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Bulletin No. 2008-5February 4, 2008

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2008–8, page 340.Cell captive guidance. This ruling explains how arrange-ments between an individual cell and its owner are analyzed forpurposes of determining whether there is adequate risk shift-ing and risk distribution to constitute insurance.

Rev. Rul. 2008–9, page 342.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for January 2008.

T.D. 9375, page 344.Final regulations under section 7216 of the Code update therules regarding the disclosure and use of tax return informationby tax preparers. Among other things, the regulations finalizerules for taxpayers to consent to the disclosure or use of theirtax return information by tax return preparers. The regulationseither modify or clarify (i) the scope of the circumstances towhich the rule apply, (ii) the circumstances in which an incometax return preparer may disclose or use tax return informationwithout taxpayer consent, and (iii) the circumstances in whichan income tax return preparer may rely upon a taxpayer’s con-sent to disclose or use information that the income tax returnpreparer obtains in connection with the preparation of a return.The regulations are applicable to disclosures or uses of tax re-turn information occurring on or after January 1, 2009.

Notice 2008–18, page 363.This notice alerts life insurance companies to federal incometax issues that may arise as a result of the adoption of pro-posed Actuarial Guideline VACARVM and/or a proposed princi-ples-based approach for calculating statutory reserves for life

insurance proposed Life PBR. This notice identifies areas inwhich the Treasury Department and the Service have concernsand invites comments on these and other issues.

Notice 2008–19, page 366.Cell captive guidance. This notice requests comments on aspecific framework for determining whether an individual cellor the protected cell company as a whole is treated as aninsurance company for federal income tax purposes.

Rev. Proc. 2008–12, page 368.This procedure provides guidance to tax return preparers re-garding the format and content of consents to disclose andconsents to use tax return information with respect to taxpay-ers filing a return in the Form 1040 series (e.g., Form 1040,Form 1040NR, Form 1040A, or Form 1040EZ) under regula-tions section 301.7216–3. This procedure also provides spe-cific requirements for electronic signatures when a taxpayerexecutes an electronic consent to the disclosure or use of thetaxpayer’s tax return information.

Announcement 2008–7, page 379.This document provides advance notice that the Treasury De-partment and the IRS are considering issuing rules in proposedregulations (REG–136596–07) regarding the disclosure anduse of tax return information by tax return preparers. The ruleswould apply to the marketing of refund anticipation loans (RALs)and certain other products in connection with the preparationof a tax return and, as an exception to the general principlethat taxpayers should have control over their tax return informa-tion that is reflected in final regulations published in T.D. 9375,provide that a tax return preparer may not obtain a taxpayer’sconsent to disclose or use tax return information for the pur-pose of soliciting taxpayers to purchase such products. Thisdocument invites comments from the public regarding thesecontemplated rules.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 372.Finding Lists begin on page ii.

ADMINISTRATIVE

T.D. 9375, page 344.Final regulations under section 7216 of the Code update therules regarding the disclosure and use of tax return informationby tax preparers. Among other things, the regulations finalizerules for taxpayers to consent to the disclosure or use of theirtax return information by tax return preparers. The regulationseither modify or clarify (i) the scope of the circumstances towhich the rule apply, (ii) the circumstances in which an incometax return preparer may disclose or use tax return informationwithout taxpayer consent, and (iii) the circumstances in whichan income tax return preparer may rely upon a taxpayer’s con-sent to disclose or use information that the income tax returnpreparer obtains in connection with the preparation of a return.The regulations are applicable to disclosures or uses of tax re-turn information occurring on or after January 1, 2009.

Rev. Proc. 2008–12, page 368.This procedure provides guidance to tax return preparers re-garding the format and content of consents to disclose andconsents to use tax return information with respect to taxpay-ers filing a return in the Form 1040 series (e.g., Form 1040,Form 1040NR, Form 1040A, or Form 1040EZ) under regula-tions section 301.7216–3. This procedure also provides spe-cific requirements for electronic signatures when a taxpayerexecutes an electronic consent to the disclosure or use of thetaxpayer’s tax return information.

Announcement 2008–6, page 378.This announcement contains changes in filing procedures forForm 1042–S, Foreign Person’s U.S. Source Income Subjectto Withholding, filed electronically or magnetically. Thesechanges are effective immediately.

Announcement 2008–7, page 379.This document provides advance notice that the Treasury De-partment and the IRS are considering issuing rules in proposedregulations (REG–136596–07) regarding the disclosure anduse of tax return information by tax return preparers. The ruleswould apply to the marketing of refund anticipation loans (RALs)and certain other products in connection with the preparationof a tax return and, as an exception to the general principlethat taxpayers should have control over their tax return informa-tion that is reflected in final regulations published in T.D. 9375,provide that a tax return preparer may not obtain a taxpayer’sconsent to disclose or use tax return information for the pur-pose of soliciting taxpayers to purchase such products. Thisdocument invites comments from the public regarding thesecontemplated rules.

February 4, 2008 2008–5 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2008–5 I.R.B. February 4, 2008

February 4, 2008 2008–5 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof February 2008. See Rev. Rul. 2008-9, page 342.

Section 162.—Trade orBusiness Expenses26 CFR 1.162–1: Business expenses.(Also §§ 801, 831.)

Cell captive guidance. This ruling ex-plains how arrangements between an indi-vidual cell and its owner are analyzed forpurposes of determining whether there isadequate risk shifting and risk distributionto constitute insurance.

Rev. Rul. 2008–8

ISSUES

Under the facts described below, do thearrangements entered into between X andCell X, and between the subsidiaries of Yand Cell Y, of Protected Cell Companyconstitute insurance for federal income taxpurposes? If so, are amounts paid by X toCell X and by the subsidiaries of Y to CellY deductible as “insurance premiums” un-der § 162 of the Internal Revenue Code?

FACTS

Protected Cell Company is a legal en-tity formed by Sponsor under the lawsof Jurisdiction A. Pursuant to the laws ofJurisdiction A, Protected Cell Companyhas established multiple accounts, or cells,each of which has its own name and isidentified with a specific participant, but isnot treated as a legal entity distinct fromProtected Cell Company. Sponsor ownsall the common stock of Protected CellCompany. All of the non-voting preferredstock associated with each cell is ownedby that cell’s participant or participants.The terms “common stock” and “preferredstock” as used in the Protected Cell Com-pany and cell instruments do not necessar-ily reflect the federal income tax status ofthose instruments.

Each cell is funded by its participant’scapital contribution (the amount paid by

the participant for the preferred stock as-sociated with its cell) and by “premiums”collected with respect to contracts to whichthe cell is a party. Each cell is required topay out claims with respect to contracts towhich it is a party. The income, expense,assets, liabilities, and capital of each cellare accounted for separately from the in-come, expense, assets, liabilities, and cap-ital of any other cell and of Protected CellCompany generally. The assets of eachcell are statutorily protected from the cred-itors of any other cell and from the credi-tors of Protected Cell Company. ProtectedCell Company maintains non-cellular as-sets and capital representing the minimumamount of capital necessary to maintain itscharter. Each cell may make distributionswith respect to the class of stock that cor-responds to that cell, regardless of whetherdistributions are made with respect to anyother class of stock. In the event a partic-ipant ceases its participation in ProtectedCell Company, the participant is entitled toa return of the assets of the cell in whichit participated, subject to any outstandingobligations of that cell.

A company like Protected Cell Com-pany is sometimes referred to as a pro-tected cell company, a segregated accountcompany or segregated portfolio company.

Situation 1

X, a domestic corporation, owns allthe preferred stock issued with respect toCell X. Each year, X enters into a 1-yearcontract, or arrangement, whereby Cell X“insures” the professional liability risks ofX, either directly or as a reinsurer of thoserisks. The amounts X pays as “premiums”under the annual arrangement are estab-lished according to customary industryrating formulas. In all respects, X and CellX conduct themselves consistently withthe standards applicable to an insurancearrangement between unrelated parties.In implementing the arrangement, CellX may perform any necessary adminis-trative tasks, or it may outsource thosetasks at prevailing commercial marketrates. X does not provide any guaranteeof Cell X’s performance, and all fundsand business records of X and Cell X are

separately maintained. Cell X does notloan any funds to X. Cell X does not enterinto any arrangements with entities otherthan X. Taking into account the total assetsof Cell X, both from capital contributionsand from amounts received pursuant tothe annual arrangement with X, Cell X isadequately capitalized relative to the risksassumed under that arrangement.

Situation 2

The facts are the same as in Situation1, except that Y, a domestic corporation,owns all the preferred stock issued with re-spect to Cell Y. Y also owns all of the stockof 12 domestic subsidiaries that provideprofessional services. Each subsidiary inthe Y group has a geographic territory com-prised of a state in which the subsidiaryprovides professional services. The sub-sidiaries of Y operate on a decentralizedbasis. The services provided by the em-ployees of each subsidiary are performedunder the general guidance of a supervi-sory professional for a particular facility ofthe subsidiary. The general categories ofthe professional services rendered by eachof the subsidiaries are the same throughoutthe Y group. Together the 12 subsidiarieshave a significant volume of independent,homogeneous risks.

Each year, each subsidiary of Y entersinto a 1-year contract, or arrangement,with Cell Y whereby Cell Y “insures” theprofessional liability risks of that sub-sidiary, either directly or as a reinsurerof those risks. The amounts chargedeach subsidiary as “premiums” underthe annual arrangements are establishedaccording to customary industry ratingformulas. None of the subsidiaries haveliability coverage for less than 5% normore than 15% of the total risk insuredby Cell Y. Cell Y retains the risk that it in-sures from the subsidiaries. In all respects,Y, Cell Y, and each subsidiary, conductthemselves consistently with the standardsapplicable to an insurance arrangementbetween unrelated parties. In implement-ing the arrangement, Cell Y may performall necessary administrative tasks, or itmay outsource those tasks at prevailingcommercial market rates. Neither Y nor

2008–5 I.R.B. 340 February 4, 2008

any subsidiary of Y guarantees Cell Y’sperformance, and all funds and businessrecords of Y, Cell Y, and each subsidiary,are separately maintained. Cell Y does notloan any funds to Y or to any subsidiaryof Y. Cell Y does not enter into any ar-rangements with entities other than Y or itssubsidiaries. Taking into account the totalassets of Cell Y, both from capital contri-butions from Y and from amounts receivedpursuant to the annual arrangements withthe subsidiaries of Y, Cell Y is adequatelycapitalized relative to the risks assumedunder those arrangements.

LAW

Section 162(a) of the Code provides, inpart, that there shall be allowed as a de-duction all the ordinary and necessary ex-penses paid or incurred during the taxableyear in carrying on any trade or business.Section 1.162–1(a) of the Income Tax Reg-ulations provides, in part, that among theitems included in business expenses areinsurance premiums against fire, storms,theft, accident or other similar losses in thecase of a business.

Neither the Code nor the regulationsdefine the terms insurance or insurancecontract. The United States SupremeCourt, however, has explained that inorder for an arrangement to constitute in-surance for federal income tax purposes,both risk shifting and risk distributionmust be present. Helvering v. LeGierse,312 U.S. 531 (1941).

Risk shifting occurs if a person facingthe possibility of an economic loss trans-fers some or all of the financial conse-quences of the potential loss to the insurer,such that a loss by the insured does notaffect the insured because the loss is off-set by the insurance payment. Risk dis-tribution occurs when the party assumingthe risk distributes its potential liabilityamong others, at least in part. Beech Air-craft Corp. v. United States, 797 F.2d920, 922 (10th Cir. 1986). Risk distribu-tion “emphasizes the broader, social aspectof insurance as a method or dispelling thedanger of a potential loss by spreading itscost throughout a group”, Commissionerv. Treganowan, 183 F.2d 288, 291 (2dCir. 1950), and “involves spreading therisk of loss among policyholders.” OceanDrilling & Exploration Co. v. UnitedStates, 24 Cl. Ct. 714, 731 (1991) aff’d

per curiam, 988 F.2d 1135 (Fed. Cir.1993). Risk distribution necessarily en-tails a pooling of premiums, so that a po-tential insured is not in significant partpaying for its own risks. See Humana, Inc.v. Commissioner, 881 F.2d 247, 257 (6th

Cir. 1989).A transaction between a parent and its

wholly-owned subsidiary does not satisfythe requirements of risk shifting and riskdistribution if only the risks of the par-ent are insured. See Stearns-Roger Corp.v. United States, 774 F.2d 414 (10th Cir.1985); Carnation Co. v. Commissioner,640 F.2d 1010 (9th Cir. 1981), cert. denied454 U.S. 965 (1981). However, courtshave held that an arrangement between aparent and its subsidiary can constitute in-surance when the parent’s premiums arepooled with those of unrelated parties if (i)insurance risk is present, (ii) risk is shiftedand distributed, and (iii) the transaction isof the type that is insurance in the com-monly accepted sense. See, e.g., OceanDrilling & Exploration Co.; AMERCO,Inc. v. Commissioner, 979 F.2d 162 (9th

Cir. 1992); Rev. Rul. 2002–89, 2002–2C.B. 984. An arrangement between an in-surance subsidiary and other subsidiariesof the same parent may qualify as insur-ance for federal income tax purposes, evenif there are no insured policyholders out-side the affiliated group, provided the req-uisite risk shifting and risk distribution arepresent. See, e.g., Humana, Inc. v. Com-missioner, 881 F.2d 247 (6th Cir. 1989);Kidde Industries v. U.S., 40 Fed. Cl.(1997); Rev. Rul. 2002–90, 2002–2 C.B.985.

The qualification of an arrangement asan insurance contract does not depend onthe regulatory status of the issuer. See,e.g., Commissioner v. Treganowan, 183F.2d 288 (2d Cir. 1950) (arrangement withstock exchange “gratuity fund” treated aslife insurance because the requisite riskshifting and risk distribution were present).See also Rev. Rul. 83–172, 1983–2 C.B.107 (group issuing workmen’s compen-sation insurance taxable as an insurancecompany even though not recognized as aninsurance company under state law); Rev.Rul. 83–132, 1983–2 C.B. 270 (non-cor-porate business entity taxable as an insur-ance company if it is primarily engagedin the business of issuing insurance con-tracts). The same principles apply to de-termine the insurance contract status of an

arrangement involving a cell of a protectedcell company as apply to determine the sta-tus of an arrangement with any other is-suer.

ANALYSIS

In order to determine the nature of anarrangement for federal income tax pur-poses, it is necessary to consider all thefacts and circumstances in a particularcase, including not only the terms of thearrangement, but also the entire courseof conduct of the parties. Thus, an ar-rangement that purports to be an insurancecontract but lacks the requisite risk distri-bution may instead be characterized as adeposit arrangement, a loan, a contributionto capital (to the extent of net value, if any)an indemnity arrangement that is not aninsurance contract, or otherwise, based onthe substance of the arrangement betweenthe parties. The proper characterization ofthe arrangement may determine whetherthe issuer qualifies as an insurance com-pany and whether amounts paid under thearrangement may be deductible.

Under the facts presented, all the in-come, expense, assets, liabilities and cap-ital of Cell X are separately accounted forand, upon liquidation, become the prop-erty of X, who is the sole shareholder withrespect to Cell X. The amounts X pays aspremiums under the 1-year agreement to“insure” its professional liability risks areheld by Cell X, together with any capitaland surplus, for the satisfaction of X’sclaims. The premiums that Cell X earnsfrom its arrangement with X constitute100% of its total premiums earned duringthe taxable year; the liability coverage CellX provides to X accounts for all the risksborne by Cell X. In the event of a claim,payment will be made to X out of X’s ownpremiums and contributions to the capitalof Cell X; no amount may be paid out ofany other cell in satisfaction of any claimsby X. The arrangement between X andCell X is akin to an arrangement betweena parent and its wholly-owned subsidiary,which, in the absence of unrelated risk,lacks the requisite risk shifting and riskdistribution to constitute insurance. Be-cause Cell X does not enter into arrange-ments with any policyholders other thanX, the arrangement between X and Cell Xis not an insurance contract for federal in-come tax purposes, and X may not deduct

February 4, 2008 341 2008–5 I.R.B.

amounts paid pursuant to the arrangementas “insurance premiums” under § 162.See Rev. Rul. 2005–40, 2005–2 C.B. 4(arrangement lacks necessary risk distri-bution, and therefore does not qualify asinsurance, if the issuer of the arrangementcontracts with only a single policyholder);Rev. Rul. 2002–89, 2002–2 C.B. 984(amounts paid by a domestic parent cor-poration to its wholly owned insurancesubsidiary are not deductible as insurancepremiums if the parent’s premiums are notsufficiently pooled with those of unrelatedparties).

All the income, expense, assets, liabili-ties and capital of Cell Y likewise are sep-arately accounted for, and upon liquida-tion, become the property of Y, who is thesole shareholder with respect to Cell Y. Un-der the arrangements between the 12 sub-sidiaries of Y and Cell Y, the subsidiariesshift to Cell Y their professional liabilityrisks in exchange for premiums that aredetermined at arms-length. Those premi-ums are pooled such that a loss by one sub-sidiary is not in substantial part, paid fromits own premiums. The subsidiaries of Yand Cell Y conduct themselves in all re-spects as would unrelated parties to a tra-ditional insurance relationship. Had thesubsidiaries of Y entered into identical ar-rangements with a sibling corporation thatwas regulated as an insurance company,the arrangements would constitute insur-ance and amounts paid pursuant to the ar-rangements would be deductible as insur-ance premiums under § 162. See Rev.Rul. 2002–90, 2002–2 C.B. 985. Thefact that the subsidiaries’ risks were in-stead shifted to a cell of a protected cellcompany, and distributed within that cell,does not change this result. Accordingly,the arrangements between Cell Y and eachsubsidiary of Y are insurance contracts forfederal income tax purposes; amounts paidpursuant to those arrangements are insur-ance premiums, deductible under § 162 ifthe requirements for deduction are other-wise satisfied.

HOLDINGS

In Situation 1, the annual arrangementbetween Cell X and X does not consti-tute insurance for federal income tax pur-poses. In Situation 2, the arrangements be-tween Cell Y and each subsidiary of Y doconstitute insurance for federal income tax

purposes; amounts paid pursuant to thosearrangements are deductible as insurancepremiums under § 162 if the requirementsfor deduction are otherwise satisfied.

ADDITIONAL GUIDANCE

The Internal Revenue Service and theTreasury Department are aware that fur-ther guidance may be needed in this area.Notice 2008–19, this Bulletin, requestscomments on further guidance that ad-dresses when a cell of a Protected CellCompany is treated as an insurance com-pany for federal income tax purposes.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Chris Lieu of the Office of the As-sociate Chief Counsel (Financial Institu-tions & Products). For further informa-tion regarding this revenue ruling, contactMr. Lieu at (202) 622–3970 (not a toll-freecall).

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of February 2008. See Rev.Rul. 2008-9, page 342.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of February 2008. See Rev.Rul. 2008-9, page 342.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Losses Defined


Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and other

2008–5 I.R.B. 342 February 4, 2008

sections of the Code, tables set forth therates for January 2008.

Rev. Rul. 2008–9

This revenue ruling provides variousprescribed rates for federal income taxpurposes for February 2008 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-

eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-

propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Finally,Table 5 contains the federal rate for deter-mining the present value of an annuity, aninterest for life or for a term of years, ora remainder or a reversionary interest forpurposes of section 7520.

REV. RUL. 2008–9 TABLE 1

Applicable Federal Rates (AFR) for February 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 3.11% 3.09% 3.08% 3.07%110% AFR 3.43% 3.40% 3.39% 3.38%120% AFR 3.74% 3.71% 3.69% 3.68%130% AFR 4.06% 4.02% 4.00% 3.99%

Mid-term

AFR 3.51% 3.48% 3.46% 3.46%110% AFR 3.87% 3.83% 3.81% 3.80%120% AFR 4.22% 4.18% 4.16% 4.14%130% AFR 4.57% 4.52% 4.49% 4.48%150% AFR 5.29% 5.22% 5.19% 5.16%175% AFR 6.18% 6.09% 6.04% 6.01%

Long-term

AFR 4.46% 4.41% 4.39% 4.37%110% AFR 4.91% 4.85% 4.82% 4.80%120% AFR 5.36% 5.29% 5.26% 5.23%130% AFR 5.81% 5.73% 5.69% 5.66%


Adjusted AFR for February 2008

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

2.84% 2.82% 2.81% 2.80%

Mid-term adjusted AFR 3.36% 3.33% 3.32% 3.31%

Long-term adjustedAFR

4.23% 4.19% 4.17% 4.15%

February 4, 2008 343 2008–5 I.R.B.


Rates Under Section 382 for February 2008

Adjusted federal long-term rate for the current month 4.23%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.34%


Appropriate Percentages Under Section 42(b)(2) for February 2008Appropriate percentage for the 70% present value low-income housing credit 7.92%

Appropriate percentage for the 30% present value low-income housing credit 3.40%


Rate Under Section 7520 for February 2008

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 4.2%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 7216.—Disclosureor Use of Information byPreparers of Returns26 CFR 301.7216–1: Penalty for disclosure or use oftax return information.

T.D. 9375

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 301

Guidance Necessary toFacilitate Electronic TaxAdministration—Updating ofSection 7216 Regulations

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains reg-ulations to update the rules regarding thedisclosure and use of tax return informa-tion by tax return preparers. Among otherthings, the regulations finalize rules fortaxpayers to consent to the disclosure oruse of their tax return information by taxreturn preparers.

DATES: Effective Date: These regulationsare effective January 7, 2008.

Applicability Date: The regulations ap-ply to disclosures or uses of tax return in-formation occurring on or after January 1,2009.

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments tothe Regulations on Procedure and Admin-istration (26 CFR Part 301) under section7216 of the Internal Revenue Code. Theseregulations strengthen taxpayers’ ability tocontrol their tax return information by re-quiring that tax return preparers give tax-payers specific information, including whowill receive the tax return information andthe particular items of tax return informa-tion that will be disclosed or used, to allowtaxpayers to make knowing, informed, andvoluntary decisions over the disclosure oruse of their tax information by their tax re-turn preparer.

Section 7216 imposes criminal penal-ties on tax return preparers who know-ingly or recklessly make unauthorized dis-closures or uses of information furnishedto them in connection with the preparationof an income tax return. In addition, tax re-turn preparers are subject to civil penaltiesunder section 6713 for disclosure or use ofthis information unless an exception underthe rules of section 7216(b) applies to thedisclosure or use.

Section 7216 was enacted by section316 of the Revenue Act of 1971, PublicLaw 92–178 (85 Stat. 529). In 1988,Congress modified the section by limitingthe criminal sanction to knowing or reck-less, unauthorized disclosures. Public Law100–647 (102 Stat. 3749). At the sametime, Congress enacted the civil penaltythat is now found in section 6713. PublicLaw 100–647, §6242(a) (102 Stat. 3759).In 1989, Congress further modified section7216, directing the Treasury Department toissue regulations permitting disclosures oftax return information for quality or peerreviews. Public Law 101–239, §7739(a)(103 Stat. 3759).

The Treasury Department and the IRSproposed regulations under section 7216on December 20, 1972 (37 FR 28070). Fi-nal regulations were issued on March 29,1974 (39 FR 11537). These regulationsare divided into three parts: §301.7216–1for general provisions and definitions;§301.7216–2 for disclosures and uses

2008–5 I.R.B. 344 February 4, 2008

that do not require formal taxpayer con-sent; and §301.7216–3 for disclosures anduses that require formal taxpayer consent.Since the regulations were adopted in1974, the Treasury Department and theIRS have amended §301.7216–2 on occa-sion, but §§301.7216–1 and 301.7216–3have remained unchanged.

A notice of proposed rulemaking(REG–137243–02, 2006–1 C.B. 317) waspublished in the Federal Register (70 FR72954) on December 8, 2005. Concur-rently with publication of the proposedregulations, the IRS published Notice2005–93, 2005–2 C.B. 1204 (December07, 2005), setting forth a proposed revenueprocedure that would provide guidance totax return preparers regarding the formatand content of consents to disclose andconsents to use tax return information un-der §301.7216–3.

Written comments were received in re-sponse to the notice of proposed rulemak-ing. A public hearing was held on April 4,2006. Commentators appeared at the pub-lic hearing and commented on the noticeof proposed rulemaking.

All comments were considered and areavailable for public inspection upon re-quest. This preamble summarizes mostof the comments received by the IRS andTreasury Department. After considerationof the written comments and the commentsprovided at the public hearing, the pro-posed regulations under section 7216 areadopted as revised by this Treasury deci-sion.

Concurrently with publication of theseregulations, the IRS is publishing a rev-enue procedure and an advanced notice ofproposed rulemaking. The revenue proce-dure provides guidance on the format andcontent of consents to disclose or use taxreturn information under §301.7216–3 fortaxpayers filing a return in the Form 1040series, e.g., Form 1040, Form 1040NR,Form 1040A, or Form 1040EZ. The rev-enue procedure also provides specificguidance for electronic signatures when ataxpayer filing a return in the Form 1040series executes an electronic consent tothe disclosure or use of the taxpayer’s taxreturn information.

