Rev Proc 2007-21

and that the study shall specifically consider:
(1) whether the deductions allowed for
income, gift, or estate taxes for charitable
contributions to sponsoring organizations
of donor advised funds or to supporting
organizations are appropriate in consideration of (i) the use of contributed assets
(including the type, extent, and timing of
such use) or (ii) the use of the assets of
such organizations for the benefit of the
person making the charitable contribution
(or a person related to such person),
(2) whether donor advised funds should
be required to distribute for charitable purposes a specified amount (whether based
on the income or assets of the fund) in order to ensure that the sponsoring organization with respect to the fund is operating
consistent with the purposes or functions
constituting the basis for its exemption under § 501 or its status as an organization
described in § 509(a),
(3) whether the retention by donors to
donor advised funds or supporting organizations of rights or privileges with respect to amounts transferred to such organizations (including advisory rights or
privileges with respect to the making of
grants or the investment of assets) is consistent with the treatment of such transfers
as completed gifts that qualify for a deduction for income, gift, or estate taxes, and
(4) whether any of the issues described
above also are issues with respect to other
forms of charities or charitable donations.
REQUEST FOR PUBLIC COMMENTS
To assist in performing the required
study, the Treasury and the Service request comments on the specific issues
identified above and other issues relevant
to the study. In particular, the Treasury
and the Service request comments with
respect to the following:
1. What are the advantages and disadvantages of donor advised funds and supporting organizations to the charitable sector, donors, sponsoring organizations, and
supported organizations, compared to private foundations and other charitable giving arrangements?
2. How should the amount and availability of a charitable contribution deduction for a transfer of assets to a donor advised fund or a supporting organization,

2007–9 I.R.B.

and the tax-exempt status or foundation
classification of the donee, be determined
if:
a. the transferred assets are paid to, or
used for the benefit of, the donor or persons related to the donor (including, for example, salaries and other compensation arrangements, loans, or any other personal
benefits or rights)?
b. the donor has investment control
over the transferred assets?
c. there is an expectation that the
donor’s “advice” will be followed, or
will be the sole or primary consideration,
in determining distributions from, or investment of the assets in, the supporting
organization or the donor advised fund?
d. the donor or the donee has option
rights (e.g., puts, calls, or rights of first
refusal) with respect to the transferred assets?
e. the transferred assets are appreciated
real, personal, or intangible property that
is not readily convertible to cash?
3. What are the effects or the expected
effects of the PPA provisions (including
the § 4958 excess benefit transaction tax
amendments applicable to donor advised
funds and supporting organizations) on the
practices and behavior of donors, donor
advised funds, sponsoring organizations,
supporting organizations and supported organizations?
4. What would be appropriate payout
requirements, and why, for:
a. donor advised funds?
b. funds that are excepted from donor
advised fund treatment by statute or by the
authority of the Secretary, but for which
the donor retains meaningful rights with
respect to the investment or use of the
transferred amounts?
c. supporting organizations?
d. any other types of charities?
5. What are the advantages and disadvantages of perpetual existence of donor
advised funds or supporting organizations?
6. What other types of charitable giving
arrangements give rise to any of the above
issues?
Section 1226 of the PPA provides that,
not later than August 16, 2007, the Secretary shall submit to the Congress a report
on the study. Comments should refer to
Notice 2007–21 and be submitted by April
9, 2007, to:

613

Internal Revenue Service
P. O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Attn: CC:PA:LPD:PR
Room 5203
Alternatively, comments may be submitted electronically via e-mail to
[email protected].
The comments you submit will be available for public inspection and copying.
DRAFTING INFORMATION
The principal authors of this notice are
Robert Fontenrose of the Exempt Organizations, Tax Exempt and Government Entities Division, and Susan J. Kassell of
the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding exempt organization
issues, contact Mr. Fontenrose at (202)
283–9484 (not a toll-free call). For further
information regarding charitable contribution issues, contact Ms. Kassell at (202)
622–5020 (not a toll-free call).

26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also: Part 1, §§ 6011, 6111, 6662A, 6707, 6707A.)

Rev. Proc. 2007–21
SECTION 1. PURPOSE
This revenue procedure provides guidance to persons against whom a penalty
under section 6707 or 6707A of the Internal Revenue Code is assessed, and who
may request rescission of all or any portion
of that penalty from the Commissioner of
the Internal Revenue Service if the penalty
is with respect to a reportable transaction
other than a listed transaction. This revenue procedure describes the procedures
for requesting rescission, including the
deadline by which a person must request
rescission; the information the person
must provide in the rescission request; the
factors that weigh in favor of and against
granting rescission; where the person must
submit the rescission request; and the rules
governing requests for additional information from the person requesting rescission.

