[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33365-33370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16376]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 301 and 602
[TD 8680]
RIN 1545-AU41
Extensions of Time to Make Elections
AGENCY: Internal Revenue Service (IRS), Treasury.
[[Page 33366]]
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations concerning
extensions of time for making certain elections under the Internal
Revenue Code (Code). The regulations provide the standards that the
Commissioner will use to grant taxpayers extensions of time for making
these elections. The text of these temporary regulations also serves as
the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: These regulations are effective June 27, 1996.
For dates of applicability, see Sec. 301.9100-1T(h) of these
regulations.
FOR FURTHER INFORMATION CONTACT: Robert A. Testoff at (202) 622-4960
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice and public
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).
For this reason, the collection of information contained in these
regulations has been reviewed and, pending receipt and evaluation of
public comments, approved by the Office of Management and Budget under
control number 1545-1488. Responses to this collection of information
are required to obtain an extension of time for making an election.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
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 temporary regulations amending the
Regulations on Procedure and Administration (26 CFR part 301)
concerning extensions of time for making certain elections. The
regulations provide the standards that the Commissioner will use to
grant taxpayers extensions of time for making these elections. These
standards provide relief to taxpayers who reasonably and in good faith
fail to make a timely election when granting relief will not prejudice
the interests of the government. The regulations provide a means by
which taxpayers can be in the same position they would have been in had
they made their elections in a timely fashion.
Explanation of Provisions
These temporary regulations provide the standards the Commissioner
will use to determine whether to grant an extension of time to make an
election when the deadline for making the election is prescribed by
regulation, revenue ruling, revenue procedure, notice, or announcement
published in the Federal Register or the Internal Revenue Bulletin
(regulatory election). Under section 6081(a), these regulations also
provide an automatic extension of time to make an election when the
deadline for making the election is prescribed by statute (statutory
election) and the deadline for making the election is the due date of
the return or the due date of the return including extensions. These
regulations adopt and revise the standards for relief provided in Rev.
Proc. 92-85, 1992-2 C.B. 490.
Automatic Extensions
Rev. Proc. 92-85 provides an automatic 12-month extension for
certain regulatory elections listed in Appendix A of that revenue
procedure. The temporary regulations continue the automatic 12-month
extension and update the list of eligible regulatory elections.
Rev. Proc. 92-85 also provides an automatic 6-month extension for
statutory elections when the deadline for making the election is
prescribed as the due date of the return or the due date of the return
including extensions. The temporary regulations expand the automatic 6-
month extension to include regulatory elections.
Other Extensions
Rev. Proc. 92-85 provides relief for certain regulatory elections
that do not qualify for relief under the automatic extensions. Rev.
Proc. 92-85 requires a taxpayer to demonstrate that (1) it acted
reasonably and in good faith and (2) granting relief will not prejudice
the interests of the government. The temporary regulations continue to
provide extensions for such regulatory elections upon a showing of
reasonable action and good faith and no prejudice to the interests of
the government.
The temporary regulations adopt the standards for reasonable action
and good faith in Rev. Proc. 92-85. The regulations provide that a
taxpayer is deemed to have acted reasonably and in good faith if: (1)
the taxpayer applies for relief before the failure to make the
regulatory election is discovered by the IRS; (2) the taxpayer
inadvertently failed to make the election because of intervening events
beyond its control; (3) the taxpayer failed to make the election
because after exercising reasonable diligence the taxpayer was unaware
of the necessity for the election; (4) the taxpayer reasonably relied
on written advice of the IRS; or (5) the taxpayer relied on a qualified
tax professional, including a professional employed by the taxpayer,
and the professional failed to make or advise the taxpayer to make the
election. However, a taxpayer is deemed to have not acted reasonably
and in good faith if: (1) the taxpayer is requesting relief for an
election to alter a return position for which an accuracy-related
penalty could have been imposed under section 6662; (2) the taxpayer
was fully informed of the required election and related tax
consequences and chose not to file the election; or (3) the taxpayer
uses hindsight in requesting relief.
