This document contains final regulations amending the Income Tax Regulations (26 CFR part 1) and the Regulations on Procedure and Administration (26 CFR part 301), and temporary and final regulations amending the Employment Tax and Collection of Income Tax at Source Regulations (26 CFR part 31), and the Excise Tax Procedural Regulations (26 CFR part 40), to require the use of EFT for all FTDs and to eliminate the rules regarding FTD coupons.

On August 23, 2010, the Treasury Department and IRS published in the Federal Register (75 FR 51707) proposed amendments to the regulations (REG-153340-09, 2010-42 I.R.B. 469) to require EFT for all FTDs and to eliminate the rules regarding FTD coupons. Written public comments responding to the proposed regulations were received. No public hearing was held because the IRS did not receive any requests to speak at the public hearing.

After consideration of all the comments, the proposed regulations are adopted as revised by this Treasury decision.

Many commentators expressed the concern that eliminating FTD coupons would burden small businesses. To help alleviate this perceived burden on small business, the regulations do not change the existing de minimis deposit rules allowing taxpayers with tax liabilities under certain thresholds to make a payment with a return. For example, under the de minimis deposit rules for employment taxes, that is, social security taxes, Medicare taxes, and withheld income taxes, an employer with a deposit liability of less than $2,500 for a return period may (1) remit employment taxes with their quarterly or annual tax return, (2) voluntarily make deposits by EFT, or (3) use other methods of payment as provided by the instructions relating to the return.

Several commentators asserted that many small businesses will have difficulty using EFT because they lack computers or internet access. Businesses without a computer may use the ACH debit option, which requires only a telephone call, to schedule a payment through the Electronic Federal Tax Payment System (EFTPS), an authorized method of EFT pursuant to §31.6302-1(h)(4). To assist taxpayers new to EFTPS, United States-based live operator customer support is available toll-free 24 hours a day, year-round.

A commentator stated that requiring EFTPS will likely result in an increase in user errors based on taxpayers’ computer illiteracy. Another commentator stated that requiring EFTPS will produce excessive costs in payment delays and requests for penalty abatement. According to IRS research, however, employers who pay electronically are 31 times less likely to make an error that results in interest or penalties than employers who use FTD coupons.

Several commentators expressed a reluctance to move away from the FTD coupon system based on taxpayers’ familiarity with the current system and the relationships they have developed with their local banks. In deciding to discontinue the FTD coupon system, the Financial Management Service (FMS) considered current market conditions. In the last 18 months, more than 100 financial institutions, large and small, have stopped accepting FTD coupons. In many states, few financial institutions still process FTD coupons. Additionally, many states now require employers to file or pay their state business taxes electronically.

Several commentators requested continued use of FTD coupons or the availability of alternative payment methods. These final regulations conform to the decision by FMS to eliminate the system that enables the processing of FTD coupons. As discussed above, many financial institutions no longer accept FTD coupons. If businesses are unwilling or unable to use EFTPS, they can arrange for a tax professional, financial institution, payroll service, or other trusted third party to make a deposit on their behalf using a master account. Businesses also can arrange for their financial institution to initiate a same-day tax wire payment on their behalf.

One commentator requested that the IRS continue to allow taxpayers to make payments by sending a check or money order to an IRS address when a new entity has applied for, but has not received, an employer identification number (EIN). The time it takes to receive an EIN, however, should no longer be an impediment to using EFTPS. Businesses within the United States or U.S. territories can apply for an EIN online using the IRS website. Once the application is completed, the information is validated during the online session, and an EIN is issued immediately. United States and international applicants may also obtain an EIN instantly using the telephone.

Several commentators requested raising the de minimis amounts above $2,500 for payments that may be made with a return. The de minimis deposit rules, however vary according to the type of tax involved. For example, the de minimis threshold is less than $2,500 per quarter for Form 720, Quarterly Federal Excise Tax Return, under §40.6302(c)-1(e)(3), but less than $200 per calendar year for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, under §1.6302-2(a)(1)(iv). Changing the existing de minimis deposit rules would create additional complexity and confusion for taxpayers, would upset the current established regulatory scheme, and unduly complicate enforcement of EFTPS.

