Final Regulation_GL-238-88

[Federal Register: June 29, 1994]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8549]
RIN 1545-AL49

Preparer Penalties--Manual Signature Requirement

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations providing that
persons who prepare U.S. fiduciary income tax returns for compensation
may, under certain conditions, satisfy the manual signature
requirements by using a facsimile signature. The final regulations will
reduce the burden on preparers of U.S. fiduciary income tax returns.
The final regulations also incorporate the new $50 penalty amount, with
a $25,000 maximum per person with respect to each calendar year,
imposed by section 6695(a), (b), and (c). Prior to the Omnibus Budget
and Reconciliation Act of 1989 (OBRA), the penalty amount was $25.
Finally, the final regulations incorporate the amendment to section
6695(e) by OBRA changing the $100 penalty for failure to file correct
information returns and the $5 penalty for each failure to put a
required item on a return to $50 for each of the two described failures
(with a $25,000 maximum per person with respect to each calendar year).

EFFECTIVE DATE: These regulations are effective June 28, 1994.

FOR FURTHER INFORMATION CONTACT: Robert A. Walker, (202) 622-3640 (not
a toll-free call).

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 requirements of the Paperwork Reduction Act (44
U.S.C. 3504(h)) under control number 1545-1385. The estimated annual
burden per recordkeeper varies from 30 to 60 minutes depending on
individual circumstances, with an estimated average of 45 minutes.
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, PC:FP,
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.

Background

The IRS published a notice of proposed rulemaking in the Federal
Register on April 22, 1993 (58 FR 21548), proposing amendments to rules
under section 6695 of the Internal Revenue Code (Code). No comments
were received in response to the notice of proposed rulemaking.
Accordingly, except for minor stylistic changes, the proposed
regulations are adopted as final regulations by this Treasury decision.

Explanation of Provisions

Section 645 of the Code, which was enacted as part of the Tax
Reform Act of 1986, generally requires trusts to use a calendar taxable
year for years beginning after 1986. Section 1.6695-1(b)(1) of the
Income Tax regulations requires an individual, who is an income tax
preparer with respect to an income tax return or a claim for refund of
income tax, to manually sign the return or claim. These two
requirements, taken together, impose a potential hardship for income
tax preparers responsible for the preparation of large numbers of Forms
1041 (U.S. Fiduciary Income Tax Returns).
The IRS responded to this potential hardship in Notice 88-48,
1988--1 C.B. 531 (for 1987 Forms 1041), and Notice 89-48, 1989-1 C.B.
688 (for post-1987 Forms 1041). Under these Notices, pending the
revision of regulations under section 6695(b), the IRS authorized the
use of a facsimile signature by a preparer (i.e., a failure-to-sign
penalty would not be imposed) if certain conditions were satisfied.
First, the preparer had to submit to the IRS, with the Forms 1041
bearing the preparer's facsimile signature, a letter manually signed by
the preparer (a) listing the taxpayer's name and identification number
on each Form 1041 bearing the facsimile signature, and (b) containing a
declaration, under penalties of perjury, that the facsimile signature
appearing on each return is the signature used by the preparer to sign
the return. Second, after the facsimile signature is affixed, no person
other than the preparer could alter entries of the Form 1041 other than
to correct arithmetic errors. Third, a manually signed copy of the
letter to the IRS, together with a record of any arithmetic errors that
were corrected, must be retained and made available to the IRS upon
request.
The final regulations amend Sec. 1.6695-1(b) to permit preparers
of fiduciary returns to use a facsimile signature, instead of a manual
signature, to sign returns under the same conditions contained in the
two Notices. These conditions are substantially similar to those under
which preparers of returns for nonresident alien individual taxpayers
are permitted to use a facsimile signature to sign a return or claim
for refund. The rules for nonresident alien taxpayers appear in
Sec. 1.6695-1(b)(4)(iii). Unlike those rules, however, the final
regulations do not extend permission for preparers to use a facsimile
signature on fiduciary claims for refund.
Additionally, the final regulations amend the current regulations
to reflect the changes made in OBRA to the amounts of the preparer
penalties imposed by sections 6695 (a), (b), (c), and (e).

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,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.

Drafting Information

The principal author of these regulations is Robert A. Walker of
the Office of Assistant Chief Counsel (General Litigation). However,
other personnel from the IRS and Treasury Department participated in
their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by
adding the following citation:

Authority: 26 U.S.C. 7805 * * *
Section 1.6695-1 also issued under 26 U.S.C. 6695(b) * * *

Par. 2. Section 1.6695-1 is amended by:
1. Revising paragraph (a)(1), introductory text.
2. Revising paragraph (b)(1).
3. Revising paragraphs (b)(4) (iv) and (v).
4. Adding paragraph (b)(4)(vi).
5. Revising paragraph (b)(5), introductory text.
6. Revising paragraphs (c)(1), introductory text and paragraph
(c)(3).
7. Revising paragraph (e).

