation furnished by a taxpayer, advi-
sor, another tax return preparer, or other
party (even when the advisor or tax re-
turn preparer is within the tax return pre-
parer’s same firm), as provided in pro-
posed §1.6694–1(e).
Adequate Disclosure
Section 1.6694–2(c)(3) builds on the
current regulationsand the interim guid-
ance provided in Notice 2008–13 and pro-
vides the rules for disclosure of a position
for which there is a “reasonable basis” but
for which the tax return preparer does not
have a “reasonable belief that the position
would more likely than not be sustained on
its merits.”
For a signing tax return preparer within
the meaning of §301.7701–15(b)(1), the
proposed regulations provide that a posi-
tion may be disclosed in one of five ways.
First, the position may be disclosed on a
properly completed and filed Form 8275,
Disclosure Statement,or Form 8275–R,
Regulation Disclosure Statement,as ap-
propriate, or on the tax return in accor-
dance with the annual revenue procedure.
See Revenue Procedure 2008–14, 2008–7
I.R.B. 435 (February 19, 2008). Second,
for income tax returns, if the position does
not meet the “substantial authority” stan-
dard described in §1.6662–4(d), disclosure
of the position is adequate if the tax return
preparer provides the taxpayer with a pre-
pared tax return that includes the appropri-
ate disclosure. Third, for income tax re-
turns, if the position meets the “substantial
authority” standard, disclosure of the posi-
tion is adequate if the tax return preparer
advises the taxpayer of all of the penalty
standards applicable to the taxpayer under
section 6662. Fourth, for income tax re-
turns, if the position may be described as
a tax shelter under section 6662(d)(2)(C)
or a reportable transaction to which section
6662A applies, disclosure of the position is
adequate if the tax return preparer advises
the taxpayer that there needs to be at a min-
imum “substantial authority” for the posi-
tion, that the taxpayer must possess a “rea-
sonable belief that the tax treatment was
more likely than not” the proper treatment,
and that disclosure will not protect the tax-
payer from assessment of an accuracy-re-
lated penalty. Fifth, for tax returns or
claims for refund that are subject to penal-
ties other than the accuracy-related penalty
for substantial understatements under sec-
tions 6662(b)(2) and (d), the tax return pre-
parer advises the taxpayer of the penalty
standards applicable to the taxpayer un-
der section 6662. This fifth rule is in-
tended to address the situation when the
penalty standard applicable to the taxpayer
is based on compliance with requirements
other than disclosure on the return (for ex-
ample, section 6662(e)). In order to estab-
lish that the tax returnpreparer’s disclosure
obligation was satisfied, the tax return pre-
parer must document contemporaneously
in the tax return preparer’s files that the
information or advice required by the pro-
posed regulations was provided.
In the case of a nonsigning tax re-
turn preparer within the meaning of
§301.7701–15(b)(2), the position may be
disclosed in one of three ways. First, the
position may be disclosed on a properly
completed and filed Form 8275,“Dis-
closure Statement,”or Form 8275–R,
“Regulation Disclosure Statement,”as
appropriate, or on the tax return in accor-
dance with the annual revenue procedure.
Second, a nonsigning tax return preparer
may meet the disclosure standards if the
nonsigning tax return preparer advises
the taxpayer of all opportunities to avoid
penalties under section 6662 that could
apply to the position and advises the tax-
payer of the standards for disclosure to
the extent applicable. Third, disclosure
July 7, 2008382008–27 I.R.B.

of a position is adequate if a nonsigning
tax return preparer advises another tax re-
turn preparer that disclosure under section
6694(a) may be required. The nonsign-
ing tax return preparer must document
contemporaneously in the tax return pre-
parer’sfilesthatthisadvicerequiredby
the proposed regulations was provided.
In order to satisfy the disclosure stan-
dards when the position is not disclosed
on or with the return,each return position
for which there is a “reasonable basis” but
for which the tax return preparer does not
have a “reasonable belief that the position
would more likely than not be sustained
onthemerits”mustbeaddressedbythe
tax return preparer. Thus, the advice to
the taxpayer with respect to each position
must be particular to the taxpayer and
tailored to the taxpayer’s facts and circum-
stances. No form of a general boilerplate
disclaimer will satisfy these standards.
Proposed §1.6694–2(c)(iv) provides that
disclosure in the case of items attribut-
able to a pass-through entity is adequate if
made at the entity level in accordance with
the rules in §1.6662–4(f)(5). For example,
a tax return preparer of a partnership tax
return need only advise the partnership in
order to satisfy any of the above disclosure
rules and does not need to advise each
individual partner in the partnership of the
applicable penalties.
Reasonable Cause
Proposed §1.6694–2(d) maintains the
rules in the current regulations regarding
reasonable cause and good faith, except
that §1.6694–2(d) is proposed to be revised
to provide that whether a position is sup-
ported by a generally accepted administra-
tive or industry practice is an additional
factor to consider in determining whether
the tax return preparer acted with reason-
able cause and good faith. This provision
is intended to address situations in the ab-
sence of published guidance when admin-
istrative or industry practice has developed
that would not reasonably be subject to
challenge by the IRS.
The reasonable cause factor regarding
reliance on advice of another tax return
preparer is also expanded to allow a tax
return preparer to reasonably rely on in-
formation or advice furnished by a tax-
payer, advisor, another tax return preparer,
or other party (even when the advisor or
tax return preparer is within the tax return
preparer’s same firm), as provided in pro-
posed §1.6694–1(e).
Electronically Signed Returns
Proposed §1.6695–1(b)(2) provides
that, in the case of an electronically signed
tax return, a tax return preparer need not
sign the return prior to presenting a com-
pleted copy of the returntothetaxpayer.
The tax return preparer, however, must
furnish all of the information to the tax-
payer contemporaneously with furnishing
the Form 8879,IRS e-file Signature Au-
thorization,or similar IRS e-file signature
form. The information may be furnished
on a replica of an official form that pro-
vides all of the information.
Due Diligence for Earned Income Credit
Proposed §1.6695–2(b)(3) establishes a
reasonableness standard for signing tax re-
turn preparers’ due diligence requirements
with respect to determining eligibility for
the earned income credit and adds exam-
ples.
Claims for Refund or Credit by Tax Return
Preparers or Appraisers
Proposed §1.6696–1, discussing the
procedures for filing claims for credit or
refund for penalties assessed against tax
return preparers under sections 6694 or
6695, is revised to also cover the new
appraiser penalty under section 6695A.
Section 6695A was enacted by section
1219 of the Pension Protection Act of
2006 (Public Law 109–280 (120 Stat.
780, 1084–86) (August 17, 2006)), as
amended by the Tax Technical Corrections
Act of 2007 (Public Law 110–172 (121
Stat. 2473, 2474) December 29, 2007)).
A separate regulation project will provide
guidance under section 6695A.
Definition of Tax Return Preparer
Proposed §§301.7701–15(b)(1) and
(2) add to the section 7701 regulations
the definitions of “signing tax return
preparer” and “nonsigning tax return pre-
parer” that are included in §1.6694–1
of the current regulations. Proposed
§301.7701–15(b)(1) provides that asign-
ing tax return prepareris any tax return
preparer who signs or who is required to
sign a return or claim for refund as a tax
return preparer pursuant to §1.6695–1(b).
Proposed §301.7701–15(b)(2) provides
that anonsigning tax return prepareris
any tax return preparer who is not a sign-
ing tax return preparer but who prepares
all or a substantial portion of a return or
claim for refund within the meaning of
§301.7701–15(b)(3) with respect to events
that have occurred at the time the advice is
rendered. In determining whether an indi-
vidual is a nonsigning tax return preparer,
the proposed regulations provide that any
time spent on advice that is given with re-
spect to events that have occurred, which is
less than 5 percent of the aggregate time in-
curred by the person with respect to the po-
sition(s) giving rise to the understatement
will not be taken into account in deter-
mining whether an individual is a nonsign-
ing tax return preparer. The Treasury De-
partment and the IRS believe that this less
than 5 percent test will encourage tax pro-
fessionals who principally rendered advice
regarding events that had not yet occurred
to provide follow-up advice requested by a
taxpayer without the concern that, by pro-
viding such advice to a taxpayer, the ad-
visor would become a tax return preparer
under proposed §§301.7701–15(b)(2) and
(3).
Consistent with the current regulations
and the legislative history of the 1976 Act,
proposed §301.7701–15(b)(3)(i) clarifies
that whether a schedule, entry, or other
portion of a return or claim for refund is
a substantial portion is determined based
upon all facts and circumstances, and a sin-
gle tax entry may constitute a substantial
portion of the tax required to be shown
on a return. The proposed regulations in-
clude additional factors to consider in de-
termining whether a schedule, entry, or
other portion of a return or claim for re-
fund is a substantial portion, such as the
size and complexity of the item relative to
the taxpayer’s gross income and the size of
the understatement attributable to the item
compared to the taxpayer’s reported tax li-
ability.
Proposed §301.7701–15(b)(3)(ii) in-
creases thede minimisexception in deter-
mining a substantial portion of a return or
claim for refund for nonsigning tax return
preparers. Under the proposed regula-
tions, thede minimisexception applies if
the item giving rise to the understatement
is (i) less than $10,000, or (ii) less than
2008–27 I.R.B.39July 7, 2008

$400,000 if the item is also less than 20
percent of the taxpayer’s gross income
(or, for an individual, the individual’s
adjusted gross income). Thisde min-
imisrule does not apply for signing tax
return preparers within the meaning of
§301.7701–15(b)(1). This change to the
regulations updates the currentde minimis
amounts to reflect the passage of time
since those amounts were set in 1977.
The Treasury Department and the IRS
are considering whether otherde minimis
rules applicable to nonsigning tax return
preparers of non-income tax returns are
warranted.
Consistent with the interim guid-
ance set forth in Notice 2008–13,
§301.7701–15(b)(4) is proposed to be
amended by revising the definitions of
“return” and “claim for refund” to only
include preparers of returns and claims for
refund that are specifically identified in
published guidance in the Internal Rev-
enue Bulletin. The Treasury Department
and the IRS will publish this guidance
simultaneously with the publication of
final regulations and will likely main-
tain the three tiered approach used in
the exhibits to Notice 2008–13, subject
to any appropriate modifications. Un-
der the substantial portion rule in section
7701(a)(36)(A), preparation of a broad
range of information returns, schedules,
and other documents can subject a person
to the section 6694 penalties even though
the documents may not themselves give
rise to an understatement. Accordingly,
the Treasury Department and the IRS be-
lieve that including a list of returns or other
documents, the preparation of which may
subject a tax return preparer to penalties,
will further compliance by not unduly in-
creasing the burden on persons preparing
information returns and other documents.
Cross-References
Conforming changes are made
in §§1.6060–1, 1.6107–1, 1.6109–2,
1.6694–0, 1.6694–1, 1.6694–4, 1.6695–1,
1.6695–2, 1.6696–1, and 301.7701–15 to
replace references to income tax return
preparers with references to tax return
preparers, consistent with the provisions
of the 2007 Act. Conforming cross ref-
erences are also made to Part 20, Estate
Tax; Estates of Decedents Dying After
August 16, 1954; Part 25, Gift Tax; Gifts
Made After December 31, 1954; Part 26,
Generation-Skipping Transfer Tax Under
the Tax Reform Act of 1986; Part 31, Em-
ployment Taxes and Collection of Income
Tax at Source; Part 40, Procedural Excise
Tax; Part 41, Highway Use Tax; Part 44,
Wagering Tax; Part 53, Foundation and
Similar Excise Taxes; Part 54, Pension
Excise Taxes; Part 55, Excise Tax on Real
Estate Investment Trusts and Regulated
Investment Company Taxes; Part 56, Pub-
lic Charity Excise Taxes; Part 156, Excise
Tax on Greenmail; and Part 157, Excise
Tax on Structured Settlement Factoring
Transactions; to conform these parts with
the provisions in Parts 1 and 301, consis-
tent with the provisions of the 2007 Act.
Availability of IRS Documents
The IRS notices referred to in this
preamble are published in the Internal
Revenue Bulletin and are available at
http://www.irs.gov.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6), requires the agency
to “prepare and make available for pub-
lic comment an initial regulatory flexibil-
ity analysis” that will “describe the impact
of the proposed rule on small entities.” (5
U.S.C. 603(a)). Section 605 of the RFA
provides an exception to this requirement
if the agency certifies that the proposed
rulemaking will not have a significant eco-
nomic impact on a substantial number of
small entities.
The proposed rules affect tax return pre-
parers. The IRS estimates there are 38,566
tax return preparation firms and 260,338
self-employed tax return preparers that
qualify as small entities. Therefore, the
IRS has determined that these proposed
rules will have an impact on a substantial
number of small entities.
The IRS has determined, however, that
the impact on entities affected by the pro-
posed rule will not be significant. The
statute and proposed regulations would re-
quire entities that employ tax return pre-
parers to retain a record of the name, tax-
payer identification number and principal
place of work of each tax return preparer
employed. The IRS estimates that this
would not require purchase of additional
software and would take five minutes per
tax return preparer employed. The statute
and proposed regulations would also re-
quire tax return preparers to retain a com-
plete copy of a return (or claim for refund)
or a list of the name, taxpayer identifica-
tion number and taxable year for each re-
turn (or claim for refund) and the name of
the tax return preparer required to sign the
return or claim for refund. Many tax return
preparers have copying machines or scan-
ners and already make copies of the re-
turns prepared, and the IRS estimates this
would not require the purchase of addi-
tional equipment. The IRS estimates that
it would take an average of five minutes
to make copies or prepare a record of the
returns prepared. Accordingly, the bur-
denonemployersoftaxreturnpreparersto
make a record of the name, taxpayer iden-
tification number, and principal place of
work of each employed tax return preparer,
and a copy of each return or claim for re-
fund prepared, or a record, is insignificant.
The proposed regulations also allow the
tax return preparer to generally avoid im-
position of the tax return preparer penal-
ties under section 6694 in cases when a
tax return position meets the “substantial
authority” standard but not the “reason-
able belief that the position would more
likely than not be sustained on its merits”
standard if the tax return preparer advises
the taxpayer of the penalty standards ap-
plicable to the taxpayer, and contempora-
neously documents in the tax return pre-
parer’s files that this information or advice
was provided. Often, tax return preparers
will choose not to advise the taxpayer of
the applicable penalty standards and will
instead disclose the position on a properly
completed and filed Form 8275,“Disclo-
sure Statement,”or Form 8275–R,“Regu-
lation Disclosure Statement,”as appropri-
ate, or on the tax return in accordance with
the annual revenue procedure. In those in-
stances when the tax return preparer elects
to advise the taxpayer of the penalty stan-
dards, the IRS estimates that it would take
an average of 15 minutes to document this
July 7, 2008402008–27 I.R.B.

advice. Accordingly, the burden on those
who choose this option is insignificant.
Although the proposed regulations also
conform the standards of conduct and tax
return preparer penalties to the provisions
of the 2007 Act, tax return preparers al-
ready enroll in educational seminars or
training programs to keep up to date with
the latest changes to the Code, and the pro-
visions of the 2007 Act and the proposed
regulations will generally be part of that
training.
Moreover, these proposed regulations
are required to comply with the provisions
of section 8246 of the 2007 Act and flow
directly from amendments to the Code
contained in the 2007 Act.
Based on these facts, the IRS hereby
certifies that the collection of informa-
tion contained in these regulations will
not have a significant economic impact
on a substantial number of small enti-
ties. Accordingly, a Regulatory Flexibility
Analysis is not required.
Pursuant to section 7805(f) of the Code,
these regulations have been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. The IRS and the Treasury Department
request comments on the clarity of the
proposed regulations and how they can be
made easier to understand. Comments are
requested on the examples in the proposed
regulations, and commentators are specif-
ically invited to suggest changes to these
examples or to suggest new examples that
they believe would better illustrate the
principles that should be included in the
final regulations. The IRS and the Trea-
sury Department also request comments
on the accuracy of the certification that
the regulations in this document will not
have a significant economic impact on a
substantial number of small entities. All
comments will be available for public in-
spection and copying.
A public hearing has been scheduled for
Monday, August 18, 2008, at 10:00 a.m.
in the IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
August 18, 2008 and an outline of the top-
icstobediscussedandthetimetobede-
voted to each topic (a signed original and
eight (8) copies) by Monday, August 4,
2008. A period of 10 minutes will be
allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal authors of these proposed
regulations are Matthew S. Cooper and
Michael E. Hara, Office of the Associate
Chief Counsel (Procedure and Administra-
tion).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 20, 25,
26, 31, 40, 41, 44, 53, 54, 55, 56, 156,
157, and 301 are proposed to be amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 1.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 1.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 1.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 2. Section 1.6060–1 is amended
by revising the section heading and para-
graphs (a) and (c) and adding paragraph (d)
to read as follows:
§1.6060–1 Reporting requirements for tax
return preparers.
(a)In general. (1) Each person who
employs one or more signing tax return
preparers to prepare any return of tax or
claim for refund of tax, other than for the
person, at any time during a return period
shall satisfy the requirements of section
6060 of the Internal Revenue Code by—
(i) Retaining a record of the name, tax-
payer identification number, and principal
place of work during the return period of
each tax return preparer employed by the
person at any time during that period; and
(ii) Making that record available for
inspection upon request by the Commis-
sioner.
(2) The record described in this para-
graph (a) must be retained and kept avail-
able for inspection for the 3-year period
following the close of the return period to
which that record relates.
(3) The person may choose any form of
documentation to be used under this sec-
tion as a record of the signing tax return
preparers employed during a return period.
However, the record must disclose on its
face which individuals were employed as
tax return preparers during that period.
(4) For the definition of the term
“signing tax return preparer,” see section
7701(a)(36) and §301.7701–15(b)(1) of
this chapter. For the definition of the term
“return period,” see paragraph (b) of this
section.
(5)(i) For purposes of this section, any
individual who, in acting as a signing tax
return preparer, is not employed by another
tax return preparer shall be treated as his
or her own employer. Thus, a sole pro-
prietor shall retain and make available a
record with respect to himself (or herself)
as provided in this section.
(ii) A partnership shall, for purposes of
this section, be treated as the employer of
the partners of the partnership and shall re-
tain and make available a record with re-
spect to the partners and others employed
by the partnership as provided in this sec-
tion.
2008–27 I.R.B.41July 7, 2008