Several commentators expressed a distrust of electronic payment systems and their security. EFTPS is a safe and secure tax payment system. Online payments require three unique types of information for authentication: a Taxpayer Identification Number, a Personal Identification Number (PIN), and an Internet password. EFTPS provides an instant, printable confirmation number for every payment scheduled. Payments scheduled by phone require a taxpayer identification number and a PIN. Taxpayers who schedule an FTD by phone will receive an eight digit acknowledgement number for future reference.

Moreover, IRS will only receive confirmation that the payment was made. The IRS will not have access to any taxpayer’s financial account. Businesses that do not wish to use EFTPS can arrange for their tax professional, financial institution, payroll service, or other trusted third party to make an FTD on their behalf using a master account. Businesses also may arrange for their financial institution to initiate a same-day tax wire payment for them.

Several commentators asserted that EFTPS registration is time-consuming, should be easier to use, and should make EFTPS available immediately. All taxpayers now using FTD coupons will be pre-enrolled in Treasury’s free EFTPS. When they receive notification of pre-enrollment, they can use the phone or Internet to activate their PIN, enter their financial account information, and begin scheduling payments on the same day.

One commentator asked the IRS to change the EFTPS enrollment process to include a variable to identify fiscal tax year taxpayers because EFTPS sometimes rejects payments by entities that operate on a fiscal tax year due to tax year-end mismatches. This suggestion was not adopted because the IRS already autocorrects payments for fiscal year taxpayers. When a taxpayer schedules an FTD through EFTPS, the system will ask the taxpayer to select the year and quarter to which the payment should be applied. This process should ensure that EFTPS payments are applied correctly.

One commentator stated that U.S. banks are reluctant to open U.S. bank accounts for foreign corporations. Another commentator asserted that it is difficult for a U.S. citizen residing abroad to open or maintain a U.S. bank account. This commentator suggested that the IRS adapt the registration form and EFTPS software to allow for payments to the IRS from foreign bank accounts, and that the Treasury Department and IRS issue regulations requiring U.S. banks to open U.S. bank accounts for U.S. citizens residing abroad with a foreign address. These suggestions were not adopted. Foreign taxpayers may arrange for their financial institution to initiate a same-day wire payment on their behalf. Foreign taxpayers may also arrange for their qualified intermediary, tax professional, payroll service, or other trusted third party to make a deposit on their behalf using a master account.

A commentator requested clarification of the One-Day Rule in §31.6302-1(c) and Example 4 in §31.6302-1(d). The commentator argued that the One-Day Rule should be applied only when an employer has accumulated $100,000 or more in undeposited employment taxes within the deposit period applicable to its status as a monthly or semi-weekly depositor and that Example 4 should be modified consistent with this result. These suggestions were not adopted. The commentator misinterprets the existing rules, which use accumulated taxes rather than undeposited taxes to determine the application of the One-Day rule. The proposed rules merely updated the existing rules and examples to be consistent with the elimination of the FTD coupon system and did not modify this aspect of the existing rules.

Example 4 in the proposed regulations correctly illustrates how the One-Day Rule applies in combination with a subsequent deposit obligation. Example 4 involves Employer D, a depositor subject to the semi-weekly rule for calendar year 2011. On Monday, January 10, 2011, D accumulates $115,000 in employment taxes. Because D has accumulated $100,000 or more in employment taxes, the One-Day Rule applies, and D therefore must deposit the $115,000 in employment taxes by the next business day, which is Tuesday, January 11, 2011. On Tuesday, January 11, 2011, D accumulates an additional $30,000 in employment taxes. Because the $115,000 in employment taxes accumulated on Monday is already subject to the One-Day Rule, there are no other accumulated taxes to be taken into account in determining D’s deposit obligation for the additional $30,000 in employment taxes accumulated on Tuesday. Therefore, D has an additional and separate deposit obligation of $30,000 on Tuesday that must be satisfied by the following Friday. This example is adopted in the final regulations without change.

Several commentators requested a delay in the effective date of these temporary and final regulations. These regulations implement the decision of FMS to eliminate the system that enables the processing of FTD coupons as of January 2011. In order to facilitate the transition from FTD coupons, all taxpayers now using coupons will be pre-enrolled in EFTPS. The IRS has begun notifying taxpayers of the upcoming changes and, upon publication of these regulations, will increase efforts to notify affected taxpayers of the EFT requirement. Since April 2010, the Department of Treasury and IRS have been reaching out to critical external stakeholders, including the Small Business Administration and financial institutions and their associations, about the pending FTD changes, and will continue to offer informational sessions and free marketing materials to assist external stakeholders in informing and educating taxpayers about the new requirements.

