[Federal Register: January 31, 2003 (Volume 68, Number 21)]
[Rules and Regulations]
[Page 4918-4922]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja03-14]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301 and 602
[TD 9040]
RIN 1545-AY56
Guidance Necessary To Facilitate Electronic Tax Administration
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that eliminate
regulatory impediments to the electronic filing of Form 1040, ``U.S.
Individual Income Tax Return.'' These regulations affect taxpayers who
file Form 1040 and who are required to file any of the following forms:
Form 56, ``Notice Concerning Fiduciary Relationship''; Form 2120,
``Multiple Support Declaration''; Form 2439, ``Notice to Shareholder of
Undistributed Long-Term Capital Gains''; Form 3468, ``Investment
Credit''; and Form T (Timber), ``Forest Activities Schedules.''
DATES: Effective Date: These regulations are effective January 31,
2003.
FOR FURTHER INFORMATION CONTACT: Joseph P. Dewald, (202) 622-4910 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-1783. The collection of information
in these final regulations is in Sec. Sec. 1.48-12(d)(7)(iv), 1.152-
3(c), 1.611-3(h), 1.852-9(c)(1), and 301.6903-1(b). Responses to this
collection of information are mandatory.
An agency may not conduct or sponsor, and a person is not required
to
[[Page 4919]]
respond to, a collection of information unless the collection of
information displays a valid control number assigned by the Office of
Management and Budget.
The estimated additional burden in final regulations Sec. Sec.
1.611-3(h), 1.852-9(c)(1), and 301.6903-1(b) is 0 hours because the
records that are required to be maintained were previously required to
be maintained to document the reporting requirements. This reporting
burden will be reflected in the burden estimate for Form T (Timber),
Form 2439, and Form 56, respectively.
Estimated additional total annual reporting burden for 2002 for
Form 3468: 376 hours.
Estimated number of responses for 2002 for Form 3468: 22,575.
Estimated additional average annual burden hours per response for
2002 for Form 3468: 1 minute.
Estimated additional total annual reporting burden for 2002 for
Form 2120: 550 hours.
Estimated number of responses for 2002 for Form 2120: 11,000.
Estimated additional average annual burden hours per response for
2002 for Form 2120: 3 minutes.
The estimated additional reporting burden for the reporting in
final regulations Sec. Sec. 1.48-12(d)(7)(iv) and 1.152-3(c) will be
reflected in the burden estimate for Form 3468 and Form 2120,
respectively.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S,
Washington, DC 20224, and to the Office of Management and Budget, Attn:
Desk Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC 20503.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) and the Procedure and Administration Regulations (26 CFR
part 301) designed to eliminate regulatory impediments to the
electronic filing of Form 1040.
In 1998, Congress enacted the Internal Revenue Service
Restructuring and Reform Act of 1998 (RRA 1998), Public Law 105-206
(112 Stat. 685) (1998). Section 2001(a) of RRA 1998 states that the
policy of Congress is that paperless filing should be the preferred and
most convenient means of filing Federal tax returns. Section 2001(a) of
RRA 1998 also sets a long-range goal for the IRS to have at least 80
percent of all Federal tax returns filed electronically by 2007.
Section 2001(b) of RRA 1998 requires the IRS to establish a 10-year
strategic plan to eliminate barriers to electronic filing. On April 24,
2002, the IRS published temporary regulations (TD 8989, 67 FR 20028)
and a cross-reference notice of proposed rulemaking (REG-107184-00, 67
FR 20072) to facilitate the implementation of this plan by eliminating
regulatory impediments to the electronic filing of Form 1040.
The temporary regulations amended the Procedure and Administration
Regulations to provide a regulatory statement of IRS authority to
prescribe what return information or documentation must be filed with a
return, statement, or other document required to be made under any
provision of the internal revenue laws or regulations. The regulations
give the IRS maximum flexibility in prescribing (1) what needs to be
filed in support of a return or claim, and (2) the form of the filing,
e.g., electronic versus paper. The regulations permit the IRS to
prescribe required return information in forms, instructions, or other
appropriate guidance.
In addition, the IRS identified five regulatory provisions that
impede electronic filing by requiring the taxpayer to either include a
third-party signature, or attach a document generated by a third party.
