81 FR 87502 - Tax Return Preparer Due Diligence Penalty Under Section 6695(g)

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 233 (December 5, 2016)

In the Rules and Regulations section of this issue of the Federal Register, the IRS is issuing temporary regulations that will modify the existing regulations related to the penalty under section 6695(g) of the Internal Revenue Code (Code) relating to tax return preparer due diligence. The temporary regulations implement recent law changes that expand the tax return preparer due diligence penalty under section 6695(g) so that it applies to the child tax credit (CTC), additional child tax credit (ACTC), and the American Opportunity Tax Credit (AOTC), in addition to the earned income credit (EIC). The text of those regulations also serves as the text of these proposed regulations.

[Federal Register Volume 81, Number 233 (Monday, December 5, 2016)]
[Proposed Rules]
[Pages 87502-87503]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-28995]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102952-16]
RIN 1545-BN43


Tax Return Preparer Due Diligence Penalty Under Section 6695(g)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that will 
modify the existing regulations related to the penalty under section 
6695(g) of the Internal Revenue Code (Code) relating to tax return 
preparer due diligence. The temporary regulations implement recent law 
changes that expand the tax return preparer due diligence penalty under 
section 6695(g) so that it applies to the child tax credit (CTC), 
additional child tax credit (ACTC), and the American Opportunity Tax 
Credit (AOTC), in addition to the earned income credit (EIC). The text 
of those regulations also serves as the text of these proposed 
regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by March 6, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-102952-16), Room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
102952-16), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
102952-16).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Rachel L. Gregory, 202-317-6845; concerning submissions of comments and 
the hearing, Regina Johnson, 202-317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information in current Sec.  1.6695-2 was 
previously reviewed and approved under control number 1545-1570. 
Control number 1545-1570 was discontinued in 2014, as the burden for 
the collection of information contained in Sec.  1.6695-2 is reflected 
in the burden on Form 8867, ``Paid Preparer's Due Diligence 
Checklist,'' under control number 1545-1629.

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend 26 CFR 1.6695-2 by imposing due 
diligence requirements on tax return preparers with respect to 
determining the eligibility for, or the amount of, the CTC/ACTC or 
AOTC, in addition to the EIC, on any return or claim for refund. The 
temporary regulations also amend section 1.6695-2 to reflect the 
changes made by section 208(c), Div. B of the Tax Increase Prevention 
Act of 2014, Public Law 113-295 (128 Stat. 4010, 4073 (2014)), 
requiring the IRS to index the penalty for inflation for returns and 
claims for refund filed after December 31, 2014.
    The text of those regulations also serves as the text of these 
proposed regulations. The preamble to the temporary regulations 
explains the amendments.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required.
    Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 
6), it is hereby certified that these proposed rules, if adopted, would 
not have a significant economic impact on a substantial number of small 
entities. When an agency issues a notice of proposed rulemaking, the 
RFA requires the agency to ``prepare and make available for public 
comment an initial regulatory flexibility analysis'' that will 
``describe the impact of the proposed rule on small entities.'' (5 
U.S.C. 603(a)). Section 605 of the RFA provides an exception to this 
requirement if the agency certifies that the proposed rulemaking will 
not have a significant economic impact on a substantial number of small 
entities.
    The proposed rules affect tax return preparers who determine the 
eligibility for, or the amount of, the EIC, the CTC/ACTC and/or the 
AOTC. The North American Industry Classification System (NAICS) code 
that relates to tax return preparation services (NAICS code 541213) is 
the appropriate code for tax return preparers subject to this notice of 
proposed rulemaking. Entities identified as tax return preparation 
services are considered small under the Small Business Administration 
size standards (13 CFR 121.201) if their annual revenue is less than 
$20.5 million. The IRS estimates that approximately 75 to 85 percent of 
the 505,000 persons who work at firms or are self-employed tax return 
preparers are operating as or employed by small entities. The IRS has 
therefore determined that these proposed rules will have an impact on a 
substantial number of small entities.
    The IRS has further determined, however, that the economic impact 
on entities affected by the proposed rules will not be significant. The 
current regulations under section 6695(g) already require tax return 
preparers to complete the Form 8867 when a return or claim for refund 
includes a claim of the EIC. Tax return preparers also must currently 
maintain records of the checklists and EIC computations, as well as a 
record of how and when the information used to compute the EIC was 
obtained by the tax return preparer.