The advanced notice of proposed rule-making requests comments regarding aproposed rule under §301.7216–3 thata tax return preparer may not obtain aconsent to disclose or use tax return infor-

mation for the purpose of the tax returnpreparer soliciting, or the taxpayer obtain-ing, a refund anticipation loan (RAL) orcertain other products.

Summary of Comments

1. Preamble.

Some commentators recommended thatthe final regulations specify the existingrevenue rulings, notices, and other guid-ance under section 7216 that continue tohave effect under the final regulations.While the final regulations do not identifyall guidance that has continuing effect, thesection of this Treasury decision entitled“Effect on Other Documents” specifiesguidance that Treasury and the IRS havedetermined as contrary to the regulations.

One commentator requested thatthe preamble of the regulations clarifywhether a tax return preparer may offerfor sale an insurance policy that will re-imburse the taxpayer additional tax thetaxpayer is required to pay under certaincircumstances involving errors by the taxreturn preparer. Section 7216 and theregulations thereunder govern only a taxreturn preparer’s disclosure or use of taxreturn information. To the extent that a taxreturn preparer offers a product, such asinsurance, where the offer is based on thedisclosure of tax return information to athird party, or where use of such tax returninformation serves as the basis for makingthe offer, section 7216 and the regulationsthereunder only govern whether use ordisclosure of the tax return informationrequires taxpayer consent.

2. §301.7216–1 Penalty for Disclosure orUse of Tax Return Information.

A. Statutory provisions.

Some commentators recommendedthat Treasury and the IRS seek legislativechanges to section 7216. More specifi-cally, these commentators recommendedthat the amount of the section 7216 crim-inal penalty be increased, that the amountof the section 6713 civil penalty be in-creased, and that the Code be amended toprovide a private right of action againsttax return preparers. Another commenta-tor recommended amending section 7216to provide a means to abate the penaltyin cases where reasonable cause and good

faith is established. This commentatoralso recommended that Treasury and theIRS not attempt to regulate the disclosureor use of tax return information in thecontext of a criminal statute, section 7216,but that only civil penalties should apply.

Requests for statutory changes to sec-tions 7216 and 6713 are outside of thescope of these regulations. Section 7216expressly provides for Treasury to pro-mulgate regulations to exempt certaindisclosures or uses of information fromthe statute’s criminal sanction. AlthoughTreasury and the IRS do not have theregulatory authority to provide for a rea-sonable cause exception under section7216, the criminal penalty provided forby that statute is premised on a finding ofknowing or reckless conduct.

B. Tax return preparer.

One commentator requested expandingthe definition of tax return preparer to in-clude clerical staff involved in preparationof a tax return. Because the definition oftax return preparer in the regulations al-ready encompasses clerical staff involvedin the preparation of a return, no change isneeded to address this comment.

While approving of the generally broadscope of the term “tax return preparer,” onecommentator expressed concern that theterm did not cover employees of tax returnpreparers who do not personally assist inthe preparation of tax returns or the provi-sion of auxiliary services. That commenta-tor recommended that section 7216 shouldnonetheless apply to any employee. Thiscomment was not adopted. The statute ap-plies only to persons “engaged in the busi-ness of preparing, or providing servicesin connection with the preparation of, re-turns.” The regulations, however, do notpermit disclosure by one employee of atax return preparer to another employee ofthe tax return preparer on the basis of em-ployment status alone. See Treas. Reg.§301.7216–2(c).

Based on recent amendments to sec-tion 7701(a)(36) of the Code (which post-amendment applies more generally to taxreturn preparers other than income tax re-turns), the final regulations were revised toomit the language in the proposed regula-tions pertaining to the lack of uniformityof the definition of tax return preparer pro-vided in section 7701(a)(36) and the def-

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inition of tax return preparer for purposesof section 7216.

C. Tax return information.

Some commentators expressed concernthat the definition of tax return informa-tion encompasses an overly broad amountof information. One commentator recom-mended that a taxpayer’s name, address,telephone number, e-mail address, andidentification number should not be treatedas tax return information. Another com-mentator recommended that a taxpayer’sname, address, and other contact informa-tion should be available for a tax returnpreparer to use to provide the taxpayerwith any information that the tax returnpreparer believes may be of interest tothe taxpayer. These recommendations re-garding tax return information were notadopted because information revealing theidentity of, or how to contact, a personis information central to one’s privacyand deserving of treatment as tax returninformation when submitted for, or inconnection with, the preparation of a taxreturn. Section 301.7216–2(n), however,permits tax return preparers to make lim-ited use of taxpayer’s contact informationto offer tax information or additional taxreturn preparation services to previouscustomers.

One commentator recommended elimi-nating language from the regulations pro-viding that information maintained in aform that is associated with the tax returnpreparation becomes tax return informa-tion regardless of how the information wasinitially obtained. The commentator ques-tioned whether non-tax return informationcould become tax return information as aresult of the manner in which it is storedand maintained by the tax return preparer.Treasury and the IRS agree that section7216 protects only information furnishedto a tax return preparer for, or in connec-tion with, the preparation of a return andthat information does not become tax re-turn information merely by the method inwhich the information is stored. The lan-guage in the proposed regulations that isthe subject of the comment was includedto recognize that the protections of section7216 may extend to information furnishedby persons other than the taxpayer, includ-ing information furnished by one person

within a firm to a tax return preparer em-ployed by the same firm. In that situation,the information in the hands of the tax re-turn preparer would be tax return informa-tion even if the person furnishing the infor-mation had obtained it other than in con-nection with the preparation of a tax return.Because this rule is evident from other pro-visions of the regulations, and the languagecommented upon may create confusion,the language has been removed from theseregulations.

One commentator expressed concernthat the proposed regulations improperlyexpand upon section 7216 by defining “taxreturn information” to include informationderived or generated from tax return in-formation. The commentator commentedthat section 7216 protects only informationfurnished to tax return preparers, and datathat a tax return preparer derives from thatinformation should not be considered datafurnished to the tax return preparer. Thecommentator, therefore, recommendedremoving this language from the regula-tions.

The commentator’s recommendationwas not adopted. Information that a tax re-turn preparer would typically derive fromother information furnished in connec-tion with the preparation of a return couldinclude information on the taxpayer’s en-titlement to deductions, credits, losses orgains, the amounts thereof, and the amountof tax due. It would frustrate the purposeof the statute not to protect this informa-tion when a taxpayer has furnished the taxreturn preparer the means to derive it.

Similarly, the same commentator statedthat the proposed regulations improperlyexpand upon the statute by defining “taxreturn information” to include “informa-tion received by the tax return preparerfrom the IRS in connection with the pro-cessing of such return.” The commentatorrecommended eliminating this languagefrom the regulations. This recommenda-tion was not adopted. The statute protectsinformation furnished to a tax return pre-parer for, or in connection with, prepara-tion of a return and does not require thatthe taxpayer have furnished the informa-tion.

Some commentators approved of theproposed regulations’ definition of taxreturn information, but expressed concernthat Example 1 in §301.7216–1(b)(3)(ii)

suggests that information supplied to reg-ister tax preparation software is not taxreturn information unless the tax returnpreparer states during the registrationprocess that it will provide updates toregistrants. These commentators, there-fore, recommended deleting that fact fromthe example. This recommendation wasadopted to explicitly provide that all in-formation furnished to register tax returnpreparation software is tax return informa-tion.

Some commentators expressed concernthat if information furnished to register taxreturn preparation software was treated astax return information, then tax return pre-parers would be required to obtain consentfrom taxpayers prior to updating the tax re-turn preparation software. To address thisconcern, section 301.7216–2(c) of the reg-ulations has been revised.

D. Disclosure and use.

One commentator stated that the defi-nition of “use” is overly broad. The com-mentator proposed that the “use” of tax re-turn information should not include tax re-turn preparers informing taxpayers of theavailability of products and services thattax return preparers offer that could ben-efit taxpayers. As an example, the com-mentator stated that informing a taxpayerabout the availability of a refund antic-ipation loan based on the taxpayer’s taxreturn information should not be a “use”of tax return information. This recom-mendation was not adopted. The regula-tions require consents for tax return pre-parers to use tax return information so thattaxpayers themselves determine whetherthey want additional information regard-ing products and services that might ben-efit them. The potential uses of tax returninformation should be clearly described bytax return preparers and the potential usesmust be consented to by taxpayers beforesuch uses occur.

Two commentators recommended thattax return preparers should be responsi-ble for subsequent disclosures or uses oftax return information by third parties towhom tax return preparers made an autho-rized disclosure of tax return information.This recommendation was not adopted be-cause section 7216 does not apply to thirdparties who are not tax return preparers.

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E. Providing auxiliary services.

Section 301.7216–1(b)(2)(iii) of theproposed regulations provides that a per-son is engaged in the business of providingauxiliary services in connection with thepreparation of tax returns as describedin paragraph (b)(2)(i)(B) of that sectionif, in the course of the person’s business,the person holds himself out to tax re-turn preparers or to taxpayers as a personwho performs auxiliary services, whetheror not providing the auxiliary services isthe person’s sole business activity andwhether or not the person charges a fee forthe auxiliary services. One commentatorrecommended broadening the definitionof auxiliary services to include analysisof data for purposes of monitoring thetax return preparer’s business for fraudprevention and provision of data storageservices. These services as well as sim-ilar services are typical of the types ofauxiliary services that can be providedto tax return preparers as contemplatedby §301.7216–1(b)(2)(iii) and are alreadycovered by the broad definition of auxil-iary services in the regulations. The samecommentator also recommended broad-ening the definition of auxiliary servicesto include the analysis of customer ac-tivity to improve services and assistancein connection with preparation for tax-payer audits. These services are alreadyaddressed in other parts of the regulations.See §§301.7216–2(o) and 301.7216–2(k).

F. Exclusions under §301.7216–1(b)(2)(v).

One commentator recommendedthat the express exclusion under§301.7216–1(b)(2)(v) of the proposedregulations of certain persons from thedefinition of tax return preparer should beextended to include persons who provide“a broad range of financial products andservices . . . to customers of tax returnpreparers, including savings, transaction,and retirement accounts.” The commen-tator’s recommendation was not adoptedas the regulations do not provide an ex-haustive list of the persons identified asexcluded from the definition of tax re-turn preparer. To the extent the serviceproviders suggested to be excluded by thecommentator provide services only inci-dentally related to the preparation of the

return, these persons would be excludedunder the regulation.

G. Hyperlinks.

One commentator recommended thatthe regulations should not treat as a disclo-sure by a tax return preparer the situationwhere a taxpayer is transferred from thetax return preparer’s website to a differentwebsite and the taxpayer separately entersinformation on the different website. Thisrecommendation was not adopted becausethe regulations already do not treat thisfact pattern as a disclosure by the tax re-turn preparer.

3. §301.7216–2 Permissible Disclosuresor Uses Without Consent of the Taxpayer.

A. Disclosures to the IRS.

Section 301.7216–2(b) of the proposedregulations provides that tax return prepar-ers may disclose to the IRS any tax returninformation the IRS requests to assist inthe administration of electronic filing pro-grams. One commentator requested lim-iting this rule to “specific necessary pur-poses, such as compliance by electronicreturn originators.” This recommendationwas not adopted. Return information in thehands of the IRS is already protected fromunauthorized disclosure. See, e.g., section6103.

Other commentators expressed con-cern regarding whether §301.7216–2(b)permitted disclosures of tax return infor-mation to the IRS in general. Becausethe purpose of these regulations is to pro-tect taxpayers from the unauthorized usesand disclosures by tax return preparers,and because tax return information in thehands of the IRS is already protected fromunauthorized disclosure, §301.7216–2(b)has been modified to clarify that returnpreparers may disclose any tax return in-formation to the IRS for any purpose.

B. Use by tax return preparer for purposesof updating software.

Section 301.7216–2(c)(1) of the finalregulations has been revised to providethat if a tax return preparer provides soft-ware to a taxpayer that is used in connec-tion with the preparation or filing of a taxreturn, the tax return preparer may use the

taxpayer’s tax return information to updatethe taxpayer’s software for the purpose ofaddressing changes in IRS forms, e-filespecifications and administrative, regula-tory and legislative guidance or to test andensure the software’s technical capabilitieswithout obtaining the taxpayer’s consentunder §301.7216–3.

C. Disclosure to a tax return preparerwithin the same firm located outside ofthe United States.

Section 301.7216–2(c) of the proposedregulations generally provides that anofficer, employee, or member of a taxreturn preparer in the United States maydisclose tax return information to anotherofficer, employee, or member of the sametax return preparer located within theUnited States. Section 301.7216–2(c)(1)of the proposed regulations provides thatthe taxpayer must give consent under§301.7216–3 prior to any disclosure oftax return information by an officer, em-ployee, or member of a tax return preparerin the United States to an officer, em-ployee, or member of the same tax returnpreparer located outside of the UnitedStates or any territory or possession ofthe United States. One commentator ex-pressed concern that this rule was toostrict with respect to multinational compa-nies and employees on assignment outsideof the United States. This commenta-tor stated that such taxpayers anticipatethat their tax return information will bedisclosed outside of the United States.This commentator recommended that con-sent under §301.7216–3 should not berequired with respect to disclosures whenthe taxpayer is a multinational companyor an individual taxpayer employed or onassignment outside of the United Statesand that an engagement letter explainingpotential circumstances involving disclo-sures overseas ought to be permitted inthese situations.

This recommendation was not adopted.As explained in the preamble to the pro-posed regulations, the Treasury Depart-ment and IRS believe that a separate ex-planation is required under these circum-stances in order to advise taxpayers thattheir tax return information is being dis-closed to tax return preparers located out-side the United States. The final regula-tions, however, address the commentator’s

February 4, 2008 347 2008–5 I.R.B.

request for additional flexibility with re-spect to the form and manner of the con-sent for taxpayers other than individuals.For tax return preparers providing tax re-turn preparation services to taxpayers whodo not file an income tax return in theForm 1040 series, e.g., Form 1040, Form1040NR, Form 1040A, or Form 1040EZ,a consent to disclose tax return informa-tion outside the United States may be inany format, including an engagement let-ter to a client, as long as the consent pro-vides sufficient information to enable thetaxpayer to provide informed consent. Fortax return preparers providing tax returnpreparation services to taxpayers who filean income tax return in the Form 1040 se-ries, the regulations provide that the Sec-retary may issue guidance, by publicationin the Internal Revenue Bulletin, proscrib-ing the form and manner of the consentto disclose tax return information, includ-ing disclosure of return information out-side the United States. This rule is consis-tent with the general rule adopted by thesefinal regulations with respect to a tax re-turn preparer’s request for consent to dis-close tax return information. See section301.7216–3(a)(3).

Additionally, one commentator rec-ommended that, rather than provide lim-itations on the disclosure of tax returninformation by a tax return preparer withinthe United States to another tax return pre-parer of the same firm who is located out-side of the United States, the regulationsshould instead permit such disclosureswithout consent if the tax return preparerof the same firm outside of the UnitedStates consents to adhere to the rules ofsection 7216. This recommendation wasnot adopted because it does not informtaxpayers that their tax return informationwill be disclosed outside of the UnitedStates or allow taxpayers to control thedecision whether their information is dis-closed overseas.

D. Disclosures to other tax returnpreparers.

Section 301.7216–2(d) of the proposedregulations provides that disclosures be-tween tax return preparers are authorizedwhen the disclosures (i) assist in the prepa-ration of a return; (ii) the services pro-vided by the recipient of the disclosure arenot substantive determinations or advice

affecting a taxpayer’s reported tax liabil-ity; and (iii) the disclosure is to a tax re-turn preparer located in the United States.Two commentators expressed concern thatthe phrase “substantive determinations oradvice” is a vague standard and recom-mended the use of examples in the regu-lations that adequately define the phrase.The final regulations clarify the meaningof substantive determinations and providean example to illustrate the operation ofthis rule.

One commentator recommended adopt-ing the professional ethics rules of theAmerican Institute of Certified Public Ac-countants (AICPA) on outsourcing in lieuof §301.7216–2(d) of the proposed regu-lations. Rule 102 of the AICPA Code ofProfessional Conduct requires that, priorto sharing confidential client information(such as a tax return) with a third-partyservice provider, an AICPA member mustinform the client, preferably in writing,that the member may use a third-partyservice provider when providing profes-sional services to the client. Unlike therules in the regulations, the AICPA Codeof Professional Conduct does not requirethat the client consent to the disclosure oftax return information when substantivedeterminations or advice are sought fromthird parties. Under the AICPA rules,AICPA members who use third-party ser-vice providers remain responsible for thework done by the service providers andthey must contract with the third-partyservice provider for the service provider tomonitor the confidentiality of the client’sinformation to the third-party serviceprovider. The commentator’s recommen-dation that the regulations adopt only theprotections of the AICPA ethics rules wasnot adopted. The Treasury Departmentand the IRS are concerned that taxpayersand tax return information would not beadequately protected if a tax return pre-parer could disclose tax return informationto any third-party service provider withouttaxpayer consent to that disclosure.

One commentator recommended mod-ifying §301.7216–2(d) of the proposedregulations to allow disclosures betweenfranchisors and franchisees in the tax re-turn preparation business according to theterms of their franchise agreement. Thecommentator’s recommendation was notadopted because the existence of a writtenfranchise agreement should not affect the

confidentiality of a taxpayer’s tax returninformation.

One commentator critiqued§301.7216–2(d) because it will limit thebenefits tax return preparation firms mayenjoy from using foreign outsourcing.Foreign outsourcing is not prohibitedby the final regulations, which permitthe disclosure of tax return informationoutside of the United States if the taxpayerconsents to such disclosure. One com-mentator recommended that tax returnpreparers should be allowed to disclosetax return information to third-party ser-vice providers subject to the requirementsof the privacy provisions of Title V ofthe Gramm-Leach-Bliley Act, PublicLaw 106–102 (113 Stat. 1338) (GLBA).Specifically, the commentator proposedthat the regulations should permit taxreturn preparers to: (1) execute a writtencontract with a service provider limitingthe service provider’s disclosure or useof tax return information; (2) select andretain service providers that are capableof safeguarding tax return information;and (3) implement contractual provisionsrequiring service providers to developand maintain appropriate informationsafeguards. This recommendation wasnot adopted. While the requirements ofsection 7216 and these regulations do notoverride any requirements or restrictionsof the GLBA, the sensitivity of tax returninformation justifies affording tax returninformation stronger protections thanother information subject to the GLBA.

E. Disclosure pursuant to an order of acourt, or an administrative order, demand,request, summons or subpoena which isissued in the performance of its duties by aFederal or State agency, the United StatesCongress, a professional associationethics committee or board, or the PublicCompany Accounting Oversight Board

One commentator recommended thatthe title of proposed §301.7216–2(f) be re-vised to add the word “request” followingthe word “demand,” to align the subsec-tion’s title with the regulation’s languagein §301.7216–2(f)(5). This recommenda-tion was adopted in the final regulation.

One commentator recommended re-placing the phrase “professional ethicsboard” in proposed §301.7216–2(f) withthe phrase “certain professional associ-

2008–5 I.R.B. 348 February 4, 2008

ation ethics committees or boards.” Thecommentator noted that this change wouldavoid confusion as to whether the refer-ence to professional ethics boards meansgovernmental entities that control licens-ing for CPAs or whether the phrase wouldinclude professional associations that haveboards or committees that discipline theirmembers, such as the AICPA or state andlocal bar associations. This recommen-dation was adopted, in part, by changingthe phrase “professional ethics board” to“professional association ethics commit-tee or board.” Section 301.7216–2(f)(4)(ii)separately addresses disclosures to gov-ernment entities charged with licensing,registration, or regulation of tax returnpreparers.

One commentator recommended per-mitting disclosure of tax return informa-tion without taxpayer consent pursuant todisclosures required by Federal or Statelaws and administrative rules, but did notidentify any specific rule or law that re-quired a disclosure in circumstances con-trary to either the preexisting regulationsor the proposed regulations. Preexistingregulations already permitted disclosurespursuant to an order of a court or a Federalor State agency. These final regulationspermit disclosures pursuant to an order ofa court or an administrative order, demand,summons or subpoena that is issued in theperformance of its duties by a Federal orState agency, the United States Congress, aprofessional association ethics committeeor board, or the Public Company Account-ing Oversight Board. The protections of-fered by limiting disclosures to responsesto specific governmental or quasi-govern-mental requests provide appropriate pro-tection for taxpayer privacy.

One commentator expressed concernabout proposed §301.7216–2(f)(5) and thesafeguarding of tax return information re-ceived by a professional association boardor committee conducting an ethics inves-tigation. The commentator recommendedrevising §301.7216–2(f)(5) to expresslyprohibit professional associations frompublishing as part of any resulting profes-sional disciplinary determination the taxreturn information of a taxpayer furnishedto them during an ethics investigation ofa preparer unless the taxpayer providesconsent. This recommendation was notadopted because section 7216 does not

provide for penalties against third partieswho receive tax return information in thiscontext.

One commentator recommended re-wording proposed §301.7216–2(f)(6) toprovide the following: “A written requestfrom the Public Company AccountingOversight Board (PCAOB) in connectionwith an inspection under section 104 of theSarbanes-Oxley Act of 2002, 15 U.S.C.7214, or an investigation under section105 of such Act, 15 U.S. 7215, for usein accordance with such Act.” The com-mentator noted that this wording describesmore clearly the situations in which dis-closures to the PCAOB are permitted,and to permit registered firms and theirassociated persons to comply with theirdisclosure obligations under the Act. Thisrecommendation was adopted.

One commentator expressed concernthat permitting the disclosure of tax re-turn information pursuant to a subpoenaissued by the United States Congressis inconsistent with the rules regardingdisclosures by the IRS to Congress un-der section 6103(f). The commentatorstated that the regulations may provide amethod to avoid the specific disclosurerules of section 6103(f), which are de-signed to protect taxpayers and preventCongressional abuse of returns or returninformation. Another commentator rec-ommended eliminating the term “demand”in §301.7216–2(f)(4)(i) because the com-mentator believes the term is too broadand could permit any Federal agency tosimply ask for tax return information evenif the agency does not have authority toissue “formal legal orders” compelling thedisclosure. These recommendations werenot adopted. Both Congress and Federalagencies are presumed to act in accor-dance with the law and there are otherlimitations on their abilities to seek taxreturn information.

F. Disclosure for use in securing legaladvice, Treasury investigations, or courtproceedings.

Final section 301.7216–2(g) has beenrevised to confirm that a tax return pre-parer may disclose tax return informationto an attorney for purposes of the preparersecuring legal advice.

G. Tax return preparers working for thesame firm.

Section 301.7216–2(h)(1)(ii) providesthat a tax return preparer’s law or account-ing firm does not include any related oraffiliated firms. Some commentators ex-pressed concern that this rule reduces theapplication of the §301.7216–2 exceptionsfor tax return preparers that are structuredas separate legal entities, but are closelyrelated. One commentator recommendedthat the regulations be revised to providethat the “same firm” standard be deter-mined in a manner similar to the rulesfor qualified employee plans for a singleemployer. This recommendation was notadopted. Taxpayers should have a clearunderstanding with whom they are deal-ing. Adopting this recommendation wouldrequire that a taxpayer understand com-plex rules about which separate legal en-tities are part of the “same firm” as theirtax return preparer to be able to understandwho might receive their tax return infor-mation. Additionally, a tax return preparerhas the ability to obtain consent from a tax-payer to disclose tax return information toa related or affiliated firm.

H. Disclosure or use of tax returninformation in preparation for audit.

One commentator recommended that atax return preparer should be permitted todisclose tax return information to anothertax return preparer so that the second taxreturn preparer can provide assistance inconnection with the audit of a return underthe law of any State or political subdivisionthereof, the District of Columbia, or anyterritory or possession of the United States.This comment was not adopted because§301.7216–2(k) already permits such dis-closures.

I. Payment for tax preparation services.

Section 301.7216–2(l) provides that atax return preparer may disclose and use,without the taxpayer’s written consent, taxreturn information that the taxpayer pro-vides to the tax return preparer to pay fortax preparation services to the extent nec-essary to process the payment. One com-mentator recommended applying this ruleto the collection of payments. This rec-ommendation was adopted. The exceptionunder §301.7216–2(l) for the collection of

February 4, 2008 349 2008–5 I.R.B.

payments is subject to the same limita-tions as the rule for processing payments.Only tax return information that the tax-payer provided to the tax return preparerto pay for tax return preparation servicesmay be used to collect payment. This lim-itation precludes tax return preparers fromusing any other tax return information tocollect on delinquent payments.