*****
(c)Penalty. For the civil penalty for
failure to retain and make available a
record of the tax return preparers em-
ployed during a returnperiodasrequired
under this section, or for failure to in-
clude an item in the record required to
be retained and made available under this
section, see §1.6695–1(e).
(d)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 3. Section 1.6107–1 is revised to
read as follows:
§1.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)Furnishing copy to taxpayer.Aper-
son who is a signing tax return preparer
of any return of tax or claim for refund of
tax under the Internal Revenue Code shall
furnishacompletedcopyofthereturnor
claim for refund to the taxpayer (or non-
taxable entity) not later than the time the
return or claim for refund is presented for
the signature of the taxpayer (or nontax-
able entity). For electronically filed Forms
1040EZ,“Income Tax Return for Single
and Joint Filers With No Dependents,”and
Form 1040A,“U.S. Individual Income Tax
Return,”filed for the 2009, 2010 and 2011
taxable years, the information may be pro-
vided on a replica of a Form 1040,“U.S.
Individual Income Tax Return,”that pro-
vides all of the information. For other
electronically filed returns, the informa-
tion may be provided on a replica of an of-
ficial form that provides all of the informa-
tion. The signing tax return preparer may,
at its option, request a receipt or other evi-
dence from the taxpayer (or nontaxable en-
tity) sufficient to show satisfaction of the
requirement of this paragraph (a).
(b)Copy or record to be retained.(1)A
person who is a signing tax return preparer
of any return or claim for refund shall—
(i)(A) Retain a completed copy of the
return or claim for refund; or
(B) Retain a record, by list, card file, or
otherwise of the name, taxpayer identifi-
cation number, and taxable year of the tax-
payer (or nontaxable entity) for whom the
return or claim for refund was prepared,
and the type of return or claim for refund
prepared;
(ii) Retain a record, by retention of a
copy of the return or claim for refund,
maintenance of a list or card file, or oth-
erwise, for each return or claim for refund
presented to the taxpayer (or nontaxable
entity), of the name of the individual tax re-
turn preparer required to sign the return or
claim for refund pursuant to §1.6695–1(b);
and
(iii) Make the copy or record of returns
and claims for refund and record of the
individuals required to sign available for
inspection upon request by the Commis-
sioner.
(2) The material described in this para-
graph (b) shall be retained and kept avail-
able for inspection for the 3-year period
following the close of the return period
during which the return or claim for re-
fund was presented for signature to the tax-
payer (or nontaxable entity). In the case
of a return that becomes due (with exten-
sions, if any) during a return period follow-
ing the return period during which the re-
turn was presented for signature, the ma-
terial shall be retained and kept available
for inspection for the 3-year period fol-
lowing the close of the later return period
in which the return became due. For the
definition of “return period,” see section
6060(c). If the person subject to the record
retention requirement of this paragraph (b)
is a corporation or a partnership that is dis-
solved before completion of the 3-year pe-
riod, then all persons who are responsi-
ble for the winding up of the affairs of the
corporation or partnership under state law
shall be subject, on behalf of the corpora-
tion or partnership, to these record reten-
tion requirements until completion of the
3-year period. If state law does not spec-
ify any person or persons as responsible
for winding up, then,collectively, the di-
rectors or general partners shall be subject,
on behalf of the corporation or partnership,
to the record retention requirements of this
paragraph (b). For purposes of the penalty
imposed by section 6695(d), such desig-
nated persons shall be deemed to be the tax
return preparer and will be jointly and sev-
erally liable for each failure.
(c)Tax return preparer.Forthe
definition of “signing tax return pre-
parer,” see section 7701(a)(36) and
§301.7701–15(b)(1) of this chapter. For
purposes of applying this section, in the
case of—
(1) An arrangement between two or
more signing tax return preparers, the
person who employs one or more other
signing tax return preparers to prepare any
return or claim for refund for compen-
sation other than for the person shall be
considered to be the sole signing tax return
preparer; and
(2) A partnership arrangement for the
preparation of returns and claims for re-
fund, the partnership shall be considered to
be the sole signing tax return preparer.
(d)Penalties. (1) For the civil penalty
for failure to furnish a copy of the re-
turn or claim for refund to the taxpayers
(or nontaxable entity) as required under
paragraphs (a) of this section, see section
6695(a) and §1.6695–1(a).
(2) For the civil penalty for failure to
retain a copy of the return or claim for
refund, or to retain a record as required
under paragraphs (b) of this section, see
section 6695(d) and §1.6695–1(d).
(e)Effective/applicability date.This
section is applicable to returns and claims
for refund filed on the date that final regu-
lations are published in theFederal Reg-
ister.
Par. 4. Section 1.6109–2 is amended
by revising the section heading and para-
graphs (a) and (d) to read as follows:
§1.6109–2 Tax return preparers furnishing
identifying numbers for returns or claims
for refund filed after December 31, 2008.
(a)Furnishing identifying number.(1)
Each return of tax or claim for refund
of tax under the Internal Revenue Code
prepared by one or more tax return prepar-
ers must include the identifying number
of the tax return preparer required by
§1.6695–1(b) to sign the return or claim
for refund. In addition, if there is an
employment arrangement or association
between the individual tax return preparer
and another person (except to the extent
the return prepared is for the person), the
identifying number of the other person
must also appear on the return or claim for
refund. For the definition of the term “tax
return preparer,” see section 7701(a)(36)
and §301.7701–15 of this chapter.
(2) The identifying number of an indi-
vidual tax return preparer is that individ-
ual’s social security account number, or
July 7, 2008422008–27 I.R.B.

such alternative number as may be pre-
scribed by the Internal Revenue Service
in forms, instructions, or other appropriate
guidance.
(3) If an individual tax return preparer
described in paragraph (a)(2) of this sec-
tion is employed by, or associated with,
a person (whether an individual or entity)
and prepares the return or claim for re-
fund (other than a return prepared for the
person), the identifying number is the per-
son’s employer identification number.
*****
(d)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register, but no sooner than
December 31, 2008. For returns or claims
for refund filed before January 1, 2000, see
§1.6109–2A(a).
Par 5. Section 1.6694–0 is revised to
read as follows:
§1.6694–0 Table of contents.
This section lists the captions that ap-
pear in §§1.6694–1 through 1.6694–4.
§1.6694–1 Section 6694 penalties
applicable to tax return preparers.
(a) Overview.
(1) In general.
(2) Date return is deemed prepared.
(b) Tax return preparer.
(1) In general.
(2) Responsibility of signing tax return
preparer.
(3) Responsibility of nonsigning tax re-
turn preparer.
(4) Tax return preparer and firm respon-
sibility.
(5) Examples.
(c) Understatement of liability.
(d) Abatement of penalty where tax-
payer’s liability not understated.
(e) Verification of information fur-
nished by taxpayer or other third party.
(1) In general.
(2) Verification of information on pre-
viously filed returns.
(3) Examples.
(f) Income derived (or to be derived)
with respect to the return or claim for re-
fund.
(1) In general.
(2) Compensation.
(i) Multiple engagements.
(ii) Reasonable allocation.
(iii) Fee refunds.
(iv) Reduction of compensation.
(3) Individual and firm allocation.
(4) Examples.
(g) Effective/applicability date.
§1.6694–2 Penalty for understatement due
to an unreasonable position.
(a) In general.
(1) Proscribed conduct.
(2) Special rule for corporations, part-
nerships, and other firms.
(b) Reasonable belief that the position
would more likely than not be sustained on
its merits.
(1) In general.
(2) No unreasonable assumptions.
(3) Authorities.
(4) Examples.
(5) Written determinations.
(6) When more likely than not standard
must be satisfied.
(c) Exception for adequate disclosure of
positions with a reasonable basis.
(1) In general.
(2) Reasonable basis.
(3) Adequate disclosure.
(i) Signing tax return preparers.
(ii) Nonsigning tax return preparers.
(A) Advice to taxpayers.
(B) Advice to another tax return pre-
parer.
(iii) Requirements for advice.
(iv) Pass-through entities.
(v) Examples.
(d) Exception for reasonable cause and
good faith.
(1) Nature of the error causing the un-
derstatement.
(2) Frequency of errors.
(3) Materiality of errors.
(4) Tax return preparer’s normal office
practice.
(5)Relianceonadviceofothers.
(6) Reliance on generally accepted ad-
ministrative or industry practice.
(e) Burden of proof.
(f) Effective/applicability date.
§1.6694–3 Penalty for understatement due
to willful, reckless, or intentional conduct.
(a) In general.
(1) Proscribed conduct.
(2) Special rule for corporations, part-
nerships, and other firms.
(b) Willful attempt to understate liabil-
ity.
(c) Reckless or intentional disregard.
(d) Examples.
(e) Rules or regulations.
(f) Section 6694(b) penalty reduced by
section 6694(a) penalty.
(g) Burden of proof.
(h) Effective/applicability date.
§1.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a) In general.
(b) Tax return preparer must bring suit
in district court to determine liability for
penalty.
(c) Suspension of running of period of
limitations on collection.
(d) Effective/applicability date.
Par. 6. Section 1.6694–1 is revised to
read as follows:
§1.6694–1 Section 6694 penalties
applicable to tax return preparers.
(a)Overview—(1)In general. Sections
6694(a) and (b) impose penalties on tax re-
turn preparers for conduct giving rise to
certain understatements of liability on a
return (including an amended or adjusted
return) or claim for refund. The section
6694(a) penalty is imposed in an amount
equal to the greater of $1,000, or 50 per-
cent of the income derived (or to be de-
rived) by the tax return preparer for an un-
derstatement of liability with respect to tax
that is due to an undisclosed position for
whichthetaxreturnpreparerdidnothave
a reasonable belief that the position would
more likely than not be sustained on its
merits (or due to a disclosed position for
which there is no reasonable basis). The
section 6694(b) penalty is imposed in an
amount equal to the greater of $5,000, or
50 percent of the income derived (or to be
derived) by the tax return preparer for an
understatement of liability with respect to
tax that is due to a willful attempt to un-
derstate tax liability or that is due to reck-
less or intentional disregard of rules or reg-
ulations. See §1.6694–2 for rules relating
to the penalty under section 6694(a). See
§1.6694–3 for rules relating to the penalty
under section 6694(b).
2008–27 I.R.B.43July 7, 2008

(2)Date return is deemed prepared.
For purposes of the penalties under sec-
tion 6694, a return or claim for refund is
deemed prepared on the date it is signed
by the tax return preparer. If a signing
tax return preparer within the meaning of
§301.7701–15(b)(1) of this chapter fails
to sign the return,the return is deemed
prepared on the date the return is filed.
See §1.6695–1 of this section. In the case
of a nonsigning tax return preparer within
the meaning of §301.7701–15(b)(2) of this
chapter, the relevant date is the date the
nonsigning tax return preparer provides
the tax advice with respect to the position
giving rise to the understatement. This
date will be determined based on all the
facts and circumstances.
(b)Tax return preparer—(1)In general.
For purposes of this section, “tax return
preparer” means any person who is a tax
return preparer within the meaning of sec-
tion 7701(a)(36) and §301.7701–15 of this
chapter. An individual is a tax return pre-
parer subject to section 6694 if the indi-
vidual is primarily responsible for the po-
sition(s) on the return or claim for refund
giving rise to an understatement. There
is only one individual within a firm who
is primarily responsible for each position
on the return or claim for refund giving
rise to an understatement. In the course
of identifying the individual who is pri-
marily responsible for the position, the In-
ternal Revenue Service may advise multi-
ple individuals within the firm that it may
be concluded that they are the individual
within the firm who is primarily respon-
sible. In some circumstances, there may
be more than one tax return preparer who
is primarily responsible for the position(s)
giving rise to an understatement if multi-
ple tax return preparers are employed by,
or associated with, different firms.
(2)Responsibility of signing tax return
preparer. The signing tax return preparer
within the meaning of §301.7701–15(b)(1)
of this chapter will generally be considered
the person who is primarily responsible for
all of the positions on the return or claim
for refund giving rise to an understatement.
It may be concluded, however, based upon
information received from the signing tax
return preparer (or other relevant informa-
tion from a source other than the sign-
ing tax return preparer) that another per-
sonwithinthesigningtax return preparer’s
same firm was primarily responsible for
the position(s) on the return or claim for
refund giving rise to an understatement.
(3)Responsibility of nonsigning tax re-
turn preparer. If there are one or more in-
dividuals within a firm who are nonsign-
ing tax return preparers within the mean-
ing of §301.7701–15(b)(2) of this chapter
and there is no signing tax return preparer
within the meaning of §301.7701–15(b)(1)
of this chapter for the return or claim for re-
fund within that firm, the individual within
the firm with overall supervisory responsi-
bility for the position(s) giving rise to the
understatement is the tax return preparer
who is primarily responsible for the posi-
tion for purposes of section 6694. Addi-
tionally, if, after theapplication of para-
graph (b)(2) of this section, it is concluded
that the signing tax return preparer is not
primarily responsible for the position or
the IRS cannot conclude which individual
(as between the signing tax return preparer
and other persons within the firm) is pri-
marily responsible for the position, the in-
dividual within the firm with overall su-
pervisory responsibility for the position(s)
giving rise to the understatement is the tax
return preparer who is primarily responsi-
ble for the position for purposes of section
6694.
(4)Tax return preparer and firm re-
sponsibility. To the extent provided in
§§1.6694–2(a)(2) and 1.6694–3(a)(2), an
individual and the firm that employs the
individual, or the firm of which the indi-
vidual is a partner, member, shareholder,
or other equity holder, may both be subject
to penalty under section 6694 with respect
to the position(s) on the return or claim for
refund giving rise to an understatement. If
an individual (other than the sole propri-
etor) who is employed by a sole propri-
etorship is subject to penalty under section
6694, the sole proprietorship is considered
a “firm” for purposes of this paragraph (b).
(5)Examples. The provisions of para-
graph (b) of this section are illustrated by
the following examples:
Example 1. Attorney A provides advice to Client
C concerning the proper treatment of an item with re-
spect to which all events have occurred on C’s income
tax return. In preparation for providing that advice,
A seeks advice regarding the proper treatment of the
item from Attorney B, who is within the same firm as
A, but A is the attorney who signs C’s return as a tax
return preparer. B providesadvice on the treatment of
the item upon which A relies. B’s advice is reflected
on C’s income tax return but no disclosure was made
in accordance with §1.6694–2(c)(3). The advice con-
stitutes preparation of a substantial portion of the re-
turn within the meaning of §301.7701–15(b)(3) and
the IRS later challenges the position taken on the tax
return, giving rise to an understatement of liability.
For purposes of the regulations under section 6694,
A is initially considered the tax return preparer with
respect to C’s return and the IRS advises A that A may
be subject to the penalty under section 6694 with re-
spect to C’s return. Based upon information received
from A or another source, it may be concluded that
B had primary responsibility for the position taken
on the return that gave rise to the understatement be-
cause B had overall supervisory responsibility for the
position giving rise to an understatement.
Example 2.SameasExample 1, except that nei-
ther Attorney A nor any other attorney within A’s firm
signs Client C’s return as a tax return preparer. Attor-
ney B is the nonsigning tax return preparer within the
firm with overall supervisory responsibility for the
position giving rise to an understatement. Accord-
ingly, B is the tax return preparer who is primarily
responsible for the position on C’s return giving rise
to an understatement and is subject to penalty under
section 6694.
Example 3.SameasExample 1, except Attorney
D, who works for a different firm than A, also pro-
vides advice on the same position upon which A re-
lies. It may be concluded that D is also primarily re-
sponsible for the position on the return.
(c)Understatement of liability. For pur-
poses of this section, an “understatement
of liability” exists if, viewing the return
or claim for refund as a whole, there is an
understatement of the net amount payable
with respect to any tax imposed by the In-
ternal Revenue Code (Code), or an over-
statement of the net amount creditable or
refundable with respect to any tax imposed
by the Code. The net amount payable in
a taxable year with respect to the return
for which the tax return preparer engaged
in conduct proscribed by section 6694 is
not reduced by any carryback. Tax im-
posed by the Code does not include addi-
tions to the tax, additional amounts, and
assessable penalties imposed by subchap-
ter 68 of the Code. Except as provided in
paragraph (d) of this section, the determi-
nation of whether an understatement of li-
ability exists may be made in a proceed-
ing involving the taxreturn preparer that
is separate and apart from any proceeding
involving the taxpayer.
(d)Abatement of penalty where tax-
payer’s liability not understated.Ifa
penalty under section 6694(a) or (b) con-
cerning a return or claim for refund has
been assessed against one or more tax
return preparers, and if it is established at
any time in a final administrative deter-
mination or a final judicial decision that
there was no understatement of liability
July 7, 2008442008–27 I.R.B.

relating to the position(s) on the return or
claim for refund, then—
(1) The assessment shall be abated; and
(2) If any amount of the penalty was
paid, that amount shall be refunded to
the person or persons who so paid, as if
the payment were an overpayment of tax,
without consideration of any period of
limitations.
(e)Verification of information fur-
nished by taxpayer or other party—(1)In
general. For purposes of sections 6694(a)
and (b) (including meeting the reasonable
belief that the position would more likely
than not be sustained on its merits and rea-
sonable basis standards in §§1.6694–2(b)
and (c)(2), and demonstrating reasonable
cause and good faith under §1.6694–2(d)),
the tax return preparer generally may rely
in good faith without verification upon in-
formation furnished by the taxpayer. A tax
return preparer, however, may not rely on
information provided by a taxpayer with
respect to legal conclusions on Federal
tax issues. A tax return preparer may also
rely in good faith and without verification
upon information furnished by another
advisor, another tax return preparer or
other party (including another advisor or
tax return preparer at the tax return pre-
parer’s firm). The tax return preparer is
not required to audit, examine or review
books and records, business operations,
or documents or other evidence to ver-
ify independently information provided
by the taxpayer, advisor, other tax return
preparer, or other party. The tax return
preparer, however, may not ignore the
implications of information furnished to
the tax return preparer or actually known
by the tax return preparer. The tax return
preparer must make reasonable inquiries
if the information as furnished appears
to be incorrect or incomplete. Addi-
tionally, some provisions of the Code or
regulations require that specific facts and
circumstances exist (for example, that the
taxpayer maintain specific documents) be-
fore a deduction or credit may be claimed.
The tax return preparer must make appro-
priate inquiries to determine the existence
of facts and circumstances required by a
Code section or regulation as a condition
of the claiming of a deduction or credit.
(2)Verification of information on pre-
viously filed returns. For purposes of sec-
tion 6694(a) and (b) (including meeting the
reasonable belief that the position would
morelikelythannotbesustainedonits
merits and reasonable basis standards in
§§1.6694–2(b) and (c)(2), and demonstrat-
ing reasonable cause and good faith under
§1.6694–2(d)), a tax return preparer may
rely in good faith without verification upon
a tax return that has been previously pre-
pared by a taxpayer or another tax return
preparer and filed with the IRS. For exam-
ple, a tax return preparer who prepares an
amended return (including a claim for re-
fund) need not verify the positions on the
original return. The tax return preparer,
however, may not ignore the implications
of information furnished to the tax return
preparer or actually known by the tax re-
turn preparer. The tax return preparer must
make reasonable inquiries if the informa-
tion as furnished appears to be incorrect or
incomplete. The tax return preparer must
confirm that the position being relied upon
has not been adjusted by examination or
otherwise.
(3)Examples. The provisions of this
paragraph (e) are illustrated by the follow-
ing examples:
Example 1. During an interview conducted by
Preparer E, a taxpayer stated that he had made a char-
itable contribution of real estate in the amount of
$50,000 during the tax year, when in fact he had not
made this charitable contribution. E did not inquire
about the existence of a qualified appraisal or com-
plete a Form 8283,Noncash Charitable Contribu-
tions,in accordance with the reporting and substan-
tiation requirements under section 170(f)(11). E re-
ported a deduction on the tax return for the charitable
contribution, which resulted in an understatement of
liability for tax, and signed the tax return as the tax
return preparer. E is subject to a penalty under sec-
tion 6694.
Example 2. While preparing the 2008 tax return
for an individual taxpayer, Preparer F realizes that
the taxpayer did not provide a Form 1099 for a bank
account that produced significant taxable income in
2008. When F inquired about any other income, the
taxpayer furnished the Form 1099 to F for use in
preparation of the 2008 tax return. F did not know
that the taxpayer owned anadditional bank account
that generated taxable income for 2008 and the tax-
payer did not reveal this information to the tax return
preparer notwithstanding F’s general inquiry about
any other income. F signed the taxpayer’s return as
the tax return preparer. F is not subject to a penalty
under section 6694.
Example 3. In preparing a tax return, Accountant
G relies on the advice of an actuary concerning the
limit on deductibility under section 404(a)(1)(A) of
a contribution by an employer to a qualified pension
trust. On the basis of this advice, G completed and
signed the tax return. It is later determined that there
is an understatement of liability for tax that resulted
from the incorrect adviceprovided by the actuary. G
had no reason to believe that the advice was incor-
rect or incomplete, and the advice appeared reason-
able on its face. G was also not aware at the time
the return was prepared of any reason why the actu-
ary did not know all of the relevant facts or that the
advice was no longer reliable due to developments
in the law since the time the advice was given. G is
not subject to a penalty under section 6694. The actu-
ary, however, may be subject to penalty under section
6694 if the advice given by the actuary constitutes a
substantial portion of the tax return within the mean-
ing of §301.7701–15(b)(3) of this chapter.
(f)Income derived (or to be derived)
with respect to the return or claim for re-
fund—(1)In general. For purposes of sec-
tions 6694(a) and (b),income derived (or
to be derived)means all compensation the
tax return preparer receives or expects to
receive with respect to the engagement of
preparing the return or claim for refund or
providing tax advice (including research
and consultation) with respect to the posi-
tion(s) taken on the return or claim for re-
fund that gave rise to the understatement.
In the situation of a tax return preparer
who is not compensated directly by the
taxpayer, but rather by a firm that employs
the tax return preparer or with whom the
tax return preparer is associated,income
derived (or to be derived)means all com-
pensation the tax return preparer receives
from the firm that can be reasonably allo-
cated to the engagement of preparing the
return or claim for refund or providing tax
advice (including research and consulta-
tion) with respect to the position(s) taken
on the return or claim for refund that gave
rise to the understatement. In the situation
where a firm that employs the individual
tax return preparer (or the firm of which
the individual tax return preparer is a part-
ner, member, shareholder, or other equity
holder) is subject to a penalty under section
6694(a) or (b) pursuant to the provisions
in §§1.6694–2(a)(2) or 1.6694–3(a)(2),in-
come derived (or to be derived)means all
compensation the firm receives or expects
to receive with respect to the engagement
of preparing the return or claim for refund
or providing tax advice (including research
and consultation) with respect to the posi-
tion(s) taken on the return or claim for re-
fund that gave rise tothe understatement.
(2)Compensation—(i)Multiple en-
gagements. For purposes of applying
paragraph (f)(1) of this section, if the tax
return preparer or the tax return preparer’s
firm has multiple engagements related to
the same return or claim for refund, only
those engagements relating to the posi-
tion(s) taken on the return or claim for
2008–27 I.R.B.45July 7, 2008