Prior to the advent of EFTPS, taxpayers made FTDs using an FTD coupon at a government depository bank. Because FTDs could only be made on days the banks were open, the timeliness of deposits under section 6302 was determined by reference to banking days. Furthermore, because many banks are closed on statewide legal holidays, the IRS treated statewide legal holidays as legal holidays in determining the timeliness of deposits.

Since a taxpayer will no longer be able to use a government depository bank to make an FTD using an FTD coupon, these regulations remove references to “banking days” and instead determine the timeliness of deposits by reference to “business days,” meaning every calendar day that is not a Saturday, Sunday, or legal holiday under section 7503. Additionally, because EFTPS is available 24 hours a day, seven days a week, the final regulations provide that, consistent with section 7503, the term “legal holiday” for FTD purposes includes only those legal holidays in the District of Columbia. Thus, a statewide legal holiday will no longer be considered a legal holiday unless the holiday coincides with a legal holiday in the District of Columbia. The following days are currently legal holidays in the District of Columbia: New Year’s Day, Birthday of Martin Luther King, Jr., Washington’s Birthday, District of Columbia Emancipation Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran’s Day, Thanksgiving Day, Christmas Day, and the day of the inauguration of the President, in every fourth year. The final regulations include several minor changes from the proposed regulations to reflect this application of the legal holiday rule and provide an additional example to illustrate it. See §31.6302-1(d) Example 5.

A separate notice is being issued with these final regulations to provide transitional relief. Notice 2010-87 states that the IRS will not assert penalties for FTDs made in 2011 that would be considered timely if statewide legal holidays were taken into account.

In addition to the changes described earlier in this preamble, the final regulations include four minor revisions that vary from the text of the proposed regulations. Sections 31.6071(a)-1(a) and (c) are revised, consistent with the intent of the proposed regulations, to eliminate the rules for FTD coupons. The table of contents in §31.6302-0 was updated to reflect the changes to the regulation headings. The heading to §40.6302(c)-1T has been revised to remove the reference to government depositaries. Additionally, §40.6302(c)-3 is further revised to illustrate the computation of the three business day rule for excise taxes when an intervening day is a holiday consistent with the rules in §31.6302-1(c)(2)(iii) for employment taxes.

It has been determined that this final rule is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Paragraph 1. The authority citation for part 1 is amended by revising the entries for sections 1.6302-1 through 1.6302-4 to read in part as follows:

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

Sections 1.6302-1, 1.6302-2, 1.6302-3 and 1.6302-4 also issued under 26 U.S.C. 6302(h). * * *

Par. 2. Section 1.1461-1 is amended by revising paragraph (a)(1), first sentence, to read as follows:

Par. 7. The authority citation for part 31 is amended by removing the entries for sections 31.6071-1, 31.6302-1 through 6302-3, 31.6302-3, 31.6302-4, 31.6302(c)-2A and 31.6302(c)-3 and adding entries in numerical order to read in part as follows:

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

Section 31.6071(a)-1 also issued under 26 U.S.C.6071.

* * * * *

Section 31.6302-1 also issued under 26 U.S.C. 6302(a) and (h).

Section 31.6302-1T also issued under 26 U.S.C. 6302(a) and (h).

Section 31.6302-2, 31.6302-3, and 31.6302-4 also issued under 26 U.S.C. 6302(a) and (h).

Section 31.6302(c)-2A also issued under 26 U.S.C. 6157(d) and 6302(a) and (h).

Section 31.6302(c)-3 also issued under 26 U.S.C. 6302(a) and (h). * * *

Par. 8. Section 31.6071(a)-1 is amended by

1. Revising paragraphs (a)(1) and (c).

2. Adding paragraph (g).

The revisions and the addition read as follows:

Par. 16. The authority citation for part 40 continues to read in part as follows:

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

Par. 17. Section 40.6302(c)-1 is amended by:

1. Revising the heading.

2. In paragraph (b)(2)(v), removing the language “that failure may be reported to the appropriate IRS office and”.

3. Revising paragraphs (d) and (f).

The revisions read as follows:

Par. 20. The authority citation for part 301 is amended to read in part as follows:

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

Par. 21. Section 301.6302-1 is revised to read as follows:

Section 1.6109-2 provides that beginning after December 31, 2010, all tax return preparers must have a PTIN that was applied for and received at the time and in the manner as prescribed by the IRS. This notice confirms that tax return preparers who obtain a PTIN or a provisional PTIN and pay any applicable user fee after September 28, 2010, have applied for and received a PTIN in the manner prescribed by the IRS for purposes of the section 6109 regulations.