J. Lists for solicitation of tax returnbusiness.

Section 301.7216–2(n) of the proposedregulations provides that a tax return pre-parer may compile and maintain a separatelist containing solely the names, addresses,e-mail addresses, and phone numbers oftaxpayers whose tax returns the tax returnpreparer has prepared or processed. Theproposed regulations also state that this listmay be used by the compiler solely to con-tact the taxpayers on the list for the pur-pose of offering tax information or addi-tional tax return preparation services. Onecommentator recommended adding that nomention of services or products other thanthose related to tax preparation servicesmay be made. Treasury and the IRS agreethat the prohibition on using the list to so-licit business other than tax return prepa-ration services could be strengthened, andhave modified §301.7216–2(n) to addressthe commentator’s concern.

K. Producing statistical information inconnection with tax return preparationbusiness.

Section 301.7216–2(o) of the proposedregulations permits a tax return preparerto use tax return information to prepareanonymous statistical compilations forlimited purposes related to management orsupport of the tax return preparer’s busi-ness. Two commentators recommendedthat the disclosure or use of tax returninformation in statistical compilationsshould be limited to “internal manage-ment” because “support” might be readto allow a tax return preparer to targetspecific customers with advertising. Thisrecommendation was not adopted because§301.7216–2(o) specifically prohibits thedisclosure or use of statistical compilationsin connection with, or in support of, busi-nesses other than tax return preparation,and use of lists to solicit additional tax

return preparation business is specificallygoverned, and limited, by §301.7216–2(n).

One commentator recommended thatstatistical compilations of tax return in-formation that do not identify taxpayersshould not be considered “tax return in-formation” for purposes of section 7216.The commentator stated that if statisti-cal information is treated as “tax returninformation,” such a rule could preventtax return preparers (especially tax re-turn preparers that are publicly traded)from reporting essential data to financialregulators or to market participants to pro-vide an accurate picture of the tax returnpreparer’s performance and financial con-dition. In response to the concern raisedby the commentator, the final regulationwas modified to provide that the compilerof the statistical compilation may not dis-close the compilation, or any part thereof,to any other person unless the disclosureof the statistical compilation is made inorder to comply with financial accountingor regulatory reporting requirements oroccurs in conjunction with the sale or otherdisposition of the compiler’s tax returnpreparation business.

One commentator recommended thattax return preparers located within thesame firm should be permitted, withoutobtaining consent, to use tax return infor-mation for “the management, support ormaintenance of the tax return preparer’sbusiness.” This recommendation was notadopted. Because the regulations alreadypermit a tax return preparer to use taxreturn information to prepare statisticalcompilations for limited purposes relatedto management or support of the tax returnpreparer’s business, it is unclear how thecommentator’s recommendation wouldfurther aid in the management or supportof a tax return preparer’s business.

One commentator recommended thatthe regulations require that “taxpayer iden-tifying” data, such as names and socialsecurity numbers, be redacted from statis-tical information. This recommendationwas not adopted. The regulations alreadyrequire that statistical compilations mustbe “anonymous.”

L. Quality or peer reviews.

Section 301.7216–2(p) of the proposedregulations provides that a quality or peerreview may be conducted only by attor-

neys, certified public accountants, enrolledagents, and enrolled actuaries who are eli-gible to practice before the Internal Rev-enue Service. Some commentators rec-ommended that this subsection of the pro-posed regulations should be revised to per-mit other professionals to participate inquality or peer reviews. This recommen-dation was not adopted. The restrictionhelps to prevent unauthorized disclosuresof tax return information by limiting par-ticipation in such reviews to those personssubject to Circular 230, 31 C.F.R. Part 10.

M. Extraction of tax return informationwithin software only for the purposes ofreducing repetitive data entry.

One commentator recommended thatthe use of computer software designed toassist with the preparation of an income taxreturn should be allowed without consentto “extract” certain tax return informationonce entered, such as the taxpayer’s nameand address, and reprint such informationin required fields on the same return in or-der to eliminate repetitive data entry. Thiscomment was not adopted because the reg-ulations do not prohibit such a use of taxreturn information where the informationis being used for the permitted purpose ofpreparing the taxpayer’s tax return.

4. Proposed §301.7216–3: Disclosuresand Uses Authorized by TaxpayerConsent.

A. Consent to disclose tax returninformation.

Some commentators expressed concernthat the proposed regulations authorize theIRS to make available for sale to third par-ties its internal records and data containingtax return information. This concern re-flects a fundamental misunderstanding ofthe proposed regulations. The proposedregulations do not address any disclosureof tax return information by the IRS; theproposed regulations address only the dis-closure and use of tax return informationby tax return preparers. Separate laws, in-cluding section 6103, strictly protect theconfidentiality of returns and return infor-mation in the hands of IRS employees andothers.

Some commentators expressed concernthat the proposed regulations would loosenthe current rules regarding a tax return

2008–5 I.R.B. 350 February 4, 2008

preparer’s ability to disclose a client’s taxreturn information. This concern is basedon a misunderstanding of the purpose andcontent of the proposed and preexistingregulations. Section 301.7216–3(a)(1) ofthe proposed regulations provides that,unless section 7216 or §301.7216–2 autho-rizes the disclosure of tax return informa-tion, a tax return preparer may not disclosea taxpayer’s tax return information priorto obtaining consent from the taxpayer.Since 1974, section 301.7216–3(a)(2) hasprovided that, “[i]f a tax return preparerhas obtained from a taxpayer a consent. . . , he may disclose the tax returninformation of such taxpayer to suchthird persons as the taxpayer may direct.”Thus, the proposed regulations containedthe same substantive rule that has beenin place for over 30 years. Throughoutthe long-standing existence of former§301.7216–3(a)(2), there has been noobjection to the provision that allowedtaxpayers to provide informed consent totax return preparers disclosing tax returninformation to third parties.

Nonetheless, commentators criticizedthe proposed rule, stating that it could al-low tax return preparers to induce clientsinto providing unknowing or inadvertentconsents to sell or otherwise disclose taxreturn information. Furthermore, they ar-gue that disclosure to third parties couldresult in identity theft. Thus, one solutionthese commentators recommend is to pro-hibit taxpayers from ever consenting to thedisclosure of their tax return information.

The Treasury Department and IRS didnot adopt the commentators’ recommen-dation. Rather, the final regulations retainthe general rule that has been in place formore than 30 years recognizing that tax-payers should have control over their owntax return information and that taxpayersshould, with appropriate limits and safe-guards, be able to direct tax return prepar-ers to disclose tax return information astaxpayers see fit. This rule parallels thestatutory rule in section 6103(c) that al-lows taxpayers to consent to the IRS dis-closing returns or return information tothird parties of the taxpayer’s choosing.

In addition, this rule is consistent withthe privacy protection regime in the HealthInsurance Portability and AccountabilityAct (HIPAA), Public Law 104–191 (110Stat. 1936). HIPAA permits health careproviders and health plans to disclose in-

formation about health status, provision ofhealth care, or payment to a third party ifthey have obtained authorization from theindividual patient.

While identity theft is a significant con-cern, Treasury and the IRS do not believea generalized concern regarding the poten-tial for criminal activity by third partiesshould preclude taxpayers from being ableto direct the disclosure of tax return infor-mation to third parties for legitimate rea-sons of the taxpayer’s own choosing, par-ticularly in the absence of any evidencethat disclosure of tax return information bytax return preparers has been a source ofidentity theft problems.

While the idea of a complete prohi-bition on consent to disclosure was re-jected, Treasury and the IRS did revise§301.7216–3(b)(5), based on several fac-tors. These factors include: 1) the fact thatit is not necessary for tax return preparersto disclose certain taxpayer identifying in-formation to other tax return preparers whoare assisting them in preparing a return; 2)the important role a social security num-ber (SSN) plays in the tax administrationprocess, and the heightened potential formisuse when an SSN is readily associatedwith confidential information, such as taxreturn information; and 3) the heightenedconcern about the theft of an individual’sconfidential information resulting fromdisclosures outside the United States. Sec-tion 301.7216–3(b)(4) now provides thata tax return preparer located within theUnited States, including any territory orpossession of the United States, may notobtain consent to disclose a taxpayer’sSSN to a tax return preparer located out-side of the United States or any territoryor possession of the United States. Thus,if a tax return preparer located within theUnited States obtains consent from a tax-payer to disclose tax return information toanother tax return preparer located outsideof the United States, as provided under§§301.7216–2(c) and 301.7216–2(d), thetax return preparer located in the UnitedStates may not disclose the taxpayer’sSSN, and the tax return preparer mustredact or otherwise mask the taxpayer’sSSN before the tax return information isdisclosed outside of the United States. Ifa tax return preparer located within theUnited States initially receives or obtainsa taxpayer’s SSN from another tax returnpreparer located outside of the United

States, however, the tax return preparerwithin the United States may, withoutconsent, retransmit the taxpayer’s SSNto the tax return preparer located outsidethe United States that initially providedthe SSN to the tax return preparer lo-cated within the United States. Where ataxpayer-client requests that a tax returnpreparer within the United States transferthe return preparation engagement to a taxreturn preparer located outside the UnitedStates, the preparer must still redact orotherwise mask the taxpayer’s SSN beforethe information is disclosed and, in thissituation, it will be incumbent upon thetaxpayer to provide the SSN directly to thetax return preparer located abroad.

Some commentators recommended thatthe regulations provide taxpayers with theability to informally initiate a request forthe disclosure of tax return informationfrom their tax return preparers withoutformally following the consent rules of§301.7216–3. This recommendation wasnot adopted. As a practical matter, it wouldbe difficult to distinguish when a taxpayerinformally initiates a request for the dis-closure of tax return information and whentax return preparers merely claim that ataxpayer initiated the request for disclo-sure. Additionally, tax return preparersare always free to provide taxpayers theirown returns and taxpayers may disclosetax return information to others directly.

Other commentators recommended thatthe regulations should prohibit disclosureto third-party solicitors and not allow tax-payers to consent to disclosures for thepurpose of receiving solicitations becausethe risks to the taxpayer of providing con-sent inadvertently are too great in compar-ison to the benefit of receiving solicita-tions from third parties. This recommen-dation was not adopted because it deniestaxpayers the ability to control and directthe disclosure of their own tax return in-formation. If taxpayers do not wish to re-ceive offers or solicitations from third par-ties, they can simply refuse to provide theconsent needed for third parties to receivetheir tax return information. If a tax re-turn preparer obtains written consent undercircumstances that make the consent un-knowing or uninformed, the consent wouldbe invalid under the requirements of theregulations.

February 4, 2008 351 2008–5 I.R.B.

B. Consent to use of tax returninformation.

Section 301.7216–3 of the preexistingregulations provides that a consent to usetax return information does not apply forpurposes of facilitating the solicitation ofthe taxpayer’s use of any services or facil-ities furnished by a person other than thetax return preparer, unless the other personand the tax return preparer are members ofthe same affiliated group of corporationswithin the meaning of section 1504. Theproposed regulations removed this “affil-iated group” limitation because the affil-iated group concept has little applicationin the context of modern return prepara-tion businesses. The proposed regulationsalso reflected a determination by the IRSand Treasury Department that a taxpayer’sability to consent to a preparer’s use oftax return information to solicit additionalbusiness should not be limited by arbi-trary factors largely beyond the taxpayer’sknowledge or control, such as the size, di-versity, or organizational structure of thetax return preparer. Some commentatorsexpressed concern that removal of the “af-filiated group” limitation would make iteasier for tax return preparers to disclosetax return information to third parties formarketing purposes. This comment re-flects a misunderstanding of the nature ofa consent governing a tax return preparer’suse of tax return information. Use con-sents are limited to what a tax return pre-parer can do with tax return information inthe tax return preparer’s own hands; useconsents cannot be used in connection withdisclosures to third parties. Thus, iden-tity theft or other abuses by third partiescould not arise from taxpayers providinguse consents to tax return preparers.

Further, prohibiting the commercial useof tax return information outright wouldresult in no longer allowing legitimate usesof tax return information that have evolvedover time as standard commercial prac-tices. For example, tax return preparerscould not use tax return information to ad-vise taxpayers of strategies that may pos-itively affect the taxpayers’ finances suchas individual retirement accounts or qual-ified tuition programs, or of the taxpay-ers’ eligibility to participate in governmentbenefit programs, such as food stamps.

C. Prohibit tax return preparers fromdisclosing tax return information for anyreason unrelated to the preparation of atax return.

Many commentators recommendedprohibiting tax return preparers from dis-closing tax return information for anypurpose unrelated to the preparation oftax returns. This recommendation was notadopted because there are many legitimatepurposes for the disclosure of tax returninformation identified in §301.7216–2,such as the disclosure of tax return in-formation for the reporting of a crimeor for an ethics investigation. Similarly,there are legitimate purposes, other thantax return preparation, when a taxpayerwould choose to consent to the tax returnpreparer’s disclosure of tax return infor-mation.

As an alternative, some commentatorsrecommended that the regulations prohibitor greatly restrict the use or disclosure oftax return information for marketing pur-poses. They specifically recommendedbanning tax return preparers from disclos-ing tax return information in associationwith taxpayers seeking refund anticipationloans (RALs) and similar products. Trea-sury and the IRS did not adopt this recom-mendation because it was not contained inthe proposed regulations and could havea significant impact on existing businesspractices. Concurrently with the publica-tion of these final regulations, however,Treasury and the IRS are requesting com-ments on a proposed rule that, if ultimatelyadopted as final, would prohibit tax returnpreparers from using or disclosing tax re-turn information for the purpose of solic-iting, or the taxpayer obtaining, a RAL orcertain other products.

Commentators also recommended thatdisclosure of tax return information bytax return preparers should be conditionedupon the existence of an agreement bythird parties receiving the information thatthe tax return information will not be usedfor any purpose other than the purpose forwhich the information was provided. Thisrecommendation was not adopted becausepolicing agreements by third parties isoutside the scope of section 7216. Section7216 governs only the actions of tax returnpreparers.

D. Obtaining consent through engagementletters.

Some commentators recommended thatwhen the regulations require consent todisclose or use tax return information, taxreturn preparers should be permitted to ob-tain such consent from “large taxpayers,”such as large corporations, through an en-gagement letter. These commentators ob-served that it is ordinary business practicefor tax return preparers and large taxpayersto negotiate and set the terms of the provi-sion of services, including the preparationof income tax returns, in an engagementletter. This recommendation was adopted.Treasury and the IRS agree that requiringmultiple, separate consents would imposea significant burden and could frustratethese taxpayers’ ability to comply with taxlaws and other regulatory and reporting re-quirements. Section 301.7216–3(a)(3) hasbeen modified to provide a set of require-ments regarding the format and content ofconsents to disclose and use tax return in-formation with respect to taxpayers filingincome tax returns in the Form 1040 se-ries, e.g., Form 1040, Form 1040NR, Form1040A, or Form 1040EZ, and a separateset of requirements regarding the formatand content of consents to disclose and usetax return information with respect to tax-payers filing all other tax returns. Under§301.7216–3(a)(3)(iii), for tax return pre-parers providing tax return preparation ser-vices to taxpayers who do not file an in-come tax return in the Form 1040 series,a consent to use or a consent to disclosemay be in any format, including an en-gagement letter to a client, as long as theconsent complies with the requirements of§301.7216–3(a)(3)(i).

E. Conditioning services on consent.

Section 301.7216–3(a)(1) provides thata consent to use or disclose tax return in-formation must be knowing and voluntary.Section 301.7216–3(a)(1) has been modi-fied to clarify that to condition the provi-sion of services on the taxpayer’s consentwill make the consent involuntary and in-valid unless §301.7216–3(a)(2) applies.

Section 301.7216–3(a)(2) provides thata tax return preparer may condition its pro-vision of preparation services upon a tax-payer’s consenting to disclosure of the tax-payer’s tax return information to another

2008–5 I.R.B. 352 February 4, 2008

tax return preparer for the purpose of per-forming services that assist in the prepa-ration of, or provide auxiliary services inconnection with the preparation of, the taxreturn of the taxpayer. One commentatorrequested a clarification regarding whethera tax return preparer with offices withinand outside of the United States is permit-ted to condition its provision of tax prepa-ration services to a taxpayer outside of theUnited States on the taxpayer consentingto disclosure. The final regulations permita tax return preparer with offices withinand outside of the United States to con-dition its provision of tax preparation ser-vices to a taxpayer on the taxpayer’s con-senting to disclosure to a return preparerlocated outside the United States. An ex-ample was added to the final regulations toclarify this rule.

Other commentators recommendedthat the regulations should prohibit taxreturn preparers from conditioning theprovision of any services upon consent.This recommendation was adopted byinserting the word “any” before “ser-vices” in §301.7216–3(a)(1), to which§301.7216–3(a)(2) provides the only ex-ception.

F. Requests to consent after completed taxreturn provided to taxpayer.

Proposed section 301.7216–3(b)(2)provides that a tax return preparer may notrequest a taxpayer’s consent to discloseor use tax return information after the taxreturn preparer provides a completed taxreturn to the taxpayer for signature. Com-mentators suggested that there may belegitimate circumstances where a requestto consent is necessary in light of taxpayerpreferences and is part of client serviceprovided by the preparer. Specifically, thecommentators gave the example of a tax-payer requesting that his or her tax returnpreparer disclose the past three years of thetaxpayer’s tax returns to his or her attorneyfor purposes of preparing the client’s es-tate plan. Under the proposed regulation,a request for consent to disclose wouldbe untimely in this situation, even thoughthe taxpayer requests the disclosure aspart of the client service provided by thetax return preparer. As indicated by theprovisions regarding solicitation of otherbusiness that were included in the previousfinal regulations, the Treasury Department

and IRS believe that taxpayers should notbe the subject of repetitive solicitationrequests for business made by tax returnpreparers after the tax preparation engage-ment has ended. Consistent with previousfinal regulations, the final regulation in§301.7216–3(b)(2) has been modified tostate that a tax return preparer may notrequest a taxpayer’s consent to discloseor use tax return information for purposesof solicitation of business unrelated totax return preparation after the tax returnpreparer provides a completed tax returnto the taxpayer for signature. Under thefinal regulations, the preparer would notbe precluded from requesting consent todisclose the past three years of the tax-payer’s tax returns to his or her attorneyfor purposes of preparing the client’s estateplan according to the example providedby commentators.

G. Prohibition on multiple requests forconsent.

Proposed section 301.7216–3(b)(3)provides that if a taxpayer declines to pro-vide consent to a disclosure or use of taxreturn information, a tax return preparercannot make another request for consent.Some commentators recommended thatthe regulations permit a tax return pre-parer to clarify the purpose and extent ofthe consent if necessary after the taxpayerdeclines to provide consent, and that sucha clarification should not be treated as asecond request by the tax return preparerto obtain a consent. Another commentatorstated that tax return preparers should bepermitted to request consent wheneverthey wish so long as the consent properlydescribes the nature of, and reasons for,potential disclosures or uses. The com-mentators’ recommendations were basedupon the recognition that there may belegitimate reasons for the preparer to morethoroughly explain the request for con-sent and how the consent relates to thetax preparation engagement. However,Treasury and the IRS are concerned thatlack of restrictions regarding multiple re-quests for consent regarding the same orsimilar request may cause undue pressureto consent where there are repetitious re-quests. In light of these concerns, section301.7216–3(b)(3) has been modified toprovide that, for purposes unrelated to atax preparation engagement, if a taxpayer

declines a request for consent to the dis-closure or use of tax return information,the tax return preparer may not solicitfrom the taxpayer another consent for apurpose substantially similar to that of therejected request. Under this rule, there isno prohibition regarding the taxpayer in-dependently asking the tax return preparerabout a disclosure or use of the taxpayer’ssame tax return information after a de-clined consent request.

H. Multiple disclosures or multiple useswithin a single consent form.

Section 301.7216–3(c)(1) of the pro-posed regulations provides that a taxpayermay consent to multiple disclosures withinthe same written document, or multipleuses within the same written document.One commentator recommended per-mitting taxpayers to consent to multipledisclosures and multiple uses with thesame form. Another commentator rec-ommended prohibiting a taxpayer fromconsenting to multiple disclosures withinthe same written document, or multipleuses within the same written document,in order to avoid potential taxpayer con-fusion. These recommendations were notadopted.

The proposed rule was intended to em-phasize that disclosure and use are twodistinct concepts, and a taxpayer may con-sider consenting to one and not the other.The comments to the proposed regulationsdemonstrated that there is potential forconfusion regarding the distinction be-tween disclosure and use. Treasury andthe IRS believe it is appropriate to re-quire separate consents in situations wherethere is a probability that the taxpayercould become confused over the distinc-tion between use and disclosure. Section301.7216–3(c)(1) of the final regulationsprovides that for taxpayers who are filersof returns in the Form 1040 series, the pro-posed rule is retained. The rule requiringseparate consents is limited to individualsbecause use or disclosure of that tax re-turn information involves situations whereconfusion is most likely to occur.

I. Disclosure of all information containedwithin a return.

Section 301.7216–3(c)(2) of the pro-posed regulations provides that a consent

February 4, 2008 353 2008–5 I.R.B.

authorizing the disclosure of all informa-tion contained within a return must setforth an explanation of the reason why aconsent authorizing a more limited dis-closure of tax return information is unsat-isfactory for the purpose of the consent.Some commentators characterized this re-quirement as burdensome in certain situ-ations and recommended eliminating thisrequirement. Commentators reasoned thata third-party service provider, such as thetaxpayer’s attorney, may request a copy ofthe return and the requirement to providean explanation would interject the preparerbetween the requirements imposed by thethird-party service provider and the tax-payer. In light of these concerns, sec-tion 301.7216–3(c)(2) of the final regu-lations modifies this provision to providethat where a consent authorizes the disclo-sure of a copy of the taxpayer’s tax returnor all information contained within a re-turn, the consent must provide that the tax-payer has the ability to request a more lim-ited disclosure of tax return information asthe taxpayer may direct.

Some commentators concerned withmarketing of tax return information rec-ommended that disclosure of the entiretax return should not be permitted underany circumstances. The commentators’rationale was that disclosure of the entirereturn is never necessary for marketingpurposes. This recommendation was notadopted because, in general, taxpayersshould have control over their own taxreturn information and they should be ableto direct tax return preparers to disclosetax return information as the taxpayers seefit.

J. Duration of consent.

Section 301.7216–3(b)(5) of the pro-posed regulations provides that no consentto the disclosure or use of tax return infor-mation may be effective for a period longerthan one year from the date the taxpayersigned the consent. Some commentatorsexpressed concern that the duration of con-sent may need to be effective for a pe-riod greater than one year. One commenta-tor observed that when preparing expatri-ate tax returns, there may be circumstanceswhen the due date for a foreign tax re-turn or other related document is more thanone year after the taxpayer signs the con-sent. Some commentators recommended

that taxpayers should be permitted to es-tablish the duration of consent, and theone-year period should apply only if thetaxpayer fails to specify a different dura-tion of consent. This recommendation wasadopted in the final regulations.

K. Consents read aloud.

Some commentators recommended that§301.7216–3 require that consents be readaloud by audio output. This recommenda-tion was not adopted. This recommenda-tion would impose a burdensome rule thatis outside the norm of standard practicesfor obtaining consent.

5. General Comments.

Several commentators recommendedrejecting all of the provisions of the pro-posed regulations under section 7216.The recommendations to reject the pro-posed regulations were not adopted. Theproposed regulations were finalized toprovide updates relating to uses and dis-closures of tax return information in theelectronic return preparation context andcreate an environment that allows taxpay-ers to make informed decisions regardingthe disclosure or use of their tax returninformation.

Effect on Other Documents

The following publication is obsoleteon or after January 1, 2009: Rev. Rul.79–114, 1979–1 C.B. 441 (1979).

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations, and,because these regulations do not impose acollection of information on small entities,the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant to sec-tion 7805(f), the notice of proposed rule-making preceding these regulations wassubmitted to the Chief Counsel for Advo-cacy of the Small Business Administrationfor comment on its impact on small busi-ness.

Drafting Information

The principal author of these regula-tions is Dillon Taylor, formerly of the Of-fice of the Associate Chief Counsel (Pro-cedure and Administration). For furtherinformation regarding these regulations,contact Lawrence Mack of the Office ofthe Associate Chief Counsel (Procedureand Administration) at 202–622–4940(not a toll-free call).

* * * * *

Amendment to the Regulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301— PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read, in part, as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.7216–0 is added to

read as follows:

§301.7216–0 Table of contents.

This section lists captions contained in§§301.7216–1 through 301.7216–3.

§301.7216–1 Penalty for disclosure or useof tax return information.

(a) In general.(b) Definitions.(c) Gramm-Leach-Bliley Act.(d) Effective date.

§301.7216–2 Permissible disclosures oruses without consent of the taxpayer.

(a) Disclosure pursuant to other provi-sions of the Internal Revenue Code.

(b) Disclosures to the IRS.(c) Disclosures or uses for preparation

of a taxpayer’s return.(d) Disclosures to other tax return pre-

parers.(e) Disclosure or use of information in

the case of related taxpayers.(f) Disclosure pursuant to an order of a

court, or an administrative order, demand,request, summons or subpoena which is is-sued in the performance of its duties by aFederal or State agency, the United StatesCongress, a professional association ethics

2008–5 I.R.B. 354 February 4, 2008

committee or board, or the Public Com-pany Accounting Oversight Board.