refund that gave rise to the understatement
are considered for purposes of calculating
the income derived (or to be derived) with
respect to the return or claim for refund.
(ii)Reasonable allocation. For pur-
poses of applying paragraph (f)(1) of this
section, only compensation for tax advice
that is given with respect to events that
have occurred at the time the advice is ren-
dered and that relates to the position(s) giv-
ing rise to the understatement will be taken
into account for purposes of calculating the
section 6694(a) and (b) penalties. If a lump
sum fee is received that includes amounts
not taken into account under the preceding
sentence, the amount of income derived
will be based on a reasonable allocation of
the lump sum fee between the tax advice
giving rise to the penalty and the advice
that does not give rise to the penalty.
(iii)Fee refunds. For purposes of ap-
plying paragraph (f)(1) of this section, a
refund to the taxpayer of all or part of
the amount paid to the tax return preparer
or the tax return preparer’s firm will not
reduce the amount of the section 6694
penalty assessed. A refund in this context
does not include a discounted fee or alter-
native billing arrangement for the services
provided.
(iv)Reduction of compensation.For
purposes of applying paragraph (f)(1) of
this section, it may be concluded based
uponinformationprovidedbythetaxre-
turn preparer or the tax return preparer’s
firm that an appropriate allocation of com-
pensation attributable to the position(s)
giving rise to the understatement on the
return or claim for refund is less than the
total amount of compensation associated
with the engagement. For example, the
number of hours of the engagement spent
on the position(s) giving rise to the under-
statement may be less than the total hours
associated with the engagement. If this is
concluded, the amount of the penalty will
be calculated based upon the compensa-
tion attributable to the position(s) giving
rise to the understatement. Otherwise, the
total amount of compensation from the
engagement will be the amount of income
derived for purposes of calculating the
penalty under section 6694.
(3)Individual and firm allocation.If
both an individual within a firm and a firm
that employs the individual (or the firm
of which the individual is a partner, mem-
ber, shareholder, or other equity holder)
are subject to a penalty under section
6694(a) or (b) pursuant to the provisions in
§§1.6694–2(a)(2) or 1.6694–3(a)(2), the
amount of penalties assessed against the
individual and the firm shall not exceed
50 percent of the income derived (or to
be derived) by the firm from the engage-
ment of preparing the return or claim for
refund or providing tax advice (including
research and consultation) with respect to
the position(s) taken on the return or claim
for refund that gave rise to the understate-
ment. The portion of the total amount of
the penalty assessed against the individual
tax return preparer shall not exceed 50
percent of the individual’s compensation
as determined under paragraphs (f)(1) and
(2)ofthissection.
(4)Examples. The provisions of this
paragraph (f) are illustrated by the follow-
ing examples:
Example 1. Signing Tax Return Preparer H is en-
gaged by a taxpayer and paid a total of $21,000. Of
this amount, $20,000 relates to research and consul-
tation regarding a transaction that is later reported on
a return, and $1,000 for the activities relating to the
preparation of the return. Based on H’s hourly rates,
a reasonable allocation of the amount of compensa-
tion related to the advice rendered prior to the occur-
rence of events that are the subject of the advice is
$5,000. The remaining compensation of $16,000 is
considered to be compensation related to the advice
rendered after the occurrence of events that are the
subject of the advice and return preparation. The in-
come derived by H with respect to the return for pur-
poses of computing the penalty under section 6694(a)
is $16,000, and the amount of the penalty imposed un-
der section 6694(a) is $8,000.
Example 2. Accountants I, J, and K are employed
by Firm L. I is a principal manager of Firm L and
provides corporate tax advice for the taxpayer after
all events have occurred subject to an engagement for
corporate tax advice. J provides international tax ad-
vice for the taxpayer after all events have occurred
subject to a different engagement for international tax
advice. K prepares and signs the taxpayer’s return un-
der a general tax services engagement. I’s advice is
the source of an understatement on the return and the
advice constitutes preparation of a substantial portion
of the return within the meaning of §301.7701–15(b)
of this chapter. I is the nonsigning tax return preparer
within the firm with overall supervisory responsibil-
ity for the position on the taxpayer’s return giving
rise to an understatement. Thus, I is the tax return
preparer who is primarily responsible for the position
on the taxpayer’s return giving rise to the understate-
ment. Because K’s signature as the signing tax return
preparer is on the return,the IRS advises K that K may
be subject to the section 6694(a) penalty against K to
the understatement. K provides information that I is
the tax return preparer with primary responsibility for
the position that gave rise to the understatement and
K formed a reasonable belief that the position would
more likely than not be sustained on the merits by
relying on the advice provided by I. Furthermore, K
has reasonable cause because K relied on I for the ad-
vice on the corporate tax matter. The IRS, therefore,
assesses the section 6694 penalty against I. The por-
tion of the total amount of the penalty allocable to I
does not exceed that part of I’s compensation that is
attributable to the corporate tax advice engagement.
In the event that Firm L is also liable under the provi-
sions in §1.6694–2(a)(2), the IRS assesses the section
6694 penalty in an amount not exceeding 50 percent
of Firm L’s firm compensation based on the engage-
ment relating to the corporate tax advice services pro-
vided by I where there is no applicable reduction in
compensation pursuant to §1.6694–1(f)(2)(iii).
Example 3. Same facts asExample 2, except that I
provides the advice on the corporate matter when the
events have not yet occurred. I’s advice is the cause
of an understatement position on the return but I is not
a tax return preparer pursuant to §301.7701–15(b)(2)
or (3) of this chapter. K has reasonable cause because
K relied on I for the advice on the corporate tax mat-
ter and K is not limited to reliance on persons who
provide post-transactional advice if such reliance is
reasonable and in good faith. I, K and Firm L are not
liable for the section 6694 penalty.
(g)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 7. Section 1.6694–2 is revised to
read as follows:
§1.6694–2 Penalty for understatement due
to an unreasonable position.
(a)In general—(1)Proscribed conduct.
Except as otherwise provided in this sec-
tion, a tax return preparer is liable for a
penalty under section 6694(a) equal to the
greater of $1,000 or 50 percent of the in-
come derived (or to be derived) by the tax
return preparer for any return or claim for
refund that it prepares that results in an un-
derstatement of liability due to a position if
the tax return preparer knew (or reasonably
should have known) of the position and ei-
ther—
(i) The position was not disclosed as
provided in this section and there was not
a reasonable belief that the position would
more likely than not be sustained on its
merits; or
(ii) The position was disclosed as pro-
vided in this section but there was no rea-
sonable basis for the position.
(2)Special rule for corporations, part-
nerships, and other firms. A firm that em-
ploys a tax return preparer subject to a
penalty under section 6694(a) (or a firm
of which the individual tax return preparer
is a partner, member, shareholder or other
July 7, 2008462008–27 I.R.B.

equity holder) is also subject to penalty if,
andonlyif—
(i) One or more members of the princi-
pal management (or principal officers) of
the firm or a branch office participated in
or knew of the conduct proscribed by sec-
tion 6694(a);
(ii) The corporation, partnership, or
other firm entity failed to provide reason-
able and appropriate procedures for review
of the position for which the penalty is
imposed; or
(iii) Such review procedures were dis-
regarded by the corporation, partnership,
or other firm entity through willfulness,
recklessness, or gross indifference (includ-
ing ignoring facts that would lead a person
of reasonable prudence and competence to
investigate or ascertain) in the formulation
of the advice, or the preparation of the re-
turn or claim for refund, that included the
position for which the penalty is imposed.
(b)Reasonable belief that the position
would more likely than not be sustained
on its merits—(1)In general.Ataxre-
turn preparer may “reasonably believe that
a position would more likely than not be
sustained on its merits” if the tax return
preparer analyzes the pertinent facts and
authorities, and in reliance upon that anal-
ysis, reasonably concludes in good faith
that the position has a greater than 50 per-
cent likelihood of being sustained on its
merits. In reaching this conclusion, the
possibility that the position will not be
challenged by the Internal Revenue Ser-
vice (IRS) (for example, because the tax-
payer’s return may not be audited or be-
cause the issue may not be raised on au-
dit) is not to be taken into account. The
analysis prescribed by §1.6662–4(d)(3)(ii)
(or any successor provision) for purposes
of determining whether substantial author-
ity is present applies for purposes of deter-
mining whether the more likely than not
standard is satisfied. Whether a tax re-
turn preparer meets this standard will be
determined based upon all facts and cir-
cumstances, including the tax return pre-
parer’s diligence. In determining the level
of diligence in a particular situation, the tax
return preparer’s experience with the area
of Federal tax law and familiarity with the
taxpayer’saffairs,aswellasthecomplex-
ity of the issues and facts, will be taken into
account. A tax return preparer may rea-
sonably believe that a position more likely
than not would be sustained on its mer-
its despite the absence of other types of
authority if the position is supported by
a well-reasoned construction of the appli-
cable statutory provision. For purposes
of determining whether the tax return pre-
parer has a reasonable belief that the po-
sition would more likely than not be sus-
tained on the merits, a tax return preparer
mayrelyingoodfaithwithoutverifica-
tion upon information furnished by the tax-
payer, advisor, other tax return preparer, or
other party (including another advisor or
tax return preparer at the tax return pre-
parer’s firm), as provided in §1.6694–1(e).
(2)No unreasonable assumptions.A
position must not be based on unreason-
able factual or legal assumptions (includ-
ing assumptions as to future events) and
must not unreasonably rely on the repre-
sentations, statements, findings, or agree-
ments of the taxpayer or any other person.
For example, a position must not be based
on a representation or assumption that the
tax return preparer knows, or has reason to
know, is inaccurate.
(3)Authorities. The authorities con-
sidered in determining whether a position
satisfies the more likely than not stan-
dard are those authorities provided in
§1.6662–4(d)(3)(iii) (or any successor
provision).
(4)Examples. The provisions of para-
graphs (b)(1) through (b)(3) of this section
are illustrated by the following examples:
Example 1. A new statute is silent as to whether
the taxpayer may take advantage of certain tax bene-
fits. The Treasury Department and the IRS have not
issued any interpretativeguidance for the newly en-
acted provision. A well-reasoned construction of the
statutory text supports the position that a taxpayer
may claim the tax benefits. Preparer M may avoid
the section 6694(a) penalty by taking the position that
M reasonably believed that the taxpayer’s position
would more likely than not be sustained on its merits.
Example 2. After the passage of legislation con-
taining a new statutory provision, a taxpayer engaged
in a transaction that is adversely affected by the new
provision. Prior law supported a position favorable to
the taxpayer. Preparer N believes that the new statute
is inequitable as applied to the taxpayer’s situation.
The statutory language, however, is unambiguous as
applied to the transaction to deny the result claimed
by the taxpayer previously. In considering the new
statutory provision as applied to the taxpayer’s posi-
tion, N may not avoid the section 6694(a) penalty by
taking the position that the tax return preparer reason-
ably believed that the position would more likely than
not be sustained on its merits.
Example 3. While preparing the taxpayer’s re-
turn, Preparer O determines that a statute is silent as
to whether the taxpayer may take a certain position on
the taxpayer’s 2007 Federal income tax return. Three
private letter rulings issued to other taxpayers in 2002
and 2003 support the taxpayer’s position. Temporary
regulations issued in 2004, however, are clearly con-
trary to the taxpayer’s position. After the issuance
of the temporary regulations, the earlier private letter
rulings cease to be authorities and are not taken into
account in determining whether the taxpayer’s posi-
tion satisfies the reasonable belief that the position
would more likely than not be sustained on its mer-
its standard. Preparer O may not avoid the section
6694(a) penalty by taking the position that the tax re-
turn preparer reasonably believed that the taxpayer’s
position would more likely than not be sustained on
its merits.
Example 4. In the course of researching whether
an interpretation of a phrase in the Internal Revenue
Code (Code) is a position that more likely than not
will be sustained on its merits, Preparer P discovers
that the only relevant authorities include decisions of
five U.S. courts of appeal. Three U.S. courts of ap-
peal have construed the language as being taxpayer
favorable. Two other U.S. courts of appeal, however,
have construed the identical language as being favor-
able to the government’s position. The U.S. court of
appeals in the jurisdictionwhere the taxpayer is lo-
cated has not addressed this issue. P reasonably be-
lieves that the taxpayer’s facts more closely paral-
lel the facts involved in the three U.S. courts of ap-
peals’ decisions that were taxpayer favorable. Under
the analysis prescribed by §1.6662–4(d)(3)(ii), P may
avoid the section 6694(a) penalty by taking the posi-
tion that the tax return preparer reasonably believed
that a well-reasoned position consistent with the tax-
payer favorable interpretation would more likely than
not be sustained on its merits.
(5)Written determinations.Thetax
return preparer may avoid the section
6694(a) penalty by taking the position
that the tax return preparer reasonably
believed that the taxpayer’s position sat-
isfies the “more likely than not” stan-
dard if the taxpayer is the subject of a
“written determination” as provided in
§1.6662–4(d)(3)(iv)(A).
(6)When “more likely than not” stan-
dard must be satisfied. For purposes of
this section, the requirement that a position
satisfies the “more likely than not” stan-
dard must be satisfied on the date the re-
turn is deemed prepared, as prescribed by
§1.6694–1(a)(2).
(c)Exception for adequate disclosure
of positions with a reasonable basis—(1)
In general. The section 6694(a) penalty
will not be imposed on a tax return pre-
parer if the position taken has a reasonable
basis and is adequately disclosed within
the meaning of paragraph (c)(3) of this
section. For an exception to the section
6694(a) penalty for reasonable cause and
good faith, see paragraph (d) of this sec-
tion.
2008–27 I.R.B.47July 7, 2008

