Proposed regulations under section 985 of the Code provide translation rates that must be used when translating into dollars certain items and amounts transferred by a qualified business unit to its home office or parent corporation for purposes of computing dollar approximate separate transactions method gain or loss.

This notice alerts taxpayers who submit offers in compromise on or after July 16, 2006, that they must include a nonrefundable down payment with their offers. The notice also waives the down payment requirement for low-income taxpayers and taxpayers who submit offers based solely on doubt as to liability.

This notice provides further guidance on the use of debit cards to reimburse participants in health flexible spending arrangements (FSAs) and health reimbursement arrangements, including substantiating claimed medical expenses at the point-of-sale through an inventory information approval system. It also provides guidance on use of debit cards for dependent care FSAs. Rev. Rul. 2003-43 amplified.

Nonbank trustees; section 1.408-2(e) of the regulations. This announcement contains a list of entities previously approved to act as nonbank trustees and nonbank custodians within the meaning of section 1.408-2(e) of the regulations. In addition, the announcement contains instructions on how errors in the list may be corrected. Announcement 2005-59 updated and superseded.

This document notifies the public of the new excise taxes and related disclosure requirements that target certain potentially abusive tax shelter transactions to which tax-exempt entities are parties. It also solicits comments regarding the new excise taxes and disclosure requirements.

Fresh Start, Inc., of Wichita, KS; Hope International Mission of Columbus, OH; and Master Credit Corporation of Las Vegas, NV, no longer qualify as organizations to which contributions are deductible under section 170 of the Code.

Report of tips by employee to employer. This procedure provides guidance on the Attributed Tip Income Program (ATIP), which is a new voluntary tip reporting program providing benefits to employers and employees similar to other tip reporting agreements without requiring one-on-one meetings with the Service to determine tip rates or eligibility.

This notice alerts taxpayers who submit offers in compromise on or after July 16, 2006, that they must include a nonrefundable down payment with their offers. The notice also waives the down payment requirement for low-income taxpayers and taxpayers who submit offers based solely on doubt as to liability.

The Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), enacted on May 17, 2006, includes new excise taxes and disclosure rules that target certain potentially abusive tax shelter transactions to which a tax-exempt entity is a party. TIPRA creates a new § 4965 and amends §§ 6033(a)(2), 6011(g) and 6652(c)(3) of the Internal Revenue Code (“Code”). The amendments made by TIPRA were generally effective upon enactment and have broad application to tax-exempt entities and their managers.

Entities that may be affected by the new provisions include, but are not limited to, charities, churches, state and local governments, Indian tribal governments, qualified pension plans, individual retirement accounts, and similar tax-favored savings arrangements. The managers of these entities, and in some cases the entities themselves, can be subject to excise taxes if the entity is a party to a prohibited tax shelter transaction. Prohibited tax shelter transactions include transactions that are identified by the Internal Revenue Service (“IRS”) as potentially abusive “listed” tax avoidance transactions and reportable transactions that are confidential transactions or transactions with contractual protection. The newly enacted provisions also (1) contain new disclosure requirements, which apply not only to tax-exempt entities but also to taxable entities that are parties to prohibited tax shelter transactions involving tax-exempt entities, and (2) impose penalties for the failure to comply with the new disclosure requirements. A detailed description of the new TIPRA provisions is attached as an appendix.

The IRS and the Treasury Department (“Treasury”) are publishing this notice in order to ensure that affected entities are aware of the new TIPRA provisions, so that such entities can take the new taxes and disclosure obligations into account immediately. In addition, the IRS and Treasury are requesting public comments on the new provisions in anticipation of the publication of additional guidance. The IRS and Treasury are also interested in hearing from tax-exempt entities, practitioners and others potentially affected by the TIPRA provisions who would like the opportunity to discuss their questions, concerns and suggestions.

The IRS anticipates including projects related to these TIPRA provisions in the annual Guidance Priority Plan that the IRS and Treasury expect to release soon. The IRS expects to issue guidance under these provisions promptly, and invites comments from the public regarding all aspects of the new excise taxes and disclosure requirements created by these provisions. Written comments should be submitted by August 11, 2006. Send submissions to: CC:PA:LPD:PR (Notice 2006-65), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (Notice 2006-65), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically to notice.comments@irscounsel.treas.gov (Notice 2006-65).

The principal author of this notice is Galina Kolomietz of the Office of Division Counsel/Associate Chief Counsel (Tax-Exempt and Government Entities). For further information regarding this notice, contact Ms. Kolomietz at (202) 622-6070 (not a toll-free call). For questions specifically relating to qualified pension plans, individual retirement accounts, and similar tax-favored savings arrangements, contact Dana Barry of the Office of Division Counsel/Associate Chief Counsel (Tax-Exempt and Government Entities) at (202) 622-6060 (not a toll-free call).

The Internal Revenue Service and the Department of the Treasury are currently revising Form 656, Offer in Compromise, and developing regulations under section 7122 of the Internal Revenue Code to implement the amendments to section 7122 made by section 509 of the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), Pub. L. No. 109-222. The TIPRA amendments to section 7122 apply to offers in compromise submitted on or after July 16, 2006.

As amended, section 7122 provides that a lump-sum offer (one payable in five or fewer installments) must be accompanied by the payment of 20 percent of the amount of the offer. Section 7122 also provides that a periodic payment offer (one payable in six or more installments) must be accompanied by the payment of the amount of the first proposed installment and additional installments must be paid while the offer is being evaluated by the Internal Revenue Service.

This notice provides interim guidance under section 7122, as amended by section 509 of TIPRA, until regulations or other guidance is issued and Form 656 is revised. Taxpayers may rely on this notice until regulations or other guidance is issued and may continue to use the current version of Form 656 (Rev. 7-2004) to submit offers until a revised Form 656 is available. The revised Form 656 will be made available on the Internal Revenue Service’s website at www.IRS.gov and taxpayers may call 1 (800) Tax-Form to request a copy of Form 656.

.01 Section 7122 permits the Service to compromise any civil liability arising under the internal revenue laws before the case is referred to the Department of Justice for prosecution or defense. Section 509 of TIPRA amended section 7122, effective for offers in compromise submitted on or after July 16, 2006. An offer in compromise will be treated as submitted on or after July 16, 2006, if the offer is received on or after that date by the Service. The postmark date is irrelevant in determining when an offer is submitted.

.02 Section 7122(c)(1), as amended by TIPRA, requires that an offer in compromise be accompanied by a partial payment. In the case of a lump-sum offer, the partial payment required is 20 percent of the amount of the offer. If the taxpayer does not make the required 20-percent payment, the offer may be returned to the taxpayer as unprocessable. Section 7122(d)(3)(C). The Service will treat the required 20-percent payment as a payment of tax, rather than a refundable deposit under section 7809(b) or Treas. Reg. § 301.7122-1(h). Voluntary payments submitted in connection with an offer in compromise, to the extent they exceed the payment or payments required under section 7122(c)(1), will be treated as refundable deposits if they are not designated as tax payments by the taxpayer.