(g) Disclosure for use in securing legaladvice, Treasury investigations or courtproceedings.

(h) Certain disclosures by attorneys andaccountants.

(i) Corporate fiduciaries.(j) Disclosure to taxpayer’s fiduciary.(k) Disclosure or use of information in

preparation or audit of State or local taxreturns or assisting a taxpayer with foreigncountry tax obligations.

(l) Payment for tax preparation ser-vices.

(m) Retention of records.(n) Lists for solicitation of tax return

business.(o) Producing statistical information

in connection with tax return preparationbusiness.

(p) Disclosure or use of information forquality or peer reviews.

(q) Disclosure to report the commissionof a crime.

(r) Disclosure of tax return informationdue to a tax return preparer’s incapacity ordeath.

(s) Effective date.

§301.7216–3 Disclosure or use permittedonly with the taxpayer’s consent.

(a) In general.(b) Timing requirements and limita-

tions.(c) Special rules.(d) Effective date.Par. 3. Section 301.7216–1 is revised

to read as follows:

§301.7216–1 Penalty for disclosure or useof tax return information.

(a) In general. Section 7216(a) pre-scribes a criminal penalty for tax returnpreparers who knowingly or recklesslydisclose or use tax return information for apurpose other than preparing a tax return.A violation of section 7216 is a misde-meanor, with a maximum penalty of upto one year imprisonment or a fine of notmore than $1,000, or both, together withthe costs of prosecution. Section 7216(b)establishes exceptions to the general rulein section 7216(a) prohibiting disclosureand use. Section 7216(b) also authorizesthe Secretary to promulgate regulations

prescribing additional permitted disclo-sures and uses. Section 6713(a) prescribesa related civil penalty for disclosures anduses that constitute a violation of section7216. The penalty for violating section6713 is $250 for each prohibited disclosureor use, not to exceed a total of $10,000 fora calendar year. Section 6713(b) providesthat the exceptions in section 7216(b)also apply to section 6713. Under section7216(b), the provisions of section 7216(a)will not apply to any disclosure or usepermitted under regulations prescribed bythe Secretary.

(b) Definitions. For purposes of sec-tion 7216 and §§301.7216–1 through301.7216–3:

(1) Tax return. The term tax returnmeans any return (or amended return) ofincome tax imposed by chapter 1 of the In-ternal Revenue Code.

(2) Tax return preparer—(i) In general.The term tax return preparer means:

(A) Any person who is engaged inthe business of preparing or assisting inpreparing tax returns;

(B) Any person who is engaged in thebusiness of providing auxiliary services inconnection with the preparation of tax re-turns, including a person who developssoftware that is used to prepare or file atax return and any Authorized IRS e-fileProvider;

(C) Any person who is otherwise com-pensated for preparing, or assisting inpreparing, a tax return for any other per-son; or

(D) Any individual who, as part of theirduties of employment with any person de-scribed in paragraph (b)(2)(i)(A), (B), or(C) of this section performs services thatassist in the preparation of, or assist inproviding auxiliary services in connectionwith the preparation of, a tax return.

(ii) Business of preparing returns.A person is engaged in the business ofpreparing tax returns as described in para-graph (b)(2)(i)(A) of this section if, in thecourse of the person’s business, the personholds himself out to tax return preparersor taxpayers as a person who prepares taxreturns or assists in preparing tax returns,whether or not tax return preparation isthe person’s sole business activity andwhether or not the person charges a fee fortax return preparation services.

(iii) Providing auxiliary services. Aperson is engaged in the business of pro-

viding auxiliary services in connectionwith the preparation of tax returns as de-scribed in paragraph (b)(2)(i)(B) of thissection if, in the course of the person’sbusiness, the person holds himself out totax return preparers or to taxpayers as aperson who performs auxiliary services,whether or not providing the auxiliary ser-vices is the person’s sole business activityand whether or not the person charges afee for the auxiliary services. Likewise, aperson is engaged in the business of pro-viding auxiliary services if, in the courseof the person’s business, the person re-ceives a taxpayer’s tax return informationfrom another tax return preparer pursuantto the provisions of §301.7216–2(d)(2).

(iv) Otherwise compensated. A taxreturn preparer described in paragraph(b)(2)(i)(C) of this section includes anyperson who—

(A) Is compensated for preparing a taxreturn for another person, but not in thecourse of a business; or

(B) Is compensated for helping, on a ca-sual basis, a relative, friend, or other ac-quaintance to prepare their tax return.

(v) Exclusions. A person is not a taxreturn preparer merely because he leasesoffice space to a tax return preparer, fur-nishes credit to a taxpayer whose tax returnis prepared by a tax return preparer, fur-nishes information to a tax return preparerat the taxpayer’s request, furnishes access(free or otherwise) to a separate person’stax return preparation website through ahyperlink on his own website, or otherwiseperforms some service that only inciden-tally relates to the preparation of tax re-turns.

(vi) Examples. The application of§301.7216–1(b)(2) may be illustrated bythe following examples:

Example 1. Bank B is a tax return preparer withinthe meaning of paragraph (b)(2)(i)(A) of this section,and an Authorized IRS e-file Provider. B employs oneindividual, Q, to solicit the necessary tax return infor-mation for the preparation of a tax return; another in-dividual, R, to prepare the return on the basis of the in-formation that is furnished; a secretary, S, who typesthe information on the returns into a computer; andan administrative assistant, T, who uses a computer tofile electronic versions of the tax returns. Under thesecircumstances, only R is a tax return preparer for pur-poses of section 7701(a)(36), but all four employeesare tax return preparers for purposes of section 7216,as provided in paragraph (b) of this section.

Example 2. Tax return preparer P contracts withdepartment store D to rent space in D’s store. Dadvertises that taxpayers who use P’s services maycharge the cost of having their tax return prepared

February 4, 2008 355 2008–5 I.R.B.

to their charge account with D. Under these circum-stances, D is not a tax return preparer because it pro-vides space, credit, and services only incidentally re-lated to the preparation of tax returns.

(3) Tax return information—(i) In gen-eral. The term tax return informationmeans any information, including, but notlimited to, a taxpayer’s name, address, oridentifying number, which is furnished inany form or manner for, or in connectionwith, the preparation of a tax return of thetaxpayer. This information includes infor-mation that the taxpayer furnishes to a taxreturn preparer and information furnishedto the tax return preparer by a third party.Tax return information also includes in-formation the tax return preparer derivesor generates from tax return informationin connection with the preparation of ataxpayer’s return.

(A) Tax return information can be pro-vided directly by the taxpayer or by an-other person. Likewise, tax return infor-mation includes information received bythe tax return preparer from the IRS inconnection with the processing of such re-turn, including an acknowledgment of ac-ceptance or notice of rejection of an elec-tronically filed return.

(B) Tax return information includes sta-tistical compilations of tax return informa-tion, even in a form that cannot be asso-ciated with, or otherwise identify, directlyor indirectly, a particular taxpayer. See§301.7216–2(o) for limited use of tax re-turn information to make statistical com-pilations without taxpayer consent and touse the statistical compilations for limitedpurposes.

(C) Tax return information does not in-clude information identical to any tax re-turn information that has been furnishedto a tax return preparer if the identical in-formation was obtained otherwise than inconnection with the preparation of a tax re-turn.

(D) Information is considered “in con-nection with tax return preparation,” andtherefore tax return information, if the tax-payer would not have furnished the infor-mation to the tax return preparer but for theintention to engage, or the engagement of,the tax return preparer to prepare the taxreturn.

(ii) Examples. The application of thisparagraph (b)(3) may be illustrated by thefollowing examples:

Example 1. Taxpayer A purchases computer soft-ware designed to assist with the preparation and fil-ing of her income tax return. When A loads the soft-ware onto her computer, it prompts her to register herpurchase of the software. In this situation, the soft-ware provider is a tax return preparer under paragraph(b)(2)(i)(B) of this section and the information that Aprovides to register her purchase is tax return infor-mation because she is providing it in connection withthe preparation of a tax return.

Example 2. Corporation A is a brokerage firmthat maintains a website through which its clients mayaccess their accounts, trade stocks, and generally con-duct a variety of financial activities. Through its web-site, A offers its clients free access to its own taxpreparation software. Taxpayer B is a client of A andhas furnished A his name, address, and other informa-tion when registering for use of A’s website to use A’sbrokerage services. In addition, A has a record of B’sbrokerage account activity, including sales of stock,dividends paid, and IRA contributions made. B usesA’s tax preparation software to prepare his tax return.The software populates some fields on B’s return onthe basis of information A already maintains in itsdatabases. A is a tax return preparer within the mean-ing of paragraph (b)(2)(i)(B) of this section because ithas prepared and provided software for use in prepar-ing tax returns. The information in A’s databases thatthe software accesses to populate B’s return, i.e., theregistration information and brokerage account activ-ity, is not tax return information because A did not re-ceive that information in connection with the prepa-ration of a tax return. Once A uses the informationto populate the return, however, the information as-sociated with the return becomes tax return informa-tion. If A retains the information in a form in which Acan identify that the information was used in connec-tion with the preparation of a return, the informationin that form is tax return information. If, however,A retains the information in a database in which Acannot identify whether the information was used inconnection with the preparation of a return, then thatinformation is not tax return information.

(4) Use—(i) In general. Use of taxreturn information includes any circum-stance in which a tax return preparer refersto, or relies upon, tax return information asthe basis to take or permit an action.

(ii) Example. The application of thisparagraph (b)(4) may be illustrated by thefollowing example:

Example. Preparer G is a tax return preparer asdefined by paragraph (b)(2)(i)(A) of this section. IfG determines, upon preparing a return, that the tax-payer is eligible to make a contribution to an individ-ual retirement account (IRA), G will ask whether thetaxpayer desires to make a contribution to an IRA. Gdoes not ask about IRAs in cases in which the tax-payer is not eligible to make a contribution. G isusing tax return information when it asks whether ataxpayer is interested in making a contribution to anIRA because G is basing the inquiry upon knowledgegained from information that the taxpayer furnishedin connection with the preparation of the taxpayer’sreturn.

(5) Disclosure. The term disclosuremeans the act of making tax return infor-

mation known to any person in any mannerwhatever. To the extent that a taxpayer’suse of a hyperlink results in the transmis-sion of tax return information, this trans-mission of tax return information is a dis-closure by the tax return preparer subjectto penalty under section 7216 if not autho-rized by regulation.

(6) Hyperlink. For purposes of sec-tion 7216, a hyperlink is a device used totransfer an individual using tax preparationsoftware from a tax return preparer’s web-page to a webpage operated by another per-son without the individual having to sepa-rately enter the web address of the destina-tion page.

(7) Request for consent. A request forconsent includes any effort by a tax returnpreparer to obtain the taxpayer’s consent touse or disclose the taxpayer’s tax return in-formation. The act of supplying a taxpayerwith a paper or electronic form that meetsthe requirements of a revenue procedurepublished pursuant to §301.7216–3(a) isa request for a consent. When a tax re-turn preparer requests a taxpayer’s con-sent, any associated efforts of the tax re-turn preparer, including, but not limited to,verbal or written explanations of the form,are part of the request for consent.

(c) Gramm-Leach-Bliley Act. Anyapplicable requirements of the Gramm-Leach-Bliley Act, Public Law 106–102(113 Stat. 1338), do not supersede, alter,or affect the requirements of section 7216and §§301.7216–1 through 301.7216–3.Similarly, the requirements of section 7216and §§301.7216–1 through 301.7216–3do not override any requirements or re-strictions of the Gramm-Leach-BlileyAct, which are in addition to the require-ments or restrictions of section 7216 and§§301.7216–1 through 301.7216–3.

(d) Effective/applicability date. Thissection applies to disclosures or uses oftax return information occurring on or af-ter January 1, 2009.

Par. 4. Section 301.7216–2 is revisedto read as follows:

§301.7216–2 Permissible disclosures oruses without consent of the taxpayer.

(a) Disclosure pursuant to other pro-visions of the Internal Revenue Code.The provisions of section 7216(a) and§301.7216–1 shall not apply to any dis-closure of tax return information if the

2008–5 I.R.B. 356 February 4, 2008

disclosure is made pursuant to any otherprovision of the Internal Revenue Code orthe regulations thereunder.

(b) Disclosures to the IRS. The provi-sions of section 7216(a) and §301.7216–1shall not apply to any disclosure of tax re-turn information to an officer or employeeof the IRS.

(c) Disclosures or uses for preparationof a taxpayer’s return—(1) Updating Tax-payers’ Tax Return Preparation Software.If a tax return preparer provides softwareto a taxpayer that is used in connectionwith the preparation or filing of a tax re-turn, the tax return preparer may use thetaxpayer’s tax return information to updatethe taxpayer’s software for the purpose ofaddressing changes in IRS forms, e-filespecifications and administrative, regula-tory and legislative guidance or to test andensure the software’s technical capabili-ties without the taxpayer’s consent under§301.7216–3.

(2) Tax return preparers located withinthe same firm in the United States. If ataxpayer furnishes tax return informationto a tax return preparer located within theUnited States, including any territory orpossession of the United States, an officer,employee, or member of a tax return pre-parer may use the tax return information,or disclose the tax return information to an-other officer, employee, or member of thesame tax return preparer, for the purposeof performing services that assist in thepreparation of, or assist in providing auxil-iary services in connection with the prepa-ration of, the taxpayer’s tax return. If anofficer, employee, or member to whom thetax return information is to be disclosed islocated outside of the United States or anyterritory or possession of the United States,the taxpayer’s consent under §301.7216–3prior to any disclosure is required.

(3) Furnishing tax return informationto tax return preparers located outside theUnited States. If a taxpayer initially fur-nishes tax return information to a tax re-turn preparer located outside of the UnitedStates or any territory or possession ofthe United States, an officer, employee,or member of a tax return preparer mayuse tax return information, or disclose anytax return information to another officer,employee, or member of the same tax re-turn preparer, for the purpose of perform-ing services that assist in the preparationof, or assist in providing auxiliary services

in connection with the preparation of, thetax return of a taxpayer by or for whom theinformation was furnished without the tax-payer’s consent under §301.7216–3.

(4) Examples. The following examplesillustrate this paragraph (c):

Example 1. Preparer P provides tax return prepa-ration software to Taxpayer T for T to use in thepreparation of its 2009 income tax return. For the2009 tax year, and using T’s tax return informationfurnished while registering for the software, P wouldlike to update the tax return preparation software thatT is using to account for last minute changes made tothe tax laws for the 2009 tax year. P is not requiredto obtain T’s consent to update the tax return prepa-ration software. P may perform a software update re-gardless of whether the software update will affect T’sparticular return preparation activities.

Example 2. T is a client of Firm, which is a taxreturn preparer. E, an employee at Firm’s State Aoffice, receives tax return information from T for usein preparing T’s income tax return. E discloses the taxreturn information to P, an employee in Firm’s State Boffice; P uses the tax return information to process T’sincome tax return. Firm is not required to receive T’sconsent under §301.7216–3 prior to E’s disclosure ofT’s tax return information to P because the tax returninformation is disclosed to an employee employed bythe same tax return preparer located within the UnitedStates.

Example 3. Same facts as Example 2 except T’stax return information is disclosed to FE who is lo-cated in Firm’s Country F office. FE uses the taxreturn information to process T’s income tax return.After processing, FE returns the processed tax returninformation to E in Firm’s State A office. BecauseFE is outside of the United States, Firm is requiredto obtain T’s consent under §301.7216–3 prior to E’sdisclosure of T’s tax return information to FE.

Example 4. T, Firm’s client, is temporarily lo-cated in Country F. She initially furnishes her tax re-turn information to employee FE in Firm’s Country Foffice for the purpose of having Firm prepare her U.S.income tax return. FE makes the substantive determi-nations concerning T’s tax liability and forwards T’stax return information to FP, an employee in Firm’sCountry P office, for the purpose of processing T’stax return information. FP processes the return infor-mation and forwards it to Partner at Firm’s State Aoffice in the United States for review and delivery toT. Because T initially furnished the tax return infor-mation to a tax return preparer outside of the UnitedStates, T’s prior consent for disclosure or use under§301.7216–3 was not required. An officer, employee,or member of Firm in the United States may use T’stax return information or disclose the tax return in-formation to another officer, employee, or member ofFirm without T’s prior consent under §301.7216–3 aslong as any disclosure or use of T’s tax return infor-mation is within the United States. Firm is required toreceive T’s consent under §301.7216–3 prior to anysubsequent disclosure of T’s tax return informationto a tax return preparer located outside of the UnitedStates.

(d) Disclosures to other tax returnpreparers—(1) Preparer-to-preparer dis-closures. Except as limited in paragraph

(d)(2) of this section, an officer, employee,or member of a tax return preparer maydisclose tax return information of a tax-payer to another tax return preparer (otherthan an officer, employee, or member ofthe same tax return preparer) located inthe United States (including any territoryor possession of the United States) for thepurpose of preparing or assisting in prepar-ing a tax return, or obtaining or providingauxiliary services in connection with thepreparation of any tax return, so long asthe services provided are not substantivedeterminations or advice affecting the taxliability reported by taxpayers. A substan-tive determination involves an analysis,interpretation, or application of the law.The authorized disclosures permitted un-der this paragraph (d)(1) include one taxreturn preparer disclosing tax return in-formation to another tax return preparerfor the purpose of having the second taxreturn preparer transfer that informationto, and compute the tax liability on, a taxreturn of the taxpayer by means of elec-tronic, mechanical, or other form of taxreturn processing service. The authorizeddisclosures permitted under this paragraph(d)(1) also include disclosures by a taxreturn preparer to an Authorized IRS e-fileProvider for the purpose of electronicallyfiling the return with the IRS. Authorizeddisclosures also include disclosures bya tax return preparer to a second tax re-turn preparer for the purpose of makinginformation concerning the return avail-able to the taxpayer. This would include,for example, whether the return has beenaccepted or rejected by the IRS, or thestatus of the taxpayer’s refund. Except asprovided in paragraph (c) of this section,a tax return preparer may not disclose taxreturn information to another tax returnpreparer for the purpose of the secondtax return preparer providing substantivedeterminations without first receiving thetaxpayer’s consent in accordance with therules under §301.7216–3.

(2) Disclosures to contractors. A tax re-turn preparer may disclose tax return infor-mation to a person under contract with thetax return preparer in connection with theprogramming, maintenance, repair, test-ing, or procurement of equipment or soft-ware used for purposes of tax return prepa-ration only to the extent necessary for theperson to provide the contracted services,and only if the tax return preparer ensures

February 4, 2008 357 2008–5 I.R.B.

that all individuals who are to receive dis-closures of tax return information receivea written notice that informs them of theapplicability of sections 6713 and 7216 tothem and describes the requirements andpenalties of sections 6713 and 7216. Con-tractors receiving tax return informationpursuant to this section are tax return pre-parers under section 7216 because theyare performing auxiliary services in con-nection with tax return preparation. See§301.7216–1(b)(2)(i)(B) and (D).

(3) Examples. The following examplesillustrate this paragraph (d):

Example 1. E, an employee at Firm’s State A of-fice, receives tax return information from T for Firm’suse in preparing T’s income tax return. E makes sub-stantive determinations and forwards the tax returninformation to P, an employee at Processor; Proces-sor is located in State B. P places the tax return in-formation on the income tax return and furnishes thefinished product to E. E is not required to receive T’sprior consent under §301.7216–3 before disclosingT’s tax return information to P because Processor’sservices are not substantive determinations and thetax return information remained in the United Statesat Processor’s State B office during the entire courseof the tax return preparation process.

Example 2. Firm, a tax return preparer, offers in-come tax return preparation services. Firm’s contractwith its software provider, Contractor, requires Firmto periodically randomly select certain taxpayers’ taxreturn information solely for the purpose of testingthe reliability of the software sold to Firm. Under itsagreement with Contractor, Firm discloses tax returninformation to Contractor’s employee, C, who ser-vices Firm’s contract without providing Contractoror C with a written notice that describes the require-ments of and penalties under sections 7216 and 6713.C uses the tax return information solely for qualityassurance purposes. Firm’s disclosure of tax returninformation to C was an impermissible disclosure be-cause Firm failed to ensure that C received a writtennotice that describes the requirements and penaltiesof sections 7216 and 6713.

Example 3. E, an employee of Firm in State Ain the United States, receives tax return informationfrom T for use in preparing T’s income tax return.After E enters T’s tax return information into Firm’scomputer, that information is stored on a computerserver that is physically located in State A. Firmcontracts with Contractor, located in Country F, toprepare its clients’ tax returns. FE, an employee ofContractor, uses a computer in Country F and in-puts a password to view T’s income tax informationstored on the computer server in State A to prepareT’s tax return. A computer program permits FE toview T’s tax return information, but prohibits FEfrom downloading or printing out T’s tax returninformation from the computer server. Because Firmis disclosing T’s tax return information outside of theUnited States, Firm is required to obtain T’s consentunder §301.7216–3 prior to the disclosure to FE. Asprovided in §301.7216–3(b)(5), however, Firm maynot obtain consent to disclose T’s social securitynumber (SSN) to a tax return preparer located outside

of the United States or any territory or possession ofthe United States.

Example 4. A, an employee at Firm A, receivestax return information from T for Firm’s use inpreparing T’s income tax return. A forwards the taxreturn information to B, an employee at another firm,Firm B, to obtain advice on the issue of whetherT may claim a deduction for a certain business ex-pense. A is required to receive T’s prior consentunder §301.7216–3 before disclosing T’s tax returninformation to B because B’s services involve asubstantive determination affecting the tax liabilitythat T will report.

(e) Disclosure or use of information inthe case of related taxpayers. (1) In prepar-ing a tax return of a second taxpayer, a taxreturn preparer may use, and may discloseto the second taxpayer in the form in whichit appears on the return, any tax return in-formation that the tax return preparer ob-tained from a first taxpayer if—

(i) The second taxpayer is related to thefirst taxpayer within the meaning of para-graph (e)(2) of this section;

(ii) The first taxpayer’s tax interest inthe information is not adverse to the sec-ond taxpayer’s tax interest in the informa-tion; and

(iii) The first taxpayer has not expresslyprohibited the disclosure or use.

(2) For purposes of paragraph (e)(1)(i)of this section, a taxpayer is related to an-other taxpayer if they have any one of thefollowing relationships: husband and wife,child and parent, grandchild and grandpar-ent, partner and partnership, trust or es-tate and beneficiary, trust or estate andfiduciary, corporation and shareholder, ormembers of a controlled group of corpora-tions as defined in section 1563.

(3) See §301.7216–3 for disclosure oruse of tax return information of the tax-payer in preparing the tax return of a sec-ond taxpayer when the requirements of thisparagraph are not satisfied.

(f) Disclosure pursuant to an order of acourt, or an administrative order, demand,request, summons or subpoena which isissued in the performance of its dutiesby a Federal or State agency, the UnitedStates Congress, a professional associ-ation ethics committee or board, or thePublic Company Accounting OversightBoard. The provisions of section 7216(a)and §301.7216–1 will not apply to anydisclosure of tax return information if thedisclosure is made pursuant to any one ofthe following documents:

(1) The order of any court of record,Federal, State, or local.

(2) A subpoena issued by a grand jury,Federal or State.

(3) A subpoena issued by the UnitedStates Congress.

(4) An administrative order, demand,summons or subpoena that is issued in theperformance of its duties by—

(i) Any Federal agency as defined in5 U.S.C. 551(1) and 5 U.S.C. 552(f), or

(ii) A State agency, body, or commis-sion charged under the laws of the State ora political subdivision of the State with thelicensing, registration, or regulation of taxreturn preparers.

(5) A written request from a profes-sional association ethics committee orboard investigating the ethical conduct ofthe tax return preparer.

(6) A written request from the PublicCompany Accounting Oversight Boardin connection with an inspection undersection 104 of the Sarbanes-Oxley Act of2002, 15 U.S.C. 7214, or an investigationunder section 105 of such Act, 15 U.S.C.7215, for use in accordance with such Act.

(g) Disclosure for use in securing legaladvice, Treasury investigations or courtproceedings. A tax return preparer maydisclose tax return information—

(1) To an attorney for purposes of secur-ing legal advice;

(2) To an employee of the Treasury De-partment for use in connection with any in-vestigation of the tax return preparer (in-cluding investigations relating to the taxreturn preparer in its capacity as a practi-tioner) conducted by the IRS or the Trea-sury Department; or

(3) To any officer of a court for use inconnection with proceedings involving thetax return preparer (including proceedingsinvolving the tax return preparer in its ca-pacity as a practitioner), or the return pre-parer’s client, before the court or beforeany grand jury that may be convened bythe court.

(h) Certain disclosures by attorneys andaccountants. The provisions of section7216(a) and §301.7216–1 shall not applyto any disclosure of tax return informationpermitted by this paragraph (h).