(2)Reasonable basis. For purposes
of this section, “reasonable basis” has the
same meaning as in §1.6662–3(b)(3) or
any successor provision of the accuracy-
related penalty regulations. For purposes
of determining whether the tax return pre-
parer has a reasonable basis for a position,
a tax return preparer may rely in good faith
without verification upon information fur-
nished by the taxpayer, advisor, other tax
return preparer, or other party (including
another advisor or tax return preparer at the
tax return preparer’s firm), as provided in
§1.6694–1(e).
(3)Adequate disclosure—(i)Signing
tax return preparers. In the case of a sign-
ing tax return preparer within the meaning
of §301.7701–15(b)(1) of this chapter,
disclosure of a position for which there is
a reasonable basis but for which the tax
return preparer does not have a reasonable
belief that the position would more likely
than not be sustained on the merits is ade-
quate if the tax return preparer meets any
of the following standards:
(A) The position is disclosed in accor-
dance with §1.6662–4(f) (which permits
disclosure on a properly completed and
filed Form 8275,“Disclosure Statement,”
or Form 8275–R,“Regulation Disclosure
Statement,”as appropriate, or on the tax re-
turn in accordance with the annual revenue
procedure described in §1.6662–4(f)(2)).
(B) For income tax returns, if the po-
sition would not meet the standard for the
taxpayer to avoid a penalty under section
6662(d)(2)(B) without disclosure (no sub-
stantial authority), the tax return preparer
provides the taxpayer with the prepared tax
return that includes the disclosure in accor-
dance with §1.6662–4(f).
(C) For income tax returns, if the
position would otherwise meet the stan-
dard for nondisclosure under section
6662(d)(2)(B)(i) (substantial authority),
the tax return preparer advises the taxpayer
of all the penalty standards applicable to
the taxpayer under section 6662. The tax
return preparer must also contemporane-
ously document the advice in the tax return
preparer’s files.
(D) For income tax returns, if section
6662(d)(2)(B) does not apply because
the position may be described in sec-
tion 6662(d)(2)(C) or section 6662A (a
tax shelter, reportable transaction with a
significant purpose of tax avoidance or
evasion, or a listed transaction), the tax
return preparer advises the taxpayer that
there needs to be at a minimum substantial
authority for the position, that the taxpayer
must possess a reasonable belief that the
tax treatment was more likely than not the
proper treatment in order to avoid a penalty
under section 6662(d) or section 6662A
as applicable, and that disclosure will not
protect the taxpayer from assessment of an
accuracy-related penalty if either section
6662(d)(2)(C) or 6662A applies to the po-
sition. The tax return preparer must also
contemporaneously document the advice
in the tax return preparer’s files.
(E) For returns or claims for refund that
are subject to penalties pursuant to section
6662 other than the substantial understate-
ment penalty under section 6662(b)(2) and
(d), the tax return preparer advises the tax-
payer of the penalty standards applicable
to the taxpayer under sections 6662. The
tax return preparer must also contempora-
neously document the advice in the tax re-
turn preparer’s files.
(ii)Nonsigning tax return preparers.In
the case of a nonsigning tax return preparer
within the meaning of §301.7701–15(b)(2)
of this chapter, disclosure of a position that
satisfies the reasonable basis standard but
does not satisfy the reasonable belief that
a position would more likely than not be
sustained on its merits standard is adequate
if the position is disclosed in accordance
with §1.6662–4(f) (which permits disclo-
sure on a properly completed and filed
Form 8275 or Form 8275–R, as appropri-
ate, or on the return in accordance with
an annual revenue procedure described in
§1.6662–4(f)(2)). In addition, disclosure
of a position is adequate in the case of a
nonsigning tax return preparer if, with re-
spect to that position, the tax return pre-
parer complies with the provisions of para-
graph (c)(3)(ii)(A) or (B) of this section,
whichever is applicable.
(A)Advice to taxpayers. If a nonsign-
ing tax return preparer provides advice to
the taxpayer with respect to a position for
which there is a reasonable basis but for
which the nonsigning tax return preparer
does not have a reasonable belief that the
position would more likely than not be sus-
tained on the merits, disclosure of that po-
sition is adequate if the tax return preparer
advises the taxpayer of any opportunity
to avoid penalties under section 6662 that
could apply to the position, if relevant, and
of the standards for disclosure to the extent
applicable. The tax return preparer must
also contemporaneously document the ad-
vice in the tax return preparer’s files.
(B)Advice to another tax return pre-
parer. If a nonsigning tax return preparer
provides advice to another tax return pre-
parer with respect to a position for which
there is a reasonable basis but for which
the nonsigning tax return preparer does not
have a reasonable belief that the position
would more likely than not be sustained
on the merits, disclosure of that position
is adequate if the tax return preparer ad-
vises the other tax return preparer that dis-
closure under section 6694(a) may be re-
quired. The tax return preparer must also
contemporaneously document the advice
in the tax return preparer’s files.
(iii)Requirements for advice. For pur-
poses of satisfying the disclosure standards
of paragraphs (c)(3)(i) and (ii) of this sec-
tion, each return position for which there
is a reasonable basis but for which the tax
return preparer does not have a reasonable
belief that the position would more likely
than not be sustained on the merits must
be addressed by the tax return preparer.
The advice to the taxpayer with respect to
each position, therefore, must be particu-
lar to the taxpayer and tailored to the tax-
payer’s facts and circumstances. The tax
return preparer is required to contempo-
raneously document the fact that the ad-
vice was provided. There is no generalpro
formalanguage or special format required
for a tax return preparer to comply with
these rules. No form of a general boiler-
plate disclaimer, however, is sufficient to
satisfy these standards. A tax return pre-
parer may choose to comply with the doc-
umentation standard in one document cov-
ering each position, or in multiple docu-
ments covering all of the positions.
(iv)Pass-through entities. Disclosure
in the case of items attributable to a pass-
through entity is adequate if made at the
entity level in accordance with the rules
in §1.6662–4(f)(5) or at the entity level
in accordance with the rules in paragraphs
(c)(3)(i) or (ii) of this section.
(v)Examples. The provisions of para-
graph (c)(3) of this section are illustrated
by the following examples:
Example 1. An individual taxpayer hires Accoun-
tant Q to prepare its income tax return. Q does not
reasonably believe that a particular position taken on
the tax return would more likely than not be sustained
on its merits although there is substantial authority for
the position. Q prepares and signs the tax return with-
July 7, 2008482008–27 I.R.B.

out disclosing the position taken on the tax return, but
advises the individual taxpayer of the penalty stan-
dards applicable to the taxpayer under section 6662,
and contemporaneously documents in Q’s files that
this advice was provided. The individual taxpayer
signs and files the tax return without disclosing the
position because the position meets the standards for
nondisclosure under section 6662(d)(2)(B)(i). The
IRS later challenges the position taken on the tax re-
turn, resulting in an understatement of liability. Q is
not subject to a penalty under section 6694.
Example 2. Attorney R advisesa large corporate
taxpayer concerning the proper treatment of complex
entries on the corporate taxpayer’s tax return. R has
reason to know that the tax attributable to the en-
tries is a substantial portion of the tax required to
be shown on the tax return within the meaning of
§301.7701–15(b)(3). When providing the advice, R
concludes that one position with respect to these en-
tries does not meet the reasonable belief that the po-
sition would more likely than not be sustained on the
merits standard and also does not have substantial au-
thority, although the position meets the reasonable
basis standard. R, in good faith, advises the corpo-
rate taxpayer that the position lacks substantial au-
thority and the taxpayer will be subject to an accu-
racy-related penalty under section 6662 unless the po-
sition is disclosed in a disclosure statement included
in the return. R also documents the fact that this ad-
vice was contemporaneously provided to the corpo-
rate taxpayer at the time the advice was provided.
Neither R nor any other attorney within R’s firm signs
the corporate taxpayer’s return as a tax return pre-
parer, but the advice by R constitutes preparation of a
substantial portion of the tax return and R is the indi-
vidual with overall supervisory responsibility for the
position giving rise to the understatement. Thus, R is
a tax return preparer forpurposes of section 6694. R,
however, will not be subject to a penalty under sec-
tion 6694.
(d)Exception for reasonable cause and
good faith. The penalty under section
6694(a) will not be imposed if, consider-
ing all the facts and circumstances, it is
determined that the understatement was
due to reasonable cause and that the tax re-
turn preparer acted in good faith. Factors
to consider include:
(1)Nature of the error causing the un-
derstatement. The error resulted from a
provision that was complex, uncommon,
or highly technical and a competent tax re-
turn preparer of tax returns or claims for re-
fund of the type at issue reasonably could
have made the error. The reasonable cause
and good faith exception, however, does
not apply to an error that would have been
apparent from a general review of the re-
turn or claim for refund by the tax return
preparer.
(2)Frequency of errors. The under-
statement was the result of an isolated er-
ror (such as an inadvertent mathematical or
clerical error) rather than a number of er-
rors. Although the reasonable cause and
good faith exception generally applies to
an isolated error, it does not apply if the
isolated error is so obvious, flagrant, or
material that it should have been discov-
ered during a review of the return or claim
for refund. Furthermore, the reasonable
cause and good faith exception does not
apply if there is a pattern of errors on a re-
turn or claim for refund even though any
one error, in isolation, would have qual-
ified for the reasonable cause and good
faith exception.
(3)Materiality of errors. The under-
statement was not material in relation to
the correct tax liability. The reasonable
cause and good faithexception generally
applies if the understatement is of a rel-
atively immaterial amount. Nevertheless,
even an immaterial understatement may
not qualify for the reasonable cause and
good faith exception if the error or er-
rors creating the understatement are suffi-
ciently obvious or numerous.
(4)Tax return preparer’s normal office
practice.Thetaxreturnpreparer’snormal
office practice, when considered together
with other facts and circumstances, such as
the knowledge of the tax return preparer,
indicates that the error in question would
rarely occur and the normal office prac-
tice was followed in preparing the return or
claim for refund in question. Such a nor-
mal office practice must be a system for
promoting accuracy and consistency in the
preparation of returnsor claims for refund
and generally would include, in the case
of a signing tax return preparer, checklists,
methods for obtaining necessary informa-
tion from the taxpayer, a review of the
prior year’s return, and review procedures.
Notwithstanding these rules, the reason-
able cause and good faith exception does
not apply if there is a flagrant error on a
return or claim for refund, a pattern of er-
rors on a return or claim for refund, or a
repetition of the same or similar errors on
numerous returns or claims for refund.
(5)Reliance on advice of others.For
purposes of demonstrating reasonable
cause and good faith, a tax return pre-
parer may rely without verification upon
advice and information furnished by the
taxpayer or other party, as provided in
§1.6694–1(e). The tax return preparer
mayreasonablyrelyingoodfaithonthe
advice of, or schedules or other documents
prepared by, the taxpayer, another advisor,
another tax return preparer, or other party
(including another advisor or tax return
preparer at the tax return preparer’s firm),
and who the tax return preparer had reason
to believe was competent to render the
advice or other information. The advice or
information may be written or oral, but in
either case the burden of establishing that
the advice or information was received is
on the tax return preparer. A tax return
preparer is not considered to have relied
in good faith if—
(i) The advice or information is unrea-
sonable on its face;
(ii) The tax return preparer knew or
should have known that the other party
providing the advice or information was
not aware of all relevant facts; or
(iii) The tax return preparer knew or
should have known (given the nature of
the tax return preparer’s practice), at the
time the return or claim for refund was pre-
pared, that the advice or information was
no longer reliable due to developments
in the law since the time the advice was
given.
(6)Reliance on generally accepted ad-
ministrative or industry practice.Thetax
return preparer reasonably relied in good
faith on generally accepted administrative
or industry practice in taking the position
that resulted in theunderstatement. A tax
return preparer is not considered to have
relied in good faith if the tax return pre-
parer knew or should have known (given
the nature of the tax return preparer’s prac-
tice), at the time the return or claim for
refund was prepared, that the administra-
tive or industry practice was no longer re-
liable due to developments in the law or
IRS administrative practice since the time
the practice was developed.
(e)Burden of proof. In any proceeding
with respect to the penalty imposed by sec-
tion 6694(a), the issues on which the tax
return preparer bears the burden of proof
include whether—
(1) The tax return preparer knew or rea-
sonably should have known that the ques-
tioned position was taken on the return;
(2) There is reasonable cause and good
faith with respect to such position; and
(3) The position was disclosed ade-
quately in accordance with paragraph (c)
of this section.
(f)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
2008–27 I.R.B.49July 7, 2008

the date that final regulations are published
in theFederal Register.
Par. 8. Section 1.6694–3 is amended by
revising paragraphs (a), (c)(2) and (3), (d),
(e), (f), (g) and (h) to read as follows:
§1.6694–3 Penalty for understatement due
to willful, reckless, or intentional conduct.
(a)In general—(1)Proscribed conduct.
A tax return preparer is liable for a penalty
under section 6694(b) equal to the greater
of $5,000 or 50 percent of the income de-
rived (or to be derived) by the tax return
preparer if any part of an understatement
of liability for a return or claim for refund
that is prepared is due to—
(i) A willful attempt in any manner to
understate the liability for tax by a tax re-
turn preparer on the return or claim for re-
fund; or
(ii) Any reckless or intentional disre-
gard of rules or regulations by any such
person.
(2)Special rule for corporations, part-
nerships, and other firms. A firm that em-
ploys a tax return preparer subject to a
penalty under section 6694(b) (or a firm
of which the individual tax return preparer
is a partner, member, shareholder or other
equity holder) is also subject to penalty if,
andonlyif—
(i) One or more members of the princi-
pal management (or principal officers) of
the firm or a branch office participated in
or knew of the conduct proscribed by sec-
tion 6694(b);
(ii) The corporation, partnership, or
other firm entity failed to provide reason-
able and appropriate procedures for review
of the position for which the penalty is
imposed; or
(iii) Such review procedures were dis-
regarded by the corporation, partnership,
or other firm entity through willfulness,
recklessness, or gross indifference (includ-
ing ignoring facts that would lead a person
of reasonable prudence and competence to
investigate or ascertain) in the formulation
of the advice, or the preparation of the re-
turn or claim for refund, that included the
position for which the penalty is imposed.
*****
(c)Reckless or intentional disre-
gard—(1)***
(2) A tax return preparer is not con-
sidered to have recklessly or intention-
ally disregarded a rule or regulation if
the position contrary to the rule or reg-
ulation has a reasonable basis as de-
fined in §1.6694–2(c)(2) and is ade-
quately disclosed in accordance with
§1.6694–2(c)(3). In the case of a position
contrary to a regulation, the position must
represent a good faith challenge to the va-
lidity of the regulation and, when disclosed
in accordance with §1.6694–2(c)(3), the
tax return preparer must identify the reg-
ulation being challenged. For purposes
of this section, disclosure on the return
in accordance with an annual revenue
procedure under §1.6662–4(f)(2) is not
applicable.
(3) In the case of a position contrary to
a revenue ruling or notice (other than a no-
tice of proposed rulemaking) published by
the Internal Revenue Service in the Inter-
nal Revenue Bulletin, a tax return preparer
also is not considered to have recklessly
or intentionally disregarded the ruling or
notice if the tax return preparer reason-
ably believes that the position would more
likely than not be sustained on its merits in
accordance with§1.6694–2(b).
(d)Examples. The provisions of para-
graphs (b) and (c) of this section are illus-
trated by the following examples:
Example 1. A taxpayer provided Preparer S with
detailed check registers reflecting personal and busi-
ness expenses. One of the expenses was for domes-
tic help, and this expense was identified as personal
on the check register. S knowingly deducted the ex-
penses of the taxpayer’s domestic help as wages paid
in the taxpayer’s business. S is subject to the penalty
under section 6694(b).
Example 2. A taxpayer provided Preparer T with
detailed check registers to compute the taxpayer’s
expenses. T, however, knowingly overstated the
expenses on the return. After adjustments by the
examiner, the tax liability increased significantly.
Because T disregarded information provided in the
check registers, T is subject to the penalty under
section 6694(b).
Example 3. Preparer U prepares a taxpayer’s re-
turn and encounters certainexpenses incurred in the
purchase of a business. Final regulations provide that
such expenses incurred in the purchase of a business
must be capitalized. One U.S. Tax Court case has
expressly invalidated that portion of the regulations.
Under these facts, U will have a reasonable basis for
the position as defined in §1.6694–2(c)(2) and will
not be subject to the section 6694(b) penalty if the
position is adequately disclosed in accordance with
paragraph (c)(2) of this section because the position
represents a good faith challenge to the validity of the
regulations.
(e)Rulesorregulations.Thetermrules
or regulationsincludes the provisions of
the Internal Revenue Code, temporary or
final Treasury regulations issued under the
Code, and revenue rulings or notices (other
than notices of proposed rulemaking) is-
sued by the Internal Revenue Service and
published in the Internal Revenue Bulletin.
(f)Section 6694(b) penalty reduced by
section 6694(a) penalty. The amount of
any penalty to which a tax return preparer
may be subject under section 6694(b) for a
return or claim for refund is reduced by any
amount assessed and collected against the
tax return preparer under section 6694(a)
for the same return or claim for refund.
(g)Burden of proof. In any proceed-
ing with respect to the penalty imposed by
section 6694(b), the government bears the
burden of proof on the issue of whether the
tax return preparer willfully attempted to
understate the liability for tax. See sec-
tion 7427. The tax return preparer bears
the burden of proof on such other issues as
whether—
(1)Thetaxreturnpreparerrecklesslyor
intentionally disregarded a rule or regula-
tion;
(2) A position contrary to a regulation
represents a good faith challenge to the
validity of the regulation; and
(3) Disclosure was adequately made in
accordance with §1.6694–3(c)(2).
(h)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 9. Section 1.6694–4 is amended by
revising paragraph (a) to read as follows:
§1.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. (1) The Internal Rev-
enue Service will investigate the prepara-
tion by a tax return preparer of a return
of tax under the Internal Revenue Code
(Code) or claim for refund of tax under the
Code as described in §301.7701–15(b)(4)
of this chapter, and will send a report of the
examination to the tax return preparer be-
fore the assessment of either—
(i) A penalty for understating tax liabil-
ity due to a position for which there was
not a reasonable belief that the position
would more likely than not be sustained on
its merits under section 6694(a) (or not a
July 7, 2008502008–27 I.R.B.

reasonable basis for disclosed positions);
or
(ii) A penalty for willful understatement
of liability or reckless or intentional disre-
gard of rules or regulations under section
6694(b).
*****
(d)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 10. Section 1.6695–1 is revised to
read as follows:
§1.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)Failure to furnish copy to tax-
payer. (1) A person who is a sign-
ing tax return preparer as described in
§301.7701–15(b)(1) of this chapter of
any return of tax or claim for refund
of tax under the Internal Revenue Code
(Code), and who fails to satisfy the re-
quirements imposed by section 6107(a)
and §1.6107–1(a) to furnish a copy of the
return or claim for refund to the taxpayer
(or nontaxable entity), shall be subject to
a penalty of $50 for such failure, with a
maximum penalty of $25,000 per person
imposed with respect to each calendar
year, unless it is shown that the failure is
due to reasonable cause and not due to
willful neglect.
(2) No penalty may be imposed under
section 6695(a) and paragraph (a)(1) of
this section upon a tax return preparer who
furnishes a copy of the return or claim for
refund to taxpayers who—
(i) Hold an elected or politically ap-
pointed position with the government of
the United States or a state or political sub-
division thereof; and
(ii) In order faithfully to carry out their
official duties, have so arranged their af-
fairs that they have less than full knowl-
edge of the property that they hold or of the
debts for which they are responsible, if in-
formation is deleted from the copy in order
to preserve or maintain this arrangement.
(b)Failuretosignreturn.(1)Anin-
dividual who is a tax return preparer as
described in §301.7701–15 of this chapter
with respect to a return of tax or claim for
refund of tax under the Code that is not
signed electronically shall sign the return
or claim for refund after it is completed and
before it is presented to the taxpayer (or
nontaxable entity) for signature. For rules
covering electronically signed returns, see
paragraph (b)(2) of this section. For pur-
poses of this paragraph (b), a return of tax
shall not include information returns un-
der subpart B and subpart C of Part III of
Subtitle F. If the tax return preparer is un-
available for signature, another tax return
preparer shall review the entire preparation
of the return or claim for refund, and then
shall sign the return or claim for refund.
The tax return preparer shall sign the re-
turn in the manner prescribed by the Com-
missioner in forms, instructions, or other
appropriate guidance.
(2) In the case of electronically signed
tax returns, the tax return preparer need not
sign the return prior to presenting a com-
pleted copy of the returntothetaxpayer.
The tax return preparer, however, must
furnish all of the information that will be
transmitted as the electronically signed tax
return to the taxpayer contemporaneously
with furnishing the Form 8879,“IRS e-file
Signature Authorization,”or other similar
Internal Revenue Service (IRS) e-file sig-
nature form. The information may be fur-
nished on a replica of an official form. The
tax return preparer shall electronically sign
the return in the manner prescribed by the
Commissioner in forms, instructions, or
other appropriate guidance.
(3) If more than one tax return preparer
is involved in the preparation of the re-
turn or claim for refund, the individual tax
return preparer who has the primary re-
sponsibility as between or among the tax
return preparers for the overall substan-
tive accuracy of the preparation of such
return or claim for refund shall be con-
sidered to be the signing tax return pre-
parer for purposes of this paragraph (b) and
§301.7701–15(b)(1) of this chapter. Any
other tax return preparer as described in
§301.7701–15(b)(2) of this chapter is not
required to sign the return or claim for re-
fund.
(4)Examples. The application of this
paragraph (b) is illustrated by the follow-
ing examples:
Example 1. Law Firm A employs B, a lawyer,
to prepare for compensation estate tax returns and
claims for refund of taxes. Firm A is engaged by
C to prepare a Federal estate tax return. Firm A as-
signs B to prepare the return. B obtains the informa-
tion necessary for completing the return from C and
makes determinations with respect to the proper ap-
plication of the tax laws to such information in order
to determine the estate’s tax liability. B then forwards
suchinformationtoD,acomputer tax service that
performs the mathematical computations and prints
the return by means of computer processing. D then
sends the completed estate tax return to B who re-
views the accuracy of the return. B is the individual
tax return preparer who is primarily responsible for
the overall accuracy of the estate tax return. B must
sign the return as tax return preparer.
Example 2. Partnership E is a national account-
ing firm that prepares returns and claims for refund
of taxes for compensation. F and G, employees of
Partnership E, are involved in preparing the Form
990–T,Exempt Organization Business Income Tax
Return (and proxy tax under section 6033(e)),for H,
a tax exempt organization. After they complete the
return, including the gathering of the necessary infor-
mation, analyzing the proper application of the tax
laws to such information, and the performance of the
necessary mathematical computations, I, a supervi-
sory employee of Partnership E, reviews the return.
As part of this review, I reviews the information pro-
vided and the application of the tax laws to this in-
formation. The mathematical computations and car-
ried-forward amounts are reviewed by J, an employee
of Partnership E. The policies and practices of Part-
nership E require that K, a partner, finally review the
return. The scope of K’s review includes reviewing
the information provided and applying to this infor-
mation his knowledge of H’s affairs, observing that
Partnership E’s policies and practices have been fol-
lowed, and making the final determination with re-
spect to the proper application of the tax laws to de-
termine H’s tax liability. K may or may not exer-
cise these responsibilities, or may exercise them to
a greater or lesser extent, depending on the degree of
complexity of the return, his confidence in I (or F and
G), and other factors. K is the individual tax return
preparer who is primarily responsible for the overall
accuracy of H’s return. K must sign the return as tax
return preparer.
Example 3. L corporation maintains an office
in Seattle, Washington, for the purpose of prepar-
ing partnership returns for compensation. L makes
compensatory arrangements with individuals (but
provides no working facilities) in several states to
collect information from partners of a partnership
and to make decisions with respect to the proper
application of the tax laws to the information in order
to prepare the partnership return and calculate the
partnership’s distributive items. M, an individual,
who has such an arrangement in Los Angeles with L,
collects information from N, the general partner of a
partnership, and completes a worksheet kit supplied
by L that is stamped with M’s name and an identifi-
cation number assigned to M by L. In this process, M
classifies this information in appropriate categories
for the preparation of the partnership return. The
completed worksheet kit signed by M is then mailed
to L. O, an employee in L’s office, reviews the work-
sheet kit to make sure it wasproperly completed. O
does not review the information obtained from N for
its validity or accuracy. O may, but did not, make the
final decision with respect to the proper application
of tax laws to the information provided. The data
from the worksheet is entered into a computer and
the return form is completed. The return is prepared
for submission to N with filing instructions. M is the
2008–27 I.R.B.51July 7, 2008