February 26, 2007

SECTION 2. BACKGROUND
.01 Section 6011 and the regulations
thereunder require a taxpayer that has participated in a reportable transaction to disclose certain information with respect to
the reportable transaction with its tax return. Section 1.6011–4(b) of the Income
Tax Regulations enumerates and describes
the categories of reportable transactions.
One category of reportable transactions is
a transaction that is the same as, or substantially similar to, one of the types of transactions that the Internal Revenue Service
has determined to be a tax avoidance transaction and has identified by notice, regulation, or other form of published guidance as a “listed transaction.” Treas. Reg.
§ 1.6011–4(b)(2).
.02 The American Jobs Creation Act
of 2004, Pub. L. No. 108–357, 118 Stat.
1418 (the Act), was enacted on October
22, 2004. Section 811 of the Act added
section 6707A to the Code to provide a
monetary penalty for the failure to include
on any return or statement any information
required to be disclosed under section 6011
with respect to a reportable transaction.
Section 6707A(b)(1) provides that the
penalty for failure to include information
with respect to a reportable transaction,
other than a listed transaction, is $10,000
in the case of a taxpayer that is a natural
person, and $50,000 in any other case.
Section 6707A(b)(2) provides that for a
listed transaction, the penalty is increased
to $100,000 in the case of a taxpayer that
is a natural person, and $200,000 in any
other case.
.03 Section 816 of the Act amended section 6707 to provide for the imposition of
a penalty on a material advisor who is required to file a return under section 6111(a)
with respect to any reportable transaction,
and who fails to file a timely return or who
files a false or incomplete return with respect to the reportable transaction. Section 6707(b)(1) provides that the penalty
for failing to file a timely return or filing
a false or incomplete return with respect
to any reportable transaction other than
a listed transaction is $50,000. Section
6707(b)(2) provides that the penalty with
respect to any listed transaction equals the
greater of (1) $200,000, or (2) 50 percent
of the gross income derived by the material
advisor with respect to aid, assistance, or
advice that is provided with respect to the

February 26, 2007

listed transaction before the date the return
is filed under section 6111. If the penalty is
with respect to a listed transaction and the
failure or action subject to the penalty was
intentional, the penalty is the greater of (1)
$200,000, or (2) 75 percent of the gross income derived by the material advisor with
respect to aid, assistance, or advice that is
provided with respect to the listed transaction before the date the return is filed under
section 6111.
.04 Section 6707A(d)(1) grants the
Commissioner authority to rescind all or
a portion of any penalty imposed under
section 6707A if (1) the violation relates
to a reportable transaction that is not a
listed transaction and (2) rescission of the
penalty would promote compliance with
the requirements of the Code and effective
tax administration. Section 6707A(d)(2)
provides that the Commissioner’s determination whether to rescind the penalty
may not be reviewed in any judicial proceeding. The legislative history to section
6707A provides that “the IRS Commissioner or his delegate can rescind (or
abate) the penalty.” H.R. Conf. Rep. No.
755, 108th Cong., 2d Sess. at 373 (2004).
Section 6707(c) provides that the rescission provisions of section 6707A(d) shall
also apply to any penalty imposed on a
material advisor under section 6707.
.05 Section 6707A(e) requires a person
that is required to file periodic reports
under section 13 or 15(d) of the Securities Exchange Act of 1934, or is required
to be consolidated with another person
for purposes of those reports, to disclose
in those reports for the periods specified by the Secretary, the requirement
to pay the penalties set forth in section
6707A(e)(2) (i.e., certain penalties under section 6662(h) and penalties under
section 6662A(c), section 6707A(b)(2),
or section 6707A(e)). If the person fails
to disclose the requirement to pay the
penalties, then section 6707A(e) requires
that the failure be treated as a failure to
disclose a listed transaction for which an
additional section 6707A penalty applies.
Because a penalty imposed under section
6707A(e) is treated as a penalty imposed
with respect to a listed transaction, the
penalty is not subject to rescission. See
Rev. Proc. 2005–51, 2005–2 C.B. 296.
.06 Section 812 of the Act, which added
section 6662A to the Code, provides that a
20-percent accuracy-related penalty may

