[Federal Register Volume 67, Number 243 (Wednesday, December 18, 2002)]
[Rules and Regulations]
[Pages 77418-77419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31855]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[TD 9026]
RIN-1545-BA95
Low-Income Taxpayer Clinics--Definition of Income Tax Return
Preparer
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that exclude certain
Low-Income Taxpayer Clinics (LITCs) that qualify for grants under
section 7526 of the Internal Revenue Code from the definition of income
tax return preparer under section 7701(a)(36). These final regulations
also exclude certain persons who are employed by, or volunteer for,
such clinics.
DATES: Effective Date: These regulations are effective December 18,
2002.
Applicability Date: These regulations apply to returns that are
prepared on or after December 18, 2002.
FOR FURTHER INFORMATION CONTACT: Brinton T. Warren, at (202) 622-4940
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Regulations on Procedure
and Administration (26 CFR part 301) relating to the definition of the
term income tax return preparer under section 7701(a)(36) of the
Internal Revenue Code (Code). On June 11, 2002, a notice of proposed
rulemaking was published in the Federal Register (67 FR 39915). One
comment was received in response to the notice of proposed rulemaking.
No public hearing was requested or held. After consideration of the
comment, the proposed regulations under section 7701(a)(36) are
adopted.
These regulations have been promulgated in furtherance of the
purposes of Section 3601(a) of the Internal Revenue Service
Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat.
685) (1998) (RRA 1998). Section 3601(a), which added section 7526 of
the Code, provides grants to qualified LITCs. Qualified LITCs represent
taxpayers in controversies with the IRS and operate programs to inform
individuals for whom English is a second language (ESL taxpayers) about
their rights and responsibilities as taxpayers (ESL outreach).
Qualified LITCs are either clinical programs run by accredited
educational institutions that allow students to represent low-income
taxpayers, or tax-exempt organizations that provide representation to
low-income taxpayers.
Section 7701(a)(36), defining the term income tax return preparer,
was enacted by section 1203 of the Tax Reform Act of 1976, Public Law
94-455 (90 Stat. 1520) (1976) (TRA 1976). TRA 1976 also enacted many of
the provisions of sections 6694 and 6695, which impose penalties for
certain acts and omissions by income tax return preparers.
The preparer penalties enacted by TRA 1976 reflect the concern of
Congress with improper practices within the commercial tax services
industry. See H. Rep. No. 94-658, 94th Cong. 1st Sess. 274 (1976),
1976-3 (Vol. 2) C.B. 966. Consistent with the commercial focus of the
legislative history, the definition of an income tax return preparer
requires that the tax return or claim for refund be prepared ``for
compensation.'' Persons who do not receive compensation are not income
tax return preparers for purposes of section 7701(a)(36) regardless of
the extent to which they are involved with the preparation of a return
or claim for refund.
Under section 7526(b)(1)(A)(i), a qualified LITC may not charge
more than a nominal fee for its authorized services (except for
reimbursement of actual costs incurred). These final regulations,
consistent with the notice of proposed rulemaking, specify the
circumstances in which an LITC may receive a nominal fee that will not
be considered compensation for purposes of section 7701(a)(36).
Explanation of Revisions and Summary of Comment
These final regulations adopt the proposed amendments without
substantive change. Under these final regulations, qualified LITCs, as
defined by section 7526, and employees and volunteers of such LITCs,
that provide assistance with a tax return or claim for refund will not
be treated as income tax return preparers if two requirements are
satisfied.
First, any such return preparation assistance must be (i) directly
related to a controversy with the IRS for which the LITC is providing
assistance or (ii) an ancillary part of an LITC's ESL outreach program.
Second, the LITC cannot charge a separate fee or vary a fee based on
whether the LITC provides assistance with a return of tax or claim for
refund, or charge more than a nominal fee for its services. The
regulations apply to
[[Page 77419]]
returns prepared on or after December 18, 2002.
The commentator focused on the scope of the direct relation
requirement that applies to LITCs that represent taxpayers in
controversies. The commentator observed that, for a nonfiler to obtain
the benefits of an offer in compromise or installment agreement, it is
sometimes necessary for an LITC to prepare a number of the nonfiler's
returns for prior years. The commentator requested clarification as to
whether preparation of the prior-year returns is directly related to
the nonfiler's controversy with the IRS. As in the commentator's
example, in cases where the preparation of a taxpayer's return is
required to resolve a controversy for which an LITC is representing a
taxpayer, such preparation would be treated under these final
regulations as directly related to that controversy.
These regulations do not address the definition of a nominal fee.
The Treasury Department and the IRS specifically requested comments on
the need for a definition of a nominal fee and the factors that should
be considered in defining a nominal fee. No comments were received on
this topic. The Treasury Department and the IRS conclude that the
definition of nominal fee should not be addressed in these regulations
at this time. The final regulations do not specifically address the
qualifications of an LITC under section 7526. The Treasury Department
and IRS reiterate the view, originally stated in the preamble of the
proposed regulations, that a qualified LITC may not provide return
preparation assistance other than assistance directly related to a
controversy with the IRS or assistance that is an ancillary part of an
ESL outreach program.
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, and, because
these regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on their impact.
Drafting Information
The principal author of the regulations is Brinton T. Warren of the
Office of Associate Chief Counsel (Procedure and Administration),
Administrative Provisions and Judicial Practice Division.
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is amended as follows:
PART 301--PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7701-15 is amended by:
1. Removing the language ``and'' at the end of paragraph
(a)(7)(iii).
2. Removing the period at the end of paragraph (a)(7)(iv) and
adding a semicolon in its place.
3. Adding paragraphs (a)(7)(v) through (a)(7)(viii).
The additions read as follows:
Sec. 301.7701-15 Income tax return preparer.
* * * * *
(a) * * *
(7) * * *
(v) Any individual who provides tax assistance as part of a
qualified Low-Income Taxpayer Clinic (LITC), as defined by section
7526, subject to the requirements of paragraphs (a)(7)(vii) and (viii)
of this section; and
(vi) Any organization that is a qualified Low-Income Taxpayer
Clinic (LITC), as defined by section 7526, subject to the requirements
of paragraphs (a)(7)(vii) and (viii) of this section.
(vii) Paragraphs (a)(7)(v) and (vi) of this section apply only if
any assistance with a return of tax or claim for refund under subtitle
A is directly related to a controversy with the Internal Revenue
Service for which the qualified LITC is providing assistance, or is an
ancillary part of an LITC program to inform individuals for whom
English is a second language about their rights and responsibilities
under the Internal Revenue Code.
(viii) Notwithstanding paragraph (a)(7)(vii) of this section,
paragraphs (a)(7)(v) and (vi) of this section do not apply if an LITC
charges a separate fee or varies a fee based on whether the LITC
provides assistance with a return of tax or claim for refund under
subtitle A, or if the LITC charges more than a nominal fee for its
services.
* * * * *
David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.
Approved: December 11, 2002.
Pamela F. Olson,
Assistant Secretary for Tax Policy.
[FR Doc. 02-31855 Filed 12-17-02; 8:45 am]
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