.03 If the taxpayer submits a periodic payment offer, the taxpayer must include the first proposed installment with the offer. If the taxpayer does not make the first installment payment, the offer may be returned to the taxpayer as unprocessable. Section 7122(d)(3)(C). While a periodic payment offer is being evaluated by the Service, the taxpayer must make subsequent proposed installment payments as they become due. If the taxpayer fails to make an installment payment other than the first installment, the failure may be treated as a withdrawal of the offer. Section 7122(c)(1)(B)(ii). The Service will treat installment payments required for a periodic payment offer as payments of tax, rather than refundable deposits under section 7809(b) or Treas. Reg. § 301.7122-1(h). Voluntary payments submitted in connection with an offer in compromise, to the extent they exceed the payment or payments required under section 7122(c)(1), will be treated as refundable deposits if they are not designated as tax payments by the taxpayer.

.04 Section 7122(c)(2)(A) allows the taxpayer to specify how any payment made pursuant to section 7122(c)(1) is to be applied to the assessed taxes, penalties, interest, etc. The specification must be made in writing when the offer is submitted or when the payment is made. The specification should clearly indicate how the partial payment or partial payments (in the case of a periodic payment offer) are to be applied to specific taxable years (or other taxable periods) or to specific liabilities (e.g., income taxes, employment taxes, and trust fund recovery penalties under section 6672(a)). Once the taxpayer specifies how a payment is to be applied, the specification cannot later be changed. In the absence of a specification, the Service will apply the payment or payments required by section 7122(c) in the best interests of the government.

.05 Section 7122(c)(2)(B) provides that the assessed tax or other amounts shall be reduced by any user fee imposed with respect to the taxpayer’s offer in compromise. The applicable regulations provide that a $150 user fee is generally charged for processing an offer in compromise, but no fee is charged if the offer is based solely on doubt as to liability or is made by a low-income taxpayer. Treas. Reg. § 300.3(b)(1). Because a taxpayer may not specify how the $150 user fee for processing an offer in compromise will be applied, the Service will apply the user fee in the best interests of the government.

.06 Section 7122(c)(2)(C) provides that the Secretary may issue regulations waiving any payment required under section 7122(c)(1) in a manner consistent with the practices established in accordance with the requirements under section 7122(d)(3). See Section 4 of this notice for information concerning waivers for low-income taxpayers and for offers based solely on doubt as to liability.

.07 Section 7122(f) provides that if an offer in compromise is not rejected within 24 months after submission of the offer, the offer shall be deemed to be accepted. Any period during which any tax liability which is the subject of the offer is in dispute in any judicial proceeding is not taken into account in determining the expiration of the 24-month period. The date of submission of an offer for purposes of section 7122(f) is the date on which the offer is received by the Service. The postmark date is irrelevant in determining when an offer is submitted. An offer will not be deemed to be accepted if the offer is, within the 24-month period, rejected by the Service, returned by the Service to the taxpayer as nonprocessable or no longer processable, withdrawn by the taxpayer, or deemed withdrawn under section 7122(c)(1)(B)(ii) because of the taxpayer’s failure to make the second or later installment due on a periodic payment offer. The date an offer is rejected for purposes of section 7122(f) is the date on which the Service issues a written notice of rejection under Treas. Reg. § 301.7122-1(f)(1). The period during which the IRS Office of Appeals considers a rejected offer in compromise is not included as part of the 24-month period because the offer was rejected by the Service within the meaning of section 7122(f) prior to consideration of the offer by the Office of Appeals.

.01 Unless a waiver under Section 4 of this notice applies, a lump-sum offer in compromise received on or after July 16, 2006, will be returned as not processable if the offer is not accompanied by a partial payment of the amount of the offer.

.02 If the taxpayer makes a partial payment when a lump-sum offer is submitted, but the payment is less than the 20-percent required amount, the Service may accept the offer for processing and solicit payment of the remaining portion of the 20-percent amount. If the taxpayer does not pay the balance of the 20-percent amount within the time allowed by the Service, the Service may return the offer as not processable unless the Service determines that continued processing of the offer would be in the best interests of the government.

.01 Unless a waiver under Section 4 of this notice applies, a periodic payment offer in compromise received on or after July 16, 2006, will be returned as not processable if the submission of the offer is not accompanied by the full amount of the first proposed installment.

.02 If a periodic payment offer has been accepted for processing and the taxpayer fails to make full payment of the second or subsequent proposed installment while the offer is being evaluated, the Service may solicit payment from the taxpayer of the unpaid amount of the subsequent installment. The Service may issue a letter advising the taxpayer that the offer is considered withdrawn if the taxpayer does not make full payment of the installment within the time allowed unless the Service determines that continued processing of the offer is in the best interests of the government.

.01 The Treasury Department and the Service intend to issue regulations pursuant to section 7122(c)(2)(C) that will waive payments otherwise required by section 7122(c)(1) in two situations. Waivers will apply with respect to offers submitted by low-income taxpayers and with respect to offers submitted by other taxpayers based solely on doubt as to liability. Although regulations have not been issued, on an interim basis the Service will waive the payments otherwise required by section 7122(c)(1) using the criteria described in Sections 4.02 and 4.03 below.

.02 No payment under section 7122(c)(1) will be required when an offer is submitted by a low-income taxpayer. A low-income taxpayer is an individual whose income falls at or below poverty levels based on guidelines established by the U.S. Department of Health and Human Services under the authority of section 673(2) of the Omnibus Reconciliation Act of 1981 (95 Stat. 357, 511), or another measure that is adopted by the Secretary. Until further guidance is issued, a taxpayer should use the worksheet to Form 656-A, Income Certification for Offer in Compromise Application Fee, to determine if the taxpayer qualifies as a low-income taxpayer who is not required to make partial payments pursuant to section 7122(c)(1).

.03 No payment under section 7122(c)(1) will be required when an offer is submitted by a taxpayer based solely on doubt as to liability. An offer is considered to be submitted solely on the basis of doubt as to liability if the taxpayer submits the offer on Form 656-L, Offer in Compromise (Doubt as to Liability), or, if the offer is submitted on Form 656, Offer in Compromise, it is clear on the face of the Form that the only basis on which the taxpayer relies in making the offer is doubt as to liability.

.01 The Treasury Department and the Service request comments from the public on the issues addressed in this notice and on additional issues that should be addressed in regulations or other guidance as a result of the recent amendments to section 7122.

.02 Comments are requested regarding the definition of low-income for purposes of section 7122(c)(2)(C). For purposes of this interim guidance, Section 4.02 of this notice defines low-income in a manner consistent with Treas. Reg. § 300.3(b)(1)(ii) regarding user fees for processing offers to compromise. However, the Treasury Department and the Service recognize that commentators have previously raised concerns regarding the definition of low-income in the context of the user fee regulations. Treasury and the Service are considering modifications to the definition of low-income for purposes of the user fee charged for processing an offer in compromise. Treasury and the Service anticipate that any modification to the definition of low-income for purposes of the user fee will be reflected in subsequent guidance issued under new section 7122(c)(2)(C).

