Ee-81-88[1].sup

SUPPORTING STATEMENT

1. CIRCUMSTANCES NECESSITATING COLLECTION OF INFORMATION

The regulations provide that when property is transferred in connection with the

performance of services, the recipient of service may claim a deduction for the

amount included in the service provider’s income. However, the service recipient

may deem the amount included if they provide the service provider with a Form W-2

or 1099 as appropriate. The requirement to provide Form W-2 or 1099 already exists

under section 6041, except that section 1.6041-3(c) of the regulations excludes

corporations from the requirement to be furnished Form 1099. However, the

regulation provides that, in order for a recipient of service from a corporate service

provider to take advantage of the deemed inclusion rule, the service recipient must

provide the corporation with a Form 1099.

2. USE OF DATA

The information will be collected by copies of Form 1099 filed with the Internal

Revenue Service centers. Data will be matched against tax returns filed by the

corporate service providers to insure the inclusion of income.

3. USE OF IMPROVED INFORMATION TECHNOLOGY TO REDUCE BURDEN

IRS Publications, Regulations, Notices and Letters are to be electronically enabled on

an as practicable basis in accordance with the IRS Reform and Restructuring Act of

1998.

4. EFFORTS TO IDENTIFY DUPLICATION

We have attempted to eliminate duplication within the agency wherever possible.

5. METHODS TO MINIMIZE BURDEN ON SMALL BUSINESSES OR OTHER

SMALL ENTITIES

We have been unable to reduce the burden for small

businesses.

6. CONSEQUENCES OF LESS FREQUENT COLLECTION ON FEDERAL

PROGRAMS OR POLICY ACTIVITIES

Not applicable.

7. SPECIAL CIRCUMSTANCES REQUIRING DATA COLLECTION TO BE

INCONSISTENT WITH GUIDELINES IN 5 CFR 1320.5(d)(2)

Not applicable.

8. CONSULTATION WITH INDIVIDUALS OUTSIDE OF THE AGENCY ON

AVAILABILITY OF DATA, FREQUENCY OF COLLECTION, CLARITY

OF INSTRUCTIONS AND FORMS, AND DATA ELEMENTS

The notice of proposed rulemaking was published in the Federal Register on December 5, 1994. No public hearing was held. The final regulation was published in the Federal Register on July 19, 1995.

In response to the Federal Register Noticed dated September 28,

2006 (F.R. 57027), we received no comments during the comment

period regarding September 28, 2006 EE-81-88.

9. EXPLANATION OF DECISION TO PROVIDE ANY PAYMENT OR GIFT TO

RESPONDENTS

Not applicable.

10. ASSURANCE OF CONFIDENTIALITY OF RESPONSES

Generally, tax returns and tax return information are

confidential as required by 26 USC 6103.

11. JUSTIFICATION OF SENSITIVE QUESTIONS

Not applicable.

12. ESTIMATED BURDEN OF INFORMATION COLLECTION

Section 1.83-6(a) of the regulation provides that when

property is transferred in connection with the performance

of services, the recipient of service may claim a deduction

for the amount included as compensation in the gross income

of the service provider. However, the service recipient may

deem the amount included if they provide the service provider

including a corporate service provider) with a Form W-2 or

1099 as appropriate. The burden for this reporting

requirement is reflected in the burden for Forms W-2 and 1099.

Estates of the annualized cost to respondents for the hour

burdens shown are not available at this time.

13. ESTIMATED TOTAL ANNUAL COST BURDEN TO RESPONDENTS

As suggested by OMB, our Federal Register Notice dated

Oct. 23, 2003, requested public comments on estimates of

cost burden that are not captured in the estimates of burden

hours, i.e., estimates of capital or start-up costs and costs

of operation, maintenance, and purchase of services to provide

information. However, we did not receive any responses from

taxpayers on this subject. As a result, estimates of these

cost burdens are not available at this time.

14. ESTIMATED ANNUALIZED COST TO THE FEDERAL GOVERNMENT

Not applicable

15. REASONS FOR CHANGE IN BURDEN

There is no change in the paperwork burden previously approved by OMB. We are making this submission to renew

the OMB approval.

16. PLANS FOR TABULATION, STATISTICAL ANALYSIS AND PUBLICATION

Not applicable.

17. REASONS WHY DISPLAYING THE OMB EXPIRATION DATE IS

INAPPROPRIATE

We believe that displaying the OMB expiration date is

inappropriate because it could cause confusion by leading

taxpayers to believe that the regulation sunsets as of the

expiration date. Taxpayers are not likely to be aware that

the Service intends to request renewal of the OMB approval

and obtain a new expiration date before the old one expires.

18. EXCEPTIONS TO THE CERTIFICATION STATEMENT ON OMB FORM 83-I

Not applicable.

Note: The following paragraph applies to all of the collections of information in this submission:

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 OMB control number. 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.