individual tax return preparer primarily responsible
for the overall accuracy of the partnership return. M
must sign the return as tax return preparer.
Example 4. P employs R, S, and T to prepare gift
tax returns for taxpayers. After R and S have col-
lected the information from a taxpayer and applied
the tax laws to the information, the return form is
completed by a computer service. On the day the re-
turns prepared by R and S are ready for their signa-
tures, R is away from the city for 1 week on another
assignment and S is on detail to another office in the
same city for the day. T may sign the gift tax returns
prepared by R, provided that T reviews the informa-
tion obtained by R relative to the taxpayer, and T re-
views the preparation ofeach return prepared by R. T
may not sign the returns prepared by S because S is
available.
(5) An individual required by this para-
graph (b) to sign a return or claim for re-
fund shall be subject to a penalty of $50
for each failure to sign, with a maximum of
$25,000 per person imposed with respect
to each calendar year, unless it is shown
that the failure is due to reasonable cause
and not due to willful neglect. If the tax re-
turn preparer asserts reasonable cause for
failure to sign, the IRS will require a writ-
ten statement to substantiate the tax return
preparer’s claim of reasonable cause. For
purposes of this paragraph (b), reasonable
cause is a cause that arises despite ordinary
care and prudence exercised by the indi-
vidual tax return preparer.
(6)Effective/applicability date.This
paragraph (b) is applicable to returns and
claims for refund filed after the date that
final regulations are published in theFed-
eral Register.
(c)Failure to furnish identifying
number. (1) A person who is a sign-
ing tax return preparer as described in
§301.7701–15(b)(1) of this chapter of any
return of tax under the Code or claim
for refund of tax under the Code, and
who fails to satisfy the requirement of
section 6109(a)(4) and §1.6109–2(a) to
furnish one or more identifying numbers
of signing tax return preparers or persons
employing the signing tax return preparer
(or with which the signing tax return pre-
parer is associated) on a return or claim for
refund after it is completed and before it
is presented to the taxpayer (or nontaxable
entity) for signature shall be subject to
a penalty of $50 for each failure, with a
maximum of $25,000 per person imposed
with respect to each calendar year, unless
it is shown that the failure is due to reason-
able cause and not due to willful neglect.
(2) No more than one penalty of $50
may be imposed under section 6695(c) and
paragraph (c)(1) of this section with re-
spect to a single return or claim for refund.
(d)Failure to retain copy or record.(1)
A person who is a signing tax return pre-
parer as described in §301.7701–15(b)(1)
of this chapter of any return of tax un-
der the Code or claim for refund of tax
under the Code, and who fails to satisfy
the requirements imposed upon him or her
by section 6107(b) and §1.6107–1(b) and
(c) (other than the record requirement de-
scribed in both §1.6107–1(b)(2) and (3)) to
retain and make available for inspection a
copy of the return or claim for refund, or
to include the return or claim for refund in
a record of returns and claims for refund
and make the record available for inspec-
tion, shall be subject to a penalty of $50 for
the failure, unless it is shown that the fail-
ure is due to reasonable cause and not due
to willful neglect.
(2) A person may not, for returns or
claims for refund presented to the taxpay-
ers (or nontaxable entities) during any sin-
gle return period, be subject to more than
$25,000 in penalties under section 6695(d)
and paragraph (d)(1) of this section.
(e)Failure to file correct information
returns. A person who is subject to the re-
porting requirements of section 6060 and
§1.6060–1 and who fails to satisfy these
requirements shall pay a penalty of $50
for each such failure, with a maximum of
$25,000 per person imposed for each cal-
endar year, unless such failure was due to
reasonable cause and not due to willful ne-
glect.
(f)Negotiation of check. (1) No person
who is a tax return preparer as described in
§301.7701–15 of this chapter may endorse
or otherwise negotiate, directly or through
an agent, a check for the refund of tax un-
der the Code that is issued to a taxpayer
other than the tax return preparer if the per-
son was a tax return preparer of the return
or claim for refund which gave rise to the
refund check.
(2) Section 6695(f) and paragraphs
(f)(1) and (3) of this section do not apply
to a tax return preparer-bank that—
(i) Cashes a refund check and remits all
of the cash to the taxpayer or accepts a
refund check for deposit in full to a tax-
payer’s account, so long as the bank does
not initially endorse or negotiate the check
(unless the bank has made a loan to the
taxpayer on the basis of the anticipated re-
fund); or
(ii) Endorses a refund check for deposit
in full to a taxpayer’s account pursuant to
a written authorization of the taxpayer (un-
lessthebankhasmadealoantothetax-
payer on the basis of the anticipated re-
fund).
(3) A tax return preparer-bank may also
subsequently endorse or negotiate a re-
fund check as a part of the check-clearing
process through the financial system after
initial endorsement or negotiation.
(4) The tax return preparer shall be sub-
ject to a penalty of $500 for each endorse-
ment or negotiation of a check prohibited
under section 6695(f) and paragraph (f)(1)
of this section.
(g)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 11. Section 1.6695–2 is amended
by revising the heading and paragraphs (a),
(b)(3), (c) and (d) to read as follows:
§1.6695–2 Tax return preparer due
diligence requirements for determining
earned income credit eligibility.
(a)Penalty for failure to meet due dili-
gence requirements.Apersonwhoisa
signing tax return preparer of a tax return
or claim for refund under the Internal Rev-
enue Code with respect to determining the
eligibility for, or the amount of, the earned
income credit (EIC) under section 32 and
who fails to satisfy the due diligence re-
quirements of paragraph (b) of this section
will be subject to a penalty of $100 for each
such failure.
(b) * * *
(3)Knowledge—(i)In general.Thetax
return preparer must not know, or have rea-
sontoknow,thatanyinformationusedby
the tax return preparer in determining the
taxpayer’s eligibility for, or the amount of,
the EIC is incorrect. The tax return pre-
parer may not ignore the implications of
information furnished to, or known by, the
tax return preparer, and must make rea-
sonable inquiries if the information fur-
nished to the tax returnpreparer appears to
be incorrect, inconsistent, or incomplete.
A tax return preparer must make reason-
able inquiries if a reasonable and well-in-
formed tax return preparer knowledgeable
July 7, 2008522008–27 I.R.B.

in the law would conclude that the infor-
mation furnished to the tax return preparer
appears to be incorrect, inconsistent, or in-
complete. The tax return preparer must
also contemporaneously document in the
files the reasonable inquiries made and the
responses to these inquiries.
(ii)Examples. The provisions of para-
graph (b)(3)(i) of this section are illus-
trated by the following examples:
Example 1. A 22 year-old taxpayer wants to claim
two sons, ages 10 and 11, as qualifying children for
purposes of the EIC. Preparer A must make addi-
tional reasonable inquiries regarding the relationship
between the taxpayer and the children as the age of
the taxpayer appears inconsistent with the ages of the
children claimed as sons.
Example 2. An 18 year-old female taxpayer with
an infant has $3,000 in earned income and states that
she lives with her parents. Taxpayer wants to claim
the infant as a qualifying child for the EIC. This infor-
mation appears incomplete and inconsistent because
the taxpayer lives with her parents and earns very lit-
tle income. Preparer B must make additional reason-
able inquires to determine if the taxpayer is the quali-
fying child of her parents and, therefore, ineligible to
claim the EIC.
Example 3. In March 2008, Mr. D has Preparer
C prepare his tax year 2007 return using Married Fil-
ing Separate filing status, and an address of 25 Main
Street, Mytown, Mystate. Two weeks later Mrs. D
has C prepare her tax year 2007 return, and she asks
C to use the Head of Household filing status, claim-
ing two qualifying children, and the EIC. She tells C
that her address is 25 Main Street, Mytown, Mystate.
Mrs. D’s filing status appears incorrect based on the
filing status used by Mr. D. Therefore, C must make
additional reasonable inquiries to determine Mrs. D’s
proper filing status.
Example 4. Taxpayer asks Preparer E to prepare
her tax return and tells D that she has a Schedule C
business, that she has two qualifying children and that
she wants to claim the EIC. Taxpayer indicates that
she earned $10,000 from her Schedule C business, but
that she has no expenses. This information appears
incomplete because it is very unlikely that someone
who is self-employed has no business expenses. E
must make additional reasonable inquiries regarding
taxpayer’s business to determine whether the infor-
mation regarding both income and expenses is cor-
rect.
(c)Exception to penalty. The section
6695(g) penalty will not be applied with
respect to a particular tax return or claim
for refund if the tax return preparer can
demonstrate to the satisfaction of the In-
ternal Revenue Service that, considering
all the facts and circumstances, the tax re-
turn preparer’s normal office procedures
are reasonably designed and routinely fol-
lowed to ensure compliance with the due
diligence requirements of paragraph (b) of
this section, and the failure to meet the due
diligence requirements of paragraph (b) of
this section with respect to the particular
return or claim for refund was isolated and
inadvertent.
(d)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 12. Section 1.6696–1 is revised to
read as follows:
§1.6696–1 Claims for credit or refund by
tax return preparers or appraisers.
(a)Notice and demand. (1) The Inter-
nal Revenue Service (IRS) shall issue to
each tax return preparer or appraiser one or
more statements of notice and demand for
payment for all penalties assessed against
the tax return preparer or appraiser under
section 6694 and §1.6694–1, under sec-
tion 6695 and §1.6695–1, or under section
6695A (and any subsequently issued regu-
lations).
(2) For the definition of the term “tax
return preparer,” see section 7701(a)(36)
and §301.7701–15 of this chapter. A per-
son who prepares a claim for credit or re-
fund under this section for another person,
however, is not, with respect to that prepa-
ration, a tax return preparer as defined in
section 7701(a)(36) and §301.7701–15 of
this chapter.
(b)Claim filed by tax return preparer
or appraiser. A claim for credit or re-
fund of a penalty (or penalties) assessed
against a tax return preparer or appraiser
under section 6694 and §1.6694–1, under
section 6695 and §1.6695–1, or under sec-
tion 6695A (and any subsequently issued
regulations) may be filed under this section
only by the tax return preparer or the ap-
praiser (or the tax return preparer’s or ap-
praiser’s estate) against whom the penalty
(or penalties) is assessed and not by, for
example, the tax return preparer’s or ap-
praiser’s employer. This paragraph (b) is
not intended, however, to impose any re-
strictions on the preparation of this claim
for credit or refund. The claim may be pre-
paredbythetaxreturnpreparer’sorap-
praiser’s employer or by other persons. In
all cases, however, the claim for credit or
refund shall contain the information speci-
fied in paragraph (d) of this section and, as
required by paragraph (d) of this section,
shall be verified by a written declaration
by the tax return preparer or appraiser that
the information is provided under penalty
of perjury.
(c)Separation and consolidation of
claims. (1) Unless paragraph (c)(2) of
this section applies, a tax return preparer
shall file a separate claim for each penalty
assessed in each statement of notice and
demand issued to the tax return preparer.
(2) A tax return preparer may file one
or more consolidated claims for any or all
penalties imposed on the tax return pre-
parer by a single IRS Office under sec-
tion 6695(a) and §1.6695–1(a) (relating to
failure to furnish copy of return to tax-
payer), section 6695(b) and §1.6695–1(b)
(relating to failure tosign), section 6695(c)
and §1.6695–1(c) (relating to failure to fur-
nish identifying number), or under sec-
tion 6695(d) and §1.6695–1(d) (relating to
failure to retain copy of return or record),
whether the penalties are asserted on a sin-
gle or on separate statements of notice and
demand. In addition, a tax return preparer
may file one consolidated claim for any
or all penalties imposed on the tax return
preparer by a single IRS Office under sec-
tion 6695(e) and §1.6695–1(e) (relating to
failure to file correct information return),
which are asserted on a single statement of
notice and demand.
(d)Contentofclaim. Each claim for
credit or refund for any penalty (or penal-
ties) paid by a tax return preparer under
section 6694 and §1.6694–1, or under sec-
tion 6695 and §1.6695–1, or paid by an
appraiser under section 6695A (and any
subsequently issued regulations) shall in-
clude the following information, verified
by a written declaration by the tax return
preparer or appraiser that the information
is provided under penalty of perjury:
(1) The tax return preparer’s or ap-
praiser’s name.
(2) The tax return preparer’s or ap-
praiser’s identification number. If the tax
return preparer or appraiser is—
(i) An individual (not described in para-
graph (d)(2)(iii) of this section) who is a
citizen or resident of the United States, the
tax return preparer’s or appraiser’s social
security account number (or such alterna-
tive number as may be prescribed by the
IRS in forms, instructions, or other appro-
priate guidance) shall be provided;
(ii) An individual who is not a citizen or
resident of the United States and also was
not employed by another tax return pre-
parer or appraiser to prepare the document
2008–27 I.R.B.53July 7, 2008

(or documents) with respect to which the
penalty (or penalties) was assessed, the tax
return preparer’s or appraiser’s employer
identification number shall be provided; or
(iii) A person (whether an individual,
corporation, or partnership) that employed
one or more persons to prepare the docu-
ment (or documents) with respect to which
the penalty (or penalties) was assessed,
the tax return preparer’s or appraiser’s em-
ployer identification number shall be pro-
vided.
(3) The tax return preparer’s or ap-
praiser’s address where the IRS mailed
the statement (or statements) of notice and
demand and, if different, the tax return
preparer’s or appraiser’s address shown on
the document (or documents) with respect
to which the penalty (or penalties) was
assessed.
(4)(i) The address of the IRS campus or
office that issued the statement (or state-
ments) of notice and demand for payment
of the penalty (or penalties).
(ii) The date (or dates) and identifying
number (or numbers) of the statement (or
statements) of notice and demand.
(5)(i) The identification, by amount,
type, and document to which related, of
each penalty included in the claim. Each
document referred to in the preceding sen-
tence shall be identified by the form title or
number, by the taxpayer’s (or nontaxable
entity’s) name and taxpayer identification
number, and by the taxable year to which
the document relates.
(ii) The date (or dates) of payment of
the amount (or amounts) of the penalty (or
penalties) included in the claim.
(iii) The total amount claimed.
(6) A statement setting forth in detail—
(i) Each ground upon which each
penalty overpayment claim is based; and
(ii) Facts sufficient to apprise the IRS of
the exact basis of each such claim.
(e)Form for filing claim. Notwith-
standing §301.6402(c) of this chapter,
Form 6118,“Claim for Refund of Tax
Return Preparer Penalties,”is the form
prescribed for making a claim as provided
in this section.
(f)Place for filing claim. A claim filed
under this section shall be filed with the
IRS campus or office that issued to the tax
return preparer or appraiser the statement
(or statements) of notice and demand for
payment of the penalty (or penalties) in-
cluded in the claim.
(g)Time for filing claim. (1)(i) Ex-
cept as provided in section 6694(c)(1) and
§1.6694–2(a)(3)(ii) and (4), and in section
6694(d) and §1.6694–1(c):
(A) A claim for a penalty paid by a
tax return preparer under section 6694
and §1.6694–1, or under section 6695 and
§1.6695–1, or by a appraiser under section
6695A (and any subsequently issued reg-
ulations) shall be filed within three years
from the date the payment was made.
(B) A consolidated claim, permitted un-
der paragraph (c)(2) of this section, shall
be filed within three years from the first
date of payment of any penalty included in
the claim.
(ii) For purposes of this paragraph
(g)(1), payment is considered made on
the date payment is received by the IRS
or, if applicable, on the date an amount is
credited in satisfaction of the penalty.
(2) For purposes of determining
whether a claim is timely filed, the rules
under sections 7502 and 7503 and the
provisions of §§1.7502–1, 1.7502–2, and
1.7503–1 apply.
(h)Application of refund to outstand-
ing liability of tax return preparer or ap-
praiser. The IRS may, within the applica-
ble period of limitations, credit any amount
of an overpayment by a tax return preparer
or appraiser of a penalty (or penalties) paid
under section 6694 and §1.6694–1, under
section 6695 and §1.6695–1, or under sec-
tion 6695A (and any subsequently issued
regulations) against any outstanding liabil-
ity for any tax (or for any interest, addi-
tional amount, addition to the tax, or as-
sessablepenalty)owedbythetaxreturn
preparer or appraiser making the overpay-
ment. If a portion of an overpayment is so
credited, only the balance will be refunded
to the tax return preparer or appraiser.
(i)Interest. (1) Section 6611 and
§301.6611–1 of this chapter apply to the
payment by the IRS of interest on an
overpayment by a tax return preparer or
appraiser of a penalty (or penalties) paid
under section 6694 and §1.6694–1, under
section 6695 and §1.6695–1, or under sec-
tion 6695A (and any subsequently issued
regulations).
(2) Section 6601 and §301.6601–1 of
this chapter apply to the payment of inter-
est by a tax return preparer or appraiser to
the IRS on any penalty (or penalties) as-
sessed against the tax return preparer under
section 6694 and §1.6694–1, under sec-
tion 6695 and §1.6695–1, or under section
6695A (and any subsequently issued regu-
lations).
(j)Suits for refund of penalty.(1)A
tax return preparer or appraiser may not
maintain a civil action for the recovery
of any penalty paid under section 6694
and §1.6694–1, under section 6695 and
§1.6695–1, or under section 6695A (and
any subsequently issued regulations), un-
less the tax return preparer or appraiser has
previously filed a claim for credit or refund
of the penalty as provided in this section
(and the court has jurisdiction of the pro-
ceeding). See sections 6694(c) and 7422.
(2)(i) Except as provided in section
6694(c)(2) and §1.6694–2(b), the periods
of limitation contained in section 6532 and
§301.6532–1 of this chapter apply to a tax
return preparer’s or appraiser’s suit for the
recovery of any penalty paid under section
6694 and §1.6694–1, under section 6695
and §1.6695–1, or under section 6695A
(and any subsequently issued regulations).
(ii) The rules under section 7503 and
§301.7503–1 of this chapter apply to the
timely commencement by a tax return pre-
parer or appraiser of a suit for the recov-
ery of any penalty paid under section 6694
and §1.6694–1, under section 6695 and
§1.6695–1, or under section 6695A (and
any subsequently issued regulations).
(k)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 20—ESTATE TAX; ESTATES
OF DECEDENTS DYING AFTER
AUGUST 16, 1954
Par. 13. The authority citation for part
20 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 20.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 20.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 20.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 20.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 14. Section 20.6060–1 is added to
read as follows:
July 7, 2008542008–27 I.R.B.