.03 Comments should be submitted in writing on or before October 9, 2006, to the Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, Attn: CC:PA:CBS (Notice 2006-68). Submissions may also be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to the Courier’s Desk at 950 L’Enfant Plaza, 5^th Floor, Washington, DC 20024, by contacting the Legal Processing Division at (202) 874-9752. Submissions may also be sent electronically via the internet to the following email address: Notice.comments@irscounsel.treas.gov. Include the notice number (Notice 2006-68) in the subject line. All comments will be available for public inspection and copying.

The principal author of this notice is William F. Conroy of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this notice, contact William F. Conroy at (202) 622-3600 (not a toll-free call).

This notice provides further guidance on the use of debit cards, credit cards, and stored value cards (cards) to reimburse participants in self-insured medical reimbursement plans, such as health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs). See Rev. Rul. 2003-43, 2003-1 C.B. 935. This notice also clarifies certain substantiation methods and requirements that apply to all medical reimbursement plans whether or not a card is used. Finally, the notice provides guidance on the use of cards to reimburse participants in dependent care assistance programs (DCAPs), including dependent care flexible spending arrangements (dependent care FSAs).

Rev. Rul 2003-43 addresses the use of cards to reimburse participants in health FSAs and HRAs. The ruling describes three situations in which employers adopt electronic reimbursement systems in connection with health FSAs and HRAs. In each of the three situations, employees who participate in the health FSA or HRA are issued cards.

Each participating employee certifies upon enrollment and for each plan year thereafter that the card will only be used for eligible medical care expenses of the employee, the employee’s spouse and dependents. The employee also certifies that any expense paid with the card has not been reimbursed and that the employees will not seek reimbursement under any other plan covering health benefits. The certification is printed on the back of the card and the employee-cardholder understands the certification is reaffirmed each time the card is used. The use of the card is limited to the maximum dollar amount of coverage available in the employee’s health FSA or HRA. The card can only be used at merchants and service providers that have merchant category codes related to health care, such as physicians, pharmacies, dentists, vision care offices, hospitals, and other medical care providers.

In Situation 1 of the ruling, the employer establishes the following procedures for substantiating claimed medical expenses after the card is used. First, if the dollar amount of the transaction at a health care provider equals the dollar amount of the copayment for that service under the accident or health plan (i.e., the major medical plan, health maintenance organization, etc.) covering the specific employee-cardholder, the charge is fully substantiated without the need for submission of a receipt or further review (i.e., copayment match). Second, the employer permits automatic reimbursement without further review of recurring expenses that match expenses previously approved as to amount, provider, and time period (i.e., recurring expenses). Third, if the merchant, service-provider, or other independent third-party (e.g., Pharmacy Benefit Manager), at the time and point-of-sale, provides information to verify to the employer (including electronically by e-mail, the internet, intranet, or telephone) that the charge is for a medical expense, the charge is fully substantiated without the need for submission of a receipt or further review (i.e., real-time substantiation).

All other charges to the card are treated as conditional pending confirmation of the charge by the submission of additional third-party information, such as a receipt. Claims that are identified as not qualifying for reimbursement because of lack of additional information or otherwise, are subject to certain correction procedures.

Rev. Rul. 2003-43 concludes that the procedures adopted by the employer in Situation 1 meet the requirements of § 105(b) because all claims for medical expenses are substantiated, either automatically or by the submission of additional information. Card systems that do not meet the requirements of § 105(b) result in all payments provided by the cards being included in the participant’s income.

In addition to the substantiation methods approved in Rev. Rul. 2003-43, as described below, an employer may adopt additional methods for substantiating claimed medical expenses. Employers that adopt these methods must also comply with requirements of Treas. Reg. § 1.105-2, Prop. Treas. Reg. § 1.125-2, Q & A-7, Notice 2002-45, 2002-2 C.B. 93, and Rev. Rul. 2003-43, including, but not limited to, employee certifications and adoption of meaningful correction procedures for amounts that are not automatically substantiated at the point-of-sale or within a reasonable time after the transaction.

An employer may use a payment card program to provide benefits under its DCAP, including a dependent care FSA. However, dependent care expenses may not be reimbursed before the expenses are incurred. For this purpose, dependent care expenses are treated as having been incurred when the dependent care services are provided, not when the expenses are formally billed, charged for, or paid by the participant. Prop. Treas. Reg. § 1.125-1, Q & A-18. Thus, if a dependent care provider requires payment before the dependent care services are provided, those expenses cannot be reimbursed at the time of payment, even through the use of a payment card program.

An employer offering a DCAP or dependent care FSA may nevertheless adopt the following method to provide reimbursements for dependent care expenses through a payment card program. At the beginning of the plan year or upon enrollment in the DCAP, the employee pays initial expenses to the dependent care provider and substantiates the initial expenses by submitting to the employer or plan administrator a statement from the dependent care provider substantiating the dates and amounts for the services. After the employer or plan administrator receives the substantiation, but not before the date the services are provided as indicated by the statement from the dependent care provider, the plan makes available through the payment card an amount equal to the lesser of: (1) the previously incurred and substantiated expense, or (2) the employee’s total salary reduction amount to date. See Prop. Treas. Reg. § 1.125-2, Q & A-7(b)(8). The amount available through the card may be increased in the amount of any additional dependent care expenses only after the additional expenses have been incurred. The amount on the card may then be used to pay for later dependent care expenses.

Later card transactions that have been previously approved as to the dependent care provider and time period may be treated as substantiated without further review if the later card transactions are for an amount equal to or less than the previously substantiated amount. If there is an increase to the previously substantiated amount or a change in the dependent care provider, the employee must submit a statement or receipt from the dependent care provider substantiating the new claimed expense before amounts relating to the increased amount or new provider may be added to the card.

Example. Employer Z sponsors a dependent care FSA that is offered through its cafeteria plan. Salary reduction amounts for participating employees are made on a weekly payroll basis, which are available for dependent care coverage on a weekly basis. As a result, the amount of available dependent care coverage equals the employee’s salary reduction amount minus claims previously paid from the plan. Z has adopted a payment card program for its dependent care FSA. Employee F is a participant in the dependent care FSA and has elected $5,000 of dependent care coverage. Z reduces F’s salary by $96.15 on a weekly basis to pay for coverage under the dependent care FSA.

At the beginning of the plan year, F is issued a debit card with a balance of zero. F’s childcare provider, ABC Daycare Center, requires a $250 advance payment at the beginning of the week for dependent care services that will be provided during the week. The dependent care services provided for F by ABC qualify for reimbursement under § 129. However, because the services have not yet been provided as of the beginning of the plan year, F cannot be reimbursed for any of the amounts until the end of the first week after the services have been provided. F submits a claim for reimbursement that includes a statement from ABC with a description of the services, the amount of the services, and the dates of the services. Z increases the balance of F’s payment card to $96.15 after the services have been provided (i.e., the lesser of F’s salary reduction to date or the incurred dependent care expenses). F uses the card to pay ABC $96.15 on the first day of the next week and pays ABC the remaining balance due for the week ($153.85) by check.

To the extent that this card transaction and each subsequent transaction is with ABC and is for an amount equal to or less than the previously substantiated amount, the charges are fully substantiated without the need for the submission by F of a statement from the provider or further review by the employer. However, the subsequent amount may not be made available on the card until the end of the week when the services have been provided.