614

be imposed on any “reportable transaction
understatement,” as defined in section
6662A(b). Section 6662A(c) increases the
penalty rate to 30 percent for the portion of
any reportable transaction understatement
with respect to which the relevant facts affecting the tax treatment of the reportable
transaction were not adequately disclosed
in accordance with regulations prescribed
under section 6011. If the Commissioner
(or the Commissioner’s delegate) rescinds
the penalty under section 6707A, then
the taxpayer is treated as meeting the
reportable transaction disclosure requirements of the regulations under section
6011, and the 30-percent penalty rate under section 6662A(c) does not apply. See
I.R.C. § 6664(d)(2).
.07 Section 812 of the Act also added
section 6664(d) to the Code, which provides a reasonable cause exception to
the section 6662A reportable transaction
understatement penalty. Generally, this
exception cannot apply to any reportable
transaction understatement unless, among
other things, the relevant facts affecting the
tax treatment of the reportable transaction
are adequately disclosed in accordance
with the regulations prescribed under section 6011. If the Commissioner (or the
Commissioner’s delegate) rescinds the
penalty under section 6707A for failure to
include reportable transaction information
with a return or statement, then the taxpayer is treated as meeting the reportable
transaction disclosure requirements of
the regulations under section 6011, and
the taxpayer has satisfied that prerequisite to establishing the reasonable cause
exception to the reportable transaction understatement penalty under section 6662A.
See I.R.C. § 6664(d)(2). Satisfying that
one element of section 6664, however,
will not alone establish reasonable cause.
.08 Section 903 of the Act amended
section 6404(g)(2) to provide an exception
to the general rule that interest and certain
penalties will be suspended if the Secretary fails to provide a taxpayer with timely
notice of an adjustment to the taxpayer’s
liability. Under section 6404(g)(2)(E),
interest and certain penalties will not be
suspended with respect to any listed transaction as defined in section 6707A(c).
Also, under section 6404(g)(2)(E), interest
and certain penalties will not be suspended
with respect to any reportable transaction
(other than a listed transaction) that the

2007–9 I.R.B.

taxpayer did not disclose as required by
regulations under section 6011. If the
penalty imposed under section 6707A is
rescinded under the provisions of section
6707A(d), then the taxpayer is treated as
meeting the reportable transaction disclosure requirements of the regulations
under section 6011 for purposes of section
6404(g)(2)(E).
.09 Notice 2005–11, 2005–1 C.B. 493,
provides that, in determining whether
rescission of the penalty under 6707A
would promote compliance with the requirements of the Code and effective tax
administration, the Commissioner (or the
Commissioner’s delegate) will take into
account all of the relevant facts and circumstances, including: (1) whether the
taxpayer has a history of complying with
the tax laws; (2) whether the violation
results from an unintentional mistake of
fact; and (3) whether imposing the penalty
would be against equity and good conscience. Further, Notice 2005–11 provides
that the Commissioner’s determination
whether to rescind a penalty in whole or in
part is not reviewable by the IRS Office of
Appeals or any court. Notice 2005–11 is
effective until further guidance is issued in
the form of regulations or other guidance
that explicitly supersedes Notice 2005–11.
SECTION 3. SCOPE
This revenue procedure applies to any
person against whom a penalty under section 6707 or 6707A is assessed and who
may also request rescission of all or a portion of the penalty from the Commissioner.
A person may only request rescission of
a penalty under section 6707 or 6707A if
the violation relates to a reportable transaction other than a listed transaction. Further guidance will be issued providing preassessment administrative appeal rights to
persons against whom the IRS proposes
to assess a penalty under section 6707 or
6707A.
SECTION 4. APPLICATION
.01 When rescission request must
be made. In accordance with sections
6707A(d) and 6707(c), a person (i.e., a
taxpayer under section 6707A or material
advisor under section 6707) requesting
rescission of a penalty assessed under
either section 6707A or section 6707

2007–9 I.R.B.