The temporary regulations adopt the standards for prejudice to the
interests of the government in Rev. Proc. 92-85. The regulations
provide that the interests of the government are deemed to be
prejudiced if granting relief would result in a taxpayer having a lower
tax liability than the taxpayer would have had if the regulatory
election had been timely made. In addition, the interests of the
government are ordinarily deemed to be prejudiced if the tax year in
which the election should have been made or any affected tax years are
closed by the statute of limitations.
Accounting Method and Period Elections
Rev. Proc. 92-85 provides limited relief (ordinarily not to exceed
90 days from the deadline for filing Form 3115, Application for Change
in Accounting Method) for requests to change an accounting method
subject to the procedure described in Sec. 1.446-1(e)(3)(i) (requiring
the advance written consent of the Commissioner). The temporary
regulations continue this limited relief. Rev. Proc. 92-85 provides an
automatic 12-month extension for the election to use the last-in,
first-out (LIFO) inventory method under section 472 and also provides
relief for the section 472
[[Page 33367]]
election beyond the automatic 12-month extension. Rev. Proc. 92-85 is
otherwise inapplicable to accounting method regulatory elections,
except for three specific elections listed in Appendix B of that
revenue procedure.
The temporary regulations provide relief for all accounting method
regulatory elections. For example, relief will now be available for
elections under sections 197 (amortization of goodwill and certain
other intangibles) and 468A (special rules for nuclear decommissioning
costs).
The temporary regulations provide additional rules regarding what
constitutes prejudice to the interests of the government for accounting
method regulatory elections. The temporary regulations provide that the
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if: (1) the election requires an
adjustment under section 481(a); (2) the taxpayer is under examination,
requests relief to change from an impermissible method of accounting,
and granting relief will provide the taxpayer a more favorable method
of accounting or more favorable terms and conditions than the taxpayer
would receive if the change is made as part of the examination; or (3)
the election provides a more favorable method of accounting or more
favorable terms and conditions if the election is made by a certain
date or taxable year.
Rev. Proc. 92-85 provides an automatic 12-month extension for
elections to use other than the required taxable year under section
444. Rev. Proc. 92-85 also provides limited relief (ordinarily not to
exceed 90 days from the deadline for filing Form 1128, Application to
Adopt, Change, or Retain a Tax Year) for accounting period regulatory
elections subject to Rev. Proc. 87-32, 1987-2 C.B. 396. Rev. Proc. 92-
85 is otherwise inapplicable to accounting period regulatory elections.
The temporary regulations extend the limited relief for elections
subject to Rev. Proc. 87-32 to all other accounting period regulatory
elections except for the section 444 election, and provide relief for
the section 444 election beyond the automatic 12-month extension.
Effect on Other Documents
Rev. Proc. 92-85, 1992-2 C.B. 490, as modified and clarified by
Rev. Proc. 93-28, 1993-2 C.B. 344, is obsolete as of June 27, 1996.
Rev. Proc. 92-20, 1992-1 C.B. 685, is modified as of June 27, 1996
to the extent that the provisions of this regulation apply to
applications for relief with respect to requests to change an
accounting method subject to the procedures of Rev. Proc. 92-20.
Rev. Proc. 87-32, 1987-2 C.B. 396, is modified as of June 27, 1996
to the extent that the provisions of this regulation apply to
applications for relief with respect to requests to change an
accounting period subject to the procedures of Rev. Proc. 87-32.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It has also been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small businesses.
Drafting Information
The principal author of these regulations is Robert A. Testoff of
the Office of Assistant Chief Counsel (Income Tax and Accounting).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects
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 301 and 602 are amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 is amended by
adding entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.9100-1T also issued under 26 U.S.C. 6081;
Section 301.9100-2T also issued under 26 U.S.C. 6081;
Section 301.9100-3T also issued under 26 U.S.C. 6081; * * *
Par. 2. Sections 301.9100-1T through 301.9100-3T are added to read
as follows:
Sec. 301.9100-1T Extensions of time to make elections (temporary).