With respect to the Inventory Information Approval System, as described in section III B of this notice, the requirement that an employer that uses this system is responsible for ensuring that the system complies with the recordkeeping requirements of this notice (including Rev. Proc. 98-25) is effective for plan years beginning after December 31, 2006.

Rev. Rul. 2003-43, 2003-1 C.B. 935, is amplified.

The principal author of this notice is Barbara Pie of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Mireille T. Khoury at (202) 622-6080 (not a toll-free call).

This revenue procedure sets forth the requirements for participating in the Attributed Tip Income Program (ATIP). ATIP provides benefits to employers and employees similar to those offered under previous tip reporting agreements without requiring one-on-one meetings with the Service to determine tip rates or eligibility.

.01 The Internal Revenue Service is expanding its Tip Rate Determination/Education Program (TRD/EP), which is designed to enhance tax compliance among tipped employees through taxpayer education and voluntary agreements instead of traditional audit techniques.

.02 The Service developed the TRD/EP in 1993 as a means of enhancing tax compliance while reducing taxpayer burden and in 2004, the Service extended the TRD/EP program indefinitely. In TRD/EP, the Service works with taxpayers in industries in which tipping is customary to improve tax compliance. The TRD/EP currently offers employers operating food and beverage establishments two types of agreements. The Tip Rate Determination Agreement (TRDA) requires that tips be reported at or above a specific rate negotiated between the employer and the Service in return for certain benefits. The Tip Reporting Alternative Commitment (TRAC) agreement requires that the employer provide ongoing education to tipped employees on tip reporting procedures in return for certain benefits. A variation on TRAC, the Employer-designed Tip Reporting Alternative Commitment (EmTRAC), allows the employer considerable latitude in designing its educational program and tip reporting procedures. Employers who enter into these agreements and comply with their terms are not subject to challenge on audit with respect to the amount of tips they are reporting as wages. TRDA provides similar benefits to employees. Although not set forth in the TRAC agreements, if employees follow the procedures their employer describes in the required educational sessions, the Service will not challenge the amount of tips they report to their employers as wages. The Service also offers the Gaming Industry Tip Compliance Agreement (GITCA) which is an agreement designed to meet the needs of establishments in the gaming industry. The decision to enter into TRDA, TRAC, or GITCA is entirely voluntary on the part of the employer.

.03 ATIP is a new reporting alternative for employers in the food and beverage industry designed to promote compliance by employers and employees with the provisions of the Internal Revenue Code (the Code) governing tip income, to reduce disputes on audit, and to reduce filing and recordkeeping burdens. ATIP is being offered in addition to the existing TRD/EP programs described in section 2.02 of this revenue procedure. ATIP differs from the existing programs in that it does not require an employer to enter into an individual agreement with the Service. ATIP does not alter any of the existing TRD/EP programs. Employers currently participating in an existing TRD/EP program may elect to switch to ATIP. See Section 10 for additional information.

.04 The requirements for participation in ATIP for employers and employees are set forth in this revenue procedure. The benefits of participation for both employers and employees are also set forth. Participation by employers and employees is entirely voluntary. An employee cannot participate in ATIP unless he or she is employed by a participating employer.

.05 Pilot Program. The ATIP is a pilot program. Employers may elect to participate in ATIP on a calendar year basis for each of the three calendar years beginning on or after January 1, 2007.

.01 For purposes of this revenue procedure, the following definitions apply.

.02 Attribution date. The term “attribution date” means the date on which tips attributed to participating employees are treated as wages for federal employment tax purposes.

.03 Charge receipts. Charge receipts shall include credit card charges and charges under any other credit arrangement (e.g., house charges, city ledgers and charge arrangements to country club member.) Debit card sales are included in charge receipts.

.04 Charged tips. A tip included on a charge receipt is a charged tip.

.05 Charged tip rate. For each calendar year, the “charged tip rate” for a participating establishment equals (i) the total charged tips reported (or to be reported) on the establishment’s Form 8027 for the calendar year immediately preceding the calendar year of participation in ATIP divided by (ii) the total charge receipts reported (or to be reported) on the Form 8027 (sales from charge receipts showing charged tips) for the calendar year immediately preceding the calendar year of participation in ATIP.

Example: Total charged tips reported on the establishment’s Form 8027 for the preceding calendar year equal $170,000 and total charge receipts reported on the Form 8027 for the preceding calendar year equal $1,000,000; the charged tip rate for the establishment for the calendar year would be 17 percent, or 170,000 divided by 1,000,000.

.06 Directly tipped employee. The term “directly tipped employee” means any tipped employee who receives tips directly from customers, including an employee who after receiving tips directly from customers turns all the tips over to a tip pool. Examples of directly tipped employees are waiters, waitresses, and bartenders.

.07 Eligible establishment. The term “eligible establishment” means an establishment where at least 20 percent of the establishment’s gross receipts from the sale of food or beverages for the calendar year immediately preceding the calendar year of participation in ATIP are charge receipts showing charged tips.

.08 Employee participation agreement. The term “employee participation agreement” means a document signed by the tipped employee which includes a description of the requirements and benefits of employee participation in the ATIP (specifically including the employee’s agreement to report on his or her federal income tax return at least the amount of tip income attributed to him or her under ATIP and reported on the employee’s Form W-2 as tips), a description of the attribution method used by the establishment, and a provision for revocation. An employer may also use the employee participation agreement to provide an estimate of the tip amount that will be attributed. A document which conforms to the model employee participation agreement provided in Appendix of this revenue procedure satisfies this definition.

.09 Food or beverage employee. The term “food or beverage employee” means an employee who provides services in connection with the provision of food or beverages. Such employees include, but are not limited to, waiters, waitresses, busboys, bartenders, persons in charge of seating (such as a hostess, maitre d’ or dining room captain), wine stewards, cooks, and kitchen help. Examples of employees who are not food or beverage employees include, but are not limited to, coat check persons, bellhops and doormen.

.10 Food or beverage establishment. The term “food or beverage establishment” means an establishment that provides food or beverages in which the tipping by customers of employees serving food or beverages is customary.

.11 Formula tip rate. The term “formula tip rate” equals the charged tip rate minus two percentage points.

Example. The charged tip rate for the establishment, based on data from Form 8027, is 17 percent. The formula tip rate is thus 15 percent (the charged tip rate minus two percentage points, .17 - .02 = .15).

.12 Indirectly tipped employee. The term “indirectly tipped employee” means a tipped employee who does not normally receive tips directly from customers. Examples of indirectly tipped employees are busboys, service bartenders and cooks. An employee, such as a maitre d’, who receives tips both directly from customers and indirectly through tip splitting or tip pooling shall be treated as a directly tipped employee.

.13 Nonparticipating Employee. The term “nonparticipating employee” means any tipped employee who is not a participating employee.

.14 Participating Employee. The term “participating employee” means any tipped employee who has a signed employee participation agreement in effect.

.15 Payroll period. The term “payroll period” means the period of service for which a payment of wages is ordinarily made to the employee by his or her employer.