Section 1.6109-2(d) provides that for returns or claims for refund filed after December 31, 2010, the identifying number of a tax return preparer is the individual’s PTIN or other number prescribed by the IRS. Additionally, after December 31, 2010, all individuals who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax must have a PTIN.

Section 1.6109-2(d) also provides that, except as provided in paragraph (h), beginning after December 31, 2010, a tax return preparer must be an attorney, certified public accountant, enrolled agent, or registered tax return preparer to obtain a PTIN.Section 1.6109-2(h) provides that the IRS may prescribe exceptions to the PTIN rules in appropriate guidance, including the requirement that an individual be an attorney, certified public accountant, enrolled agent, or registered tax return preparer before receiving a PTIN.

The IRS has decided to allow certain individuals who are not attorneys, certified public accountants, enrolled agents, or registered tax return preparers to obtain a PTIN and prepare, or assist in the preparation of, all or substantially all of a tax return in certain discrete circumstances.

Until further guidance is issued, the IRS, in accordance with the authority to provide exceptions to the PTIN rules under section 1.6109-2(h), will permit any individual eighteen years or older to pay the applicable user fee and obtain a PTIN permitting the individual to prepare, or assist in the preparation of, all or substantially all of a tax return or claim for refund for compensation if:

(i) the individual is supervised by an attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary authorized to practice before the IRS under Circular 230 §10.3(a) through (e);

(ii) the supervising attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary signs the tax returns or claims for refund prepared by the individual;

(iii) the individual is employed at the law firm, certified public accounting firm, or other recognized firm of the tax return preparer who signs the tax return or claim for refund; and

(iv) the individual passes the requisite tax compliance check and suitability check (when available).

For purposes of this provision, a law firm is a law partnership, professional corporation, sole proprietorship, or any other association authorized to practice law in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia. A certified public accounting firm is a partnership, professional corporation, sole proprietorship, or any other association that is registered, permitted, or licensed to practice as a certified public accounting firm in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia. A recognized firm is a partnership, professional corporation, sole proprietorship, or any other association, other than a law firm or certified public accounting firm, that has one or more employees lawfully engaged in practice before the IRS and that is 80 percent or a greater percent owned by one or more attorneys, certified public accountants, enrolled agents, enrolled actuaries, or enrolled retirement plan agents authorized to practice before the IRS under sections 10.3(a) through (e) of Circular 230, respectively.

Individuals applying for a PTIN under this provision will be required to certify on the PTIN application that they are supervised by an attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary who signs the tax return or claim for refund prepared by the individual and provide a supervising individual’s PTIN or other number if prescribed by the IRS. If at any point the individual is no longer supervised by the signing attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary, the individual must notify the IRS as prescribed in forms, instructions, or other appropriate guidance and will not be permitted to prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation under this provision.

Individuals who obtain a PTIN under this provision and prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation will not be subject to a competency examination or continuing education requirements. These individuals, however, may not sign any tax return they prepare or assist in preparing for compensation, represent taxpayers before the IRS in any capacity, or represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner.

Although individuals who obtain a PTIN under this provision are not practitioners under Circular 230, they are, by preparing, or assisting in the preparation of, a tax return for compensation, acknowledging that they are subject to the duties and restrictions relating to practice in subpart B of Circular 230. The IRS may, by written notification, revoke a PTIN obtained under this provision if the tax return preparer willfully violates applicable duties and restrictions prescribed in Circular 230 or engages in disreputable conduct. The tax return preparer may, within 30 days after receipt of the notice of revocation of the PTIN, file a written protest of the notice of revocation as prescribed in the revocation notice. A protest is not a proceeding under subpart D of Circular 230.