(a)-(c) [Reserved].
(d) Introduction. The regulations under this section and
Secs. 301.9100-2T through 301.9100-3T provide the standards the
Commissioner will use to determine whether to grant an extension of
time to make a regulatory election. The regulations under this section
and Secs. 301.9100-2T through 301.9100-3T also provide an automatic
extension of time to make certain statutory elections. An extension of
time is available for elections that a taxpayer is otherwise eligible
to make and the granting of an extension of time is not a determination
that the taxpayer is otherwise eligible to make the election. Section
301.9100-2T provides automatic extensions of time for making regulatory
and statutory elections when the deadline for making the election is
the due date of the return or the due date of the return including
extensions. Section 301.9100-3T provides extensions of time for making
regulatory elections that do not meet the requirements of
Sec. 301.9100-2T.
(e) Terms. The following terms have the meanings provided below:
Election includes an application for relief in respect of tax; a
request to adopt, change, or retain an accounting method or accounting
period; but does not include an application for an extension of time
for filing a return under section 6081.
Regulatory election means an election whose deadline is prescribed
by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.
Statutory election means an election whose deadline is prescribed
by statute.
Taxpayer means any person within the meaning of section 7701(a)(1).
(f) General standards for relief. The Commissioner in the
Commissioner's discretion may grant a reasonable extension of time to
make a regulatory election, or a statutory election (but no more than 6
months except in the case of a taxpayer who is abroad), under all
subtitles of the Internal Revenue Code except subtitles E, G, H, and I,
provided the taxpayer demonstrates to the satisfaction of the
Commissioner that----
(1) The taxpayer acted reasonably and in good faith; and
(2) Granting relief will not prejudice the interests of the
government.
[[Page 33368]]
(g) Exceptions. Notwithstanding the provisions of paragraph (f) of
this section, an extension of time will not be granted--
(1) For elections under section 4980A(f)(5);
(2) For elections required to be made prior to November 20, 1970,
in the case of an election----
(i) Required to be made in or with the taxpayer's original income
tax return;
(ii) Required to be exercised by filing a claim for credit or
refund, unless the election is required to be exercised on or before a
date that precedes the date of expiration of the period of limitations
provided in section 6511;
(iii) Required to be filed in a petition to the Tax Court;
(iv) To change a previous election;
(v) To change an accounting method as described in Secs. 1.77-1 of
this chapter and 1.446-1 of this chapter;
(vi) To change an accounting period as described in Sec. 1.442-1 of
this chapter; or
(vii) To change the method of treating bad debts as described in
Sec. 1.166-1 of this chapter; or
(3) For elections that are expressly excepted from relief or where
alternative relief is provided by a statute, a regulation published in
the Federal Register, or a revenue ruling, revenue procedure, notice,
or announcement published in the Internal Revenue Bulletin.
(h) Effective dates. In general, this section and Secs. 301.9100-2T
through 301.9100-3T are effective for all requests for relief being
considered by the IRS on June 27, 1996 and for all requests for relief
submitted on or after June 27, 1996. However, the automatic 12-month
extension and the automatic 6-month extension provided in
Sec. 301.9100-2T are effective for elections whose due dates are on or
after June 27, 1996.
Sec. 301.9100-2T Automatic extensions (temporary).
(a) Automatic 12-month extension--(1) In general. An automatic
extension of 12 months from the original deadline for making a
regulatory election is granted to make elections described in paragraph
(a)(2) of this section provided the taxpayer takes corrective action as
defined in paragraph (c) of this section within that 12-month extension
period.