.16 Tip compliance agreement. The term “tip compliance agreement” means any of the following —

(1) A Tip Rate Determination Agreement (TRDA) for use by employers in the food and beverage industry, Ann. 2000-23, 2000-1 C.B. 992;

(2) A Tip Reporting Alternative Commitment (TRAC) Agreement, Ann. 2000-22, 2000-1 C.B. 987;

(3) An approval letter received pursuant to the Employer-Designed Tip Reporting Alternative Commitment (EmTRAC), Notice 2000-21, 2000-1 C.B. 967; or

(4) A Gaming Industry Tip Compliance Agreement (GITCA) for a food or beverage establishment, Rev. Proc. 2003-35, 2003-1 C.B. 919.

.17 Tipped employee. The term “tipped employee” of a food or beverage establishment means an employee who is a food or beverage employee who customarily receives tip income from employment at that establishment. An employee who occasionally receives small amounts of tip income is not a tipped employee. Generally, an employee who receives less than $20 per month in tip income would not be considered as customarily receiving tip income. For purposes of this revenue procedure the term tipped employee includes a directly tipped employee and an indirectly tipped employee, as defined in sections 3.06 and 3.12 of this revenue procedure.

.01 Employers participate in ATIP establishment by establishment. An employer may participate in ATIP with respect to an establishment only if it is an eligible establishment as defined in section 3.07 of this revenue procedure. In order to participate with respect to an establishment, an employer must satisfy all of the requirements in this section for that establishment. If an employer has more than one eligible establishment, the employer must satisfy the requirements for each establishment that is going to participate. An employer may have both participating and nonparticipating establishments.

.02 Employee participation.

(1) General rule. At least 75 percent of the establishment’s tipped employees must have agreed to participate and signed an employee participation agreement as of the last day of the first payroll period ending on or after January 1 of the calendar year. In addition, the employer must make a good faith effort to maintain the participation rate throughout the year. For purposes of this rule, an employer may treat an employee who signs an employee participation agreement as a participating employee until the first day of the first payroll period for which the employee submits a tip report for less than the attributed tips or which follows the date on which the employee gives the employer a signed notice revoking participation in ATIP.

(2) Good faith effort. A good faith effort means periodic review of the level of participation, steps taken to encourage more tipped employees to participate whenever the rate falls below the required 75 percent, and steps taken to offer participation to all new tipped employees. An employer that manipulates the participation rate so as to qualify at the beginning of the year even though there is a significant and sustained decline in participation for other parts of the year will not be considered to have made a good faith effort.

(3) Annual qualification. An establishment that participated in ATIP in a prior year but does not satisfy the 75 percent employee participation requirement as of the last day of the first payroll period ending on or after January 1 of the applicable year is not eligible to participate in that year.

Example. Establishment satisfies the 75 percent participation requirement for Year 1, determined as of the last day of the first payroll period ending on or after January 1 of Year 1. Notwithstanding the good faith efforts of the employer, the participation rate drops over the course of the year and on December 31 of Year 1, only 65 percent of tipped employees remain as participants. Also, as of the last day of the first payroll period ending on or after January 1 of Year 2, only 65 percent of tipped employees remain as participants. While the establishment retains the benefits of the ATIP for Year 1, it is not eligible to participate in the program for Year 2.

.03 Notification of Service. An employer must notify the Service of its participation in ATIP. Notification must be provided for each year in which the employer participates. If an employer has more than one food or beverage establishment, the employer must provide separate notification for each establishment for each year. An employer shall use a copy of a timely filed Form 8027 for the prior year for purposes of notifying the Service of its participation in ATIP for the current year for an establishment regardless of whether the employer is otherwise required to file Form 8027 for that establishment. The employer’s participation with respect to an establishment is effective as of January 1 of the year in which the Form 8027 is filed. For example, to elect participation in ATIP for 2007, the employer files a Form 8027 for 2006. If the employer is required to file Form 8027 for an establishment, the employer notifies the Service of its intent to participate with respect to a particular establishment by timely filing Form 8027 for that establishment and sending a copy of the completed form, with the box checked “ATIP” to the address in section 13 of this revenue procedure by the due date for filing the Form 8027 (paper returns are due February 28, or February 29 for calendar year 2008, and electronic returns are due March 31). If an employer is not required to file the Form 8027 for an establishment (for example, an establishment with less than 10 employees), the employer completes lines 1 - 5 of a Form 8027 for the calendar year preceding the year for which the establishment is electing to participate in ATIP for that establishment, signs the form, and sends the form, with the box checked “ATIP” to the address in section 13 by February 28.

.04 Tip attribution. The employer must select a period for computing the total tip amount and attributing tips to all tipped employees. The period may be no longer than a month and may be shorter if the employer so chooses. The employer must also select an attribution date on which to attribute the total tip amount to all tipped employees. The attribution date may be no later than the tenth day following the last day of the period for which the total tip amount is computed, and it may not be earlier than the last date on which an employee may submit to the employer a report of actual tips received for the period for which the total tip amount was computed. The employer must compute the total tip amount for the establishment and attribute tips as follows.

(1) As of the last day of the period determined by the employer to compute the total tip amount, the employer computes the total tip amount for the establishment by multiplying the total gross receipts from food and beverage sales of the establishment for the period by the formula tip rate.

(a) Except as provided in paragraph (b) below, for each year the employer computes the formula tip rate using the charged tip rate calculated based upon the information reported (or to be reported) on the establishment’s Form 8027 for the preceding calendar year. For example, for employers participating in 2007, the formula tip rate is computed by reference to data on the 2006 Form 8027.

(b) For periods ending on or after January 1 and before March 1 of any year, the employer may compute the total tip amount using the formula tip rate used by the establishment in December of the prior year. For example, for periods ending on or after January 1 and before February 28, 2007, the employer may compute the total tip amount using a formula tip rate computed by reference to data on the establishment’s 2005 Form 8027.

(2) The employer attributes the total tip amount computed in section 4.04(1) of this revenue procedure to all tipped employees without regard to whether the tipped employee is a participating or nonparticipating employee. The employer attributes tips to all tipped employees using any reasonable attribution method. The method used must be the method described in the employee participation agreement(s) used by the employer. If, during the calendar year, the employer modifies the attribution method, the employer must provide written notice to the participating employees at least seven days prior to the first day of the payroll period for which the employees will be subject to the new attribution method.

(a) An attribution method is reasonable if it is applied consistently to similarly situated tipped employees and approximates the relative amounts of tips received by different categories of similarly situated tipped employees. An attribution method that approximates the actual distribution of tips, rather than tracking the amount actually distributed, can be reasonable. For example, attributing the total tip amount based on hours worked by each tipped employee as a percentage of total hours worked by all tipped employees is a reasonable method if it reasonably approximates the actual distribution of tips, even if the practice of employees retaining tips is based on percentage of receipts, rather than hours worked.

(b) An attribution method will not be considered reasonable if the employer computes the total amount of attributed tips, subtracts tips reported by nonparticipating employees, and attributes the difference to all tipped employees.