must request rescission in writing within
30 days after the date the Service sends
notice and demand for payment of the
penalty pursuant to section 6303. If the
person pays the penalty (not including
interest) in full prior to the Service sending notice and demand for payment, the
person must request rescission in writing
within 30 days from the date of payment.
The Service will apply sections 7502 and
7503 to determine whether a request for
rescission is timely. A person may request
rescission only after filing with the Service
the complete return or statement required
under section 6011 or 6111, as applicable.
Additionally, in order to request rescission, a person must have exhausted the
administrative remedies available within
the IRS Office of Appeals regarding the
proposed assessment of the penalty unless
the person has agreed in writing to the
assessment of the penalty and has agreed
not to file or prosecute a claim for refund
or credit of the penalty, administratively or
through litigation, other than by requesting rescission. The method of requesting
rescission that is provided in this revenue
procedure is the exclusive method of requesting rescission. A person may not
request rescission through a refund claim,
in a collection due process hearing, or
through any other avenue for approaching
the Service.
.02 Information required in rescission
request. The written request for rescission must include: (1) the name, address,
telephone number, and Taxpayer Identification Number, as applicable, of the person against whom the relevant penalty is
imposed; (2) the amount of the penalty
imposed; (3) a copy of the complete return or statement required under section
6011 or 6111, as applicable, that the person filed with the Service; (4) a copy of
the notice and demand for payment or a
statement that the person made payment in
full prior to receiving notice and demand;
(5) a copy of the agreement to the assessment of the penalty and not to file or prosecute a claim for refund or credit of the
penalty, if applicable; (6) a statement of the
facts and circumstances relating to the violation, which includes the Code section
under which the penalty was determined
(i.e., section 6707(a) or section 6707A(a)),
the reason(s) the original return or statement was not timely filed or was incomplete, a description of the safeguards the

615

person had in place to ensure the proper
filing of the return or statement, any remedial measures the person has taken to prevent future violations, and any other facts
or circumstances relevant to how rescission would promote compliance with the
requirements of the Code and effective tax
administration, including the factors listed
under section 4.04 of this revenue procedure; (7) a statement of the person’s history of compliance with the tax law over
the past 10 years, including but not limited to, identification of any penalties that
the Service assessed against the person
with respect to any reportable transaction
and compliance with any requirement to
disclose a reportable transaction; (8) for
a penalty assessed under section 6707A,
copies of all offerings and promotional materials that the taxpayer received with respect to the reportable transaction involved
in the rescission request; (9) a statement
providing the identity of related parties (as
defined in section 267(b)) to the transaction, the identity of tax exempt entities involved in the transaction, and parties to any
designation agreement, if applicable; and
(10) the following declaration signed by
the person requesting rescission: “Under
penalties of perjury, I declare that I have
examined this rescission request, and to the
best of my knowledge and belief the information in this rescission request is true,
correct, and complete.”
.03 Information that will expedite the
rescission request. Including some or all
of the following information in a rescission
request will expedite processing of the request: (1) a copy of the notice of proposed
assessment (e.g., 30-day letter and Form
4549, Income Tax Examination Changes);
(2) the name, telephone number, and address of the IRS revenue agent that examined the person with respect to the applicable penalty; and (3) the name, telephone
number, and address of the IRS appeals officer that considered the proposed penalty
assessment, if applicable.
.04 Factors that weigh in favor of granting rescission. In determining whether
rescission would promote compliance
with the requirements of the Code and
effective tax administration, the Commissioner (or the Commissioner’s delegate)
will take into account the following list
of factors that weigh in favor of granting
rescission. This is not an exclusive list and
no single factor will be determinative of

February 26, 2007

whether to grant rescission in any particular case. Rather, the Commissioner (or the
Commissioner’s delegate) will consider
and weigh all relevant factors, regardless
of whether the factor is included in this
list.
(A) The person, upon becoming aware
of its failure to disclose or report a reportable transaction properly, filed a complete and proper, albeit untimely, Form
8886 or 8264 (or any successor forms),
as applicable. For a penalty assessed under section 6707A, this factor will weigh
strongly in favor of rescission provided
that (i) the taxpayer files the Form 8886
prior to the date the Service first contacts
the taxpayer (including contacts by the
Service with any partnership in which the
taxpayer is a partner, any S corporation
in which the taxpayer is a shareholder,
or any trust in which the taxpayer is a
beneficiary) concerning a tax examination
for the tax period in which the taxpayer
participated in the reportable transaction
and (ii) other circumstances suggest that
the taxpayer did not delay filing an untimely but properly completed Form 8886
until after the Service had taken steps to
identify the taxpayer’s participation in the
reportable transaction in question. For
a penalty assessed under section 6707,
this factor will weigh strongly in favor of
rescission provided that the material advisor files the form required under section
6111 prior to the earlier of the date that
any taxpayer files a Form 8886 identifying
the material advisor with respect to the reportable transaction in question or the date
the Service contacts the material advisor
concerning the reportable transaction.
(B) The failure to properly disclose was
due to an unintentional mistake of fact that
existed despite the person’s reasonable attempts to ascertain the correct facts with
respect to the transaction.
(C) The person has an established history of properly disclosing other reportable
transactions and complying with other tax
laws, including compliance with any requests made under section 6112, if applicable.
(D) The person demonstrates that the
failure to include on any return or statement any information required to be disclosed under section 6011 or section 6111
arose from events beyond the person’s
control.