(2) Elections eligible for automatic 12-month extension. The
following regulatory elections are eligible for the automatic 12-month
extension described in paragraph (a)(1) of this section----
(i) The election to use other than the required taxable year under
section 444;
(ii) The election to use the last-in, first-out (LIFO) inventory
method under section 472;
(iii) The 15-month rule for filing an exemption application for a
section 501(c)(9), 501(c)(17), or 501(c)(20) organization under section
505;
(iv) The 15-month rule for filing an exemption application for a
section 501(c)(3) organization under section 508;
(v) The election to be treated as a homeowners association under
section 528;
(vi) The election to adjust basis on partnership transfers and
distributions under section 754;
(vii) The estate tax election to specially value qualified real
property (where the IRS has not yet begun an examination of the filed
return) under section 2032A(d)(1);
(viii) The chapter 14 gift tax election to treat a qualified
payment right as other than a qualified payment under section
2701(c)(3)(C)(i); and
(ix) The chapter 14 gift tax election to treat any distribution
right as a qualified payment under section 2701(c)(3)(C)(ii).
(b) Automatic 6-month extension. An automatic extension of 6 months
from the due date of a return excluding extensions is granted to make
regulatory or statutory elections whose deadlines are prescribed as the
due date of the return or the due date of the return including
extensions in the case of a taxpayer that timely filed its return for
the year the election should have been made, provided the taxpayer
takes corrective action as defined in paragraph (c) of this section
within that 6-month extension period. This extension does not apply,
however, to regulatory or statutory elections that must be made by the
due date of the return excluding extensions.
(c) Corrective action. For purposes of this section, corrective
action means filing an original or an amended return for the year the
regulatory or statutory election should have been made and attaching
the appropriate form or statement for making the election. For those
elections not required to be filed with a return, corrective action
means taking the steps required to file the election in accordance with
the statute, the regulation published in the Federal Register, or the
revenue ruling, revenue procedure, notice, or announcement published in
the Internal Revenue Bulletin. Taxpayers who make an election under an
automatic extension (and all taxpayers whose tax liability would be
affected by the election) must report their income in a manner that is
consistent with the election and comply with all other requirements for
making the election for the year the election should have been made and
for all affected years; otherwise, the Service may invalidate the
election.
(d) Procedural requirements. Any return, statement of election, or
other form of filing that must be made to obtain an automatic extension
must provide the following statement at the top of the document:
``FILED PURSUANT TO Sec. 301.9100-2T''. Any filing made to obtain an
automatic extension must be sent to the same address that the filing to
make the election would have been sent had the filing been timely made.
No request for a letter ruling is required to obtain an automatic
extension. Accordingly, user fees do not apply to taxpayers taking
corrective action to obtain an automatic extension.
(e) The following example illustrates the rules of this section:
Example. Taxpayer A fails to make a certain election when filing
A's 1996 income tax return on March 17, 1997, the due date of the
return. This election does not affect the tax liability of any other
taxpayer. The applicable regulation requires that the election be
made by attaching the appropriate form to a timely filed return
including extensions. In accordance with paragraphs (b) and (c) of
this section, A may make the regulatory election by filing an
amended return with the appropriate form by September 15, 1997 (6
months from the March 17, 1997, due date).
Sec. 301.9100-3T Other extensions (temporary).
(a) In general. Requests for extensions of time for regulatory
elections that do not meet the requirements of Sec. 301.9100-2T must be
made under the rules of this section. Requests for relief subject to
this section will be granted when the taxpayer provides the evidence
(including affidavits described in paragraph (e) of this section) to
establish that the taxpayer acted reasonably and in good faith, and
granting relief will not prejudice the interests of the government.
(b) Reasonable action and good faith--(1) In general. Except as
provided in paragraphs (b)(3)(i) through (iii) of this section, a
taxpayer is deemed to have acted reasonably and in good faith if the
taxpayer--
(i) Requests relief under this section before the failure to make
the regulatory election is discovered by the IRS;
(ii) Inadvertently failed to make the election because of
intervening events beyond the taxpayer's control;
(iii) Failed to make the election because, after exercising
reasonable diligence (taking into account the taxpayer's experience and
the complexity of the return or issue), the
[[Page 33369]]
taxpayer was unaware of the necessity for the election;
(iv) Reasonably relied on the written advice of the IRS; or
(v) Reasonably relied on a qualified tax professional, including a
tax professional employed by the taxpayer, and the tax professional
failed to make, or advise the taxpayer to make, the election.