§20.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund of estate tax under chapter 11 of sub-
title B of the Internal Revenue Code, other
than for the person, at any time during a re-
turn period, shall satisfy the recordkeeping
and inspection requirements in the manner
stated in §1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 15. Section 20.6107–1 is added to
read as follows:
§20.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of estate tax under chap-
ter 11 of subtitle B of the Internal Revenue
Code shall furnish a completed copy of the
return or claim for refund to the estate, and
retain a completed copy or record in the
manner stated in §1.6107–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 16. Section 20.6109–1 is added to
read as follows:
§20.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each estate tax return or
claim for refund prepared by one or more
signing tax return preparers must include
the identifying number of the preparer re-
quired by §1.6695–1(b) of this chapter to
sign the return or claim for refund in the
manner stated in §1.6109–2 of this chap-
ter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 17. Section 20.6694–1 is added to
read as follows:
§20.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of estate tax returns or
claims see §1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 18. Section 20.6694–2 is added to
read as follows:
§20.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of estate tax under chapter 11 of
subtitle B of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(a) of the Code in the manner
stated in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 19. Section 20.6694–3 is added to
read as follows:
§20.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of estate tax under chapter 11 of
subtitle B of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(b) of the Code in the manner
stated in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 20. Section 20.6694–4 is added to
read as follows:
§20.6694–4 Extension of period of
collection when preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of the period of collection when
a tax return preparer who prepared a re-
turn or claim for refund for estate tax under
chapter 11 of subtitle B of the Internal Rev-
enue Code pays 15 percent of a penalty for
understatement of the taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under sections 6694(a) and
(b), the rules under §1.6694–4 of this chap-
ter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 21. Section 20.6695–1 is added to
read as follows:
§20.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of estate tax under chapter 11 of
subtitle B of the Internal Revenue Code
(Code) shall be subject to penalties for fail-
ure to furnish a copy to the taxpayer un-
der section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an identifica-
tion number under section 6695(c) of the
Code, failure to retain a copy or list under
section 6695(d) of the Code, failure to file
a correct information return under section
6695(e) of the Code, and negotiation of a
check under section 6695(f) of the Code,
in the manner stated in §1.6695–1 of this
chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 22. Section 20.6696–1 is added to
read as follows:
§20.6696–1 Claims for credit or refund by
tax return preparers or appraisers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
2008–27 I.R.B.55July 7, 2008

who prepared a return or claim for refund
for estate tax under chapter 11 of subtitle
B of the Internal Revenue Code, or by an
appraiser that prepared an appraisal in con-
nectionwithsuchareturnorclaimforre-
fund under section 6695A, the rules under
§1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 23. Section 20.7701–1 is added to
read as follows:
§20.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 25—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 24. The authority citation for part
25 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 25.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 25.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 25.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 25.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 25. Section 25.6060–1 is added to
read as follows:
§25.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
of gift tax under chapter 12 of subtitle B of
the Internal RevenueCode, other than for
the person, at any time during a return pe-
riod, shall satisfy the recordkeeping and in-
spection requirements in the manner stated
in §1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 26. Section 25.6107–1 is added to
read as follows:
§25.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of gift tax under chap-
ter 12 of subtitle B of the Internal Rev-
enue Code shall furnish a completed copy
of the return or claim for refund to the
taxpayer, and retain a completed copy or
record in the manner stated in §1.6107–1
of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 27. Section 25.6109–1 is added to
read as follows:
§25.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each gift tax return or
claim for refund prepared by one or more
signing tax return preparers must include
the identifying number of the preparer re-
quired by §1.6695–1(b) of this chapter to
signthereturnorclaimforrefundinthe
manner stated in §1.6109–2 of this chap-
ter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 28. Section 25.6694–1 is added to
read as follows:
§25.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of gift tax returns or claims
see §1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 29. Section 25.6694–2 is added to
read as follows:
§25.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of gift tax under chapter 12 of subti-
tle B of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(a) of the Code in the manner stated
in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 30. Section 25.6694–3 is added to
read as follows:
§25.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of gift tax under chapter 12 of subti-
tle B of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(b) of the Code in the manner stated
in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 31. Section 25.6694–4 is added to
read as follows:
§25.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules for the ex-
tension of period of collection when a tax
return preparer who prepared a return or
claim for refund for gift tax under chap-
ter 12 of subtitle B of the Internal Rev-
enue Code pays 15 percent of a penalty for
understatement of taxpayer’s liability, and
procedural matters relating to the investi-
gation of, assessment and collection of the
penalties under section 6694(a) and (b), the
July 7, 2008562008–27 I.R.B.

rules under §1.6694–4 of this chapter will
apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 32. Section 25.6695–1 is added to
read as follows:
§25.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of gift tax under chapter 12 of subti-
tle B of the Internal Revenue Code (Code)
shall be subject to penalties for failure to
furnish a copy to the taxpayer under sec-
tion 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code,
failure to furnish an identification number
under section 6695(c) of the Code, fail-
ure to retain a copy or list under section
6695(d) of the Code, failure to file a correct
information return under section 6695(e)
of the Code, and negotiation of a check
under section 6695(f) of the Code, in the
manner stated in §1.6695–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 33. Section 25.6696–1 is added to
read as follows:
§25.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for gift tax under chapter 12 of subtitle B
of the Internal Revenue Code, or by an ap-
praiser that prepared an appraisal in con-
nectionwithsuchareturnorclaimforre-
fund under section 6695A, the rules under
§1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 34. Section 25.7701–1 is added to
read as follows:
§25.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 26—GENERATION-SKIPPING
TRANSFER TAX REGULATIONS
UNDER THE TAX REFORM ACT OF
1986
Par. 35. The authority citation for part
26 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 26.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 26.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 26.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 26.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 36. Section 26.6060–1 is added to
read as follows:
§26.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
of generation-skipping transfer tax under
chapter 13 of subtitle B of the Internal Rev-
enue Code, other than for the person, at any
time during a return period, shall satisfy
the record keeping and inspection require-
ments in the manner stated in §1.6060–1 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 37. Section 26.6107–1 is added to
read as follows:
§26.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of generation-skipping
transfer tax under chapter 13 of subtitle B
of the Internal Revenue Code shall furnish
a completed copy of the return or claim
for refund to the estate, and retain a com-
pleted copy or record in the manner stated
in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 38. Section 26.6109–1 is added to
read as follows:
§26.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each generation-skip-
ping transfer tax return or claim for re-
fund prepared by one or more signing tax
return preparers must include the identi-
fying number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 39. Section 26.6694–1 is added to
read as follows:
§26.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general defini-
tions regarding section 6694 penalties
applicable to preparers of generation-skip-
ping transfer tax returns or claims see
§1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 40. Section 26.6694–2 is added to
read as follows:
§26.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of generation-skipping transfer tax
under chapter 13 of subtitle B of the Inter-
nal Revenue Code (Code) shall be subject
2008–27 I.R.B.57July 7, 2008

to penalties under section 6694(a) of the
Code in the manner stated in §1.6694–2 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 41. Section 26.6694–3 is added to
read as follows:
§26.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of generation-skipping transfer tax
under chapter 13 of subtitle B of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the
Code in the manner stated in §1.6694–3 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 42. Section 26.6694–4 is added to
read as follows:
§26.6694–4 Extension of period of
collection when preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extensionofperiodofcollectionwhena
tax return preparer who prepared a return
or claim for refund for generation-skipping
transfer tax under chapter 13 of subtitle B
of the Internal Revenue Code pays 15 per-
cent of a penalty for understatement of tax-
payer’s liability, and procedural matters re-
lating to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under §1.6694–4
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 43. Section 26.6695–1 is added to
read as follows:
§26.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of generation-skipping transfer tax
under chapter 13 of subtitle B of the Inter-
nal Revenue Code (Code) shall be subject
to penalties for failure to a furnish copy to
the taxpayer under section 6695(a) of the
Code, failure to sign the return under sec-
tion 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 44. Section 26.6696–1 is added to
read as follows:
§26.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for generation-skipping transfer tax under
chapter 13 of subtitle B of the Internal Rev-
enue Code, or by an appraiser that pre-
pared an appraisal in connection with such
a return or claim for refund under section
6695A, the rules under §1.6696–1 of this
chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 45. Section 26.7701–1 is added to
read as follows:
§26.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE
Par. 46. The authority citation for part
31 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 31.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 31.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 31.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 31.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 47. Section 31.6060–1 is added to
read as follows:
§31.6060–1 Reporting requirements for
tax return preparers.
(a)
In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund of employment tax under chapters
21 through 25 of subtitle C of the Inter-
nal Revenue Code, other than for the per-
son, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 48. Section 31.6107–1 is added to
read as follows:
§31.6107–1 Tax return preparer must
furnishcopyofreturntotaxpayerand
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of employment tax un-
der chapters 21 through 25 of subtitle C of
the Internal RevenueCode shall furnish a
completed copy of the return or claim for
refund to the taxpayer, and retain a com-
pleted copy or record in the manner stated
in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
July 7, 2008582008–27 I.R.B.

for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 49. Section 31.6109–2 is added to
read as follows:
§31.6109–2 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each employment tax
return or claim for refund of employment
tax under chapters 21 through 25 of subtitle
C of the Internal Revenue Code prepared
by one or more signing tax return prepar-
ers must include the identifying number of
the preparer required by §1.6695–1(b) of
this chapter to sign the return or claim for
refund in the manner stated in §1.6109–2
of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 50. Section 31.6694–1 is added to
read as follows:
§31.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of employment tax returns
or claims of employment tax under chap-
ters 21 through 25 of subtitle C of the Inter-
nal Revenue Code, see §1.6694–1 of this
chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 51. Section 31.6694–2 is added to
read as follows:
§31.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of employment tax under chapters
21 through 25 of subtitle C of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(a) of the
Code in the manner stated in §1.6694–2 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 52. Section 31.6694–3 is added to
read as follows:
§31.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of employment tax under chapters
21 through 25 of subtitle C of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the
Code in the manner stated in 1.6694–3 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 53. Section 31.6694–4 is added to
read as follows:
§31.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for employment tax un-
der chapters 21 through 25 of subtitle C
of the Internal Revenue Code pays 15 per-
cent of a penalty for understatement of tax-
payer’s liability, and procedural matters re-
lating to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under §1.6694–4
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 54. Section 31.6695–1 is added to
read as follows:
§31.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of employment tax under chapters
21 through 25 of subtitle C of the Internal
Revenue Code (Code) shall be subject to
penalties for failure to furnish a copy to
the taxpayer under section 6695(a) of the
Code, failure to sign the return under sec-
tion 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 55. Section 31.6696–1 is added to
read as follows:
§31.6696–1 Claims for credit or refund by
tax return preparers
.
(a)In general. For rules for claims
for credit or refund by a tax return pre-
parer who prepared a return or claim for
refund for employment tax under chapters
21 through 25 of subtitle C of the Internal
Revenue Code, the rules under §1.6696–1
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 56. Section 31.7701–1 is added to
read as follows:
§31.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
2008–27 I.R.B.59July 7, 2008

PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Par. 57. The authority citation for part
40 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 40.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 40.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 40.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 40.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 58. Section 40.6060–1 is added to
read as follows:
§40.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
of excise tax under chapters 31, 32 (other
than section 4181), 33, 34, 36 (other than
section 4461), 38, and 39 of subtitle D of
the Internal RevenueCode, other than for
the person, at any time during a return pe-
riod, shall satisfy the recordkeeping and in-
spection requirements in the manner stated
in §1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 59. Section 40.6107–1 is added to
read as follows:
§40.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of excise tax under chap-
ters 31, 32 (other than section 4181), 33,
34, 36 (other than section 4461), 38, and
39 of subtitle D of the Internal Revenue
Code shall furnish a completed copy of the
return or claim for refund to the taxpayer,
and retain a completed copy or record in
the manner stated in §1.6107–1 of this
chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 60. Section 40.6109–1 is added to
read as follows:
§40.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each return or claim for
refund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subtitle
D of the Internal Revenue Code prepared
by one or more signing tax return prepar-
ers must include the identifying number of
the preparer required by §1.6695–1(b) of
this chapter to sign the return or claim for
refund in the manner stated in §1.6109–2
of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 61. Section 40.6694–1 is added to
read as follows:
§40.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of returns or claims for re-
fund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subti-
tle D of the Internal Revenue Code, see
§1.6694–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 62. Section 40.6694–2 is added to
read as follows:
§40.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subtitle
D of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(a) of the Code in the manner stated
in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 63. Section 40.6694–3 is added to
read as follows:
§40.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subtitle
D of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(b) of the Code in the manner stated
in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 64. Section 40.6694–4 is added to
read as follows:
§40.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for excise tax under
chapters 31, 32 (other than section 4181),
33, 34, 36 (other than section 4461), 38,
and 39 of subtitle D of the Internal Rev-
enue Code pays 15 percent of a penalty
for understatement of taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under section 6694(a) and (b),
the rules under §1.6694–4 of this chapter
will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
July 7, 2008602008–27 I.R.B.

Par. 65. Section 40.6695–1 is added to
read as follows:
§40.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subti-
tle D of the Internal Revenue Code (Code)
shall be subject to penalties for failure to
furnish a copy to the taxpayer under sec-
tion 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code,
failure to furnish an identification number
under section 6695(c) of the Code, fail-
ure to retain a copy or list under section
6695(d) of the Code, failure to file a correct
information return under section 6695(e)
of the Code, and negotiation of a check
under section 6695(f) of the Code, in the
manner stated in §1.6695–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 66. Section 40.6696–1 is added to
read as follows:
§40.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for excise tax under chapters 31, 32 (other
than section 4181), 33, 34, 36 (other than
section 4461), 38, and 39 of subtitle D of
the Internal Revenue Code, the rules under
§1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 67. Section 40.7701–1 is added to
read as follows:
§40.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART41—EXCISETAXONUSE
OF CERTAIN HIGHWAY MOTOR
VEHICLES
Par. 68. The authority citation for part
41 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 41.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 41.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 41.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 41.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 69. Section 41.6060–1 is added to
read as follows:
§41.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund of excise tax under section 4481 of
the Internal Revenue Code, other than for
the person, at any time during a return pe-
riod, shall satisfy the recordkeeping and in-
spection requirements in the manner stated
in §1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 70. Section 41.6107–1 is added to
read as follows:
§41.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of excise tax under section
4481 of the Internal Revenue Code shall
furnishacompletedcopyofthereturnor
claim for refund to the taxpayer, and retain
a completed copy or record in the manner
stated in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 71. Section 41.6109–2 is added to
read as follows:
§41.6109–2 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed after December
31, 2008.
(a)In general. Each excise tax return
or claim for refund under section 4481
prepared by one or more signing tax re-
turn preparers must include the identify-
ing number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 72. Section 41.6694–1 is added to
read as follows:
§41.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund, see §1.6694–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 73. Section 41.6694–2 is added to
read as follows:
§41.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under section 4481
of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(a) of the Code in the manner stated
in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 74. Section 41.6694–3 is added to
read as follows:
2008–27 I.R.B.61July 7, 2008

§41.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under section 4481
of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(b) of the Code in the manner stated
in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 75. Section 41.6694–4 is added to
read as follows:
§41.6694–4 Extension of period of
collection when preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extensionofperiodofcollectionwhena
tax return preparer who prepared a return
or claim for refund for excise tax under
section 4481 of the Internal Revenue Code
pays 15 percent of a penalty for understate-
ment of taxpayer’s liability, and procedural
matters relating to the investigation, as-
sessment and collection of the penalties
under section 6694(a) and (b), the rules un-
der §1.6694–4 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 76. Section 41.6695–1 is added to
read as follows:
§41.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under section 4481 of
the Internal Revenue Code (Code) shall be
subject to penalties for failure to furnish a
copy to the taxpayer under section 6695(a)
of the Code, failure to sign a return under
section 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 77. Section 41.6696–1 is added to
read as follows:
§41.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims
forcreditorrefundbyataxreturnpre-
parer who prepared a return or claim for
refund for excise tax under section 4481 of
the Internal Revenue Code, the rules under
§1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 78. Section 41.7701–1 is added to
read as follows:
§41.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 44—TAXES ON WAGERING;
EFFECTIVE JANUARY 1, 1955
Par. 79. The authority citation for part
44 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 44.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 44.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 44.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 44.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 80. Section 44.6060–1 is added to
read as follows:
§44.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
of tax on wagers under sections 4401 or
4411 of the Internal Revenue Code, other
than for the person, at any time during a re-
turn period, shall satisfy the recordkeeping
and inspection requirements in the manner
stated in §1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 81. Section 44.6107–1 is added to
read as follows:
§44.6107–1 Tax return preparer must
furnishcopyofreturntotaxpayerand
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax on wagers under
sections 4401 or 4411 of the Internal Rev-
enue Code shall furnish a completed copy
of the return or claim for refund to the
taxpayer, and retain a completed copy or
record in the manner stated in §1.6107–1
of this chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 82. Section 44.6109–1 is added to
read as follows:
§44.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each tax return or claim
for refund of tax under sections 4401 or
4411 prepared by one or more signing tax
return preparers must include the identi-
fying number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date.This
section is applicable for returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
July 7, 2008622008–27 I.R.B.