(1) (i) A tax return preparer who is law-fully engaged in the practice of law or ac-countancy and prepares a tax return for ataxpayer may use the taxpayer’s tax re-turn information, or disclose the informa-tion to another officer, employee or mem-ber of the tax return preparer’s law or ac-

2008–5 I.R.B. 358 February 4, 2008

counting firm, consistent with applicablelegal and ethical responsibilities, who mayuse the tax return information for the pur-pose of providing other legal or account-ing services to the taxpayer. As an ex-ample, a lawyer who prepares a tax returnfor a taxpayer may use the tax return in-formation of the taxpayer for, or in con-nection with, rendering legal services, in-cluding estate planning or administration,or preparation of trial briefs or trust instru-ments, for the taxpayer or the estate of thetaxpayer. In addition, the lawyer who pre-pared the tax return may disclose the taxreturn information to another officer, em-ployee or member of the same firm for thepurpose of providing other legal servicesto the taxpayer. As another example, anaccountant who prepares a tax return for ataxpayer may use the tax return informa-tion, or disclose it to another officer, em-ployee or member of the firm, for use inconnection with the preparation of booksand records, working papers, or account-ing statements or reports for the taxpayer.In the normal course of rendering the legalor accounting services to the taxpayer, theattorney or accountant may make the taxreturn information available to third par-ties, including stockholders, management,suppliers, or lenders, consistent with theapplicable legal and ethical responsibili-ties, unless the taxpayer directs otherwise.For rules regarding disclosures outside ofthe United States, see §301.7216–2(c) and(d).

(ii) A tax return preparer’s law or ac-counting firm does not include any relatedor affiliated firms. For example, if lawfirm A is affiliated with law firm B, offi-cers, employees and members of law firmA must receive a taxpayer’s consent un-der §301.7216–3 before disclosing the tax-payer’s tax return information to an officer,employee or member of law firm B.

(2) A tax return preparer who is law-fully engaged in the practice of law or ac-countancy and prepares a tax return for ataxpayer may, consistent with the applica-ble legal and ethical responsibilities, takethe tax return information into account,and may act upon it, in the course of per-forming legal or accounting services fora client other than the taxpayer, or dis-close the information to another officer,employee or member of the tax return pre-parer’s law or accounting firm to enablethat other officer, employee or member to

take the information into account, and actupon it, in the course of performing legal oraccounting services for a client other thanthe taxpayer. This is permissible when theinformation is, or may be, relevant to thesubject matter of the legal or accountingservices for the other client, and consid-eration of the information by those per-forming the services is necessary for theproper performance of the services. In noevent, however, may the tax return infor-mation be disclosed to a person who isnot an officer, employee or member of thelaw or accounting firm, unless the disclo-sure is exempt from the application of sec-tion 7216(a) and §301.7216–1 by reasonof another provision of §§301.7216–2 or301.7216–3.

(3) Examples. The application of thisparagraph may be illustrated by the follow-ing examples:

Example 1. A, a member of an accounting firm,renders an opinion on a financial statement of M Cor-poration that is part of a registration statement filedwith the Securities and Exchange Commission. Afterthe registration statement is filed, but before its effec-tive date, B, a member of the same accounting firm,prepares an income tax return for N Corporation. Inthe course of preparing N’s income tax return, B dis-covers that N does business with M and concludesthat the information given by N should be consid-ered by A to determine whether the financial state-ment opined on by A contains an untrue statement ofmaterial fact or omits a material fact required to keepthe statement from being misleading. B discloses toA the tax return information of N for this purpose. Adetermines that there is an omission of material factand that an amended statement should be filed. A soadvises M and the Securities and Exchange Commis-sion. A explains that the omission was revealed as aresult of confidential information that came to A’s at-tention after the statement was filed, but A does notdisclose the identity of the taxpayer or the tax returninformation itself. Section 7216(a) and §301.7216–1do not apply to B’s disclosure of N’s tax return in-formation to A and A’s use of the information in ad-vising M and the Securities and Exchange Commis-sion of the necessity for filing an amended statement.Section 7216(a) and §301.7216–1 would apply to adisclosure of N’s tax return information to M or tothe Securities and Exchange Commission unless thedisclosure is exempt from the application of section7216(a) and §301.7216–1 by reason of another provi-sion of either this section or §301.7216–3.

Example 2. A, a member of an accounting firm,is conducting an audit of M Corporation, and B, amember of the same accounting firm, prepares an in-come tax return for D, an officer of M. In the courseof preparing the return, B obtains information fromD indicating that D, pursuant to an arrangement witha supplier doing business with M, has been receivingfrom the supplier a percentage of the amounts that thesupplier invoices to M. B discloses this informationto A who, acting upon it, searches in the course ofthe audit for indications of a kickback scheme. As

a result, A discovers information from audit sourcesthat independently indicate the existence of a kick-back scheme. Without revealing the tax return infor-mation A has received from B, A brings to the at-tention of officers of M the audit information indi-cating the existence of the kickback scheme. Section7216(a) and §301.7216–1 do not apply to B’s disclo-sure of D’s tax return information to A, A’s use of D’sinformation in the course of the audit, and A’s dis-closure to M of the audit information indicating theexistence of the kickback scheme. Section 7216(a)and §301.7216–1 would apply to a disclosure to M,or to any other person not an employee or memberof the accounting firm, of D’s tax return informationfurnished to B.

(i) Corporate fiduciaries. A trust com-pany, trust department of a bank, or othercorporate fiduciary that prepares a tax re-turn for a taxpayer for whom it rendersfiduciary, investment, or other custodial ormanagement services may, unless the tax-payer directs otherwise—

(1) Disclose or use the taxpayer’s taxreturn information in the ordinary courseof rendering such services to or for thetaxpayer; or

(2) Make the information available tothe taxpayer’s attorney, accountant, or in-vestment advisor.

(j) Disclosure to taxpayer’s fiduciary.If, after furnishing tax return informa-tion to a tax return preparer, the taxpayerdies or becomes incompetent, insolvent,or bankrupt, or the taxpayer’s assets areplaced in conservatorship or receivership,the tax return preparer may disclose the in-formation to the duly appointed fiduciaryof the taxpayer or his estate, or to the dulyauthorized agent of the fiduciary.

(k) Disclosure or use of information inpreparation or audit of State or local taxreturns or assisting a taxpayer with foreigncountry tax obligations. The provisions ofparagraphs (c) and (d) of this section shallapply to the disclosure by any tax returnpreparer of any tax return information inthe preparation of, or in connection withthe preparation of, any tax return of thetaxpayer under the law of any State or po-litical subdivision thereof, of the Districtof Columbia, of any territory or possessionof the United States, or of a country otherthan the United States. The provisions ofsection 7216(a) and §301.7216–1 shall notapply to the use by any tax return preparerof any tax return information in the prepa-ration of, or in connection with the prepa-ration of, any tax return of the taxpayer un-der the law of any State or political subdi-vision thereof, of the District of Columbia,

February 4, 2008 359 2008–5 I.R.B.

of any territory or possession of the UnitedStates, or of a country other than the UnitedStates. The provisions of section 7216(a)and §301.7216–1 shall not apply to the dis-closure or use by any tax return preparerof any tax return information in the auditof, or in connection with the audit of, anytax return of the taxpayer under the law ofany State or political subdivision thereof,the District of Columbia, or any territoryor possession of the United States.

(l) Payment for tax preparation ser-vices. A tax return preparer may use anddisclose, without the taxpayer’s writtenconsent, tax return information that thetaxpayer provides to the tax return pre-parer to pay for tax preparation services tothe extent necessary to process or collectthe payment. For example, if the taxpayergives the tax return preparer a credit cardto pay for tax preparation services, thetax return preparer may disclose the tax-payer’s name, credit card number, creditcard expiration date, and amount due fortax preparation services to the credit cardcompany, as necessary, to process the pay-ment. Any tax return information that thetaxpayer did not give the tax return pre-parer for the purpose of making paymentfor tax preparation services may not beused or disclosed by the tax return pre-parer without the taxpayer’s prior writtenconsent, unless otherwise permitted underanother provision of this section.

(m) Retention of records. A tax returnpreparer may retain tax return informationof a taxpayer, including copies of tax re-turns, in paper or electronic format, pre-pared on the basis of the tax return infor-mation, and may use the information inconnection with the preparation of othertax returns of the taxpayer or in connec-tion with an examination by the InternalRevenue Service of any tax return or sub-sequent tax litigation relating to the tax re-turn. The provisions of paragraph (n) ofthis section regarding the transfer of a tax-payer list also apply to the transfer of anyrecords and related papers to which thisparagraph applies.

(n) Lists for solicitation of tax returnbusiness. A tax return preparer may com-pile and maintain a separate list contain-ing solely the names, addresses, e-mail ad-dresses, and phone numbers of taxpayerswhose tax returns the tax return preparerhas prepared or processed. This list maybe used by the compiler solely to con-

tact the taxpayers on the list for the pur-pose of offering tax information or addi-tional tax return preparation services tosuch taxpayers. The compiler of the listmay not transfer the taxpayer list, or anypart thereof, to any other person unlessthe transfer takes place in conjunction withthe sale or other disposition of the com-piler’s tax return preparation business. Aperson who acquires a taxpayer list, or apart thereof, in conjunction with a sale orother disposition of a tax return prepara-tion business is subject to the provisions ofthis paragraph with respect to the list. Theterm list, as used in this paragraph (n), in-cludes any record or system whereby thenames and addresses of taxpayers are re-tained. The provisions of this paragraph(n) also apply to the transfer of any recordsand related papers to which this paragraph(n) applies.

(o) Producing statistical informationin connection with tax return preparationbusiness. A tax return preparer may use,for the limited purpose specified in thisparagraph (o), tax return information toproduce a statistical compilation of datadescribed in §301.7216–1(b)(3)(i)(B). Thepurpose and use of the statistical compi-lation must relate directly to the internalmanagement or support of the tax returnpreparer’s tax return preparation business.The tax return preparer may not discloseor use the tax return information in con-nection with, or in support of, businessesother than tax return preparation. Thecompiler of the statistical compilation maynot disclose the compilation, or any partthereof, to any other person unless disclo-sure of the statistical compilation is madein order to comply with financial account-ing or regulatory reporting requirementsor occurs in conjunction with the sale orother disposition of the compiler’s tax re-turn preparation business. A person whoacquires a compilation, or a part thereof,in conjunction with a sale or other disposi-tion of a tax return preparation business issubject to the provisions of this paragraph(o) with respect to the compilation as ifthe acquiring person had compiled it.

(p) Disclosure or use of information forquality or peer reviews. The provisions ofsection 7216(a) and §301.7216–1 shall notapply to any disclosure for the purpose ofa quality or peer review to the extent nec-essary to accomplish the review. A qual-ity or peer review is a review that is un-

dertaken to evaluate, monitor, and improvethe quality and accuracy of a tax return pre-parer’s tax preparation, accounting, or au-diting services. A quality or peer reviewmay be conducted only by attorneys, cer-tified public accountants, enrolled agents,and enrolled actuaries who are eligible topractice before the Internal Revenue Ser-vice. See Department of the Treasury Cir-cular 230, 31 CFR part 10. Tax return in-formation may also be disclosed to per-sons who provide administrative or sup-port services to an individual who is con-ducting a quality or peer review under thisparagraph (p), but only to the extent nec-essary for the reviewer to conduct the re-view. Tax return information gathered inconducting a review may be used only forpurposes of a review. No tax return infor-mation identifying a taxpayer may be dis-closed in any evaluative reports or recom-mendations that may be accessible to anyperson other than the reviewer or the taxreturn preparer being reviewed. The taxreturn preparer being reviewed will main-tain a record of the review including the in-formation reviewed and the identity of thepersons conducting the review. After com-pletion of the review, no documents con-taining information that may identify anytaxpayer by name or identification numbermay be retained by a reviewer or by the re-viewer’s administrative or support person-nel. Any person (including administrativeand support personnel) receiving tax returninformation in connection with a quality orpeer review is a tax return preparer for pur-poses of sections 7216(a) and 6713(a).

(q) Disclosure to report the commis-sion of a crime. The provisions of section7216(a) and §301.7216–1 shall not applyto the disclosure of any tax return infor-mation to the proper Federal, State, or lo-cal official in order, and to the extent nec-essary, to inform the official of activitiesthat may constitute, or may have consti-tuted, a violation of any criminal law or toassist the official in investigating or pros-ecuting a violation of criminal law. A dis-closure made in the bona fide but mistakenbelief that the activities constituted a vio-lation of criminal law is not subject to sec-tion 7216(a) and §301.7216–1.

(r) Disclosure of tax return informationdue to a tax return preparer’s incapacity ordeath. In the event of incapacity or deathof a tax return preparer, disclosure of taxreturn information may be made for the

2008–5 I.R.B. 360 February 4, 2008

purpose of assisting the tax return prepareror his legal representative (or the represen-tative of a deceased tax return preparer’sestate) in operating the business. Any per-son receiving tax return information un-der the provisions of this paragraph (r) isa tax return preparer for purposes of sec-tions 7216(a) and 6713(a).

(s) Effective/applicability date. Thissection applies to disclosures or uses oftax return information occurring on or af-ter January 1, 2009.

Par. 5. Section 301.7216–3 is revisedto read as follows:

§301.7216–3 Disclosure or use permittedonly with the taxpayer’s consent.

(a) In general—(1) Taxpayer con-sent. Unless section 7216 or §301.7216–2specifically authorizes the disclosure oruse of tax return information, a tax re-turn preparer may not disclose or use ataxpayer’s tax return information priorto obtaining a written consent from thetaxpayer, as described in this section. Atax return preparer may disclose or use taxreturn information as the taxpayer directsas long as the preparer obtains a writtenconsent from the taxpayer as provided inthis section. The consent must be know-ing and voluntary. Except as provided inparagraph (a)(2) of this section, condition-ing the provision of any services on thetaxpayer’s furnishing consent will makethe consent involuntary, and the consentwill not satisfy the requirements of thissection.

(2) Taxpayer consent to a tax return pre-parer furnishing tax return information toanother tax return preparer. (i) A tax re-turn preparer may condition its provisionof preparation services upon a taxpayer’sconsenting to disclosure of the taxpayer’stax return information to another tax re-turn preparer for the purpose of perform-ing services that assist in the preparationof, or provide auxiliary services in connec-tion with the preparation of, the tax returnof the taxpayer.

(ii) Example. The application of thisparagraph (a)(2) may be illustrated by thefollowing example:

Example. Preparer P, who is located within theUnited States, is retained by Company C to providetax return preparation services for employees ofCompany C. An employee of Company C, EmployeeE, works for C outside of the United States. To pro-vide tax return preparation services for E, P requires

the assistance of and needs to disclose E’s tax returninformation to a tax return preparer who works forP’s affiliate located in the country where E works. Pmay condition its provision of tax return preparationservices upon E consenting to the disclosure of E’stax return information to the tax return preparer inthe country where E works.

(3) The form and contents of taxpayerconsents—(i) In general. All consents todisclose or use tax return information mustsatisfy the following requirements—

(A) A taxpayer’s consent to a tax returnpreparer’s disclosure or use of tax returninformation must include the name of thetax return preparer and the name of thetaxpayer.

(B) If a taxpayer consents to a disclo-sure of tax return information, the con-sent must identify the intended purposeof the disclosure. Except as provided in§301.7216–3(a)(3)(iii), if a taxpayer con-sents to a disclosure of tax return informa-tion, the consent must also identify the spe-cific recipient (or recipients) of the tax re-turn information. If the taxpayer consentsto use of tax return information, the con-sent must describe the particular use au-thorized. For example, if the tax returnpreparer intends to use tax return informa-tion to generate solicitations for productsor services other than tax return prepara-tion, the consent must identify each spe-cific type of product or service for whichthe tax return preparer may solicit use ofthe tax return information. Examples ofproducts or services that must be identifiedinclude, but are not limited to, balance dueloans, mortgage loans, mutual funds, indi-vidual retirement accounts, and life insur-ance.

(C) The consent must specify the taxreturn information to be disclosed or usedby the return preparer.

(D) If a tax return preparer to whom thetax return information is to be disclosedis located outside of the United States,the taxpayer’s consent under §301.7216–3prior to any disclosure is required. See§301.7216–2(c) and (d).

(E) A consent to disclose or use tax re-turn information must be signed and datedby the taxpayer.

(ii) The form and contents of taxpayerconsents with respect to taxpayers fil-ing a return in the Form 1040 series —guidance describing additional require-ments for taxpayer consents with respectto Form 1040 series filers. The Secre-tary may issue guidance, by publication

in the Internal Revenue Bulletin (see§601.601(d)(2)(ii)(b) of this chapter), de-scribing additional requirements for taxreturn preparers regarding the format andcontent of consents to disclose and use taxreturn information with respect to taxpay-ers filing a return in the Form 1040 series,e.g., Form 1040, Form 1040NR, Form1040A, or Form 1040EZ.

(iii) The form and contents of taxpayerconsents with respect to all other taxpay-ers. A consent to disclose or use tax returninformation with respect to a taxpayer notfiling a return in the Form 1040 seriesmay be in any format, including an en-gagement letter to a client, as long as theconsent complies with the requirementsof §301.7216–3(a)(3)(i). Additionally,the requirements of §301.7216–3(c)(1)are inapplicable to consents to disclose oruse tax return information with respect totaxpayers not filing a return in the Form1040 series. Solely for purposes of a con-sent issued under §301.7216–3(a)(3)(iii),in lieu of identifying specific recipi-ents of an intended disclosure under§301.7216–3(a)(3)(i)(B), a consent mayallow disclosure to a descriptive class ofentities engaged by a taxpayer or the tax-payer’s affiliate for purposes of servicesin connection with the preparation of taxreturns, audited financial statements, orother financial statements or financial in-formation as required by a governmentauthority, municipality or regulatory body.

(iv) Examples. The application of§301.7216–3(a)(3)(iii) may be illustratedby the following examples:

Example 1. Consistent with applicable legal andethical responsibilities, Preparer Z sends its client, acorporation, Taxpayer C, an engagement letter. Partof the engagement letter requests the consent of Tax-payer C for the purpose of disclosing tax return infor-mation to an investment banking firm to assist the in-vestment banking firm in securing long term financ-ing for Taxpayer C. The engagement letter includeslanguage and information that meets the requirementsof §301.7216–3(a)(3)(i), including: (I) Preparer Z’sname, Taxpayer C’s name, and a signature and dateline for Taxpayer C; and (II) a statement that “Tax-payer C authorizes Preparer Z to disclose the portionsof Taxpayer C’s 2009 tax return information to thefirm retained by Taxpayer C necessary for the pur-poses of assisting Taxpayer C secure long term fi-nancing.” The engagement letter satisfies the require-ments of §301.7216–3(a)(3) for the disclosure of theinformation provided therein for the specific purposestated.

Example 2. Consistent with applicable legal andethical responsibilities, Preparer N sends its client, acorporation, Taxpayer D, an engagement letter. Partof the engagement letter requests the consent of Tax-

February 4, 2008 361 2008–5 I.R.B.

payer D for the purpose of disclosing tax return infor-mation to Preparer N’s affiliated firms located outsideof the United States for the purposes of preparation ofTaxpayer D’s 2009 tax return. The engagement let-ter includes language and information that meets therequirements of §301.7216–3(a)(3)(i), including: (I)Preparer N’s name, Taxpayer D’s name, and a sig-nature and date line for Taxpayer D; (II) a statementthat “Taxpayer D authorizes Preparer N to discloseTaxpayer D’s 2009 tax return information to PreparerN’s affiliates located outside of the United States forthe purposes of assisting Preparer N prepare TaxpayerD’s 2009 tax return”; and (III) a statement that, inproviding consent, Taxpayer D acknowledges that itstax return information for 2009 will be disclosed totax return preparers located abroad. The engagementletter satisfies the requirements of §301.7216–3(a)(3)for the disclosure of the information provided thereinfor the specific purpose stated.

(b) Timing requirements and limita-tions—(1) No retroactive consent. Ataxpayer must provide written consent be-fore a tax return preparer discloses or usesthe taxpayer’s tax return information.

(2) Time limitations on requesting con-sent in solicitation context. A tax returnpreparer may not request a taxpayer’s con-sent to disclose or use tax return informa-tion for purposes of solicitation of businessunrelated to tax return preparation after thetax return preparer provides a completedtax return to the taxpayer for signature.

(3) No requests for consent after an un-successful request. With regard to tax re-turn information for each income tax re-turn that a tax return preparer prepares, ifa taxpayer declines a request for consentto the disclosure or use of tax return infor-mation for purposes of solicitation of busi-ness unrelated to tax return preparation, thetax return preparer may not solicit fromthe taxpayer another consent for a purposesubstantially similar to that of the rejectedrequest.

(4) No consent to the disclosure of ataxpayer’s social security number to a re-turn preparer outside of the United States.A tax return preparer located within theUnited States, including any territory orpossession of the United States, may notobtain consent to disclose the taxpayer’ssocial security number (SSN) to a tax re-turn preparer located outside of the UnitedStates or any territory or possession of theUnited States. Thus, if a tax return pre-parer located within the United States (in-

cluding any territory or possession of theUnited States) obtains consent from a tax-payer to disclose tax return information toanother tax return preparer located outsideof the United States, as provided under§§301.7216–2(c) and 301.7216–2(d), thetax return preparer located in the UnitedStates may not disclose the taxpayer’sSSN, and the tax return preparer mustredact or otherwise mask the taxpayer’sSSN before the tax return information isdisclosed outside of the United States. Ifa tax return preparer located within theUnited States initially receives or obtainsa taxpayer’s SSN from another tax returnpreparer located outside of the UnitedStates, however, the tax return preparerwithin the United States may, withoutconsent, retransmit the taxpayer’s SSNto the tax return preparer located outsidethe United States that initially providedthe SSN to the tax return preparer locatedwithin the United States.

(5) Duration of consent. A consent doc-ument may specify the duration of the tax-payer’s consent to the disclosure or use oftax return information. If a consent agreedto by the taxpayer does not specify the du-ration of the consent, the consent to thedisclosure or use of tax return informationwill be effective for a period of one yearfrom the date the taxpayer signed the con-sent.

(c) Special rules—(1) Multiple dis-closures within a single consent form ormultiple uses within a single consent form.A taxpayer may consent to multiple useswithin the same written document, or mul-tiple disclosures within the same writtendocument. A single written document,however, cannot authorize both uses anddisclosures; rather one written documentmust authorize the uses and another sep-arate written document must authorizethe disclosures. Furthermore, a consentthat authorizes multiple disclosures ormultiple uses must specifically and sepa-rately identify each disclosure or use. See§301.7216–3(a)(3)(iii) for an exception tothis rule for certain taxpayers.

(2) Disclosure of entire return. A con-sent may authorize the disclosure of all in-formation contained within a return. A

consent authorizing the disclosure of anentire return must provide that the taxpayerhas the ability to request a more limiteddisclosure of tax return information as thetaxpayer may direct.

(3) Copy of consent must be providedto taxpayer. The tax return preparer mustprovide a copy of the executed consent tothe taxpayer at the time of execution. Therequirements of this paragraph (c)(3) mayalso be satisfied by giving the taxpayer theopportunity, at the time of executing theconsent, to print the completed consent orsave it in electronic form.

(d) Effective/applicability date. Thissection applies to disclosures or uses oftax return information occurring on or af-ter January 1, 2009.

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

Approved December 21, 2007.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on January 3,2008, 8:58 a.m., and published in the issue of the FederalRegister for January 7, 2008, 73 F.R. 1058)

Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


2008–5 I.R.B. 362 February 4, 2008

Part III. Administrative, Procedural, and MiscellaneousLife Insurance Reserves —Proposed AG VACARVM andLife PBR

Notice 2008–18

SECTION 1. PURPOSE

The purpose of this notice is to alert lifeinsurance companies to federal incometax issues that may arise as a result of theadoption of proposed Actuarial GuidelineVACARVM (Proposed AG VACARVM)and/or a proposed principles-based ap-proach for calculating statutory reservesfor life insurance (Proposed Life PBR).This notice identifies areas in which theTreasury Department and Internal Rev-enue Service (IRS) have concerns, andinvites comments on these and other is-sues.

SECTION 2. BACKGROUND

.01 In general, a life insurance companymust pay tax on its life insurance companytaxable income, which is defined in sec-tion 801(b) to mean life insurance gross in-come less life insurance deductions. Lifeinsurance gross income is defined in sec-tion 803(a) to mean the sum of (i) pre-miums, (ii) net decreases in certain re-serves under section 807(a), and (iii) otheramounts generally included by a taxpayerin gross income. Section 805(a)(2) au-thorizes a deduction for the net increasein certain reserves under section 807(b).The reserves taken into account under sec-tion 807(a) and (b) include life insurancereserves. Accordingly, clear reflection oftaxable income of a life insurance com-pany requires an appropriate measurementof the company’s life insurance reserves.