(c) Following is an example of a reasonable attribution method:

Establishment R serves lunch five days a week and dinner six days a week. R employs eight directly tipped employees, A, B, C, D, E, F, G, and H. Employee A works 20 hours and employee B works 25 hours per week during the lunch shift. Employees C, D, E, F, and G work various hours per week during the dinner shift. Employee H is the bartender and works 40 hours per week spread between the lunch and dinner shifts. Establishment R notified the Service that it would participate in ATIP in 2007. Employees A, B, C, D, E, and F are participating employees while employees G and H are nonparticipating employees. Using the data from its 2006 Form 8027, Establishment R calculated its formula tip rate to be 13%. Establishment R computes the total tip amount weekly and uses a two step attribution method. First, Establishment R allocates a portion of the total tip amount to different groups of similarly situated employees based upon the average percentage of gross receipts attributable to lunch, dinner and the bar. Establishment R then further attributes tips to each employee in its three categories: lunch, dinner and the bar.

Tips for the lunch shift employees are allocated among the employees based on the employee’s percentage of total hours worked for the shift. Tips for the dinner shift employees are allocated among the employees based on the percentage of total dinner receipts from customers served by that employee.

In a typical week, Establishment R has $20,000 in gross receipts. R’s total tip amount is $2,600 ($20,000 x 13% = $2,600).

The total tip amount is allocated to similarly situated employees as follows:

The amounts attributed to the participating employees A, B, C, D, E, and F are treated as if the employees reported those amounts to the employer, and the employer treats these amounts as wages for purposes of Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and income tax withholding (ITW). Employee G reported tips of $275.00 to the employer and employee H reported tips of $697.00 to the employer. Since G and H are not participating employees in ATIP, the amounts they reported to the employer, and not any tips attributed to them under the attribution method, will be treated as wages for purposes of FICA, FUTA and ITW.

.05 Treatment of attributed tips as wages for purposes of withholding, reporting, and payment of employment taxes.

(1) Participating employees. On the attribution date, the employer must treat tips attributed to the participating employees as if each participating employee had reported such attributed tips on a written statement furnished to the employer as tips received by the employee, as required by section 6053(a) of the Code. Thus, the employer must comply with the requirements to withhold, pay, and report FICA, FUTA, and ITW on a timely basis as applicable to the attributed tips.

(2) Nonparticipating employees. Tips attributed to nonparticipating employees are not treated as reported on a written statement furnished to the employer as tips received by the employee. Thus, tips attributed to nonparticipating employees are not treated as wages for FICA, FUTA, and ITW purposes. As under existing law, each nonparticipating employee must report the amount of tips actually received to the employer, and the employer must treat the reported amount of tips as wages.

(3) Tip allocations. If an employer is required to allocate tips pursuant to section 6053(c), the employer shall allocate tips only to nonparticipating employees, and then only in such amount as is allocable to them pursuant to Treas. Reg. § 31.6053-3(d), (e), and (f). No tips may be allocated to participating employees.

.06 Reconciling with reports of actual tips received. A participating employee retains the right to report tips actually received for a given period to the employer. See Section 5.07 of this revenue procedure. If a participating employee reports actual tips received for a given period to the employer in an amount that exceeds the tips that otherwise would have been attributed to the employee for that period, the excess must also be included in the participating employee’s wages for purposes of withholding, reporting and paying FICA, FUTA, and ITW, as applicable. If a participating employee reports actual tips received for a given period to the employer in an amount that is less than the tips that otherwise would have been attributed to the employee for that period, the employer shall treat only the reported amount (and no part of the attributed tips) as wages for purposes of withholding, reporting and paying FICA, FUTA, and ITW for that period.

.07 Notification of participating employees as to amount of attributed tips. If in any calendar year, an employer reports on the participating employee’s Form W-2 an amount of tips that includes both attributed tips and tips actually reported to the employer pursuant to section 6053(a) of the Code, the employer shall provide the participating employee with an additional written statement showing the amount of the tips reported on the Form W-2 that are attributed tips.

.08 Employer recordkeeping. For each year the employer participates in ATIP, the employer shall maintain the following records for each establishment to be made available to the Service upon request.

(1) Copies of employee participation agreements signed by employees.

(2) Employee records. For each tipped employee, the employee’s name, address, social security number, date hired, status as directly or indirectly tipped employee, reported tips, the amount of tips attributed, and any other wages paid.

(3) Tip records.

(a) All records of information used to compute the total tip amount for the establishment, to determine the attribution method used, and to apply the attribution method to the total tip amount for each period, including records sufficient to support the amount of tips attributed to each tipped employee, both participating and nonparticipating, and any records of distributions of aggregate or pooled tips.

(b) Gross food or beverage receipts subject to tipping.

(c) All charge receipts showing charged tips.

(d) All tip reports submitted by tipped employees.

(e) All charge receipts or electronic charge records.

(4) A copy of the Form 8027 used to notify the Service of participation in ATIP.

(5) A copy of any letter sent to notify the Service of an establishment’s termination of participation in ATIP.

The employer must retain the records described in this section for at least 4 years dating from April 15 of the calendar year following the calendar year to which the records relate. An employer that participates in ATIP is not relieved of the obligation to maintain records related to tipped employees required under statutes, regulations or other rules administered by other governmental agencies.

.09 Records to be furnished to the Service. With respect to each participating establishment, for each calendar year of participation in ATIP, the employer shall furnish the following records on or before March 31 of the succeeding calendar year to the address in section 13 of this revenue procedure.

(1) Description of the attribution method as provided in the employee participation agreement(s).

(2) An annual report providing each tipped employee’s name, address, and social security number, status as a participating or nonparticipating employee, and the amount attributed to each tipped employee.

(3) Amount reported to each tipped employee as Social Security tips on Form W-2.

.10 Filing returns and paying and depositing taxes. The employer must comply with all applicable requirements for filing federal tax returns and depositing and paying all federal taxes. If an employer is required to file a Form 8027 with respect to a participating establishment, the employer must comply with the requirements for filing Form 8027. On the Form 8027 filed for calendar years in which an establishment participates in ATIP, the employer shall treat as reported tips on line 4c an amount equal to the sum of the tips attributed under ATIP to participating employees, the amount of reported tips in excess of the attributed tips reported by participating employees (if any), and the tips reported by nonparticipating employees.

.11 Fulfilling requirements on annual basis. Participation in ATIP is on a calendar year basis. Employers must attribute tips and otherwise comply with the requirements of ATIP beginning with the first period ending on or after January 1 of the year for which the employer notifies the Service of its intent to participate.

.12 Accuracy requirement. The information reported on the Form 8027 must be accurate.

.13 General compliance. Except as otherwise provided under this revenue procedure, the employer shall comply with all rules under the Code and Treasury regulations applicable to employers with respect to a participating establishment.

.01 In order to participate and receive the benefits set forth in section 6 of this revenue procedure, an employee must satisfy all of the requirements in this section.

.02 The employee must be a tipped employee.

.03 The employee must sign an employee participation agreement with the employer. If an employee works at more than one participating establishment owned or operated by the employer, the employee must sign a separate employee participation agreement for each establishment.