The Treasury Department and the IRS have proposed rules that will require an individual to pass a registered tax return preparer minimum competency examination (competency examination). The IRS anticipates, however, that the tax returns and claims for refund covered by the competency examination(s) initially offered will be limited to individual income tax returns (Form 1040 series tax returns and accompanying schedules). Although the IRS anticipates the types of returns and claims for refunds covered by the competency examination(s) may expand in the future, the IRS recognizes that certain compensated tax return preparers do not prepare Form 1040 series tax returns or related claims for refunds and that the tax returns and claims for refunds prepared by some of these individuals may not be covered by the competency examinations for a significant period of time. The IRS has determined that individuals should not be required, as a condition to obtaining a PTIN, to pass a competency examination covering tax returns and claims for refunds not prepared by the individual. Therefore, until further guidance, this notice, in accordance with the authority under section 1.6109-2(h), provides that any individual eighteen years or older may pay the applicable user fee and obtain a PTIN if:

(i) the individual certifies that the individual does not prepare, or assist in the preparation of, all or substantially all of any tax return or claim for refund covered by the competency examination(s) for registered tax return preparers administered under IRS oversight (1040 series until further notice); and

(ii) the individual passes the requisite tax compliance check and suitability check (when available).

Individuals who obtain a PTIN under this provision and prepare, or assist in preparing, all or substantially all of a tax return or claim for refund for compensation will not yet be subject to a competency examination. These individuals are not currently required to satisfy the same continuing education requirements that a registered tax return preparer must complete to renew their PTIN. In the future, the IRS may require through forms, instructions, or other appropriate guidance that these individuals complete continuing education to renew their PTIN.

Individuals who obtain or renew a PTIN under this provision may sign the tax returns or claims for refunds that they prepare for compensation as the paid preparer. These individuals may also represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the IRS (including the Taxpayer Advocate Service) during an examination if the individual signed the tax return or claim for refund for the taxable year under examination. They may not, however, represent to the IRS, their clients, or the general public that they are a registered tax return preparer or a Circular 230 practitioner. Enrolled retirement plan agents and enrolled actuaries who obtain a PTIN under this provision may continue to practice and represent as provided in Circular 230.

Although individuals who obtain a PTIN under this provision are not practitioners under Circular 230, they are, by preparing, or assisting in the preparation of, a tax return for compensation, acknowledging that they are subject to the duties and restrictions relating to practice in subpart B of Circular 230. The IRS may, by written notification, revoke a PTIN obtained under this provision if the tax return preparer willfully violates applicable duties and restrictions prescribed in Circular 230 or engages in disreputable conduct. The tax return preparer may, within 30 days after receipt of the notice of revocation of the PTIN, file a written protest of the notice of revocation as prescribed in the revocation notice. A protest is not a proceeding under subpart D of Circular 230.

Section 1.6109-2(h) provides that the IRS may specify in appropriate guidance the returns, schedules, and other forms that qualify as tax returns or claims for refund for purposes of the PTIN regulations. Consistent with that authority, the IRS hereby specifies that all tax returns, claims for refund, or other tax forms submitted to the IRS are considered tax returns or claims for refund for purposes of section 1.6109-2 unless otherwise provided by the IRS. For purposes of this provision, the term tax forms is interpreted broadly. An individual must obtain a PTIN to prepare for compensation all or substantially all of any form except those specifically identified by the IRS as not subject to the requirements of §1.6109-2. At this time, the IRS identifies the following forms as not subject to the requirements of §1.6109-2:

Form SS-4, Application for Employer Identification Number;

Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding;

Form SS-16, Certificate of Election of Coverage under the FICA;

Form W-2 series of returns;

Form W-7, Application for IRS Individual Taxpayer Identification Number;

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding;

Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment;

Form 872, Consent to Extend the Time to Assess Tax;

Form 906, Closing Agreement on Final Determination Covering Specific Matters;

Form 1098 series;

Form 1099 series;

Form 2848, Power of Attorney and Declaration of Representative;

Form 3115, Application for Change in Accounting Method;

Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits;

Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners;

Form 4419, Application for Filing Information Returns Electronically (FIRE);

Form 5300, Application for Determination for Employee Benefit Plan;

Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans;

Form 5310, Application for Determination for Terminating Plan;

Form 5500 series;

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;

Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests;

Form 8288-B, Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests;

Form 8508, Request for Waiver From Filing Information Returns Electronically;

Form 8717, User Fee for Employee Plan Determination, Opinion, and Advisory Letter Request;

Form 8809, Application for Extension of Time To File Information Return;

Form 8821, Tax Information Authorization;

Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program

The IRS may in future guidance modify the list of documents that do not qualify as tax returns or claims for refund for purposes of section 1.6109-2(h).