.02 Methods of computing life insur-ance reserves are set forth section 807(d).Section 807(d)(1) provides generally thatthe amount of the life insurance reservefor any contract shall be the greater of thenet surrender value of such contract undersection 807(e)(1) or the federally pre-scribed reserve determined under section807(d)(2). This amount cannot, however,exceed the amount that would be takeninto account with respect to that contractin determining statutory reserves (i.e.,the aggregate reserve amount set forth

in the issuer’s annual statement). Sec-tion 807(e)(1) states that the net surrendervalue of any contract shall be determinedwith regard to any penalty or charge thatwould be imposed on surrender but with-out regard to any market value adjustmenton surrender. Section 807(d)(2) providesthat the federally prescribed reserve for acontract is computed using (a) a tax reservemethod, (b) the greater of the applicableFederal interest rate or the prevailing Stateassumed rate, and (c) the prevailing com-missioners’ standard tables for mortalityand morbidity.

.03 With respect to annuity con-tracts, section 807(d)(3)(A)(ii) and807(d)(3)(B)(ii) requires the use of a taxreserve method that is the Commission-ers’ Annuity Reserve Valuation Method(CARVM) prescribed by the NationalAssociation of Insurance Commissioners(NAIC) which is in effect on the date of theissuance of the contract. Likewise, withrespect to life insurance contracts, section807(d)(3)(A)(i) and 807(d)(3)(B)(i) re-quires the use of a tax reserve method thatis the Commissioners’ Reserve ValuationMethod (CRVM) prescribed by the NAICwhich is in effect on the date of the is-suance of the contract. Other parameters,such as the interest rate and appropriatemortality tables, are likewise generallydetermined as of the date the contract isissued.

.04 Under section 816, an insurancecompany is a life insurance company if thesum of (1) its life insurance reserves, plus(2) unearned premiums, and unpaid losses(whether or not ascertained), on noncan-cellable life, accident, or health policiesnot included in life insurance reserves,comprise more than 50 percent of its to-tal reserves. Life insurance reserves aredefined as amounts (1) computed or esti-mated on the basis of recognized mortalityor morbidity tables and assumed rates ofinterest, and (2) set aside to mature or liq-uidate, either by payment or reinsurance,future unaccrued claims arising from lifeinsurance, annuity, and noncancellableaccident and health insurance contracts(including life insurance or annuity con-tracts combined with noncancellable ac-cident and health insurance) involving, atthe time with respect to which the reserve

is computed, life, accident, or health con-tingencies. Reserves must be required bylaw to qualify as life insurance reserves.

.05 Section 7702(a) defines a life insur-ance contract as any contract that is a lifeinsurance contract under the applicablelaw, but only if such contract (1) meets thecash value accumulation test of section7702(b); or (2)(A) meets the guidelinepremium requirements of section 7702(c),and (B) falls within the cash value corri-dor of section 7702(d). A contract meetsthe guideline premium requirements ifthe sum of the premiums paid under suchcontract does not at any time exceed theguideline premium limitation as of suchtime. The term “guideline premium limi-tation” means, as of any date, the greaterof the guideline single premium, or thesum of the guideline level premiums tosuch date. The term “guideline singlepremium” means the premium at issuewith respect to future benefits under thecontract. The determination of the guide-line single premium is based, in part, onreasonable mortality charges that meet therequirements (if any) prescribed in reg-ulations and that (except as provided inregulations) do not exceed the mortalitycharges specified in the prevailing com-missioners’ standard tables (as definedin section 807(d)(5)) as of the time thecontract is issued.

.06 Two reserve methodology projectsare underway with the American Acad-emy of Actuaries (AAA) and NationalAssociation of Insurance Commission-ers (NAIC). Proposed AG VACARVMwould set forth a new Actuarial Guidelinethat would constitute CARVM for vari-able annuities. See “Actuarial GuidelineVACARVM—CARVM for Variable An-nuities Redefined,” NAIC, 9/29/2007. AnActuarial Guideline is an interpretationby the NAIC of existing state valuationlaw and regulations. Proposed Life PBRwould set forth a principles-based ap-proach for calculating statutory reserveson life insurance contracts. This secondproject would take the form of a sec-tion of a proposed valuation manual thatwould be adopted pursuant to a proposedchange to the standard valuation law.See “VM–20: Requirements for Princi-

February 4, 2008 363 2008–5 I.R.B.

ples-Based Reserves for Life Products,”NAIC, 9/29/2007.

.07 The purpose of ProposedAG VACARVM is to interpret thestandards for the valuation of reservesfor variable annuity and other contractsinvolving certain guaranteed benefitssimilar to those offered with variableannuities. The aggregate reserve forcontracts falling within the scope ofProposed AG VACARVM would equalthe greater of a standard scenario amountand a conditional tail expectation (CTE)amount. The standard scenario amountwould be the aggregate amount ofthe reserves determined by applying astandard scenario to each of the contractsfalling within the scope of the guideline.The CTE amount would represent theaverage of a specified percent of thelargest accumulated deficiencies producedby a projection of the contracts fallingwithin the scope of the guidance (and theassets supporting those contracts) over arange of stochastically generated scenariosusing prudent estimate assumptions. Forexample, CTE (70) would equal theaverage of the largest 30 percent of thepresent value of accumulated deficiencies.Proposed AG VACARVM would includea methodology for allocating the aggregatereserve to the contracts falling within thescope of the Guideline. Once effective,Proposed AG VACARVM would affectall contracts issued on or after January 1,1981.

.08 The purpose of Proposed Life PBRwould be to define the minimum valu-ation standard under a principles-basedapproach for individual life insurance poli-cies. The reported aggregate reserve forpolicies falling within the scope of Pro-posed Life PBR would equal an amountcomputed using a stochastic method(stochastic reserve), but not less thanan amount calculated using a seriatim,deterministic method (deterministic re-serve). The deterministic reserve wouldbe determined using a seriatim (i.e., con-tract-by-contract) approach based on aprojection of net cash flows over a singlescenario, using prudent estimate assump-tions for parameters or variables that arenot prescribed. The stochastic reservewould be calculated in the aggregate basedon a projection of net cash flows overa range of stochastically generated sce-narios, using prudent estimate assumed

values for all parameters and variables thatare not prescribed or stochastically mod-eled, and then applying a prescribed CTElevel. Proposed Life PBR would requirethat a reserve based on company-specificand industry experience serve as the ba-sis for identifying (i.e., mapping to) theNAIC prescribed table that must be used.Like Proposed AG VACARVM, ProposedLife PBR would include a methodologyfor allocating the aggregate reserve to thecontracts falling within the scope of LifePBR. A company would be permitted toexclude certain policies from the stochas-tic modeling requirement if the policiesmet certain prescribed conditions.

SECTION 3. DISCUSSION

The Treasury Department and IRSare mindful that if sections 807, 816 and7702 are not amended by Congress inanticipation of Proposed AG VACARVMand Proposed Life PBR, taxpayers willneed timely guidance on how to filetheir federal income tax returns onceProposed AG VACARVM and ProposedLife PBR have been adopted. TheTreasury Department and IRS believethat the issues raised in this notice aremost appropriately considered togetherto the extent they affect both projects.Although these projects remain indevelopment, the following paragraphs setforth a preliminary, nonexclusive list offederal income tax issues that have beenidentified. The paragraphs also identifysome of the approaches that the TreasuryDepartment and IRS may consider toaddress these issues, subject to furtherstudy and public comment.

.01 Continued taxation of issuers underPart 1 of Subchapter L. Some commen-tators have asked whether reserves deter-mined under Proposed AG VACARVM orProposed Life PBR would constitute “lifeinsurance reserves” within the meaning ofsection 816(b). The Treasury Departmentand IRS think it would be inappropriate toapply a literal application of the 50-percentreserve ratio test of section 816(a), suchthat all life insurance companies would betaxed under part 2 of subchapter L, ratherthan part 1 of that subchapter, due solely tochanges in the methodology of determin-ing such reserves for purposes of statutoryaccounting. To prevent this result, if Pro-posed AG VACARVM or Proposed Life

PBR is adopted, the Treasury Departmentand IRS may publish guidance that would(i) require the continued use of statutoryreserves for purposes of the reserve ratiotest, even if those reserves are determinedunder Proposed AG VACARVM or Pro-posed Life PBR; (ii) require the contin-ued use of CARVM or CRVM, as applica-ble, under such terms as applied before theadoption of Proposed AG VACARVM orProposed Life PBR; (iii) apply principlessimilar to those of Prop. Reg. § 1.801–4(g)to ensure that reserves with respect to lifeinsurance and annuity contracts are appro-priately accounted for in the reserve ratiotest of section 816(a); or (iv) require theuse of only the standard scenario amount(in the case of Proposed AG VACARVM)or deterministic reserve (in the case of Pro-posed Life PBR) for purposes of the re-serve ratio test.

.02 Qualification of contracts as lifeinsurance contracts. Likewise, some com-mentators have asked whether the adop-tion of Proposed Life PBR would renderit impossible for issuers of life insur-ance contracts to satisfy the requirementof section 7702(c)(3)(B) that reasonablemortality charges not exceed the mortalitycharges specified in “the commissioners’standard mortality tables” as defined insection 807(d)(5). The Treasury Depart-ment and IRS think it is inappropriatefor a change in statutory accounting un-der section 807(d) to effect a wholesalechange in the standards for qualificationof contracts as “life insurance contracts”under section 7702. To prevent this result,if Proposed Life PBR is adopted, the Trea-sury Department and IRS may (i) exercisethe authority under section 7702(c)(3)(B)either to prescribe mortality tables or topermit the continued use of the 1980 Com-missioners’ Standard Ordinary mortalityand morbidity tables (1980 CSO tables) orthe 2001 Commissioners’ Standard Ordi-nary mortality and morbidity tables (2001CSO tables), as appropriate, to satisfy thereasonable mortality charge requirementof that section; or (ii) provide a reasonableinterpretation of the prevailing commis-sioners’ standard mortality tables undersection 807 that would not render the crossreference in section 7702(c)(3)(B) mean-ingless. See section 3.05, below.

.03 Contract-by-contract versus aggre-gate reserves. The Treasury Departmentand IRS believe that the standard scenario

2008–5 I.R.B. 364 February 4, 2008

or deterministic reserve determined underProposed AG VACARVM or ProposedLife PBR would more closely resemblethe methodology in effect when Congressenacted section 807 in 1984 than wouldthe CTE amount or stochastic reserve. Forexample, a reserve determined under thestandard scenario or under the determin-istic reserve methodology (i) would bedetermined on a contract-by-contract ba-sis; (ii) would be based upon an expectedvalue, rather than the worst case tail of adistribution of outcomes; and (iii) in thecase of Proposed AG VACARVM, wouldbe determined based on standard, indus-try-wide interest rate and mortality factors,rather than on prudent estimates that varyfrom company to company. Both Pro-posed AG VACARVM and Proposed LifePBR would provide a methodology forapportioning stochastically-determinedreserve amounts among individual con-tracts. The Treasury Department and IRS,however, are concerned more fundamen-tally that because the CTE amount (underProposed AG VACARVM) or stochas-tic reserve (under Proposed Life PBR)would not represent an expected value of acompany’s obligations with respect to theunderlying contracts, some or all of theseamounts are nondeductible “solvency” or“contingency” reserves. If this concern isnot satisfied, the Treasury Department andIRS may (i) permit a contract-by-contractapportionment of a stochastically-de-termined reserve, but with appropriateadjustments so that reserve reflects an ex-pected value of the company’s obligations(for example, by adjusting the CTE from65 to 0, assuming that the chosen scenar-ios have a uniform probability distributionand the scenarios not chosen have a zeroprobability); (ii) conclude that the method-ology of Proposed AG VACARVM orProposed Life PBR is so different fromthat which was in effect when Congressenacted section 807 in 1984 that taxpay-ers must continue to apply section 807as if Proposed AG VACARVM or Pro-posed Life PBR had not been adopted; or(iii) interpret the statutory cap under sec-tion 807(d)(1) and CARVM/CRVM undersection 807(d)(2) to encompass only thestandard scenario amount (in the case ofProposed AG VACARVM) or the deter-ministic reserve (in the case of ProposedLife PBR).

.04 Prevailing state assumed interestrate. Section 807(d)(2)(B) requires thatthe tax reserve with respect to a contractbe determined using the greater of the ap-plicable Federal interest rate (AFR) or theprevailing State assumed rate. It has beensuggested that in the case of Proposed LifePBR, the absence of a single, prescribedinterest rate means that taxpayers shouldbe allowed to determine tax reserves sim-ply using the AFR. This approach, how-ever, would nullify an important safeguardagainst situations where the AFR is an in-appropriately low rate for determining afair valuation of the tax reserve with re-spect to a contract. Rather than interpretthe term “prevailing State assumed interestrate” to refer to a null set, the Treasury De-partment and IRS may require the use of arate that is the greater of the AFR and someother objective rate or rates, such as (i) therate implicit in the aggregate reserves thatare determined stochastically; (ii) the rateused by the company in pricing the con-tract; or (iii) the rate used to determine thedeterministic reserve.

.05 Prevailing mortality tables. TheTreasury Department and IRS are con-cerned that determining an aggregate re-serve stochastically and, after the fact, us-ing the reserve so determined to “map” toone of a large number of NAIC-approvedmortality tables would not satisfy the re-quirement of section 807(d)(2) that theprevailing commissioners’ standard tablesbe used for purposes of determining thetax reserve for a contract. If this concern isnot satisfied, the Treasury Department andIRS may interpret the prevailing commis-sioners’ standard mortality tables undersection 807(d)(5) to mean either (i) the2001 CSO mortality tables; (ii) the mortal-ity tables, if any, which served as the basisfor pricing the particular contract; (iii) ifmore than one standard mortality table oroption could apply to a particular contract,whichever table generally would yield thelowest reserve for the contract (see sec-tion 807(d)(5)(E)); or (iv) in the case ofProposed AG VACARVM, the mortalitytables used for purposes of determiningthe standard scenario amount with respectto a contract,

.06 Transition rules: applicationto in-force contracts. If ProposedAG VACARVM or Proposed Life PBRis adopted, it is anticipated the newrules would apply for federal income

tax purposes only to contracts that areissued after the date of adoption and notto previously issued contracts that arein force on that date, regardless of theapplicability of the new rules to previouslyissued contracts for regulatory purposes.The Treasury Department and IRS assumethis approach would render moot anyissue concerning the applicability of a10-year spread under section 807(f) foradjustments resulting from the adoption ofthese proposed rules.

.07 Tax principles that override statu-tory accounting. Notwithstanding thedeference accorded statutory accountingunder subchapter L, the Treasury Depart-ment and IRS do not anticipate changesto existing guidance that requires that taxprinciples override statutory accountingprinciples in appropriate cases. See, e.g.,§ 1.801–4(e) (enumerating reserves andliabilities that do not qualify as life in-surance reserves for federal income taxpurposes).

.08 Tax administration. As a matterof tax administration, the Treasury De-partment and IRS are concerned that thedegree of discretion that would be vestedin taxpayers to determine the CTE amount(under Proposed AG VACARVM) or thestochastic reserve (under Proposed LifePBR) could render those amounts diffi-cult or impossible for examiners to audit.These concerns will weigh heavily in theresolution of the issues identified in sec-tions 3.01 through 3.07, and may weighin favor of recognizing only the standardscenario amount (in the case of ProposedAG VACARVM) or the deterministic re-serve (in the case of Proposed Life PBR).

SECTION 4. REQUEST FORCOMMENTS

.01 The Treasury Department and IRSrequest comments on the issues raisedin this notice, and on any other issuesthat will need to be addressed if Pro-posed AG VACARVM or Proposed LifePBR are adopted by one or more statesand Congress has not amended sections807, 816 and 7702. In addition, com-ments are requested regarding the fol-lowing issues: (i) What is the status ofany efforts to model the effects of Pro-posed AG VACARVM or Proposed LifePBR, either on a company-by-companybasis, a product-by-product basis, or

February 4, 2008 365 2008–5 I.R.B.

industry-wide? (ii) What is the relevanceof a tax or regulatory characterization ofProposed AG VACARVM and ProposedLife PBR as CARVM or CRVM,respectively, for purposes of applyingsection 807? Does such a characterizationlimit or broaden the discretion of theTreasury Department and IRS to provideguidance? (For example, if ProposedAG VACARVM and Proposed LifePBR are characterized as CARVM orCRVM, respectively, for regulatorypurposes, could the Treasury Departmentand IRS nevertheless conclude theydo not constitute CARVM or CRVMas Congress envisioned those terms toapply in 1984; alternatively, if ProposedAG VACARVM and Proposed Life PBRwere not characterized as CARVM orCRVM, respectively, for purposes ofapplying section 807, could ProposedAG VACARVM and Proposed Life PBRnonetheless be required as the appropriatetax reserve method under the authorityof section 807(d)(3)(A)(iv)); (iii) whatcriteria or other parameters would limitthe selection of scenarios taken intoaccount in determining the CTE amount(under Proposed AG VACARVM) or thestochastic reserve (under Proposed LifePBR); and (iv) In the case of Proposed LifePBR, what is the appropriate treatmentof company-specific expense, lapse andmargin assumptions for purposes ofapplying section 807? For example, aresuch assumptions permitted to be takeninto account at all, either for purposesof the federally-prescribed reserve orthe statutory reserve cap? If so, whatlimits apply to a taxpayer’s discretion withrespect to those assumptions, and would a10-year spread result under section 807(f)from the unlocking of those assumptionsin later years?

.02 The Treasury Department and IRSare concerned about the use of a grosspremium valuation methodology in thecase of Proposed Life PBR, because sucha methodology generally is not permittedunder existing authorities. See, e.g., Mary-land Casualty Co. v. U.S., 251 U.S. 342(1920), § 1.801–4(e), Rev. Rul. 77–451,1977–2 C.B. 224. In general, a grosspremium valuation takes into account thepresent value of all cash flows under thecontract, including future death benefits,future surrender benefits, premiums, fu-ture profits, and future expenses. Thus, a

reserve determined using a gross premiumvaluation may include amounts, such asfuture expenses and margins, that are notnow included in life insurance reserves forfederal income tax purposes. How will agross premium valuation under ProposedLife PBR differ from current valuationmethods? Is the discretion to permit agross premium valuation methodology forfederal income tax purposes limited bysections 461 and 811, or by the deficiencyreserve rule of section 807(d)(3)(C)?Are similar issues raised in the case ofProposed AG VACARVM? If not, are ex-pense, policy owner behavior, surrenderrates, and other parameters nonethelessincluded in the valuation of reserves underProposed AG VACARVM?

03. The Treasury Department and theIRS are concerned that, except in the caseof the standard scenario under ProposedAG VACARVM, the proposed methodscontemplate revising certain parametersand assumptions on an annual basis. Howis this procedure consistent with the exist-ing statutory framework that contemplatesthat such parameters and assumptions aredetermined as of the date a contract isissued, and, in general, are not adjustedthereafter? Would such annual changes inassumptions constitute a change of basissubject to a 10-year spread under section807(f)?

.04 Comments should be submitted inwriting on or before May 5, 2008, andshould contain a reference to this Notice2008–18. Comments may be submittedto CC:PA:LPD:PR (Notice 2008–18),Room 5203, Internal Revenue Service,P.O. Box 7604, Ben Franklin Station,Washington, DC 20044. Alternativelycomments may be submitted electroni-cally via the following e-mail address:[email protected] include “Notice 2008–18” inthe subject line of any electroniccommunications.

.05 Submissions may be hand-deliveredMonday through Friday between the hoursof 8 a.m. and 4 p.m. to CC:PA:LPD:PR(Notice 2008–18), Courier’s Desk, Inter-nal Revenue Service, 1111 ConstitutionAvenue, NW, Washington, DC 20224. Allcomments will be available for public in-spection and copying.

DRAFTING INFORMATION

The principal author of this notice isJames A. Polfer of the Office of the Asso-ciate Chief Counsel (Financial Institutions& Products). For further information re-garding this notice, contact Mr. Polfer at(202) 622–3970 (not a toll-free call).

Cell Captive InsuranceArrangements: InsuranceCompany Characterizationand Certain Federal TaxElections

Notice 2008–19

SECTION 1. PURPOSE

Rev. Rul. 2008–8, this Bulletin, pro-vides guidance on the standards for deter-mining whether an arrangement betweena participant and cell of a Protected CellCompany (defined below) constitutes in-surance for federal income tax purposes,and whether amounts paid to the cell aredeductible as “insurance premiums” under§ 162 of the Internal Revenue Code. Thepurpose of this notice is to request com-ments on further guidance to address is-sues that arise if those arrangements doconstitute insurance, specifically (a) thestatus of such a cell as an insurance com-pany within the meaning of §§ 816(a) and831(c), and (b) some of the consequencesof a cell’s status as an insurance company.


.01 Under §§ 816(a) and 831(c), an in-surance company is any company morethan half the business of which during thetaxable year is the issuing of insuranceor annuity contracts or the underwritingof risks underwritten by insurance com-panies. Although its name, charter pow-ers, and subjection to State insurance lawsare significant in determining the businesswhich a company is authorized and in-tends to carry on, it is the character ofthe business actually done in the taxableyear which determines whether a companyis taxable as an insurance company underthe Internal Revenue Code. Treas. Reg.§ 1.801–3(a)(1).

2008–5 I.R.B. 366 February 4, 2008

.02 A taxpayer that qualifies as an in-surance company is treated as a corpora-tion under § 7701(a)(3), even if it wouldnot otherwise be classified as a corporationfor state law purposes or under other pro-visions of the Code. Thus, for example,in Rev. Rul. 83–132, 1983–2 C.B. 270,a non-corporate business entity was heldto be an insurance company, and there-fore a “corporation” within the meaning of§ 7701(a)(3), because its primary and pre-dominant business activity was underwrit-ing insurance risks.

.03 An insurance company is subject totax under either Part I or Part II of Sub-chapter L, as applicable, and is eligible tomake a number of elections. For exam-ple, § 831(b) permits certain small insur-ance companies other than life insurancecompanies to elect to be taxed only on tax-able investment income (and not on under-writing income); § 846(e) permits an insur-ance company to compute discounted un-paid losses using the company’s historicalpayment patterns, rather than the historicalpayment patterns determined by the Secre-tary under § 846(d); and § 953(d) generallypermits a controlled foreign corporation toelect to be treated as a domestic corpora-tion if it would qualify to be taxed undersubchapter L (that is, as an insurance com-pany) if it were a domestic corporation.See also Rev. Proc. 2003–47, 2003–2 C.B.55 (setting forth procedural rules regardingthe election under § 953(d)).

.04 A number of jurisdictions havestatutes that provide for the chartering ofa legal entity commonly known as a pro-tected cell company, segregated accountcompany or segregated portfolio com-pany (“Protected Cell Company”). Rev.Rul. 2008–8, this Bulletin, sets forth factsthat are typical of arrangements involvingProtected Cell Companies and providesguidance on how to determine whethersuch an arrangement qualifies as insurancefor federal income tax purposes.

.05 Section 3 of this Notice sets forthproposed guidance that would address (a)when a cell of a Protected Cell Companyis treated as an insurance company for fed-eral income tax purposes, and (b) some ofthe consequences of the treatment of a cellas an insurance company. The proposedguidance, if adopted, may take the form ofa regulation, revenue ruling, revenue pro-cedure, or other Internal Revenue Bulletinpublication.

SECTION 3. PROPOSED GUIDANCE

.01 In general. The proposed guidancewould include a rule to the effect that acell of a Protected Cell Company would betreated as an insurance company separatefrom any other entity if:

(a) the assets and liabilities of the cellare segregated from the assets and liabil-ities of any other cell and from the assetsand liabilities of the Protected Cell Com-pany such that no creditor of any othercell or of the Protected Cell Company maylook to the assets of the cell for the satisfac-tion of any liabilities, including insuranceclaims (except to the extent that any othercell or the Protected Cell Company has adirect creditor claim against such cell); and

(b) based on all the facts and circum-stances, the arrangements and other activ-ities of the cell, if conducted by a corpora-tion, would result in its being classified asan insurance company within the meaningof §§ 816(a) or 831(c).

.02 Effect of insurance company treat-ment at the cell level. Consistent with theproposed rule:

(a) Any tax elections that are availableby reason of a cell’s status as an insurancecompany would be made by the cell (or,in certain circumstances, by the parent ofa consolidated group) and not by the Pro-tected Cell Company of which it is a part;

(b) The cell would be required to applyfor and receive an employer identificationnumber (EIN) if it is subject to U.S. taxjurisdiction;

(c) The activities of the cell would bedisregarded for purposes of determiningthe status of the Protected Cell Companyas an insurance company for federal in-come tax purposes;

(d) The cell (or, in certain circum-stances, the parent of a consolidated group)would be required to file all applicablefederal income tax returns and pay allrequired taxes with respect to its income;and

(e) A Protected Cell Company wouldnot take into account any items of income,deduction, reserve or credit with respectto any cell that is treated as an insurancecompany under section 3.01.