.04 The employee must report on his or her federal income tax return at least the amount of tip income attributed to him or her under ATIP and reported on the employee’s Form W-2 as tips. A participating employee may report tips on his or her federal income tax return below or above the amount of tip income attributed to him or her under ATIP and reported on the employee’s Form W-2 as tips. However, any participating employee who fails to report on his or her federal tax return all of the tips reported by the employer on the employee’s Form W-2 for that year will not receive the benefits provided by section 6.02 of this revenue procedure. An employee who reports less than the amount of tips reported by the employer on Form W-2 must be able to substantiate, with adequate books and records, that the tip income earned was less than the amount reported on the Form W-2.

.05 Period of participation.

(1) General rule. Except as provided in section 5.04 of this revenue procedure, a participating employee receives the benefits of ATIP for periods beginning after the later of (1) the effective date of the employer’s participation (see section 4.03) or (2) the first payroll period in which the employee’s participation agreement is in effect.

(2) Special rule for new hires. An employee hired after the first pay period of the year is treated as a participating employee as of the date of hire if the employee provides the employer with a signed employee participation agreement within 30 days of the date of hire.

.06 A participating employee is not required to report tips to his or her employer for any payroll period beginning with the first payroll period in which the employee’s participation agreement is in effect and continuing with every payroll period thereafter until the employee revokes his or her employee participation agreement, or the employer notifies the employee that the employer is no longer participating in ATIP.

.07 Consequences of reporting tips to the participating employer. A participating employee retains the right to report tips to his or her employer. If the participating employee reports an amount of tips for a given period that exceeds the amount the employer has attributed to that employee for that period, the excess shall be treated as wages for purposes of withholding, paying and reporting FICA, FUTA, and ITW, as applicable. See section 4.06 of this revenue procedure. Making such a report does not affect the employee’s status as a participating employee. If the participating employee reports an amount of tips for a given period that is less than the amount the employer will attribute to that employee for that period, the participating employee revokes his or her employee participation agreement, effective the first day of the payroll period for which the employee reports an amount of tips less than the amount the employer would have attributed to the employee.

.01 Benefits to the employer. The Service will act as follows with respect to an employer that satisfies all the requirements of section 4 of this revenue procedure with respect to one or more establishment:

(1) The Service will not initiate any tip examinations of a participating establishment with respect to any period during which the establishment is participating in ATIP.

(2) Code section 3121(q) notice and demand. Any section 3121(q) notice and demand issued to the employer with respect to a participating establishment relating to any period during which the establishment is participating in ATIP will be based solely on amounts reflected on:

(a) Form 4137, Social Security and Medicare Tax on Unreported Tip Income, filed by an employee with Form 1040; or

(b) Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to Employer, prepared at the conclusion of an employee tip examination; or

(c) The reporting of additional tip income by a participating employee.

At the Service’s discretion, the Service may continue any ongoing examination of the employer or establishment begun by the Service for a taxable period before the employer notifies the Service of its intent to participate in ATIP.

(3) A participating establishment will be considered in compliance with the reporting requirements of section 6053(c)(2) and (3) of the Code regarding allocation of tips to participating employees for the taxable periods during which the employer’s participation in ATIP remains in effect.

.02 Benefits to participating employees. The Service will act as follows with respect to a participating employee who meets all the requirements of section 5 of this revenue procedure.

(1) The Service will not examine a participating employee’s tip income with respect to the participating establishment for any period during which the employee is a participating employee, provided the employee reported as wages on his or her federal income tax return at least the amount of attributed tips reported to the employee in connection with employment at the participating establishment on Form W-2. The Service may examine a participating employee’s tip income with respect to the participating establishment for any period if the employee reports on his or her federal income tax return less than the amount of tip income attributed to him or her under ATIP and reported in connection with employment at the participating establishment on the employee’s Form W-2 as tips.

(2) If an employee becomes a participating employee more than 30 days after becoming employed as a tipped employee, the Service may examine the participating employee’s tip income received in connection with employment at the participating establishment before the employee becomes a participating employee. At the Service’s discretion, the Service may continue any ongoing examination of any tipped employee of the employer started by the Service before the effective date of the employer’s participation in this program.

.03 Status of nonparticipating employee. A nonparticipating employee is subject to the full range of compliance and enforcement procedures available to the Service including examination of tip income for any time period. The Service has authority, including the issuance and enforcement of summonses pursuant to sections 7602, 7604, and 7609 of the Code, to secure the information necessary for the Service to develop the tip rates of nonparticipating employees including information in possession of the participating employer.

.01 Employer. An employer will lose the protections provided in section 6.01 of this revenue procedure with respect to an establishment if the employer fails to comply with any of the requirements of section 4 with respect to that establishment. If the failure to comply with one or more requirements occurs during the calendar year, the employer will not be permitted to attribute tips to participating employees for any remaining portion of the calendar year, and all tipped employees must report tips in accordance with the Code and regulations. An employer that loses the ability to participate in ATIP during the calendar year must notify the employees of that establishment that as of the start of the next payroll period, it will no longer attribute tip amounts to employees as provided in section 4 and that employees must begin reporting tips to the employer as required by section 6053(a) of the Code. Such notice must be provided immediately after receipt of written notice from the Service that the establishment has lost ATIP program benefits and in no event later than the last day of the payroll period in which written notice from the Service is received. If an employer fails to notify employees that it will no longer attribute tip income, the employer (but not the participating employees) will lose the protections provided in section 6 of this revenue procedure for the entire calendar year, regardless of when the employer stopped attributing tip income.

.02 Employee. If the participating employee reports an amount of tips for a given period that is less than the amount the employer would have attributed to that employee for that period, the participating employee revokes his or her employee participation agreement, effective the first day of the payroll period for which the employee reports an amount of tips less than the amount the employer would have attributed to the employee. On that date the employee loses the benefits of section 6.02 of this revenue procedure.

.01 Employer revocation. For an employer to terminate participation in ATIP for an establishment prior to the end of the calendar year, the employer must notify the Service in writing by sending a letter to the address in section 13 of this revenue procedure in advance of the first day of the first payroll period for which the establishment will not participate in ATIP. An employer must also notify employees of the establishment that it will no longer participate in ATIP and that employees must begin reporting their tips as required by section 6053(a) of the Code. An employer may satisfy the employee notification requirement by providing each tipped employee with a copy of the letter sent to the address in section 13 of this revenue procedure at least seven days prior to the first day of the payroll period for which the employees will be required to report tips.

.02 Employee revocation. An employee who signs an employee participation agreement remains a participating employee until the employee revokes the employee participation agreement. An employee revokes participation in ATIP by providing the employer a signed notice revoking the prior agreement or by reporting tips in an amount less than the amount attributed to the employee. See section 5.07 of this revenue procedure.

(1) An employee who revokes participation may not participate in the establishment’s ATIP again during the year and must begin reporting tips to the employer effective the first day of the next payroll period as provided under section 6053 of the Code.

(2) An employee who revokes participation stops receiving the benefits provided under ATIP. The revocation is effective the earlier of the date the employee provides the employer a signed notice revoking the employee’s participation agreement or the first day of the payroll period for which the employee reports an amount of tips less than the amount the employer would have attributed to the employee. However, the employee receives the benefits provided under ATIP for the payroll periods during which the employee was a participating employee, provided the employee satisfies the requirements of section 5.04 of this revenue procedure with respect to attributed tips reported on the employee’s Form W-2.