[[Page 87503]]

The information needed to document eligibility for the CTC/ACTC and the 
AOTC largely duplicates the information needed to compute the EIC and 
complete other parts of the return or claim for refund. Even if certain 
preparers are required to maintain the checklists and complete Form 
8867 for the first time, the IRS estimates that the total time required 
should be minimal for these tax return preparers. Further, the IRS does 
not expect that the requirements in these proposed regulations would 
necessitate the purchase of additional software or equipment in order 
to meet the additional information retention requirements.
    Based on these facts, the IRS hereby certifies that the collection 
of information contained in this notice of proposed rulemaking will not 
have a significant economic impact on a substantial number of small 
entities. Accordingly, a Regulatory Flexibility Analysis is not 
required.
    Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking has been submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on the 
impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are timely submitted 
to the IRS as prescribed in this preamble under the Addresses heading. 
The IRS and Treasury Department request comments on all aspects of the 
proposed rules. All comments will be available at www.regulations.gov 
or upon request. A public hearing will be scheduled if requested in 
writing by any person that timely submits written comments. If a public 
hearing is scheduled, notice of the date, time, and place for the 
public hearing will be published in the Federal Register.

Drafting Information

    The principal author of this regulation is Rachel L. Gregory, 
Office of the Associate Chief Counsel (Procedure & Administration).

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *

0
Par. 2. Section 1.6695-2 is amended by revising the section heading and 
paragraphs (a), (b)(1)(i) introductory text, (b)(1)(ii), (b)(2), 
(b)(3)(i) and (ii), (b)(4)(i)(B) and (C), (c)(3), and (e) to read as 
follows:


Sec.  1.6695-2  Tax return preparer due diligence requirements for 
certain credits.

    (a) [The text of the proposed amendment to Sec.  1.6695-2(a) is the 
same as the text of Sec.  1.6695-2T(a) published elsewhere in this 
issue of the Federal Register].
    (b) * * *
    (1) * * *
    (i) [The text of the proposed amendment to Sec.  1.6695-2(b)(1)(i) 
is the same as the text of Sec.  1.6695-2T(b)(1)(i) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (ii) [The text of the proposed amendment to Sec.  1.6695-
2(b)(1)(ii) is the same as the text of Sec.  1.6695-2T(b)(1)(ii) 
published elsewhere in this issue of the Federal Register].
    (2) [The text of the proposed amendment to Sec.  1.6695-2(b)(2) is 
the same as the text of Sec.  1.6695-2T(b)(2) published elsewhere in 
this issue of the Federal Register].
    (3) * * *
    (i) [The text of the proposed amendment to Sec.  1.6695-2(b)(3)(i) 
is the same as the text of Sec.  1.6695-2T(b)(3)(i) published elsewhere 
in this issue of the Federal Register].
    (ii) [The text of the proposed amendment to Sec.  1.6695-
2(b)(3)(ii) is the same as the text of Sec.  1.6695-2T(b)(3)(ii) 
published elsewhere in this issue of the Federal Register].
    (4) * * *
    (i) * * *
    (B) [The text of the proposed amendment to Sec.  1.6695-
2(b)(4)(i)(B) is the same as the text of Sec.  1.6695-2T(b)(4)(i)(B) 
published elsewhere in this issue of the Federal Register].
    (C) [The text of the proposed amendment to Sec.  1.6695-
2T(b)(4)(i)(C) is the same as the text of Sec.  1.6695-2T(b)(4)(i)(C) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (c) * * *
    (3) [The text of the proposed amendment to Sec.  1.6695-2T(c)(3) is 
the same as the text of Sec.  1.6695-2T(c)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (e) Applicability date. The rules of this section apply to tax 
returns and claims for refunds prepared on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register with respect to tax years beginning 
after December 31, 2015.

 John M. Dalrymple,
 Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-28995 Filed 12-2-16; 8:45 am]
 BILLING CODE 4830-01-P