.03 No inference. No inference shouldbe drawn regarding the treatment of a cellthat does not meet the requirements to betreated as an insurance company separatefrom any other entity under section 3.01

or regarding the treatment of the ProtectedCell Company of which it is a part.

.04 Effective date. The proposed guid-ance would be effective for the first taxableyear beginning more than 12 months afterthe date the guidance is published in finalform.

SECTION 4. REQUEST FORCOMMENTS

Statutes under which Protected CellCompanies are chartered differ among var-ious jurisdictions, and cell arrangementsdiffer among taxpayers due to variationsin contractual terms. In order to ensurethat entity classification and federal taxelections for Protected Cell Companies areboth legally correct and administrable inall cases, the Service requests commentson the proposed guidance described insection 3 of this Notice. In particular, theService requests comments on (a) whattransition rules may be appropriate or nec-essary for Protected Cell Companies, orcells of such companies, if a ProtectedCell Company is not currently follow-ing the rule in section 3.01, or if a cellof such a company qualifies as an in-surance company for some taxable yearsbut not for others; (b) what reporting, ifany, would be necessary on the part ofan individual cell to ensure that a Pro-tected Cell Company has the informationneeded to comply with section 3.02(c)and (e); (c) whether different or specialrules should apply with respect to foreignentities, including controlled foreign cor-porations; (d) whether further guidancewould be needed concerning the propertreatment of Protected Cell Companiesand their cells under the rules regardingconsolidated returns. The Service alsorequests comments on what guidance,if any, would be appropriate concerningsimilar segregated arrangements that donot involve insurance. Written commentsmay be submitted to the Office of theAssociate Chief Counsel (Financial In-stitutions & Products), Attention: ChrisLieu (Notice 2007–YY), Room 3552,CC:FIP:4, Internal Revenue Service,1111 Constitution Avenue, NW, Washing-ton, DC 20224. Alternatively, taxpayersmay submit comments electronically [email protected] Service requests any comments byMay 4, 2008.

February 4, 2008 367 2008–5 I.R.B.

DRAFING INFORMATION

The principal author of this notice isChris Lieu of the Office of the AssociateChief Counsel (Financial Institutions &Products). For further information regard-ing this notice, contact Mr. Chris Lieu at(202) 622–3970 (not a toll-free call).

26 CFR 301.7216: Disclosure or use of informationby preparers of returns.(Also 26 CFR 301.7216–3; section 6713).

Rev. Proc. 2008–12

SECTION 1. PURPOSE

This revenue procedure provides guid-ance to tax return preparers regarding theformat and content of consents to discloseand consents to use tax return informationwith respect to taxpayers filing a returnin the Form 1040 series, e.g., Form 1040,Form 1040NR, Form 1040A, or Form1040EZ, under section 301.7216–3 of theRegulations on Procedure and Adminis-tration (26 CFR Part 301). This revenueprocedure also provides specific require-ments for electronic signatures when ataxpayer executes an electronic consent tothe disclosure or use of the taxpayer’s taxreturn information.


.01 In general, section 7216(a) of theInternal Revenue Code imposes crimi-nal penalties on tax return preparers whoknowingly or recklessly make unautho-rized disclosures or uses of informationfurnished in connection with the prepara-tion of an income tax return. A violationof section 7216 is a misdemeanor, witha maximum penalty of up to one yearimprisonment or a fine of not more than$1,000, or both, together with the costs ofprosecution. Section 7216(b) establishesexceptions to the general rule in section7216(a) and also authorizes the Secretaryto promulgate regulations prescribing ad-ditional permitted disclosures and uses.

.02 Section 6713(a) prescribes a relatedcivil penalty for unauthorized disclosuresor uses of information furnished in connec-tion with the preparation of an income taxreturn. The penalty for violating section

6713 is $250 for each disclosure or use, notto exceed a total of $10,000 for a calendaryear. Section 6713(b) provides that the ex-ceptions in section 7216(b) also apply tosection 6713.

.03 Section 301.7216–3 provides that,unless section 7216 or § 301.7216–2specifically permits the disclosure or useof tax return information, a tax return pre-parer may not disclose or use a taxpayer’stax return information prior to obtain-ing a consent from the taxpayer. Sec-tion 301.7216–3(a) provides that consentmust be knowing and voluntary. Section301.7216–3(a)(3)(i) prescribes the formand content requirements that all consentsto disclose or use must include.

.04 Section 301.7216–3(a)(3)(ii) pro-vides that the Secretary may, by publi-cation in the Internal Revenue Bulletin,prescribe additional requirements for taxreturn preparers regarding the format andcontent of consents to disclose and con-sents to use tax return information withrespect to taxpayers filing a return in theForm 1040 series, as well as the require-ments for a valid signature on an electronicconsent under section 7216. This rev-enue procedure provides such additionalrequirements.

SECTION 3. SCOPE

This revenue procedure applies toall tax return preparers, as defined in§ 301.7216–1(b)(2), who seek consent todisclose or use tax return information pur-suant to § 301.7216–3 with respect to tax-payers who file a return in the Form 1040series, e.g., Form 1040, Form 1040NR,Form 1040A, or Form 1040EZ.

SECTION 4. FORM AND CONTENTOF A CONSENT TO DISCLOSE OR ACONSENT TO USE FORM 1040 TAXRETURN INFORMATION

.01 Separate Written Document. Ex-cept as provided by § 301.7216–3(c)(1)(special rule for multiple disclosures oruses within a single consent form), anddescribed in section 4.05, below, a tax-payer’s consent to each separate disclo-sure or use of tax return information mustbe contained on a separate written doc-ument, which can be furnished on paperor electronically. For example, the sepa-rate written document may be provided as

an attachment to an engagement letter fur-nished to the taxpayer.

.02 A consent furnished to the taxpayeron paper must be provided on one or moresheets of 81/2 inch by 11 inch or largerpaper. All of the text on each sheet ofpaper must pertain solely to the disclosureor use the consent authorizes, and the sheetor sheets, together, must contain all theelements described in section 4.04 and, ifapplicable, comply with section 4.06. Allof the text on each sheet of paper must alsobe in at least 12-point type (no more than12 characters per inch).

.03 An electronic consent must be pro-vided on one or more computer screens.All of the text placed by the preparer oneach screen must pertain solely to the dis-closure or use of tax return information au-thorized by the consent, except for com-puter navigation tools. The text of theconsent must meet the following specifi-cations: the size of the text must be atleast the same size as, or larger than, thenormal or standard body text used by thewebsite or software package for direction,communications or instructions and theremust be sufficient contrast between the textand background colors. In addition, eachscreen or, together, the screens must—

(1) contain all the elements describedin section 4.04 and, if applicable, complywith section 4.06,

(2) be able to be signed as required bysection 5 and dated by the taxpayer, and

(3) be able to be formatted in a readableand printer-friendly manner.

.04 Requirements for Every Consent.In addition to the requirements provided in§ 301.7216–3, consents to disclose or useForm 1040 series tax return informationmust satisfy the following requirements—

(1) Mandatory statements in the con-sent. The following statements must beincluded in a consent under the circum-stances described below, except that a taxreturn preparer may substitute the pre-parer’s name where “we” or “our” is used.

(a) Consent to disclose tax return in-formation in context other than tax prepa-ration or auxiliary services. Unless a taxreturn preparer is obtaining a taxpayer’sconsent to disclose the taxpayer’s tax re-turn information to another tax return pre-parer for the purpose of performing ser-vices that assist in the preparation of, orprovide auxiliary services (as defined in§ 301.7216–1(b)(2)(ii)) in connection with

2008–5 I.R.B. 368 February 4, 2008

the preparation of, the tax return of thetaxpayer, any consent to disclose tax re-turn information must contain the follow-ing statements in the following sequence:

Federal law requires this consentform be provided to you. Unless au-thorized by law, we cannot disclose,without your consent, your tax returninformation to third parties for purposesother than the preparation and filing ofyour tax return. If you consent to thedisclosure of your tax return informa-tion, Federal law may not protect yourtax return information from further useor distribution.

You are not required to complete thisform. If we obtain your signature onthis form by conditioning our serviceson your consent, your consent will notbe valid. If you agree to the disclosureof your tax return information, yourconsent is valid for the amount of timethat you specify. If you do not specifythe duration of your consent, your con-sent is valid for one year.(b) Consent to disclose tax return in-

formation in tax preparation or auxiliaryservices context. If a tax return pre-parer is obtaining a taxpayer’s consentto disclose the taxpayer’s tax return in-formation to another tax return preparerfor the purpose of performing servicesthat assist in the preparation of, or pro-vide auxiliary services (as defined in§ 301.7216–1(b)(2)(ii)) in connection withthe preparation of, the tax return of the tax-payer, any consent to disclose tax returninformation must contain the followingstatements in the following sequence:


You are not required to complete thisform. Because our ability to discloseyour tax return information to anothertax return preparer affects the servicethat we provide to you and its cost, wemay decline to provide you with serviceor change the terms of service that weprovide to you if you do not sign this

form. If you agree to the disclosure ofyour tax return information, your con-sent is valid for the amount of time thatyou specify. If you do not specify theduration of your consent, your consentis valid for one year.(c) Consent to use. All consents to

use tax return information must contain thefollowing statements in the following se-quence:

Federal law requires this consentform be provided to you. Unless autho-rized by law, we cannot use, withoutyour consent, your tax return informa-tion for purposes other than the prepa-ration and filing of your tax return.

You are not required to complete thisform. If we obtain your signature onthis form by conditioning our serviceson your consent, your consent will notbe valid. Your consent is valid for theamount of time that you specify. If youdo not specify the duration of your con-sent, your consent is valid for one year.(d) All consents must contain the fol-

lowing statement:If you believe your tax return informa-tion has been disclosed or used improp-erly in a manner unauthorized by law orwithout your permission, you may con-tact the Treasury Inspector General forTax Administration (TIGTA) by tele-phone at 1–800–366–4484, or by emailat [email protected].(e) Mandatory statement in any con-

sent to disclose tax return information toa tax return preparer located outside ofthe United States. If a tax return pre-parer to whom the tax return informationis to be disclosed is located outside of theUnited States, the taxpayer’s consent un-der § 301.7216–3 prior to any disclosure isrequired. See § 301.7216–2(c) and (d). Allconsents for disclosure of tax return infor-mation to a tax return preparer outside ofthe United States must contain the follow-ing statement:

This consent to disclose may result inyour tax return information being dis-closed to a tax return preparer locatedoutside the United States.(2) Affirmative consent. All consents

must require the taxpayer’s affirmativeconsent to a tax return preparer’s disclo-sure or use of tax return information. Aconsent that requires the taxpayer to re-move or “deselect” disclosures or uses that

the taxpayer does not wish to be made,i.e., an “opt-out” consent, is not permitted.

(3) Signature. All consents to discloseor use tax return information must besigned by the taxpayer.

(a) For consents on paper, the tax-payer’s consent to a disclosure or use mustcontain the taxpayer’s signature.

(b) For electronic consents, a taxpayermust sign the consent by any method pre-scribed in section 5, below.

(4) Incomplete consents. A tax returnpreparer shall not present a consent formwith blank spaces related to the purpose ofthe consent to the taxpayer for signature.

.05 Special rule for multiple disclosureswithin a single consent form or multipleuses within a single consent form. Section301.7216–3(c)(1) provides that a taxpayermay consent to multiple uses within thesame written document, or multiple disclo-sures within the same written document.Multiple disclosure consents and multipleuse consents must provide the taxpayerwith the opportunity, within the separatewritten document, to affirmatively selecteach separate disclosure or use. Further,the taxpayer must be provided the informa-tion in section 4.04 for each separate dis-closure or use. The mandatory statementsrequired in section 4.04(1) relating to useor disclosure need only be stated once ina multiple disclosure or multiple use con-sent.

.06 Disclosure of entire return. If, un-der § 301.7216–3(c)(2), a consent autho-rizes the disclosure of a copy of the tax-payer’s entire tax return or all informationcontained within a return, the consent mustprovide that the taxpayer has the ability torequest a more limited disclosure of tax re-turn information as the taxpayer may di-rect.

SECTION 5. ELECTRONICSIGNATURES

01. If a taxpayer furnishes consent todisclose or use tax return information elec-tronically, the taxpayer must furnish thetax return preparer with an electronic sig-nature that will verify that the taxpayerconsented to the disclosure or use. Theregulations under § 301.7216–3(a) requirethat the consent be knowing and volun-tary. Therefore, for an electronic consentto be valid, it must be furnished in a man-

February 4, 2008 369 2008–5 I.R.B.

ner that ensures affirmative, knowing con-sent to each disclosure or use.

.02 A tax return preparer seeking to ob-tain a taxpayer’s consent to the disclosureor use of tax return information electroni-cally must obtain the taxpayer’s signatureon the consent in one of the following man-ners:

(a) Assign a personal identificationnumber (PIN) that is at least 5 characterslong to the taxpayer. To consent to the dis-closure or use of the taxpayer’s tax returninformation, the taxpayer may type in thepre-assigned PIN as the taxpayer’s signa-ture authorizing the disclosure or use. APIN may not be automatically furnishedby the software so that the taxpayer onlyhas to click a button for consent to be fur-nished. The taxpayer must affirmativelyenter the PIN for the electronic signatureto be valid;

(b) Have the taxpayer type in the tax-payer’s name and then hit “enter” to au-thorize the consent. The software must notautomatically furnish the taxpayer’s nameso that the taxpayer only has to click a but-ton to consent. The taxpayer must affir-matively type the taxpayer’s name for theelectronic consent to be valid; or

(c) Any other manner in which the tax-payer affirmatively enters 5 or more char-acters that are unique to that taxpayer thatare used by the tax return preparer to verifythe taxpayer’s identity. For example, en-try of a response to a question regarding ashared secret could be the type of informa-tion by which the taxpayer authorizes dis-closure or use of tax return information.

SECTION 6. EXAMPLES

.01 The application of this revenue pro-cedure is illustrated by the following ex-amples:

(1) Example 1. Preparer P offers tax prepara-tion services over the Internet. P wishes to use in-formation the taxpayer provides during tax prepa-ration of the taxpayer’s Form 1040 to generate tar-geted banner advertisements (i.e., electronic adver-tisements appearing on the computer screen based onthe taxpayer’s tax return information). In the courseof advertising services and products, P wishes also todisclose to other third parties information that the tax-payer provides.

(a) P posts, in pertinent part, the following con-sent on the computer screen for taxpayers to indicateapproval. If a taxpayer does not indicate approval,the tax return preparation software does not permitthe taxpayer to use the software.

PRIVACY STATEMENT

Your privacy is very important to usat P. We are providing this statementto inform you about the types of infor-mation we collect from you, and howwe may disclose or use that informationin connection with the services we pro-vide. This Privacy Statement describesthe privacy practices of our companyas required by applicable laws. . . .During the course of providing our ser-vices to you, we may offer you vari-ous other services that may be of inter-est to you based on our determinationof your needs through analysis of yourdata. Your use of the services we offerconstitutes a consent to our disclosure oftax information to the service providers.If at any time you wish to limit your re-ceipt of promotional offers based uponinformation you provide, you may callus at the following. . . .

(b) Beneath this Privacy Statement, the followingacknowledgment line appears next to two button im-ages stating “yes” and “no:”

“I have read the Privacy Statement and agree to itby clicking here.”

(c) If the taxpayer clicks “no,” a message ap-pears on the screen informing the taxpayer that taxreturn preparation will not proceed without the tax-payer agreeing to the company’s Privacy Statement.

(d) P has failed to comply with the requirementsof § 301.7216–3 and this revenue procedure. P has at-tempted to obtain consent from the taxpayer by mak-ing the use of the program contingent on the tax-payer’s consent to P’s disclosure and use of the tax-payer’s tax return information for purposes other thantax preparation (e.g., for use in displaying targetedbanner advertisement). Thus, the consent is not vol-untary, as required by § 301.7216–3(a). P has alsofailed to identify the tax return information that it willdisclose or use, as required by § 301.7216–3(a)(3)(C),to identify the purposes of the disclosures and uses, asrequired by section § 301.7216–3(a)(3)(B), and to theextent that P intends to disclose the entire return basedon the consent, P’s consent has not provided that thetaxpayer has the ability to request a more limited dis-closure of tax return information as the taxpayer maydirect as required by section 4.06. The single docu-ment attempts to have the taxpayer consent to bothdisclosures and uses, in violation of section 4.05. Phas not used the mandatory statements required bysection 4.04(1). The consent is not signed by the tax-payer because P has not provided a means for the tax-payer to electronically sign the consent in a form au-thorized by section 5. Finally, the consent is not datedas required by section 4.03(2).

(2) Example 2. Preparer Q offers tax preparationservices over the Internet and wishes to use targetedbanner advertisements during tax return preparation.Q contracts with Bank A regarding the advertisement

of Individual Retirement Accounts (IRAs). PreparerQ displays advertisements to the taxpayer only if thetaxpayer’s tax return information indicates that theservices are relevant to the taxpayer (i.e., they are tar-geted banner advertisements). A taxpayer using Q’ssoftware must enter a password to begin the processof preparing a return.

(a) Before the taxpayer starts providing tax returninformation, the following screen appears on Q’s taxpreparation program.

CONSENT TO USE OF TAXRETURN INFORMATION

Federal law requires this consentform be provided to you. Unless au-thorized by law, we cannot use, withoutyour consent, your tax return informa-tion for purposes other than the prepa-ration and filing of your tax return.

You are not required to complete thisform. If we obtain your signature onthis form by conditioning our serviceson your consent, your consent will notbe valid. Your consent is valid for theamount of time that you specify. If youdo not specify the duration of your con-sent, your consent is valid for one year.

For your convenience, Q has enteredinto arrangements with certain banks re-garding the provision of Individual Re-tirement Accounts (IRAs). To deter-mine whether this service may be of in-terest to you, Q will need to use your taxreturn information.

If you would like Q to use your taxreturn information to determine whetherthis service is relevant to you while weare preparing your return, please checkthe corresponding box if you are inter-ested, provide the information requestedbelow, and sign and date this consent tothe use of your tax return information.

□ I, [INSERT NAME] authorize Qto use the information I provide to Qduring the preparation of my tax returnfor 2006 to determine whether to offerme an opportunity to invest in an IRA.

Signature: [INSERT SIGNATUREAS PRESCRIBED UNDER SECTION5]

2008–5 I.R.B. 370 February 4, 2008

Date: [INSERT DATE]

If you believe your tax return in-formation has been disclosed or usedimproperly in a manner unautho-rized by law or without your per-mission, you may contact the Trea-sury Inspector General for Tax Ad-ministration (TIGTA) by telephoneat 1–800–366–4484, or by email [email protected].

(b) If the taxpayer selects the consent above, thetaxpayer is directed to print the screen. Later, after thetaxpayer has entered data to prepare his or her 2006tax return, the following screen is displayed:

CONSENT TO DISCLOSURE OFTAX RETURN INFORMATION


You are not required to complete thisform. If we obtain your signature onthis form by conditioning our serviceson your consent, your consent will notbe valid. If you agree to the disclosureof your tax return information, your con-sent is valid for the amount of time thatyou specify. If you do not specify theduration of your consent, your consentis valid for one year.

You have indicated that you are inter-ested in obtaining information on IRAs.To provide you with this information, Qmust forward your tax return informa-tion, as indicated below, to the bank thatprovides this service.

If you would like Q to disclose yourtax return information to the bank pro-viding this service, please check the cor-responding box for the service in whichyou are interested, provide the informa-tion requested below, and sign and dateyour consent to the disclosure of yourtax return information.

□ I, [INSERT NAME], authorize Qto disclose to Bank A that portion ofmy tax return information for 2006 thatis necessary for Bank A to contact meand provide information on obtaining anIRA or altering my contribution to anIRA for 2006.

Signature: [INSERT SIGNATUREAS PRESCRIBED UNDER SECTION5]

Date: [INSERT DATE]

If you believe your tax return in-formation has been disclosed or usedimproperly in a manner unautho-rized by law or without your per-mission, you may contact the Trea-sury Inspector General for Tax Ad-ministration (TIGTA) by telephoneat 1–800–366–4484, or by email [email protected].

If the taxpayer consents to the disclosure of thetax return information using the screen above, thetaxpayer is directed to print the screen. Q will then

transmit only that portion of the taxpayer’s tax returninformation for 2006 that is necessary for the bankauthorized in the consent, Bank A, to provide the ser-vice.

(c) These two consent documents, above, satisfythe requirements of §301.7216–3(c) and this revenueprocedure for the disclosure or use of the informationprovided therein for the specific purposes stated.

SECTION 7. EFFECTIVE DATE

This revenue procedure is effective af-ter December 31, 2008.

SECTION 8. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Dillon Taylor, formerly of theOffice of Associate Chief Counsel (Pro-cedure and Administration). For furtherinformation regarding this revenue proce-dure, contact Lawrence Mack of the Officeof Associate Chief Counsel (Procedureand Administration) at 202–622–4940(not a toll-free call).

February 4, 2008 371 2008–5 I.R.B.

Part IV. Items of General Interest

Announcement of Disciplinary Actions InvolvingAttorneys, Certified Public Accountants, Enrolled Agents,and Enrolled Actuaries — Reinstatements, Suspensions,Censures, Disbarments, and ResignationsAnnouncement 2008-5

Under Title 31, Code of Federal Regu-lations, Part 10, attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries may not accept assistance from,or assist, any person who is under disbar-ment or suspension from practice beforethe Internal Revenue Service if the assis-tance relates to a matter constituting prac-tice before the Internal Revenue Serviceand may not knowingly aid or abet another

person to practice before the Internal Rev-enue Service during a period of suspen-sion, disbarment, or ineligibility of suchother person.

To enable attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries to identify persons to whomthese restrictions apply, the Director, Of-fice of Professional Responsibility, willannounce in the Internal Revenue Bulletin

their names, their city and state, their pro-fessional designation, the effective dateof disciplinary action, and the period ofsuspension. This announcement will ap-pear in the weekly Bulletin at the earliestpracticable date after such action and willcontinue to appear in the weekly Bulletinsfor five successive weeks.

Reinstatement To Practice Before the Internal RevenueService

Under Title 31, Code of Federal Reg-ulations, Part 10, The Director, Office ofProfessional Responsibility, may entertaina petition for reinstatement for any attor-ney, certified public accountant, enrolled

agent, or enrolled actuary censured, sus-pended, or disbarred, from practice beforethe Internal Revenue Service.

The following individuals’ eligibility topractice before the Internal Revenue Ser-vice has been restored:

Name Address Designation Date of Reinstatement

Cohen, Peter Edison, NJ CPA June 01, 2004

Brunelle, Roswell J. Queensbury, NY CPA June 10, 2004

Cohick, Jeffrey S. Newville, PA Enrolled Agent October 30, 2004

Cotroneo, Nicholas McLean, VA CPA February 28, 2007

Layson, David A. Corydon, IN Attorney October 06, 2007

Tomasulo, Maria V. Wantagh, NY CPA October 16, 2007

Emeziem, Kelechi C. Antioch, CA Attorney October 17, 2007

Johnston, Gregory A. Muscatine, IA Attorney October 17, 2007

Shapiro, Sidney C. West Palm Beach, FL CPA October 29, 2007

Hubbard, Cynthia A. Geneva, IL Attorney October 31, 2007

Moss, Steve E. Henderson, NC CPA November 29, 2007

Schaffer, Robert J. Baiting Hollow, NY CPA December 04, 2007

Woods, Dalton C. Carrollton, TX Enrolled Agent December 04, 2007

Brown, Arthur I. Miami, FL CPA December 14, 2007

2008–5 I.R.B. 372 February 4, 2008

Consent Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, an attorney, certified pub-lic accountant, enrolled agent, or enrolledactuary, in order to avoid the institutionor conclusion of a proceeding for his orher disbarment or suspension from prac-tice before the Internal Revenue Service,

may offer his or her consent to suspensionfrom such practice. The Director, Officeof Professional Responsibility, in his dis-cretion, may suspend an attorney, certifiedpublic accountant, enrolled agent, or en-rolled actuary in accordance with the con-sent offered.

The following individuals have beenplaced under consent suspension frompractice before the Internal Revenue Ser-vice:

Name Address Designation Date of Suspension

Bauman, John J. Battle Creek, MI CPA IndefinitefromOctober 1, 2007

Montgomery, Dwight M. Redlands, CA Attorney IndefinitefromOctober 1, 2007

Deku, John V. Toledo, OH Attorney IndefinitefromOctober 8, 2007

Ying, William F. Beverly Hills, CA CPA IndefinitefromOctober 9, 2007

Brill, Ann M. Sheboygan, WI CPA IndefinitefromOctober 10, 2007

Benvin, Anne C. Phoenix, AZ Enrolled Agent IndefinitefromOctober 22, 2007

Kingman, William B. San Antonio, TX Attorney IndefinitefromOctober 22, 2007

Nurney, J. Christopher Hatboro, PA CPA IndefinitefromOctober 22, 2007

Wren, Gary M. Redding, CA Enrolled Agent IndefinitefromOctober 29, 2007

Beck, Brian S. Boston, MA CPA IndefinitefromNovember 1, 2007

Draper, Jeffrey L. Olathe, KS CPA IndefinitefromNovember 1, 2007

Ehrlich, Gary P. Chevy Chase, MD CPA IndefinitefromNovember 1, 2007

February 4, 2008 373 2008–5 I.R.B.