The temporary regulations amended those provisions to eliminate the
impediments.
No written comments were received in response to the cross-
reference notice of proposed rulemaking and no public hearing was
requested or held.
Explanation of Provisions
This Treasury decision removes the temporary regulations and adopts
the proposed regulations with minor clarifications explained below.
These final regulations clarify how to ``file'' a written
declaration waiving the dependency deduction under section 152(c)(4).
Section 1.152-3(a)(4) of the existing regulations provides that each
person waiving the deduction should ``file'' a written declaration
stating that the person waiving the deduction will not claim the
individual as a dependent. However, the term ``file'' is confusing
because it usually refers to a submission to the IRS. These final
regulations amend section 1.152-3(a)(4) to provide that each person
waiving the deduction should ``furnish'' a written waiver declaration
to the taxpayer claiming the deduction.
Section 1.152-3(b) of the existing regulations provides two
examples explaining the requirements in section 1.152-3(a). The
examples require that the written declarations furnished by each person
waiving the deduction be attached to the income tax return of the
taxpayer. These final regulations update the examples by removing the
requirement that the waivers be attached to the taxpayer's return. The
amended regulations require the taxpayer to retain the waivers
consistent with section 1.152-3(c).
Under section 1.152-3(c)(3) of the proposed regulations, the
taxpayer claiming the individual as a dependent must retain the
declarations furnished by the persons waiving the deduction. Section
1.152-3(c)(3) of the proposed regulations also provides that the IRS
may request other information from the taxpayer to substantiate the
dependency claim. The proposed regulation then states that the other
information that will substantiate the claim may include a statement
showing the names of all contributors and the amount contributed by
each. These final regulations clarify that the statement is just one of
many pieces of information that the IRS may request to substantiate the
dependency claim. No one statement or piece of information is
necessarily determinative.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. It is hereby
certified that the collection of information in these regulations will
not have a significant economic impact on a substantial number of small
entities. This certification is based upon the fact that the persons
responsible for recordkeeping are principally individuals, and the
burden is not significant as described earlier in the preamble.
Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business
[[Page 4920]]
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Joseph P. Dewald,
Office of Associate Chief Counsel (Procedure and Administration),
Administrative Provisions and Judicial Practice Division. However,
other personnel from the IRS and the Treasury Department participated
in the development of the regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 301 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.48-12 is amended as follows:
1. Revising paragraph (d)(7)(iii).
2. Adding a new paragraph (d)(7)(iv).
Sec. 1.48-12 Qualified rehabilitated building; expenditures incurred
after December 31, 1981.
* * * * *
(d) * * *
(7) * * *
(iii) Effective dates. Paragraph (d)(7)(i) of this section applies
to returns for taxable years beginning before January 1, 2002. The
requirement in the fourth sentence of paragraph (d)(7)(ii) of this
section applies only if the first income tax return filed after receipt
by the taxpayer of the certification is for a taxable year beginning
before January 1, 2002. For rules applicable to returns for taxable
years beginning after December 31, 2001, see paragraph (d)(7)(iv) of
this section.
(iv) Returns for taxable years beginning after December 31, 2001--
(A) In general. Except as otherwise provided in paragraph (d)(7)(ii) of
this section and this paragraph (d)(7)(iv), a taxpayer claiming the
credit for rehabilitation of a certified historic structure (within the
meaning of section 47(c)(3) and paragraph (d)(1) of this section) for a
taxable year beginning after December 31, 2001, must provide with the
return for the taxable year in which the credit is claimed, the NPS
project number assigned by, and the date of the final certification of
completed work received from, the Secretary of the Interior. If a
credit (including a credit for a taxable year beginning before January
1, 2002) is claimed under the late certification procedures of
paragraph (d)(7)(ii) of this section and the first income tax return
filed by the taxpayer after receipt of the certification is for a
taxable year beginning after December 31, 2001, the taxpayer must
provide the NPS project number assigned by, and the date of the final
certification of completed work received from, the Secretary of the
Interior with that return.
(B) Reporting and recordkeeping requirements. The information
required under paragraph (d)(7)(iv)(A) of this section must be provided
on Form 3468 (or its successor) filed with the taxpayer's return. In
addition, the taxpayer must retain a copy of the final certification of
completed work for as long as its contents may become material in the
administration of any internal revenue law.