Par. 83. Section 44.6694–1 is added to
read as follows:
§44.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of wagering tax returns or
claims for refund under sections 4401 or
4411, see §1.6694–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 84. Section 44.6694–2 is added to
read as follows:
§44.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax on wagers under sections
4401 or 4411 of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(a) of the Code in the manner
stated in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 85. Section 44.6694–3 is added to
read as follows:
§44.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax on wagers under sections
4401 or 4411 of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(b) of the Code in the manner
stated in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 86. Section 44.6694–4 is added to
read as follows:
§44.6694–4 Extension of period of
collection when preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for tax on wagers un-
der sections 4401 or 4411 of the Internal
Revenue Code pays 15 percent of a penalty
for understatement of taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under section 6694(a) and (b),
the rules under §1.6694–4 of this chapter
will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 87. Section 44.6695–1 is added to
read as follows:
§44.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax on wagers under sections
4401 or 4411 of the Internal Revenue Code
(Code) shall be subject to penalties for fail-
ure to furnish a copy to the taxpayer un-
der section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an identifica-
tion number under section 6695(c) of the
Code, failure to retain a copy or list under
section 6695(d) of the Code, failure to file
a correct information return under section
6695(e) of the Code, and negotiation of a
check under section 6695(f) of the Code,
in the manner stated in §1.6695–1 of this
chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 88. Section 44.6696–1 is added to
read as follows:
§44.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for tax on wagers under sections 4401 or
4411 of the Internal Revenue Code, the
rules under §1.6696–1 of this chapter will
apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 89. Section 44.7701–1 is added to
read as follows:
§44.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 53—FOUNDATION AND
SIMILAR EXCISE TAXES
Par. 90. The authority citation for part
53 is amended by adding entries in numer-
ical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 53.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 53.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 53.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 53.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 91. Section 53.6060–1 is added to
read as follows:
§53.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund of tax under Chapter 42 of the Inter-
nal Revenue Code, other than for the per-
son, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 92. Section 53.6107–1 is added to
read as follows:
2008–27 I.R.B.63July 7, 2008

§53.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under Chapter 42 of
the Internal Revenue Code shall furnish a
completed copy of the return or claim for
refund to the taxpayer, and retain a com-
pleted copy or record in the manner stated
in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 93. Section 53.6109–1 is added to
read as follows:
§53.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed.
(a)In general. Each tax return or claim
for refund under Chapter 42 of the Inter-
nal Revenue Code prepared by one or more
signing tax return preparers must include
the identifying number of the preparer re-
quired by §1.6695–1(b) of this chapter to
sign the return or claim for refund in the
manner stated in §1.6109–2 of this chap-
ter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 94. Section 53.6694–1 is added to
read as follows:
§53.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims
for refund under Chapter 42 of the Inter-
nal Revenue Code, see §1.6694–1 of this
chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 95. Section 53.6694–2 is added to
read as follows:
§53.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under Chapter 42 of the In-
ternal Revenue Code (Code) shall be sub-
ject to penalties under section 6694(a) of
the Code in the manner stated in §1.6694–2
of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 96. Section 53.6694–3 is added to
read as follows:
§53.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under Chapter 42 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the
Code in the manner stated in §1.6694–3 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 97. Section 53.6694–4 is added to
read as follows:
§53.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund of tax under Chapter 42
of the Internal Revenue Code pays 15 per-
cent of a penalty for understatement of tax-
payer’s liability, and procedural matters re-
lating to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under §1.6694–4
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 98. Section 53.6695–1 is added to
read as follows:
§53.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under Chapter 42 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties for failure to furnish a copy to
the taxpayer under section 6695(a) of the
Code, failure to sign the return under sec-
tion 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date
.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 99. Section 53.6696–1 is added to
read as follows:
§53.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for tax under Chapter 42 of the Internal
Revenue Code, the rules under §1.6696–1
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 100. Section 53.7701–1 is added
to read as follows:
§53.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
July 7, 2008642008–27 I.R.B.

PART 54—PENSION EXCISE TAXES
Par. 101. The authority citation for
part 54 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 54.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 54.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 54.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 54.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 102. Section 54.6060–1 is added
to read as follows:
§54.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund under Chapter 43 of subtitle D of the
Internal Revenue Code, other than for the
person, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 103. Section 54.6107–1 is added
to read as follows:
§54.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under Chapter 43
of subtitle D of the Internal Revenue Code,
shall furnish a completed copy of the re-
turn or claim for refund to the taxpayer,
and retain a completed copy or record in
the manner stated in §1.6107–1 of this
chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 104. Section 54.6109–1 is added
to read as follows:
§54.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed.
(a)In general. Each tax return or claim
for refund of tax under Chapter 43 of sub-
title D prepared by one or more signing tax
return preparers must include the identi-
fying number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 105. Section 54.6694–1 is added
to read as follows:
§54.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund of tax under Chapter 43 of subtitle
D, see §1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 106. Section 54.6694–2 is added
to read as follows:
§54.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 43 of subtitle
D of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(a) of the Code in the manner stated
in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 107. Section 56.6694–3 is added
to read as follows:
§54.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapter 43 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(b) of the Code in the manner
stated in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 108. Section 54.6694–4 is added
to read as follows:
§54.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for tax under chap-
ter 43 of subtitle D of the Internal Rev-
enue Code pays 15 percent of a penalty
for understatement of taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under section 6694(a) and (b),
the rules under §1.6694–4 of this chapter
will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 109. Section 54.6695–1 is added
to read as follows:
§54.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 43 of subti-
tle D of the Internal Revenue Code (Code)
shall be subject to penalties for failure to
furnish a copy to the taxpayer under sec-
tion 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code,
failure to furnish an identification number
2008–27 I.R.B.65July 7, 2008

under section 6695(c) of the Code, fail-
ure to retain a copy or list under section
6695(d) of the Code, failure to file a correct
information return under section 6695(e)
of the Code, and negotiation of a check
under section 6695(f) of the Code, in the
manner stated in §1.6695–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 110. Section 54.6696–1 is added
to read as follows:
§54.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for excise tax under chapter 43 of subtitle
D of the Internal Revenue Code, the rules
under §1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 111. Section 54.7701–1 is added
to read as follows:
§54.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 55—EXCISE TAX ON REAL
ESTATE INVESTMENT TRUSTS
AND REGULATED INVESTMENT
COMPANIES
Par. 112. The authority citation for
part 55 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 55.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 55.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 55.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 55.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 113. Section 55.6060–1 is added
to read as follows:
§55.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund under chapter 44 of subtitle D of the
Internal Revenue Code, other than for the
person, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 114. Section 55.6107–1 is added
to read as follows:
§55.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under Chapter 44
of subtitle D of the Internal Revenue Code
shall furnish a completed copy of the re-
turn or claim for refund to the taxpayer,
and retain a completed copy or record in
the manner stated in §1.6107–1 of this
chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 115. Section 55.6109–1 is added
to read as follows:
§55.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each tax return or claim
for refund of tax under chapter 44 of Sub-
title D prepared by one or more signing tax
return preparers must include the identi-
fying number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 116. Section 55.6694–1 is added
to read as follows:
§55.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund of tax under chapter 44 of Subtitle
D see §1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 117. Section 55.6694–2 is added
to read as follows:
§55.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapter 44 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(a) of the Code in the manner
stated in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 118. Section 55.6694–3 is added
to read as follows:
§55.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 44 of subtitle
D of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(b) of the Code in the manner stated
in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
July 7, 2008662008–27 I.R.B.

Par. 119. Section 55.6694–4 is added
to read as follows:
§55.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to
the extension of period of collection when
a tax return preparer who prepared a re-
turn or claim for refund for excise tax un-
der chapter 44 of subtitle D of the Internal
Revenue Code pays 15 percent of a penalty
for understatement of taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under section 6694(a) and (b),
the rules under §1.6694–4 of this chapter
will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 120. Section 55.6695–1 is added
to read as follows:
§55.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 44 of subti-
tle D of the Internal Revenue Code (Code)
shall be subject to penalties for failure to
furnish a copy to the taxpayer under sec-
tion 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code,
failure to furnish an identification number
under section 6695(c) of the Code, fail-
ure to retain a copy or list under section
6695(d) of the Code, failure to file a correct
information return under section 6695(e)
of the Code, and negotiation of a check
under section 6695(f) of the Code, in the
manner stated in §1.6695–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 121. Section 55.6696–1 is added
to read as follows:
§55.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for tax under chapter 44 of subtitle D of
the Internal Revenue Code, the rules under
§1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 122. Section 55.7701–1 is added
to read as follows:
§55.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 56—PUBLIC CHARITY EXCISE
TAXES
Par. 123. The authority citation for
part 56 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 56.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 56.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 56.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 56.6695–2 also issued under 26
U.S.C. 6695(g). * * *
Par. 124. Section 56.6060–1 is added
to read as follows:
§56.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
of tax under chapter 41 of subtitle D of the
Internal Revenue Code, other than for the
person, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 125. Section 56.6107–1 is added
to read as follows:
§56.6107–1 Tax return preparer must
furnishcopyofreturntotaxpayerand
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under Chapter 41
of subtitle D of the Internal Revenue Code
shall furnish a completed copy of the re-
turn or claim for refund to the estate, and
retain a completed copy or record in the
manner stated in §1.6107–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 126. Section 56.6109–1 is added
to read as follows:
§56.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each tax return or claim
for refund for tax under chapter 41 of sub-
title D prepared by one or more tax sign-
ing return preparers must include the iden-
tifying number of the preparer required by
§1.6695–1(b) of this chapter to sign the
return or claim for refund in the manner
stated in §1.6109–2 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 127. Section 56.6694–1 is added
to read as follows:
§56.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund of tax under chapter 41 of subtitle
D see §1.6694–1 of this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
2008–27 I.R.B.67July 7, 2008

turns and claims for refund filed, and ad-
vice provided, after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 128. Section 56.6694–2 is added
to read as follows:
§56.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of excise tax under chapter 41 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties under
section 6694(a) of the Code in the manner
stated in §1.6694–2 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 129. Section 56.6694–3 is added
to read as follows:
§56.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 41 of subtitle
D of the Internal Revenue Code (Code)
shall be subject to penalties under section
6694(b) of the Code in the manner stated
in §1.6694–3 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 130. Section 56.6694–4 is added
to read as follows:
§56.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extensionofperiodofcollectionwhena
tax return preparer who prepared a return
or claim for refund for tax under chap-
ter 41 of subtitle D of the Internal Rev-
enue Code pays 15 percent of a penalty
for understatement of taxpayer’s liability,
and procedural matters relating to the in-
vestigation, assessment and collection of
the penalties under section 6694(a) and (b),
the rules under §1.6694–4 of this chapter
will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 131. Section 56.6695–1 is added
to read as follows:
§56.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under chapter 41 of subti-
tle D of the Internal Revenue Code (Code)
shall be subject to penalties for failure to
furnish a copy to the taxpayer under sec-
tion 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code,
failure to furnish an identification number
under section 6695(c) of the Code, fail-
ure to retain a copy or list under section
6695(d) of the Code, failure to file a correct
information return under section 6695(e)
of the Code, and negotiation of a check
under section 6695(f) of the Code, in the
manner stated in §1.6695–1 of this chap-
ter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 132. Section 56.6696–1 is added
to read as follows:
§56.6696–1 Claims for credit or refund by
tax return preparers.
(a)In general. For rules relating to
claims for credit or refund by a tax return
preparer who prepared a return or claim for
refund for tax under chapter 41 of subtitle
D of the Internal Revenue Code, the rules
under §1.6696–1 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 133. Section 56.7701–1 is added
to read as follows:
§56.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 156—EXCISE TAX ON
GREENMAIL
Par. 134. The authority citation for
part 156 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 156.6060–1 also issued under
26 U.S.C. 6060(a). * * *
Section 156.6109–2 also issued under
26 U.S.C. 6109(a). * * *
Section 156.6695–1 also issued under
26 U.S.C. 6695(b). * * *
Section 156.6695–2 also issued under
26 U.S.C. 6695(g). * * *
Par. 135. Section 156.6060–1 is added
to read as follows:
§156.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return prepar-
ers to prepare a return or claim for refund
under section 5881 of the Internal Rev-
enue Code, other than for the person, at any
time during a return period, shall satisfy
the recordkeeping andinspection require-
ments in the manner stated in §1.6060–1 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 136. Section 156.6107–1 is added
to read as follows:
§156.6107–1 Tax return preparer must
furnishcopyofreturntotaxpayerand
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under section 5881
of the Internal Revenue Code shall furnish
a completed copy of the return or claim for
July 7, 2008682008–27 I.R.B.

refund to the taxpayer, and retain a com-
pleted copy or record in the manner stated
in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 137. Section 156.6109–1 is added
to read as follows:
§156.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each tax return or claim
for refund for tax under section 5881 of
the Internal Revenue Code prepared by
one or more signing tax return preparers
must include the identifying number of the
preparer required by §1.6695–1(b) of this
chapter to sign the return or claim for re-
fund in the manner stated in §1.6109–2 of
this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 138. Section 156.6694–1 is added
to read as follows:
§156.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund for tax under section 5881 of the
Internal Revenue Code, see §1.6694–1 of
this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 139. Section 156.6694–2 is added
to read as follows:
§156.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under section 5881 of the In-
ternal Revenue Code (Code) shall be sub-
ject to penalties under section 6694(a) of
the Code in the manner stated in §1.6694–2
of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 140. Section 156.6694–3 is added
to read as follows:
§156.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general. A person who is a tax re-
turn preparer of any return or claim for re-
fund of tax under section 5881 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the
Code in the manner stated in §1.6694–3 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 141. Section 156.6694–4 is added
to read as follows:
§55.6694–4 Extension of period of
collection when tax return preparer pays
15 percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for tax under section
5881 of the Internal Revenue Code pays
15 percent of a penalty for understatement
of taxpayer’s liability, and procedural mat-
ters relating to the investigation, assess-
ment and collection of the penalties un-
der section 6694(a) and (b), the rules under
§1.6694–4 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 142. Section 156.6695–1 is added
to read as follows:
§156.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general. A person who is a tax re-
turn preparer of any return or claim for re-
fund of tax under section 5881 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties for failure to furnish a copy to
the taxpayer under section 6695(a) of the
Code, failure to sign the return under sec-
tion 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 143. Section 156.6696–1 is added
to read as follows:
§156.6696–1 Claims for credit or refund
by tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for tax under section 5881 of the Internal
Revenue Code, the rules under §1.6696–1
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 144. Section 156.7701–1 is added
to read as follows:
§156.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
2008–27 I.R.B.69July 7, 2008

PART 157—EXCISE TAX ON
STRUCTURED SETTLEMENT
FACTORING TRANSACTIONS
Par. 145. The authority citation for
part 157 is amended by adding entries in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 157.6060–1 also issued under
26 U.S.C. 6060(a). * * *
Section 157.6109–2 also issued under
26 U.S.C. 6109(a). * * *
Section 157.6695–1 also issued under
26 U.S.C. 6695(b). * * *
Section 157.6695–2 also issued under
26 U.S.C. 6695(g). * * *
Par. 146. Section 157.6060–1 is added
to read as follows:
§157.6060–1 Reporting requirements for
tax return preparers.
(a)In general. A person that employs
(or engages) one or more tax return pre-
parers to prepare a return or claim for re-
fund for tax under section 5891 of the In-
ternal Revenue Code, other than for the
person, at any time during a return period,
shall satisfy the recordkeeping and inspec-
tion requirements in the manner stated in
§1.6060–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 147. Section 157.6107–1 is added
to read as follows:
§157.6107–1 Tax return preparer must
furnish copy of return to taxpayer and
must retain a copy or record.
(a)In general. A person who is a sign-
ing tax return preparer of any return or
claim for refund of tax under section 5891
of the Internal Revenue Code shall furnish
a completed copy of the return or claim for
refund to the taxpayer, and retain a com-
pleted copy or record in the manner stated
in §1.6107–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 148. Section 157.6109–1 is added
to read as follows:
§157.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a)In general. Each tax return or claim
for refund for tax under section 5891 of
the Internal Revenue Code prepared by
one or more signing tax return preparers
must include the identifying number of the
preparer required by §1.6695–1(b) of this
chapter to sign the return or claim for re-
fund in the manner stated in §1.6109–2 of
this chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed after the
date that final regulations are published in
theFederal Register.
Par. 149. Section 157.6694–1 is added
to read as follows:
§157.6694–1 Section 6694 penalties
applicable to tax return preparer.
(a)In general. For general definitions
regarding section 6694 penalties applica-
ble to preparers of tax returns or claims for
refund for tax under section 5891 of the In-
ternal Revenue Code see §1.6694–1 of this
chapter.
(b)Effective/applicability date. Para-
graph (a) of this section is applicable to re-
turns and claims for refund filed, and ad-
vice provided, after thedatethatfinalreg-
ulations are published in theFederal Reg-
ister.
Par. 150. Section 157.6694–2 is added
to read as follows:
§157.6694–2 Penalties for understatement
due to an unreasonable position.
(a)In general.Apersonwhoisatax
return preparer of any return or claim for
refund of tax under section 5891 of the In-
ternal Revenue Code (Code) shall be sub-
ject to penalties under section 6694(a) of
the Code in the manner stated in §1.6694–2
of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 151. Section 157.6694–3 is added
to read as follows:
§157.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
(a)In general. A person who is a tax re-
turn preparer of any return or claim for re-
fund of tax under section 5891 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the
Code in the manner stated in §1.6694–3 of
this chapter.
(b)Effective/applicability date
.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 152. Section 157.6694–4 is added
to read as follows:
§157.6694–4 Extension of period of
collection when preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a)In general. For rules relating to the
extension of period of collection when a
tax return preparer who prepared a return
or claim for refund for tax under section
5891 of the Internal Revenue Code pays
15 percent of a penalty for understatement
of taxpayer’s liability, and procedural mat-
ters relating to the investigation, assess-
ment and collection of the penalties un-
der section 6694(a) and (b), the rules under
§1.6694–4 of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 153. Section 157.6695–1 is added
to read as follows:
§157.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a)In general. A person who is a tax re-
turn preparer of any return or claim for re-
fund of tax under section 5891 of the Inter-
nal Revenue Code (Code) shall be subject
to penalties for failure to furnish a copy to
the taxpayer under section 6695(a) of the
Code, failure to sign the return under sec-
tion 6695(b) of the Code, failure to fur-
nish an identification number under sec-
tion 6695(c) of the Code, failure to retain
July 7, 2008702008–27 I.R.B.