(2) Reasonable reliance on a qualified tax professional. For
purposes of this paragraph (b), a taxpayer will not be considered to
have reasonably relied on a qualified tax professional if the taxpayer
knew or should have known that the professional was not--
(i) Competent to render advice on the regulatory election; or
(ii) Aware of all relevant facts.
(3) Taxpayer deemed to have not acted reasonably or in good faith.
For purposes of this paragraph (b), a taxpayer is deemed to have not
acted reasonably and in good faith if the taxpayer--
(i) Seeks to alter a return position for which an accuracy-related
penalty has been or could be imposed under section 6662 at the time the
taxpayer requests relief (taking into account any qualified amended
return filed within the meaning of Sec. 1.6664-2(c)(3)) of this chapter
and the new position requires or permits a regulatory election for
which relief is requested;
(ii) Was fully informed of the required election and related tax
consequences, but chose not to file the election; or
(iii) Uses hindsight in requesting relief. If specific facts have
changed since the original deadline for making the election that make
the election advantageous to a taxpayer, the IRS will not ordinarily
grant relief. In such a case, the IRS will grant relief only when the
taxpayer provides strong proof that the taxpayer's decision to seek
relief did not involve hindsight.
(c) Prejudice to the interests of the government--(1) In general--
(i) Lower tax liability. The interests of the government are prejudiced
if granting relief would result in a taxpayer having a lower tax
liability in the aggregate for all years to which the regulatory
election applies than the taxpayer would have had if the election had
been timely made (taking into account the time value of money).
Similarly, if the tax consequences of more than one taxpayer are
affected by the election, the government's interests are prejudiced if
extending the time for making the election may result in the affected
taxpayers, in the aggregate, having a lower tax liability than if the
election had been timely made.
(ii) Closed years. The interests of the government are ordinarily
prejudiced if the tax year in which the regulatory election should have
been made or any tax years that would have been affected by the
election had it been timely made are closed by the period of
limitations on assessment under section 6501(a) before the taxpayer's
receipt of a ruling granting relief under this section. The IRS may
condition a grant of relief on the taxpayer providing the IRS with a
statement from an independent auditor (other than an auditor providing
an affidavit pursuant to paragraph (e)(3) of this section) certifying
that the requirements of paragraph (c)(1)(i) of this section are
satisfied.
(2) Special rules for accounting method regulatory elections. The
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if the accounting method
regulatory election is--
(i) Subject to the procedure described in Sec. 1.446-1(e)(3)(i) of
this chapter (requiring the advance written consent of the
Commissioner), and the request for relief under this section is filed
more than 90 days after the deadline for filing the Form 3115,
Application for Change in Accounting Method;
(ii) Not an election described in paragraph (c)(2)(i) of this
section and requires an adjustment under section 481(a) (or would
require an adjustment under section 481(a) if the taxpayer changed to
the method of accounting for which relief is requested in a taxable
year subsequent to the taxable year the election should have been
made);
(iii) Not an election described in paragraph (c)(2)(i) of this
section, the taxpayer is under examination and requests relief under
this section to change from an impermissible method of accounting, and
granting relief will provide the taxpayer a more favorable method of
accounting or more favorable terms and conditions than the taxpayer
would receive if the change from the impermissible method is made as
part of the examination; or
(iv) Not an election described in paragraph (c)(2)(i) of this
section and the election provides a more favorable method of accounting
or more favorable terms and conditions if the election is made by a
certain date or taxable year.
(3) Special rules for accounting period regulatory elections. The
interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if an election is an accounting
period regulatory election (other than the election to use other than
the required taxable year under section 444) and the request for relief
is filed more than 90 days after the deadline for filing the Form 1128,
Application to Adopt, Change, or Retain a Tax Year (or other required
statement).