(C) Passthrough entities. In the case of a credit for qualified
rehabilitation expenditures of a partnership, S corporation, estate, or
trust, the requirements of this paragraph (d)(7)(iv) apply only to the
entity. Each partner, shareholder or beneficiary claiming a credit for
such qualified rehabilitation expenditures from a passthrough entity
must, however, provide the employer identification number of the entity
on Form 3468 (or its successor).
Sec. 1.48-12T [Removed]
Par. 3. Section 1.48-12T is removed.
Sec. 1.152-3 [Amended]
Par. 4. In Sec. 1.152-3, paragraphs (a)(4) and (b) are revised and
paragraph and (c) is added to read as follows:
Sec. 1.152-3 Multiple support agreements.
(a) * * *
(4) Each other person in the group who contributed more than 10
percent of such support furnishes to the taxpayer claiming the
dependent a written declaration that such other person will not claim
the individual as a dependent for any taxable year beginning in such
calendar year.
(b) Examples. Application of the rule contained in paragraph (a) of
this section may be illustrated by the following examples:
Example (1). During the taxable year, brothers A, B, C, and D
contributed the entire support of their mother in the following
percentages: A, 30 percent; B, 20 percent; C, 29 percent; and D, 21
percent. Any one of the brothers, except for the fact that he did
not contribute more than half of her support, would have been
entitled to claim his mother as a dependent. Consequently, any one
of the brothers could claim a deduction for the exemption of the
mother if he obtained a written declaration (as provided in
paragraph (a)(4) of this section) from each of the other brothers.
Even though A and D together contributed more than one-half the
support of the mother, A, if he wished to claim his mother as a
dependent, would be required to obtain written declarations from B,
C, and D, since each of those three contributed more than 10 percent
of the support and, but for the failure to contribute more than half
of the mother's support, would have been entitled to claim his
mother as a dependent.
Example (2). During the taxable year, E, an individual who
resides with his son, S, received his entire support for that year
as follows:
------------------------------------------------------------------------
Percentage
Source of total
------------------------------------------------------------------------
Social Security............................................ 25
N, an unrelated neighbor................................... 11
B, a brother............................................... 14
D, a daughter.............................................. 10
S, a son................................................... 40
Total received by E.................................... 100
------------------------------------------------------------------------
B, D, and S are persons each of whom, but for the fact that none
contributed more than half of E's support, could claim E as a
dependent for the taxable year. The three together contributed 64
percent of E's support, and, thus, each is a member of the group to
be considered for the purpose of section 152(c). B and S are the
only members of such group who can meet all the requirements of
section 152(c), and either one could claim E as a dependent for his
taxable year if he obtained a written declaration (as provided in
paragraph (a)(4) of this section) signed by the other, and furnished
the other information required by the return with respect to all the
contributions to E. Inasmuch as D did not contribute more than 10
percent of E's support, she is not entitled to claim E as a
dependent for the taxable year nor is she required to furnish a
written declaration with respect to her contributions to E. N
contributed over 10 percent of the support of E, but, since he is an
unrelated neighbor, he does not qualify as a member of the group for
the purpose of the multiple support agreement under section 152(c).
(c)(1) The member of a group of contributors who claims an
individual as a dependent for a taxable year beginning before January
1, 2002, under the multiple support agreement provisions of section
152(c) must attach to the member's income tax return for
[[Page 4921]]
the year of the deduction a written declaration from each of the other
persons who contributed more than 10 percent of the support of such
individual and who, but for the failure to contribute more than half of
the support of the individual, would have been entitled to claim the
individual as a dependent.
(2) The taxpayer claiming an individual as a dependent for a
taxable year beginning after December 31, 2001, under the multiple
support agreement provisions of section 152(c) must provide with the
income tax return for the year of the deduction--
(i) A statement identifying each of the other persons who
contributed more than 10 percent of the support of the individual and
who, but for the failure to contribute more than half of the support of
the individual, would have been entitled to claim the individual as a
dependent; and
(ii) A statement indicating that the taxpayer obtained a written
declaration from each of the persons described in section 152(c)(2)
waiving the right to claim the individual as a dependent.