a copy or list under section 6695(d) of the
Code, failure to file a correct information
return under section 6695(e) of the Code,
and negotiation of a check under section
6695(f) of the Code, in the manner stated
in §1.6695–1 of this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed after the date that final reg-
ulations are published in theFederal Reg-
ister.
Par. 154. Section 157.6696–1 is added
to read as follows:
§157.6696–1 Claims for credit or refund
by tax return preparers.
(a)In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for refund
for tax under section 5891 of the Internal
Revenue Code, the rules under §1.6696–1
of this chapter will apply.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Par. 155. Section 157.7701–1 is added
to read as follows:
§157.7701–1 Tax return preparer.
(a)In general. For the definition of a
tax return preparer, see §301.7701–15 of
this chapter.
(b)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 156. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 157. Section 301.7701–15 is
amended to read as follows:
§301.7701–15 Tax return preparer.
(a)In general.Atax return preparer
is any person who prepares for compensa-
tion, or who employs one or more persons
to prepare for compensation, all or a sub-
stantial portion of any return of tax or any
claim for refund of tax under the Internal
Revenue Code (Code).
(b)Definitions—(1)Signing tax return
preparer.Asigning tax return prepareris
any tax return preparer who signs or who
is required to sign a return or claim for
refund as a tax return preparer pursuant to
§1.6695–1(b) of this chapter.
(2)Nonsigning tax return preparer—(i)
In general.Anonsigning tax return pre-
pareris any tax return preparer who is not
a signing tax return preparer but who pre-
pares all or a substantial portion of a re-
turn or claim for refund within the mean-
ing of paragraph (b)(3) of this section with
respect to events that have occurred at the
time the advice is rendered. In determin-
ing whether an individual is a nonsigning
taxreturnpreparer,timespentonadvice
that is given after events have occurred that
represents less than 5 percent of the aggre-
gate time incurred by such individual with
respect to the position(s) giving rise to the
understatement shall not be taken into ac-
count. Examples of nonsigning tax return
preparers are tax return preparers who pro-
vide advice (written or oral) to a taxpayer
(or to another tax return preparer) when
that advice constitutes a substantial portion
of the return within the meaning of para-
graph (b)(3) of this section.
(ii)Examples. The provisions of this
paragraph (b)(2) are illustrated by the fol-
lowing examples:
Example 1. Attorney A, an attorney in a law firm,
provides legal advice to a large corporate taxpayer re-
garding a completed corporate transaction. The ad-
vice provided by A is directly relevant to the deter-
mination of an entry on the taxpayer’s return and this
advice constitutes a substantial portion of the return.
A, however, does not prepare any other portion of the
taxpayer’s return and is not the signing tax return pre-
parer of this return. A is considered a tax return pre-
parer.
Example 2. Attorney B, an attorney in a law firm,
provides legal advice to a large corporate taxpayer re-
garding the tax consequences of a proposed corporate
transaction. Based upon this advice, the corporate
taxpayer enters into the transaction. Once the trans-
action is completed, the corporate taxpayer does not
receive any additional advice from B with respect to
the transaction. B did not provide advice with respect
to events that have occurred and is not considered a
taxreturnpreparer.
Example 3. The facts are the same asExample
2, except that Attorney B provides supplemental ad-
vice to the corporate taxpayer on a phone call after
the transaction is completed. The time incurred on
this supplemental advice by B represented less than
5 percent of the aggregate amount of time spent by B
providing tax advice on the position. B is not consid-
ered a tax return preparer.
(3)Substantial portion.(i)Onlyaper-
son who prepares all or a substantial por-
tion of a return or claim for refund shall
be considered to be a tax return preparer
of the return or claim for refund. A per-
son who renders tax advice on a position
that is directly relevant to the determina-
tion of the existence, characterization, or
amount of an entry on a return or claim for
refund will be regarded as having prepared
that entry. Whether a schedule, entry, or
other portion of a return or claim for refund
is a substantial portion is determined based
upon whether the person knows or reason-
ably should know that the tax attributable
to the schedule, entry, or other portion of
a return or claim for refund is a substan-
tial portion of the tax required to be shown
on the return or claim for refund. A single
tax entry may constitute a substantial por-
tion of the tax required to be shown on a
return. Factors to consider in determining
whether a schedule, entry, or other portion
of a return or claim for refund is a substan-
tial portion include but are not limited to—
(A) the size and complexity of the item
relative to the taxpayer’s gross income;
and
(B) the size of the understatement at-
tributable to the item compared to the tax-
payer’s reported tax liability.
(ii)(A) For purposes of applying the
rules of paragraph (b)(3)(i) of this sec-
tion to a nonsigning tax return preparer
within the meaning of paragraph (b)(2) of
this section only, ifthe schedule, entry,
or other portion of the return or claim for
refund involves amounts of gross income,
amounts of deductions, or amounts on the
basis of which credits are determined that
are—
(1) Less than $10,000; or
(2) Less than $400,000 and also less
than 20 percent of the gross income as
shown on the return or claim for refund (or,
for an individual, the individual’s adjusted
gross income), then the schedule or other
portion is not considered to be a substan-
tial portion.
(B) If more than one schedule, entry or
other portion is involved, all schedules, en-
tries or other portions shall be aggregated
in applying this rule. This paragraph shall
not apply to a signing tax return preparer
within the meaning of paragraph (b)(1) of
this section.
(iii) A tax return preparer with respect
to one return is not considered to be a tax
2008–27 I.R.B.71July 7, 2008

return preparer of another return merely
because an entry or entries reported on the
first return may affect an entry reported on
the other return, unless the entry or entries
reported on the first return are directly re-
flected on the other return and constitute a
substantial portion of the other return. For
example, the sole preparer of a partnership
return of income or small business corpo-
ration income tax return is considered a tax
return preparer of a partner’s or a share-
holder’s return if the entry or entries on the
partnership or small business corporation
return reportable on the partner’s or share-
holder’s return constitute a substantial por-
tion of the partner’s or shareholder’s re-
turn.
(iv)Examples. The provisions of this
paragraph (b)(3) are illustrated by the fol-
lowing examples:
Example 1. Accountant C prepares a Form 8886,
“Reportable Transaction Disclosure Statement”,that
is used to disclose reportable transactions. C does not
prepare the tax return or advise the taxpayer regard-
ing the tax return reporting position of the transac-
tion to which the Form 8886 relates. The prepara-
tion of the Form 8886 is not directly relevant to the
determination of the existence, characterization, or
amount of an entry on a tax return or claim for refund.
Rather, the Form 8886 is prepared by C to disclose a
reportable transaction. C has not prepared a substan-
tial portion of the tax return and is not considered a
tax return preparer under section 6694.
Example 2. Accountant D prepares a schedule for
an individual taxpayer’s Form 1040,“U.S. Individual
Income Tax Return”,reporting $4,000 in dividend in-
come and gives oral or written advice about Sched-
ule A, which results in a claim of a medical expense
deduction totaling $5,000, but does not sign the tax
return. D is not a tax return preparer because the to-
tal aggregate amount of the deductions is less than
$10,000.
(4)Return and claim for refund—(i)
Return. For purposes of this section, a
return of tax is a return (including an
amended or adjusted return) filed by or on
behalf of a taxpayer reporting the liability
of the taxpayer for tax under the Code,
if the type of return is identified in pub-
lished guidance in the Internal Revenue
Bulletin. A return of tax also includes
anyinformationreturn or other document
identified in published guidance in the
Internal Revenue Bulletin, and that reports
information that is or may be reported on
another taxpayer’s return under the Code
if the information reported on the informa-
tion return or other document constitutes a
substantial portion of the taxpayer’s return
within the meaning of paragraph (b)(3) of
this section.
(ii)Claim for refund. For purposes of
this section, a claim for refund of tax in-
cludes a claim for credit against any tax
that is included in published guidance in
the Internal Revenue Bulletin. A claim for
refund also includes a claim for payment
under section 6420, 6421, or 6427.
(c)Mechanical or clerical assistance.
A person who furnishes to a taxpayer or
other tax return preparer sufficient infor-
mation and advice so that completion of
the return or claim for refund is largely
a mechanical or clerical matter is consid-
ered a tax return preparer, even though that
person does not actually place or review
placement of information on the return or
claim for refund. See also paragraph (b)(3)
of this section.
(d)Qualifications.Apersonmaybea
tax return preparer without regard to ed-
ucational qualifications and professional
status requirements.
(e)Outside the United States.Aperson
who prepares a return or claim for refund
outside the United States is a tax return
preparer, regardless of the person’s nation-
ality, residence, or the location of the per-
son’s place of business, if the person oth-
erwise satisfies the definition oftax return
preparer. Notwithstanding the provisions
of §301.6109–1(g), the person shall secure
an employer identification number if the
person is an employer of another tax return
preparer, is a partnership in which one or
more of the general partners is a tax return
preparer, is a firm entity in which one or
more of the equity holders is a tax return
preparer, or is an individual not employed
by another tax return preparer.
(f)Persons who are not tax return pre-
parers. (1) The following persons are not
taxreturnpreparers:
(i)AnofficialoremployeeoftheIn-
ternal Revenue Service (IRS) performing
their official duties.
(ii) Any individual who provides tax
assistance under a Volunteer Income Tax
Assistance (VITA) program established by
the IRS, but only with respect to those re-
turns prepared as part of the VITA pro-
gram.
(iii) Any organization sponsoring or ad-
ministering a VITA program established
by the IRS, but only with respect to that
sponsorship or administration.
(iv) Any individual who provides tax
counseling for the elderly under a program
established pursuant to section 163 of the
Revenue Act of 1978, but only with respect
to those returns prepared as part of that
program.
(v) Any organization sponsoring or ad-
ministering a program to provide tax coun-
seling for the elderly established pursuant
to section 163 of the Revenue Act of 1978,
but only with respect to that sponsorship or
administration.
(vi) Any individual who provides tax
assistance as part of a qualified Low-In-
come Taxpayer Clinic (LITC), as defined
by section 7526, subject to the require-
ments of paragraphs (f)(2) and (3) of this
section, but only with respect to those re-
turns prepared as part of the LITC pro-
gram.
(vii) Any organization that is a qualified
LITC, as defined by section 7526, subject
to the requirements of paragraphs (h)(2)
and (3) of this section.
(viii) An individual providing only typ-
ing, reproduction, or other mechanical as-
sistance in the preparation of a return or
claim for refund.
(ix) An individual preparing a return or
claim for refund of a person, or an officer,
a general partner, member, shareholder, or
employee of a person, by whom the indi-
vidual is regularly and continuously em-
ployed or compensated or in which the in-
dividual is a general partner.
(x) An individual preparing a return or
claim for refund for a trust, estate, or other
entity of which the person either is a fidu-
ciary or is an officer, general partner, or
employee of the fiduciary.
(xi) An individual preparing a claim for
refund for a taxpayer in response to—
(A) A notice of deficiency issued to the
taxpayer; or
(B) A waiver of restriction on assess-
ment after initiation of an audit of the tax-
payer or another taxpayer if a determina-
tion in the audit of the other taxpayer af-
fects, directly or indirectly, the liability of
the taxpayer for tax under subtitle A.
(xii) A person who prepares a return or
claim for refund for a taxpayer with no ex-
plicit or implicit agreement for compensa-
tion, even if the person receives an insub-
stantial gift, return service, or favor.
(2) Paragraphs (f)(1)(vi) and (vii) of this
section apply only if any assistance with a
return of tax or claim for refund is directly
related to a controversy with the IRS for
which the qualified LITC is providing as-
sistance, or is an ancillary part of an LITC
July 7, 2008722008–27 I.R.B.

program to inform individuals for whom
English is a second language about their
rights and responsibilities under the Code.
(3) Notwithstanding paragraph (f)(2)
of this section, paragraphs (f)(1)(vi) and
(f)(1)(vii) of this section do not apply if
an LITC charges a separate fee or varies a
fee based on whether the LITC provides
assistance with a return of tax or claim
for refund under the Code, or if the LITC
charges more than a nominal fee for its
services.
(4) For purposes of paragraph (f)(1)(ix)
of this section, the employee of a corpo-
ration owning more than 50 percent of the
voting power of another corporation, or the
employee of a corporation more than 50
percent of the voting power of which is
owned by another corporation, is consid-
ered the employee of the other corporation
as well.
(5) For purposes of paragraph (f)(1)(x)
of this section, an estate, guardianship,
conservatorship, committee, or any simi-
lar arrangement for a taxpayer under a le-
gal disability (such as a minor, an incom-
petent, or an infirm individual) is consid-
ered a trust or estate.
(6)Examples. The mechanical assis-
tance exception described in paragraph
(f)(1)(viii) of this section is illustrated by
the following examples:
Example 1. A reporting agent received employ-
ment tax information from a client from the client’s
business records. The reporting agent did not render
any tax advice to the client or exercise any discre-
tion or independent judgment on the client’s under-
lying tax positions. The reporting agent processed
the client’s information, signed the return as autho-
rized by the client pursuant to Form 8655,Reporting
Agent Authorization,and filed the client’s return us-
ing the information supplied by the client. The re-
porting agent is not a tax return preparer.
Example 2. A reporting agent rendered tax ad-
vice to a client on determining whether its workers
are employees or independent contractors for Fed-
eral tax purposes. For compensation, the reporting
agent received employment tax information from the
client, processed the client’s information and filed the
client’s return using the information supplied by the
client. The reporting agent is a tax return preparer.
(g)Effective/applicability date.This
section is applicable to returns and claims
for refund filed, and advice provided, after
the date that final regulations are published
in theFederal Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on June 16, 2008,
8:45 a.m., and published in the issue of the Federal Register
for June 17, 2008, 73 F.R. 34559)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
and Notice of Public Hearing
Alternative Simplified Credit
Under Section 41(c)(5)
REG–149405–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9401) relating to the election and cal-
culation of the alternative simplified credit
under section 41(c)(5) of the Internal Rev-
enue Code (ASC). The regulations imple-
ment changes to the credit for increasing
research activities undersection41made
by the Tax Relief and Health Care Act
of 2006 and will affect certain taxpayers
claiming the section 41 credit. The text
of those regulations also serves as the text
of these proposed regulations. This docu-
ment also provides notice of a public hear-
ing on these proposed regulations.
DATES: Written or electronic comments
must be received by September 15, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for September
25, 2008, must be received by September
4, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–149405–07), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to: CC:PA:LPD:PR (REG–149405–07),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC, or sent electroni-
cally via the Federal eRulemaking Por-
tal athttp://www.regulations.gov(IRS
REG–149405–07). The public hearing
will be held in the IRS Auditorium,
Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, David Selig, (202) 622–3040;
concerning submission of comments,
the hearing, and/or to be placed on the
building access list to attend the hearing,
Regina Johnson, (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in this issue of
the Bulletin amend the Income Tax Regu-
lations (26 CFR Part 1) relating to section
41. The temporary regulations provide
guidance concerningthe election and cal-
culation of the alternative simplified credit
under section 41(c)(5). The text of those
regulations also serves as the text of these
proposed regulations. The preamble to the
temporary regulations explains these pro-
posed regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
It is hereby certified that these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. Although a substantial number of
small entities may make an election un-
der these regulations, any economic im-
pact is minimal because an election under
these regulations generally will simplify
the calculation of thecredit and may result
in a benefit to the taxpayer. Accordingly,
a regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
2008–27 I.R.B.73July 7, 2008

these regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. All comments will be
available for public inspection and copy-
ing. The IRS and the Treasury Depart-
ment invite taxpayers to submit comments
on the proposed regulations and issues re-
lating to the election and calculation of the
ASC under section 41(c)(5). In particular,
the IRS and the Treasury Department en-
courage taxpayers to submit comments on
the following issues:
Should the regulations allow a con-
trolled group to make an election to use
the ASC both for computation of the group
credit and computation of every member’s
stand-alone entity credit, even if the ASC
does not provide the greatest stand-alone
entity credit?
If so, how should that election be made
andbywhom?
What relief should be made available
to taxpayers that have used methodologies
inconsistent with the short taxable year
rules provided in these regulations on tax
returns filed after the effective date of sec-
tion 41(c)(5) and prior to the publication of
these regulations?
A public hearing has been scheduled for
September 25, 2008, at 10 a.m. in the
IRS Auditorium, Internal Revenue Build-
ing, 1111 Constitution Avenue, NW, Wash-
ington, DC. Due to building security pro-
cedures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments by
September 15, 2008, and an outline of
the topics to be discussed and the time to
be devoted to each topic (a signed orig-
inal and eight (8) copies) by September
4, 2008. A period of 10 minutes will be
allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is David Selig, Office of Associate
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and the Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.41–8 also issued under 26
U.S.C. 41(c)(4)(B);
Section 1.41–9 also issued under 26
U.S.C. 41(c)(5)(C); * * *
Par. 2. Section 1.41–6 is amended by
revising paragraphs (b)(1), (c)(2), (e) and
(j) to read as follows:
§1.41–6 Aggregation of expenditures.
*****
(b)(1) [The text of the proposed amend-
ment to §1.41–6(b)(1) is the same as the
text of §1.41–6T(b)(1) published else-
whereinthisissueoftheBulletin.]
(c) * * *
(2) [The text of the proposed amend-
ment to §1.41–6(c)(2) is the same as the
text of §1.41–6T(c)(2) published else-
whereinthisissueoftheBulletin].
*****
(e) [The text of the proposed amend-
ment to §1.41–6(e) is the same as the text
of §1.41–6T(e) published elsewhere in this
issue of the Bulletin].
*****
(j) [The text of the proposed amend-
ment to §1.41–6(j) is the same as the text
of §1.41–6T(j) published elsewhere in this
issue of the Bulletin].
Par. 3. Section 1.41–8 is amended by
revising paragraphs (b)(2), (b)(3), (b)(4)
and (b)(5) to read as follows:
§1.41–8 Alternative incremental credit.
*****
(b)(2) through (b)(5) [The text of pro-
posed §1.41–8(b)(2) through (b)(5) is the
same as the text of §1.41–8T(b)(2) through
(b)(5) published elsewhere in this issue of
the Bulletin.]
Par. 4. Section 1.41–9 is added to read
as follows:
§1.41–9 Alternative simplified credit.
[The text of proposed §1.41–9 is the
same as the text of §1.41–9T (a) through
(d) published elsewhere in this issue of the
Bulletin.]
Steven T. Miller,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on June 13, 2008,
11:51 a.m., and published in the issue of the Federal Register
for June 17, 2008, 73 F.R. 34237)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2008–62
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletinthatanorganizationnolonger
qualifies. However, the Service is not
precluded from disallowing a deduction
July 7, 2008742008–27 I.R.B.

for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on July 7, 2008, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
The Neil & Patricia Chiarello Charitable
Supporting Organization
West Milford, NJ
The Jonathan Dreier Foundation
Paradise Valley, AZ
Fanwood-Scotch Plains Recycling
Association, Inc.
Fanwood, NJ
A Mother’s Love Child Care Center
West Memphis, AR
Northstar Family Foundation
W. Valley City, UT
Metro Fire Dept, Ltd.
Warren, MI
2008–27 I.R.B.75July 7, 2008

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.
July 7, 2008i2008–27 I.R.B.

Numerical Finding List
1
Bulletin 2008–27
Announcements:
2008-62, 2008-27 I.R.B.74
Notices:
2008-55, 2008-27 I.R.B.11
Proposed Regulations:
REG-129243-07, 2008-27 I.R.B.32
REG-149405-07, 2008-27 I.R.B.73
Revenue Procedures:
2008-34, 2008-27 I.R.B.13
Revenue Rulings:
2008-32, 2008-27 I.R.B.6
2008-33, 2008-27 I.R.B.8
Treasury Decisions:
9401, 2008-27 I.R.B.1
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin
2008–26, dated June 30, 2008.
2008–27 I.R.B.iiJuly 7, 2008

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2008–27
Revenue Procedures:
2006-29
Superseded by
Rev. Proc. 2008-34, 2008-27 I.R.B.13
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008.
July 7, 2008iii2008–27 I.R.B.

INTERNAL REVENUE BULLETIN
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