(d) Effect of amended returns--(1) Second examination under section
7605(b). Taxpayers requesting and receiving an extension of time under
this section waive any objections to a second examination under section
7605(b) for the issue(s) that is the subject of the relief request and
any correlative adjustments.
(2) Suspension of the period of limitations under section 6501(a).
A request for relief under this section does not suspend the period of
limitations on assessment under section 6501(a). Thus, for relief to be
granted, the IRS may require the taxpayer to consent under section
6501(c)(4) to an extension of the period of limitations on assessment
for the tax year in which the regulatory election should have been made
and any tax years that would have been affected by the election had it
been timely made.
(e) Procedural requirements--(1) In general. Requests for relief
under this section must provide evidence that satisfies the
requirements in paragraphs (b) and (c) of this section, and must
provide additional information as required by this paragraph (e).
(2) Affidavit and declaration from taxpayer. The taxpayer, or the
individual who acts on behalf of the taxpayer with respect to tax
matters, must submit a detailed affidavit describing the events that
led to the failure to make a valid regulatory election and to the
discovery of the failure. When the taxpayer relied on a qualified tax
professional for advice, the taxpayer's affidavit must describe the
engagement and responsibilities of the professional as well as the
extent to which the taxpayer relied on the professional. The affidavit
must be accompanied by a dated declaration, signed by the taxpayer,
which states: ``Under penalties of perjury, I declare that, to the best
of my knowledge and belief, the facts presented herein are true,
correct, and complete.'' The individual who signs for an entity must
have personal knowledge of the facts and circumstances at issue.
(3) Affidavits and declarations from other parties. The taxpayer
must submit detailed affidavits from the individuals having knowledge
or information about the events that led to the failure to make a valid
regulatory election and to the discovery of the failure. These
individuals must include the taxpayer's income tax return preparer, any
individual (including an employee of the taxpayer) who made a
substantial
[[Page 33370]]
contribution to the preparation of the return, and any accountant or
attorney, knowledgeable in tax matters, who advised the taxpayer with
regard to the election. An affidavit must describe the engagement and
responsibilities of the individual as well as the advice that the
individual provided to the taxpayer. Each affidavit must include the
name, current address, and taxpayer identification number of the
individual, and be accompanied by a dated declaration, signed by the
individual, which states: ``Under penalties of perjury, I declare that,
to the best of my knowledge and belief, the facts presented herein are
true, correct, and complete.''
(4) Other Information. The request for relief filed under this
section must also contain the following information--
(i) The taxpayer must state whether the taxpayer's return(s) for
the tax year in which the regulatory election should have been made or
any tax years that would have been affected by the election had it been
timely made is being examined by a district director, or is being
considered by an appeals office or a federal court. The taxpayer must
notify the IRS office considering the request for relief if the IRS
starts an examination of any such return while the taxpayer's request
for relief is pending;
(ii) The taxpayer must state when the applicable return, form, or
statement used to make the election was required to be filed and when
it was actually filed;
(iii) The taxpayer must submit a copy of any documents that refer
to the election;
(iv) When requested, the taxpayer must submit a copy of the
taxpayer's income tax return for any taxable year for which the
taxpayer requests an extension and any return affected by the election;
and
(v) When applicable, the taxpayer must submit a copy of the income
tax returns of other taxpayers affected by the election.
(5) Filing instructions. A request for relief under this section is
a request for a letter ruling. Requests for relief should be submitted
in accordance with the applicable procedures for requests for a letter
ruling and must be accompanied by the applicable user fee.