(3) The taxpayer claiming the individual as a dependent for a
taxable year beginning after December 31, 2001, must retain the waiver
declarations and should be prepared to furnish the waiver declarations
and any other information necessary to substantiate the claim, which
may include a statement showing the names of all contributors (whether
or not members of the group described in section 152(c)(2)) and the
amount contributed by each to the support of the claimed dependent.
Sec. 1.152-3T [Removed]
Par. 5. Section 1.152-3T is removed.
Sec. 1.611-3 [Amended]
Par. 6. In Sec. 1.611-3, paragraph (h) is added to read as
follows:
Sec. 1.611-3 Rules applicable to timber.
* * * * *
(h) Reporting and recordkeeping requirements--(1) Taxable years
beginning before January 1, 2002. A taxpayer claiming a deduction for
depletion of timber for a taxable year beginning before January 1,
2002, shall attach to the income tax return of the taxpayer a filled-
out Form T (Timber) for the taxable year covered by the income tax
return, including the following information--
(i) A map where necessary to show clearly timber and land acquired,
timber cut, and timber and land sold;
(ii) Description of, cost of, and terms of purchase of timberland
or timber, or cutting rights, including timber or timber rights
acquired under any type of contract;
(iii) Profit or loss from sale of land, or timber, or both;
(iv) Description of timber with respect to which claim for loss, if
any, is made;
(v) Record of timber cut;
(vi) Changes in each timber account as a result of purchase, sale,
cutting, reestimate, or loss;
(vii) Changes in improvements accounts as the result of additions
to or deductions from capital and depreciation, and computation of
profit or loss on sale or other disposition of such improvements;
(viii) Operation data with respect to raw and finished material
handled and inventoried;
(ix) Statement as to application of the election under section
631(a) and pertinent information in support of the fair market value
claimed thereunder;
(x) Information with respect to land ownership and capital
investment in timberland; and
(xi) Any other data which will be helpful in determining the
reasonableness of the depletion or depreciation deductions claimed in
the return.
(2) Taxable years beginning after December 31, 2001. A taxpayer
claiming a deduction for depletion of timber on a return filed for a
taxable year beginning after December 31, 2001, shall attach to the
income tax return of the taxpayer a filled-out Form T (Timber) for the
taxable year covered by the income tax return. In addition, the
taxpayer must retain records sufficient to substantiate the right of
the taxpayer to claim the deduction, including a map, where necessary,
to show clearly timber and land acquired, timber cut, and timber and
land sold for as long as their contents may become material in the
administration of any internal revenue law.
Sec. 1.611-3T [Removed]
Par. 7. Section 1.611-3T is removed.
Sec. 1.852-9 [Amended]
Par. 8. In Sec. 1.852-9, paragraph (c)(1) is added to read as
follows:
Sec. 1.852-9 Special procedural requirements applicable to
designation under section 852(b)(3)(D).
* * * * *
(c) Shareholders--(1) Return and Recordkeeping Requirements--(i)
Return requirements for taxable years beginning before January 1, 2002.
For taxable years beginning before January 1, 2002, the copy B of Form
2439 furnished to a shareholder by the regulated investment company or
by a nominee, as provided in Sec. 1.852-9(a) or (b) shall be attached
to the income tax return of the shareholder for the taxable year in
which the amount of undistributed capital gains is includible in gross
income as provided in Sec. 1.852-4(b)(2).
(ii) Recordkeeping requirements for taxable years beginning after
December 31, 2001. For taxable years beginning after December 31, 2001,
the shareholder shall retain a copy of Form 2439 for as long as its
contents may become material in the administration of any internal
revenue law.
* * * * *
Sec. 1.852-9T [Removed]
Par. 9. Section 1.852-9T is removed.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 10. The authority citation for part 301 continues to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 11. Section 301.6011-1 is added to read as follows:
Sec. 301.6011-1 General requirement of return, statement or list.
(a) For provisions requiring returns, statements, or lists, see the
regulations relating to the particular tax.
(b) The Internal Revenue Service may prescribe in forms,
instructions, or other appropriate guidance the information or
documentation required to be included with any return or any statement
required to be made or other document required to be furnished under
any provision of the internal revenue laws or regulations.