February 26, 2007

(E) The person cooperates with the
Service by providing timely information
with respect to the transaction at issue that
the Commissioner (or the Commissioner’s
delegate) may request in consideration
of the rescission request. In considering
whether a person cooperates with the Service, the Commissioner (or the Commissioner’s delegate) may take into account
whether the person complies with requests
for additional information described in
section 4.09 of this revenue procedure.
(F) Assessment of the penalty would
weigh against equity and good conscience,
including whether the person demonstrates
that there was reasonable cause for, and
the person acted in good faith with respect to, the failure to timely file or to include on any return any information required to be disclosed under section 6011
or section 6111. For a penalty assessed
under section 6707A, an important factor
in determining reasonable cause and good
faith is the extent of the taxpayer’s efforts to ensure that persons who prepared
the taxpayer’s return were informed of the
taxpayer’s participation in the reportable
transactions. For a penalty assessed under section 6707, an important factor in determining reasonable cause and good faith
is the extent of the material advisor’s efforts to determine whether there was a requirement to file the return required under
section 6111. The presence of reasonable
cause, however, will not necessarily be determinative of whether to grant rescission.
.05 Absence of factors described in section 4.04 weigh against rescission. The absence of facts establishing the factors described in section 4.04 of this revenue procedure weigh against granting rescission.
The absence of any one of these factors,
however, will not necessarily be determinative of whether to grant rescission.
.06 Factors not considered. In determining whether to grant rescission, the
Commissioner (or the Commissioner’s
delegate) will not consider doubt as to
liability for, or collectibility of, the penalties. For example, the Commissioner (or
the Commissioner’s delegate) will not
consider whether the taxpayer will suffer
“economic hardship,” as defined in Treas.
Reg. § 301.6343–1(b)(4), if rescission is
not granted.
.07 Effect of rescission request on collection. A person need not pay the section
6707 or 6707A penalty assessed prior to

616

requesting rescission. The Service, however, will not suspend collection efforts
solely because a person has made a rescission request.
.08 Where rescission request must be
submitted. The written request for rescission should be sent to the following address:
Internal Revenue Service
LM:PQA:JC:1953(RR)
Large & Mid-Size Business Division
110 West 44th St., 3rd Floor
New York, NY 10036
The person must send the written request
to the above address prior to the date specified in section 4.01 of this revenue procedure.
.09 Request for additional information.
After receiving the rescission request,
the Service may make a written request
seeking additional information and documents relating to the transaction, such
as marketing materials and tax opinions,
from the person requesting rescission. Requested information must be submitted
to the Service within 30 days of the date
of mailing of the request for additional
information by the Service. The Service
may grant an extension of time for good
cause to persons who request additional
time within the 30-day period. A person’s
failure to provide the requested information within the applicable time period may
weigh against rescission. Meritless claims
of privilege may weigh against rescission.
Further, the examining revenue agent and
other Service employees involved with the
examination may be asked to review and
comment on the rescission request.
SECTION 5. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. § 3507) under control number
1545–2047.
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.

2007–9 I.R.B.

The collection of information in this
revenue procedure is in section 4. This
information is required to administer
the provisions of sections 6707(c) and
6707A(d) and determine whether the Service should rescind penalties otherwise
applicable. The likely respondents are
taxpayers and material advisors who are
subject to a penalty under section 6707 or
6707A.
The estimated total annual reporting or
recordkeeping burden is 3865.5 hours.
The estimated annual burden per respondent/recordkeeper varies from 3 to 6
hours, depending on individual circumstances, with an estimated average of 4.5
hours. The estimated number of respondents or recordkeepers is 859.

2007–9 I.R.B.

The estimated annual frequency of responses (used for reporting requirements
only) is 1.
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.
SECTION 6. EFFECTIVE DATE

SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Matthew S. Cooper of the
Office of the Associate Chief Counsel
(Procedure and Administration), Administrative Provisions & Judicial Practice
Division. For further information regarding this revenue procedure, contact
Matthew S. Cooper at (202) 622–4940
(not a toll-free call).

This revenue procedure is effective for
any rescission request that relates to a section 6707 or 6707A penalty for which notice and demand, or payment, is made after
October 22, 2004.

617

February 26, 2007