(f) Examples. The following examples illustrate the provisions of
this section:
Example 1. Taxpayer discovers own error. Taxpayer A prepares A's
1996 income tax return. A is unaware that a particular regulatory
election is available to report a transaction in a particular
manner. A files the 1996 return without making the election and
reporting the transaction in a different manner. In 1998, A hires a
qualified tax professional to prepare A's 1998 return. The
professional discovers that A did not make the election. A promptly
files for relief in accordance with this section. Assuming
paragraphs (b)(3)(i) through (iii) of this section do not apply, A
is deemed to have acted reasonably and in good faith.
Example 2. Reliance on qualified tax professional. Taxpayer B
hires a qualified tax professional to advise B on preparing B's 1996
income tax return and provides the professional with all the
information requested. The professional fails to advise B that a
regulatory election is necessary in order for B to report income on
B's 1996 return in a particular manner. Nevertheless, B reports this
income in a manner that is consistent with having made the election.
In 1999, during the examination of the 1996 return by the IRS, the
examining agent discovers that the election has not been filed. B
promptly files for relief in accordance with this section, including
attaching an affidavit from B's professional stating that the
professional failed to advise B that the election was necessary.
Assuming paragraphs (b)(3)(i) through (iii) of this section do not
apply, B is deemed to have acted reasonably and in good faith.
Example 3. Accuracy-related penalty. Taxpayer C reports income
on its 1996 income tax return in a manner that contravenes a
statutory provision. C was aware of the statutory provision that
prohibited the manner in which C reported this income, but did not
provide adequate disclosure of the return position within the
meaning of Sec. 1.6662-3(c) of this chapter. In 1999, during the
examination of the 1996 return, the IRS raises an issue regarding
the reporting of this income on C's return. C requests relief under
this section to elect an alternative method of reporting the income.
Under paragraph (b)(3)(i) of this section, C is deemed to have not
acted reasonably and in good faith because C seeks to alter a return
position for which an accuracy-related penalty could be imposed
under section 6662.
Example 4. Election not requiring adjustment under section
481(a). Taxpayer D prepares D's 1996 income tax return. D is unaware
that a particular accounting method regulatory election is
available. D files the 1996 return using another method of
accounting. In 1998, D hires a qualified tax professional to prepare
D's 1998 return. The professional discovers that D did not make the
election. D promptly files for relief in accordance with this
section. Assume the applicable regulation provides that the election
does not require an adjustment under section 481(a) and the election
is not subject to the procedure described in Sec. 1.446-1(e)(3)(i)
of this chapter. Further assume that if D were granted an extension
of time to make the election, D would pay no less tax than if the
election had been timely made. Under paragraph (c) of this section,
the interests of the government are not deemed to be prejudiced.
Example 5. Election requiring adjustment under section 481(a).
The facts are the same as in Example 4 of this paragraph (f) except
that the applicable regulation provides that the election requires
an adjustment under section 481(a). Under paragraph (c)(2)(ii) of
this section, the interests of the government are deemed to be
prejudiced except in unusual or compelling circumstances.
Example 6. Under examination. A regulation permits an automatic
change from an impermissible method of accounting on a cut-off
basis. Any change to this method made as part of an examination is
made with a section 481(a) adjustment. Taxpayer E reports income on
E's 1996 income tax return using the impermissible method of
accounting. In 1999, during the examination of the 1996 return by
the IRS, the examining agent questions the propriety of E's method
of accounting. E requests relief under this section to make the
change pursuant to the regulation for 1996. E will receive less
favorable terms and conditions if the change in method of accounting
is made with a section 481(a) adjustment by the examining agent than
if the change is made on a cut-off basis pursuant to the regulation.
Under paragraph (c)(2)(iii) of this section, the interests of the
government are deemed to be prejudiced except in unusual and
compelling circumstances
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 4. Section 602.101(c) is amended by adding the following
entries in numerical order to the table:
Sec. 602.101 OMB Control numbers
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control
number
------------------------------------------------------------------------
* * * * *
Sec. 301.9100-2T.......................................... 1545-1488
Sec. 301.9100-3T.......................................... 1545-1488
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 96-16376 Filed 6-26-96; 8:45 am]
BILLING CODE 4830-01-U