Sec. 301.6011-1T [Removed]
Par. 12. Section 301.6011-1T is removed.
Sec. 301.6903-1 [Amended]
Par. 13. In Sec. 301.6903-1, paragraph (b) is added to read as
follows:
Sec. 301.6903-1 Notice of fiduciary relationship.
* * * * *
(b) Manner of notice--(1) Notices filed before April 24, 2002. This
paragraph (b)(1) applies to notices filed before April 24, 2002. The
notice shall be signed by the fiduciary, and shall be filed with the
Internal Revenue Service office where the return of the person for whom
the fiduciary is acting is required to be filed. The notice must state
the name and address of the person for whom the fiduciary is acting,
and the nature of the liability of such person; that is, whether it is
a liability for tax, and, if so, the type of tax, the year or
[[Page 4922]]
years involved, or a liability at law or in equity of a transferee of
property of a taxpayer, or a liability of a fiduciary under section
3467 of the Revised Statutes, as amended (31 U.S.C. 192) in respect of
the payment of any tax from the estate of the taxpayer. Satisfactory
evidence of the authority of the fiduciary to act for any other person
in a fiduciary capacity must be filed with and made a part of the
notice. If the fiduciary capacity exists by order of court, a certified
copy of the order may be regarded as satisfactory evidence. When the
fiduciary capacity has terminated, the fiduciary, in order to be
relieved of any further duty or liability as such, must file with the
Internal Revenue Service office with whom the notice of fiduciary
relationship was filed written notice that the fiduciary capacity has
terminated as to him, accompanied by satisfactory evidence of the
termination of the fiduciary capacity. The notice of termination should
state the name and address of the person, if any, who has been
substituted as fiduciary. Any written notice disclosing a fiduciary
relationship which has been filed with the Commissioner under the
Internal Revenue Code of 1939 or any prior revenue law shall be
considered as sufficient notice within the meaning of section 6903. Any
satisfactory evidence of the authority of the fiduciary to act for
another person already filed with the Commissioner or district director
need not be resubmitted.
(2) Notices filed on or after April 24, 2002. This paragraph (b)(2)
applies to notices filed on or after April 24, 2002. The notice shall
be signed by the fiduciary, and shall be filed with the Internal
Revenue Service Center where the return of the person for whom the
fiduciary is acting is required to be filed. The notice must state the
name and address of the person for whom the fiduciary is acting, and
the nature of the liability of such person; that is, whether it is a
liability for tax, and if so, the type of tax, the year or years
involved, or a liability at law or in equity of a transferee of
property of a taxpayer, or a liability of a fiduciary under 31 U.S.C.
3713(b), in respect of the payment of any tax from the estate of the
taxpayer. The fiduciary must retain satisfactory evidence of his or her
authority to act for any other person in a fiduciary capacity as long
as the evidence may become material in the administration of any
internal revenue law.
* * * * *
Sec. 301.6903-1T [Removed]
Par. 14. Section 301.6903-1T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 15. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 16. In Sec. 602.101, paragraph (b), the table is amended as
follows:
1. The following entries are removed:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.48-12T................................................... 1545-0155
1545-1783
* * * * *
1.152-3T................................................... 1545-0071
1545-1783
* * * * *
1.611-3T................................................... 1545-0007
1545-0099
1545-1784
* * * * *
1.852-9T................................................... 1545-0074
1545-0123
1545-0144
1545-0145
1545-1783
* * * * *
301.6903-1T................................................ 1545-0013
1545-1783
* * * * *
------------------------------------------------------------------------
2. The following entries are revised:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.48-12.................................................... 1545-0155
1545-1783
* * * * *
1.152-3.................................................... 1545-0071
1545-1783
* * * * *
1.611-3.................................................... 1545-0007
1545-0099
1545-1784
* * * * *
1.852-9.................................................... 1545-0074
1545-0123
1545-0144
1545-0145
1545-1783
* * * * *
301.6903-1................................................. 1545-0013
1545-1783
* * * * *
------------------------------------------------------------------------
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Approved: January 14, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-2063 Filed 1-30-03; 8:45 am]
BILLING CODE 4830-01-P