Sec. 1.6695-1 Other assessable penalties with respect to the
preparation of income tax returns for other persons.

(a) Failure to furnish copy to taxpayer. (1) A person who is an
income tax return preparer of any return of tax under subtitle A of the
Internal Revenue Code or claim for refund of tax under subtitle A of
the Internal Revenue Code and who fails to satisfy the requirements
imposed by section 6107(a) and Sec. 1.6107-1 (a) and (c) 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. Thus, no penalty may be imposed
under section 6695(a) and this paragraph (a)(1) upon a person who is an
income tax return preparer solely by reason of--
* * * * *
(b) Failure to sign return. (1) An individual who is an income tax
return preparer with respect to a return of tax under subtitle A of the
Internal Revenue Code or claim for refund of tax under subtitle A of
the Internal Revenue Code shall manually sign the return or claim for
refund (which may be a photocopy) in the appropriate space provided on
the return or claim for refund after it is completed and before it is
presented to the taxpayer (or nontaxable entity) for signature. Except
as provided in paragraphs (b)(4) (iii) and (iv) of this section, an
individual preparer may not satisfy this requirement by use of a
facsimile signature stamp or signed gummed label. If the preparer is
unavailable for signature, another preparer shall review the entire
preparation of the return or claim for refund, and then shall manually
sign the return or claim for refund.
* * * * *
(4) * * *
(iv) A preparer of a fiduciary return may satisfy the manual
signature requirement of paragraphs (b) (1) and (2) of this section by
a facsimile signature only if the preparer submits to the Internal
Revenue Service with the returns bearing the preparer's facsimile
signature a letter, manually signed by the preparer, identifying by
taxpayer name and identification number each return bearing the
facsimile signature and declaring under penalties of perjury that the
facsimile signature appearing on these returns is the signature used by
the preparer to sign these documents. After the facsimile signature is
affixed, no person other than the preparer may alter any entries on the
return other than to correct arithmetical errors discernable on the
return. The employer of the preparer or the partnership in which the
preparer is a partner, or the preparer (if not employed or engaged by a
preparer and not a partner in a partnership which is a preparer), shall
retain a manually signed copy of the letter submitted to the Internal
Revenue Service with the returns. A record of any arithmetical errors
corrected shall be retained by the person required to keep the manually
signed letter and that person shall make the record available to the
Internal Revenue Service upon request. The preparer of a fiduciary
claim for refund may not satisfy the manual signature requirement of
paragraphs (b) (1) and (2) of this section by a facsimile signature.
(v) Any items required to be retained and kept available for
inspection under paragraph (b)(4) (i), (ii), (iii), or (iv) of this
section shall be retained and kept available for inspection for the
same period that the material described in Sec. 1.6107-1(b) must be
retained and kept available for inspection.
(vi) If the district director, service center director, or
compliance center director (director) determines that a preparer or
preparers have abused the permissive signature rules of this paragraph
(b)(4), such as by altering the return or claim for refund after
signature (in contravention of paragraph (b)(4)(i) of this section), by
altering information on the return or claim for refund after
attestation (in contravention of paragraph (b)(4)(ii) of this section),
or by failing to comply with the provisions of paragraph (b)(4) (iii)
or (iv) of this section, then the director may, by written notice,
prospectively deny to the preparer or preparers the right to use the
permissive signature rules of this paragraph (b)(4).
(5) An individual required by this paragraph (b) to sign a return
or claim for refund 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. For purposes of
this paragraph (b), reasonable cause is a cause which arises despite
ordinary care and prudence exercised by the individual preparer. Thus,
no penalty may be imposed under section 6695(b) and this paragraph (b)
upon a person who is an income tax return preparer solely by reason
of--
* * * * *
(c) Failure to furnish identifying number. (1) A person who is an
income tax return preparer of any return of tax under subtitle A of the
Internal Revenue Code or claim for refund of tax under subtitle A of
the Internal Revenue Code and who fails to satisfy the requirement of
section 6109(a)(4) and Sec. 1.6109-2(a) to furnish one or more
identifying numbers of preparers on a return or claim for refund 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 reasonable cause and not due to
willful neglect. Thus, no penalty may be imposed under section 6695(c)
and this paragraph (c)(1) upon a person who is an income tax return
preparer solely by reason of--
* * * * *
(3) No more than one penalty of $50 may be imposed under section
6695(c) and paragraph (c)(1) of this section with respect to a single
return or claim for refund.
* * * * *
(e) Failure to file correct information returns. A person who is
subject to the reporting requirements of section 6060 and Sec. 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 calendar year, unless such failure was due to reasonable cause and
not due to willful neglect.
* * * * *

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. The table in Sec. 602.101(c) is amended by revising the
entry for Sec. 1.6695-1 to read as follows:

``1.6695-1----1545-0074, 1545-1385''.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

Approved: June 10, 1994.

Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-15665 Filed 6-28-94; 8:45 am]
BILLING CODE 4830-01-U