.03 Revocation by Service. The Service may revoke an employer’s participation in ATIP at any time provided that it gives the employer notice in writing.

.01 Compliance review. The Service may evaluate the employer and its participating employees for compliance with the provisions of ATIP.

.02 Examinations and/or inspection of books and records. A compliance review or other inspection of books and records as required for compliance with ATIP will not be considered an inspection of books and records for purposes of section 7605(b) of the Code and is not a prior audit for purposes of section 530 of the Revenue Act of 1978.

The employer’s election to participate in ATIP supersedes and revokes all existing tip compliance agreements between the employer and the Service with respect to the establishment.

.01 Effective date. This revenue procedure is effective January 1, 2007. However, employers who elect to participate in ATIP for 2007 must attribute tips and otherwise comply with the requirements of ATIP beginning with the first payroll period ending on or after January 1, 2007. See section 4.11 of this revenue procedure.

.02 General termination and sunset provision. The ATIP established by this Revenue Procedure is a pilot program available for the three calendar years beginning on or after January 1, 2007. The ATIP terminates on December 31, 2009, unless the Service issues guidance extending the term. Notwithstanding the foregoing, the Commissioner of Internal Revenue may terminate ATIP at any time.

The collection of information contained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. § 3507) under control number 1545-2005. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information in this revenue procedure is in section 4, titled Employer Participation in ATIP. This information is required to evaluate the suitability of the Reporting Program for the particular taxpayer. The collection of information is required to obtain the benefits described in this revenue procedure. The likely respondents are businesses or other for-profit institutions.

The estimated total annual reporting burden is 6100 hours.

The estimated annual burden per respondent is an average of 10 hours, depending on individual circumstances. The estimated number of respondents is 610.

The estimated frequency of responses is 1 time per year per respondent.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. § 6103.

Internal Revenue Service, 201 West River Center Blvd., Stop 5701 G, ATTN: Employment Tax/ATIP Coordinator, Covington, KY 41011.

The principal author of this revenue procedure is Stephen Suetterlein of the Office of Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue procedure, contact the IRS Business and Specialty Tax Line at (800) 829-4933 or by e-mail at Tip.Program@irs.gov.

Internal Revenue Service (IRS), Treasury.

Notice of proposed rulemaking.

This document contains a proposed regulation which provides the translation rates that must be used when translating into dollars certain items and amounts transferred by a qualified business unit (QBU) to its home office or parent corporation for purposes of computing dollar approximate separate transactions method (DASTM) gain or loss.

Written or electronic comments and requests for a public hearing must be received by October 11, 2006.

Send submissions to: CC:PA:LPD:PR (REG-118897-06), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-118897-06), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the IRS Internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-118897-06).

Concerning the proposed regulations, Sheila Ramaswamy, at (202) 622-3870; concerning submissions of comments, Richard.A.Hurst@irscounsel.treas.gov, (202) 622-7180 (not toll-free numbers).

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

The principal author of these proposed regulations is Sheila Ramaswamy, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

The following is a list of entities that have been approved by the Commissioner of the Internal Revenue Service, pursuant to §1.408-2(e) of the Income Tax Regulations, to serve as a nonbank trustee or custodian. This list updates and supersedes the list published with Announcement 2005-59, 2005-37 I.R.B. 524.

Archer medical savings accounts (Archer MSAs) established under § 220 of the Internal Revenue Code, health savings accounts described in §223, custodial accounts of retirement plans qualified under § 401, custodial accounts described in § 403(b)(7), trust or custodial accounts of individual retirement accounts (IRAs) established under §§ 408 and 408A (Roth IRAs), Coverdell education savings accounts described in §530, and custodial accounts of eligible deferred compensation plans described in § 457(b) will not be tax exempt if the trustee or custodian of such accounts is not a bank (as defined in § 408(n)) (and in the case of Archer MSAs and health savings accounts, a bank within the meaning of § 408(n) or an insurance company within the meaning of § 816) or an approved nonbank trustee or custodian.

An entity that is not a bank (as defined in § 408(n)) (and in the case of Archer MSAs and health savings accounts a bank within the meaning of § 408(n) or an insurance company within the meaning of § 816) must receive approval from the Service to serve as a nonbank trustee or nonbank custodian. A prospective nonbank trustee or custodian must file a written application with the Commissioner of Internal Revenue demonstrating that the requirements of § 1.408-2(e)(2) through § 1.408-2(e)(7) of the regulations will be met. If the application is approved, a written notice of approval will be issued to the applicant. The notice of approval will state the day on which it becomes effective, and (except as otherwise provided therein) will remain effective until revoked by the Service or withdrawn by the applicant. Entities that have received such approval from the Service may also sponsor certain retirement plans, custodial accounts under § 403(b)(7) and individual retirement arrangements established under §§ 408 and 408A. (See, Rev. Proc. 2005-16, 2005-1 C.B. 674, and Rev. Proc. 87-50, 1987-2 C.B. 647, as modified.)

A prospective nonbank trustee or custodian may not accept any fiduciary account before such notice of approval becomes effective. In addition, a nonbank trustee or custodian may not accept a fiduciary account until after the plan administrator or the person for whose benefit the account is to be established is furnished with a copy of the written notice of approval issued to the applicant.

The continued reliance on a notice of approval is dependent upon the continued satisfaction of the nonbank trustee requirements set forth in the regulations. The notice of approval issued to an applicant will be revoked if the Commissioner determines that the applicant is unwilling or unable to administer fiduciary accounts in a manner consistent with the requirements of the regulations. Generally, the notice will not be revoked unless the Commissioner determines that the applicant has knowingly, willfully, or repeatedly failed to administer fiduciary accounts in a manner consistent with the requirements of the regulations, or has administered a fiduciary account in a grossly negligent manner.

The written notice of approval to serve as a nonbank trustee or nonbank custodian is not an endorsement of any investment made with respect to any retirement plan or arrangement handled by the approved nonbank trustee or custodian. The Internal Revenue Service does not review or approve investments.

If the trustee or custodian of an account described above is not a bank (and in the case of Archer MSAs and health savings accounts, a bank or an insurance company) or an approved nonbank trustee or nonbank custodian, the amounts held in such account (including earned interest) will be deemed distributed and includible in gross income in the year(s) the account’s trustee or custodian was not a bank or, if applicable, an insurance company, or an approved nonbank trustee or nonbank custodian. Contributions made to such account are not deductible from gross income and will be disallowed if claimed on an income tax return.

This list of approved nonbank trustees and nonbank custodians includes their names, addresses, and the date each application was approved.

If an approved nonbank trustee or custodian believes that the information about it is incorrect, incomplete, or that it has been incorrectly omitted from this list, it may, on or before October 30, 2006, notify the Service in writing of any changes it proposes to the list. This notification should include a copy of the notice of approval.

The notification should be addressed to:

The principal author of this announcement is Calvin Thompson of the Employee Plans, Tax Exempt and Government Entities Division. Please contact Mr. Thompson at 1-202-283-9596 (not a toll-free number), if there are any questions regarding the publication of this list. Written inquiries concerning this announcement should be addressed to the Internal Revenue Service at the above address.

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on July 31, 2006, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.