Garrison, John C. Prairie Village, KS CPA IndefinitefromNovember 1, 2007

Greenslit, Wayne Keene, NH CPA IndefinitefromNovember 1, 2007

Moran, Philip D. Salem, MA Attorney IndefinitefromNovember 1, 2007

Wright, Cory Reno, NV CPA IndefinitefromNovember 1, 2007

Turbeville, Mary A. Geyserville, CA Enrolled Agent IndefinitefromNovember 16, 2007

Saffold, Rodger P. Cleveland, OH CPA IndefinitefromDecember 1, 2007

Voss, Patrick W. Metairie, LA CPA IndefinitefromDecember 1, 2007

Rosner, Ronald I. Manahawkin, NJ CPA IndefinitefromDecember 13, 2007

Johnson, Jr., Stanley Miami, FL Attorney IndefinitefromDecember 14, 2007

Expedited Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, the Director, Office of Pro-fessional Responsibility, is authorized toimmediately suspend from practice beforethe Internal Revenue Service any practi-tioner who, within five years from the date

the expedited proceeding is instituted (1)has had a license to practice as an attor-ney, certified public accountant, or actuarysuspended or revoked for cause or (2) hasbeen convicted of certain crimes.

The following individuals have beenplaced under suspension from practice be-fore the Internal Revenue Service by virtueof the expedited proceeding provisions:


Crotts, William P. Phoenix, AZ Attorney IndefinitefromOctober 16, 2007

Daugherty, Troy L. Olathe, KS Attorney IndefinitefromOctober 16, 2007

2008–5 I.R.B. 374 February 4, 2008


Driscoll, Jr., Wilfred C. Somerset, MA Attorney IndefinitefromOctober 16, 2007

Shah, Ashok S. Manalapan, NJ CPA IndefinitefromOctober 16, 2007

Sheline, Calvin L. Camp Verde, AZ CPA IndefinitefromOctober 16, 2007

Bosse, Leigh D. Hillsborough, NH Attorney IndefinitefromOctober 24, 2007

Webb, James E. Nashville, TN CPA IndefinitefromOctober 25, 2007

Gottschalk, Don E. Cedar Falls, IA Attorney IndefinitefromOctober 31, 2007

Joy, Steven B. Paton, IA Attorney IndefinitefromOctober 31, 2007

Smallwood, Teresa L. Durham, NC Attorney IndefinitefromNovember 2, 2007

Donaldson, James F. Denver, CO Attorney IndefinitefromNovember 15, 2007

Roux, Johnathan M. Fair Oaks, CA CPA IndefinitefromNovember 20, 2007

Linville, Wiley T. Denver, CO Attorney IndefinitefromDecember 4, 2007

Andrade, Sergio R. Inver Grove Hghts, MN Attorney IndefinitefromDecember 13, 2007

Arzani, Mitzi H. Charlotte, NC CPA IndefinitefromDecember 13, 2007

Catron, Stephen B. Knoxville, TN Attorney IndefinitefromDecember 13, 2007

Coulagouri, Louis A. Moorestown, NJ Attorney IndefinitefromDecember 13, 2007

February 4, 2008 375 2008–5 I.R.B.


Crown, Charles K. Blakeslee, PA CPA IndefinitefromDecember 13, 2007

George, Philip J. Great Falls, VA Attorney IndefinitefromDecember 13, 2007

Heitz, John P. Oneill, NE Attorney IndefinitefromDecember 13, 2007

Jones, William F. Park Rapids, MN Attorney IndefinitefromDecember 13, 2007

Khoury, Arthur M. Lawrence, MA Attorney IndefinitefromDecember 13, 2007

McGree, Charles A. Fort Payne, AL Attorney IndefinitefromDecember 13, 2007

Nason, George H. Franklin, TN Attorney IndefinitefromDecember 13, 2007

Owen, Thomas A. Arlington, TX Attorney IndefinitefromDecember 13, 2007

Ozulumba, Michael Boston, MA Attorney IndefinitefromDecember 13, 2007

Phillips, Mark A. Elm Grove, WI Attorney IndefinitefromDecember 13, 2007

Simpson, Joseph H. Amite, LA Attorney IndefinitefromDecember 13, 2007

Sipes, Laura A. St. Charles, MO Attorney IndefinitefromDecember 13, 2007

Sullivan, Joseph O. Warwick, NY Attorney IndefinitefromDecember 13, 2007

Szegda, Michael A. Old Tappan, NJ Attorney IndefinitefromDecember 13, 2007

Misch, Paul M. Akron, OH Attorney IndefinitefromDecember 17, 2007

2008–5 I.R.B. 376 February 4, 2008


Brenner, Allen L. Long Beach, NY Attorney IndefinitefromDecember 20, 2007

Cook, Rirchard B. Cockeysville, MD Attorney IndefinitefromDecember 20, 2007

Shang, Wade V. S. San Francisco, CA CPA IndefinitefromDecember 20, 2007

Suspensions From Practice Before the Internal RevenueService After Appeal

Under Title 31, Code of Federal Regu-lations, Part 10, after a decision is issuedby an Administrative Law Judge, either

party may appeal to the Secretary of theTreasury. The following individuals havebeen placed under suspension from prac-

tice before the Internal Revenue ServiceAFTER an appeal:

Name Address Designation Effective Date

Andrews, Ted E. Avon, IN CPA IndefinitefromOctober 19, 2007

Disbarments From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Regu-lations, Part 10, after notice and an oppor-

tunity for a proceeding before an adminis-trative law judge, the following individu-

als have been disbarred from practice be-fore the Internal Revenue Service:

Name Address Designation Effective Date

Ruocchio, Raymond Havertown, PA CPA April 30, 2007

Roseman, Eric W. Scottsdale, AZ CPA August 20, 2007

Solomon, Stanley Brooklyn, NY CPA September 04, 2007

Marks, Robert Medfield, MA Attorney October 15, 2007

February 4, 2008 377 2008–5 I.R.B.

Censure Issued by ConsentUnder Title 31, Code of Federal Reg-

ulations, Part 10, in lieu of a proceedingbeing instituted or continued, an attorney,certified public accountant, enrolled agent,

or enrolled actuary, may offer his or herconsent to the issuance of a censure. Cen-sure is a public reprimand.

The following individuals have con-sented to the issuance of a Censure:

Name Address Designation Date of Censure

Villarreal, Ricardo Houston, TX EA September 24, 2007

Meisgeier, Deborah K. Richmond, TX EA October 16, 2007

O’Brien, Colleen D. Winter Park, FL CPA October 24, 2007

Staver, Peter J. Southgate, MI Attorney November 06, 2007

Weiss, Ira Pittsburgh, PA Attorney November 29, 2007

Orr, William S. Kerrville, TX CPA December 04, 2007

Whitsitt, Richard Panama City, FL CPA December 04, 2007

Update to Publication 1187,Specifications for Filing Form1042–S, Foreign Person’sU.S. Source Income Subjectto Withholding, Electronicallyor Magnetically, revisedSeptember 2006

Announcement 2008–6

This announcement supersedes An-nouncement 2007–110 and incorporatesadditional changes to Publication 1187,Specifications for Filing Form 1042–S,Foreign Person’s U.S. Source IncomeSubject to Withholding, Electronically orMagnetically, revised September 2006.Continue to use this Publication alongwith the changes listed below for your TaxYear 2007 filing. The following changesare effective for Tax Year 2007 filed incalendar year 2008.

• An explanatory note was added to theRecipient ‘Q’ Record which reads: Ifyou are a nominee that is the withhold-ing agent under Code Section 1446, en-ter the Publicly Traded Partnership’s(PTP) name and other information inthe NQI/FLW-THR fields; positions401–666.

• In the Recipient ‘Q’ Record, a newfield, NQI/FLW-THR State Code, wasadded to positions 643–644. Enter thetwo-alpha character state code (see ta-ble Part A, Sec. 14). If a state code orAPO/FPO is not applicable then blankfill.

• Additional instructions were addedto the Recipient ‘Q’ Record,NQI/FLW-THR Country Code, po-sitions 647–648. The instructionsread: Enter the two-character Coun-try Code abbreviation, where theNQI/FLW-THR is located. Enter

blanks if the NQI/FLW-THR has aU.S. address.

• The Field Title was changed and ad-ditional instructions were added to theRecipient ‘Q’ Record, NQI/FLW-THRPostal Code/ZIP Code, positions649–657. The instructions read: En-ter the alpha/numeric foreign postalcode or U.S. ZIP Code for all U.S.addresses including territories, posses-sions and APO/FPO. Enter the codein the left most position and blank fillthe remaining positions. DO NOT usehyphens or blanks between numbers orletters (e.g. if the postal code writtenas A6B 3C5 input as A6B3C5).Left-justify.

• Some of the Canadian Province codeshave changed. Use the chart below tocode your file.

2008–5 I.R.B. 378 February 4, 2008

Province Code Province

AB AlbertaBC British ColumbiaMB ManitobaNB New BrunswickNL Newfoundland & LabradorNS Nova ScotiaNT Northwest TerritoriesNU NunavutON OntarioPE Prince Edward IslandQC QuebecSK SaskatchewanYT Yukon Territory

If you have questions concerning thefiling of Form 1042–S, Foreign Per-son’s U.S. Source Income Subject toWithholding, please contact the InternalRevenue Service ECC-MTB toll-free at866–455–7438.

Guidance RegardingMarketing of RefundAnticipation Loans (RALs)and Certain Other Productsin Connection With thePreparation of a Tax Return

Announcement 2008–7

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Advance notice of proposedrulemaking (ANPRM).

SUMMARY: This document describesrules that the Treasury Department andthe IRS are considering proposing, in anotice of proposed rulemaking, regardingthe disclosure and use of tax return infor-mation by tax return preparers. The ruleswould apply to the marketing of refund an-ticipation loans (RALs) and certain otherproducts in connection with the prepara-tion of a tax return and, as an exception tothe general principle that taxpayers shouldhave control over their tax return informa-tion that is reflected in final regulationspublished in T.D. 9375 which is publishedelsewhere in this issue of the Bulletin,provide that a tax return preparer may notobtain a taxpayer’s consent to disclose oruse tax return information for the purpose

of soliciting taxpayers to purchase suchproducts. This document invites com-ments from the public regarding thesecontemplated rules. All materials submit-ted will be available for public inspectionand copying.

DATES: Written or electronic commentsmust be received by April 7, 2008.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–136596–07),Room 5203, Internal Revenue Service, POBox 7604, Ben Franklin Station, Wash-ington, DC 20044. Submissions may behand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–136596–07),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC, or sent electroni-cally via the Federal eRulemaking Por-tal at http://www.regulations.gov (IRSREG–136596–07).

FOR FURTHER INFORMATIONCONTACT: Concerning submissionsof comments, Kelly Banks at (202)622–7180; concerning the proposals,Lawrence Mack at (202) 622–4940 (nottoll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document describes rules that theTreasury Department and the IRS are con-sidering proposing in a notice of proposedrulemaking regarding the marketing of re-fund anticipation loans (RALs) and certainother products identified below in connec-tion with the preparation of a tax return.

The proposed rules would amend theRegulations on Procedure and Adminis-tration (26 CFR Part 301) under section7216 of the Internal Revenue Code. Sec-tion 7216 was enacted by section 316 ofthe Revenue Act of 1971, Public Law92–178 (85 Stat. 529, 1971), and hasbeen amended several times since 1971.Section 7216 imposes criminal penaltieson tax return preparers who knowingly orrecklessly make unauthorized disclosuresor uses of information furnished to themin connection with the preparation of anincome tax return. In addition, tax returnpreparers are subject to civil penalties un-der section 6713 for disclosure or use ofthis information unless an exception underthe rules of section 7216(b) applies to thedisclosure or use.

A notice of proposed rulemaking(REG–137243–02, 2006–1 C.B. 317) waspublished in the Federal Register (70 FR72954) on December 8, 2005. Concurrentwith publication of the proposed regula-tions, the IRS published Notice 2005–93,2005–2 C.B. 1204 (December 07, 2005),setting forth a proposed revenue proce-dure that would provide guidance to taxreturn preparers regarding the format andcontent of consents to use and consentsto disclose tax return information under§ 301.7216–3.

Among other recommendations re-ceived in response to the notice of pro-posed rulemaking published on December8, 2005, a number of commentators rec-ommended that the regulations prohibit orsubstantially restrict the disclosure or useof tax return information for marketingpurposes. As described in the preambleof the final regulations published in T.D.9375 which is published elsewhere in this

February 4, 2008 379 2008–5 I.R.B.

issue of the Bulletin, these commentatorsspecifically recommended banning tax re-turn preparers from disclosing or using taxreturn information for the purpose of so-liciting refund anticipation loans (RALs)and similar products. The Treasury De-partment and the IRS did not adopt thisrecommendation in the final regulationsthat are being published concurrently withthis ANPRM because of the significantpolicy issues that need to be consideredand because they had not previously pro-posed a rule regarding the use or disclosureof tax return information for purposes ofmarketing of RALs and similar products.

This ANPRM addresses two major ar-eas of concern that have been raised anddescribes rules that the Treasury Depart-ment and the IRS are considering propos-ing regarding the marketing of RALs andcertain other products identified below inconnection with the preparation of a tax re-turn. It also solicits comments on specificissues as described herein.

Concerns Raised by RALs and CertainOther Products

Financial Incentive To Inflate RefundsThe Treasury Department and the IRS

are concerned that RALs and certain otherproducts may provide tax preparers with afinancial incentive to take improper tax re-turn positions in order to inappropriatelyinflate refund claims. In general, RALamounts are capped by the amount of therefund claimed on a tax return. There-fore, a preparer who inappropriately in-flates the amount of a refund is able, di-rectly or indirectly through arrangementwith a RAL provider, to collect a higherfee. Additionally, a significant number ofRALs are made to taxpayers who claimthe earned income tax credit (EITC). TheTreasury Department and the IRS are con-cerned that the financial benefits of sellinga RAL to a taxpayer can create an incen-tive for the preparer to not fully complywith due diligence requirements designedto ensure the accuracy of EITC claims. Seesection 6695(g).

Even when a flat fee is charged forRALs, it may be possible that a finan-cial incentive to inappropriately inflate theamount of a refund exists. As an exam-ple, some merchants who offer tax prepa-ration services may encourage customersto obtain RALs and spend the funds on the

merchant’s products or services. To the ex-tent that the preparer prepares a return thatclaims an inappropriately large refund, thetaxpayer is enabled to purchase more of themerchant’s products or services.

The Treasury Department and the IRSare concerned that overall tax compliancesuffers when tax advisors or tax prepar-ers benefit directly from maximizing a re-fund in preparing a tax return. TreasuryDepartment Circular 230 restricts the abil-ity of tax practitioners to charge contingentfees in certain circumstances when thereare tax administration concerns. See 31C.F.R. § 10.27. The Treasury Departmentand the IRS are considering whether simi-lar restrictions should be placed on use ordisclosure of tax return information by pre-parers who receive a financial benefit fromthe sale of an ancillary product, such as aRAL, rather than directly from the deter-mination of a taxpayer’s tax liability.

There are two other products that poten-tially raise similar concerns — refund an-ticipation checks (RACs) and audit insur-ance. A RAC is a post-refund product thatallows taxpayers to pay for return prepa-ration services out of their refunds. Aswith a RAL, a taxpayer will only qualifyto purchase a RAC if a refund is claimedon the return. Audit insurance is a typeof insurance that covers professional feesand other expenses incurred in respond-ing to or defending against an audit by theIRS. Taxpayers who purchase audit insur-ance may be encouraged to take aggressivetax reporting positions if they believe theinsurance will provide protection againstthe risk of an adjustment. The TreasuryDepartment and the IRS generally believethat arrangements that create financial in-centives for taxpayers or tax preparers toexploit the audit selection process under-mine tax compliance.

Potential for Inappropriate Use by TaxPreparers

In responding to the proposed regula-tions, some commentators expressed con-cern that tax preparers are inappropriatelyprofiting from marketing RALs and cer-tain other products to relatively unsophis-ticated taxpayers who do not comprehendthe full costs of the products. These com-mentators noted that RALs are marketedprimarily to low-income taxpayers who re-ceive the EITC, that these taxpayers gen-erally have relatively low levels of finan-cial expertise, and that these taxpayers are

more likely than other taxpayers to relyon the advice of their preparers. Thesecommentators urged the IRS to amend theproposed regulations to protect these tax-payers from exploitation. The NationalTaxpayer Advocate also expressed similarconcerns. See National Taxpayer Advo-cate FY 2007 Objectives Report to Con-gress, vol. II, The Role of the IRS in theRefund Anticipation Loan Industry, at 18(June 30, 2006).

As a general rule, the Treasury Depart-ment and the IRS believe that taxpayersshould have the ability to control the useor disclosure of their tax return informa-tion. Taxpayer control, however, must bebalanced against the ability of the govern-ment to effectively administer the inter-nal revenue laws, which includes guardingagainst (1) the potential lessening of taxcompliance, (2) the potential exploitationof taxpayers described by certain commen-tators, and (3) the potential existence ofinappropriate financial incentives for taxpreparers to inflate tax refunds.

Explanation of Contemplated Rules

Sections 7216 and 6713 provide a broadprohibition against the disclosure and useof tax return information by return prepar-ers. Statutory exceptions are provided fora “disclosure” pursuant to any other pro-vision of the Internal Revenue Code or anorder of a court and for a “use” by a pre-parer to assist the taxpayer in preparing hisor her state and local tax returns and dec-larations of estimated tax. The statutorylanguage also authorizes the Secretary toprescribe regulations permitting additionalexceptions. Thus, tax return preparers mayuse or disclose tax return information be-yond the statutory exceptions only if, andto the extent that, Treasury regulations ex-pressly authorize such acts.

Among other exceptions, the regula-tions under section 7216 generally pro-vide that preparers may use or disclosetax return information if the taxpayer pro-vides consent. As a general rule, taxpay-ers should have the ability to control theuse or disclosure of their tax return infor-mation. To address the tax administra-tion concerns described above, the Trea-sury Department and the IRS are consider-ing proposing regulations that would cre-ate an exception from the general consentframework prescribed by § 301.7216–3 for

2008–5 I.R.B. 380 February 4, 2008

RALs, RACs, audit insurance, and simi-lar products. This exception would effec-tively separate the act of return prepara-tion from the act of marketing or purchas-ing certain financial products by prohibit-ing the use of information obtained duringthe tax-preparation process for the non-taxadministration purpose of marketing: (i) aRAL or a substantially similar product orservice; (ii) a RAC or a substantially sim-ilar product or service; or (iii) audit insur-ance or a substantially similar product orservice.

Proposed Effective Date

The Treasury Department and the IRSanticipate that these new proposed ruleswould apply for returns filed on or afterJanuary 1st of the year following the dateof publication in the Federal Register asfinal or temporary regulations.

Request for Comments

Before a notice of proposed rulemak-ing is issued, consideration will be given

to any written comments (a signed origi-nal and eight (8) copies) or electronic com-ments that are submitted timely to the IRS.All comments will be available for publicinspection and copying.

Specifically, comments are encouragedon the following questions:

1. If RALs and certain other productscreate a direct financial incentivefor preparers to inflate tax refunds,are there alternative approaches thatwould eliminate or reduce this incen-tive?

2. If the marketing of RALs and certainother products exploit or have thepotential to exploit certain taxpay-ers, is the approach described in thisANPRM better viewed as protectingtaxpayers from exploitation or asrestricting taxpayers’ ability to controltheir tax return information? If thelatter, is there an alternative approachthat would address the concernsdescribed above?

3. Should RACs be treated the same wayas RALs and audit insurance, or doRACs present lesser concerns?

4. Are there other products that presentsignificant concerns for tax compli-ance or taxpayer exploitation thatshould be addressed by regulation?

Drafting Information

The principal author of this ad-vance notice of proposed rulemaking isDillon Taylor, formerly of the Office of theAssociate Chief Counsel (Procedure andAdministration). For further information,contact Lawrence Mack of the Office ofAssociate Chief Counsel (Procedure andAdministration) at 202–622–4940 (not atoll-free call).

Linda E. Stiff,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on January 3,2008, 8:58 a.m., and published in the issue of the FederalRegister for January 7, 2008, 73 F.R. 1131)

February 4, 2008 381 2008–5 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2008–5 I.R.B. i February 4, 2008

Numerical Finding List1

Bulletins 2008–1 through 2008–5

Announcements:

2008-1, 2008-1 I.R.B. 246

2008-2, 2008-3 I.R.B. 307

2008-3, 2008-2 I.R.B. 269

2008-4, 2008-2 I.R.B. 269

2008-5, 2008-4 I.R.B. 333

2008-6, 2008-5 I.R.B. 378

2008-7, 2008-5 I.R.B. 379

Notices:

2008-1, 2008-2 I.R.B. 251

2008-2, 2008-2 I.R.B. 252

2008-3, 2008-2 I.R.B. 253

2008-4, 2008-2 I.R.B. 253

2008-5, 2008-2 I.R.B. 256

2008-6, 2008-3 I.R.B. 275

2008-7, 2008-3 I.R.B. 276

2008-8, 2008-3 I.R.B. 276

2008-9, 2008-3 I.R.B. 277

2008-10, 2008-3 I.R.B. 277

2008-11, 2008-3 I.R.B. 279

2008-12, 2008-3 I.R.B. 280

2008-13, 2008-3 I.R.B. 282

2008-14, 2008-4 I.R.B. 310

2008-15, 2008-4 I.R.B. 313

2008-16, 2008-4 I.R.B. 315

2008-17, 2008-4 I.R.B. 316

2008-18, 2008-5 I.R.B. 363

2008-19, 2008-5 I.R.B. 366

Proposed Regulations:

REG-111583-07, 2008-4 I.R.B. 319

Revenue Procedures:

2008-1, 2008-1 I.R.B. 1

2008-2, 2008-1 I.R.B. 90

2008-3, 2008-1 I.R.B. 110

2008-4, 2008-1 I.R.B. 121

2008-5, 2008-1 I.R.B. 164

2008-6, 2008-1 I.R.B. 192

2008-7, 2008-1 I.R.B. 229

2008-8, 2008-1 I.R.B. 233

2008-9, 2008-2 I.R.B. 258

2008-10, 2008-3 I.R.B. 290

2008-11, 2008-3 I.R.B. 301

Revenue Rulings:

2008-1, 2008-2 I.R.B. 248

2008-2, 2008-2 I.R.B. 247

2008-3, 2008-2 I.R.B. 249

2008-4, 2008-3 I.R.B. 272

2008-5, 2008-3 I.R.B. 271

Revenue Rulings— Continued:

2008-6, 2008-3 I.R.B. 271

2008-8, 2008-5 I.R.B. 340

2008-9, 2008-5 I.R.B. 342

Treasury Decisions:

9375, 2008-5 I.R.B. 344

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin2007–52, dated December 26, 2007.

February 4, 2008 ii 2008–5 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2008–1 through 2008–5

Notices:

2006-107

Modified by

Notice 2008-7, 2008-3 I.R.B. 276

2007-30

Modified and superseded by

Notice 2008-14, 2008-4 I.R.B. 310

2007-54

Clarified by

Notice 2008-11, 2008-3 I.R.B. 279

Proposed Regulations:

REG-113891-07

Hearing scheduled by

Ann. 2008-4, 2008-2 I.R.B. 269

Revenue Procedures:

2007-1

Superseded by

Rev. Proc. 2008-1, 2008-1 I.R.B. 1

2007-2

Superseded by

Rev. Proc. 2008-2, 2008-1 I.R.B. 90

2007-3

Superseded by

Rev. Proc. 2008-3, 2008-1 I.R.B. 110

2007-4

Superseded by

Rev. Proc. 2008-4, 2008-1 I.R.B. 121

2007-5

Superseded by

Rev. Proc. 2008-5, 2008-1 I.R.B. 164

2007-6

Superseded by

Rev. Proc. 2008-6, 2008-1 I.R.B. 192

2007-7

Superseded by

Rev. Proc. 2008-7, 2008-1 I.R.B. 229

2007-8

Superseded by

Rev. Proc. 2008-8, 2008-1 I.R.B. 233

2007-39

Superseded by

Rev. Proc. 2008-3, 2008-1 I.R.B. 110

2007-52

Superseded by

Rev. Proc. 2008-9, 2008-2 I.R.B. 258

Revenue Rulings:

2007-4

Supplemented and superseded by

Rev. Rul. 2008-3, 2008-2 I.R.B. 249

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,2007.

2008–5 I.R.B. iii February 4, 2008

February 4, 2008 2008–5 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

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