As discussed in section 1 of this notice, an individual may be designated as a registered tax return preparer if the individual successfully completes a competency examination or otherwise meets requisite standards prescribed by the IRS. The IRS, however, does not expect to offer the competency examination before mid 2011. Therefore, to allow tax return preparers to obtain a PTIN and continue to prepare tax returns or claims for refund until the competency examination is available, the IRS, as an interim rule, will allow individuals who are not attorneys, certified public accountants, or enrolled agents to obtain a provisional PTIN before the date that the competency examination is first offered (“initial test offering date”). Individuals may obtain a provisional PTIN through the IRS’ new online PTIN application system or by submitting to the IRS a paper Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application. The individual must annually renew the provisional PTIN and pay the applicable user fee.

The IRS generally will not issue provisional PTINs in accordance with this provision after the initial test offering date. After the initial test offering date, only attorneys, certified public accountants, enrolled agents, and registered tax return preparers, or individuals defined in section 1.02(a) or (b) of this notice will be eligible to obtain a PTIN in accordance with section 1.6109-2, subject to any future IRS guidance identifying additional individuals who may obtain a PTIN.

Until December 31, 2013, a provisional PTIN may be renewed upon proper application and payment of the applicable user fee, even if the individual holding the provisional PTIN is not an attorney, certified public accountant, enrolled agent, or registered tax return preparer. After December 31, 2013, provisional PTINs generally will not be renewed, and the holder of a provisional PTIN obtained in accordance with this provision may keep the PTIN only if the holder of the provisional PTIN is eligible to obtain a PTIN in accordance with section 1.6109-2, section 1.02(a) or (b) of this notice, or future guidance.

Tax return preparers who properly obtain a provisional PTIN before the initial test offering date will be permitted, subject to the requisite federal tax compliance check and suitability check (when available), to prepare for compensation all or substantially all of any tax return or claim for refund until December 31, 2013. During the transition period from the initial test offering date through December 31, 2013, tax return preparers who hold a provisional PTIN may, subject to the payment of the applicable user fee, take the competency examination as often as the examination is offered.

These interim rules apply to those tax return preparers who obtain a provisional PTIN prior to the initial test offering date. An individual who is subject to the competency testing requirement for becoming a registered tax return preparer who does not obtain a PTIN before the initial test offering date must pass the competency examination and be designated as a registered tax return preparer to be permitted to prepare for compensation all or substantially all of a tax return or claim for refund.

The holder of a provisional PTIN may represent that the holder is authorized to practice before the IRS by preparing and filing tax returns or claims for refund, but the holder of a provisional PTIN may not represent that the holder is a registered tax return preparer or has passed the competency examination necessary to become a registered tax return preparer.

The proposed Circular 230 regulations include registered tax return preparers in the definition of individuals described as practitioners and authorize these individuals to practice before the IRS. Practice as a registered tax return preparer generally is limited to preparing tax returns, claims for refund, or other documents for submission to the IRS and to limited representation as described below. A registered tax return preparer may prepare all or substantially all of a tax return or claim for refund. The IRS will prescribe by forms, instructions, or other appropriate guidance the tax returns and claims for refund that a registered tax return preparer may prepare and sign.

Registered tax return preparers may represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the IRS during an examination if the registered tax return preparer prepared and signed (or prepared and was not required to sign) the tax return or claim for refund for the taxable period under examination.

Prior to January 1, 2011, any individual generally may prepare a tax return or claim for refund for compensation. An individual who prepares and signs a taxpayer’s return or claim for refund as the preparer generally may represent that taxpayer during an examination of the taxable period covered by that return or claim for refund. The proposed Circular 230 regulations generally do not extend this right of representation to individuals who are not practitioners after December 31, 2010. To ensure that tax return preparers have sufficient time to become registered tax return preparers, these interim rules provide that an individual may represent a taxpayer during an examination provided the individual prepared and signed the taxpayer’s return or claim for refund as the preparer for the taxable period under examination and the individual was permitted under the regulations or other published guidance to prepare the taxpayer’s return or claim for refund for compensation. This right to represent the taxpayer does not, however, permit an individual who is not an attorney, certified public accountant, enrolled agent, enrolled retirement plan agent, or enrolled actuary to represent the taxpayer before appeals officers, revenue officers, Counsel, or similar officers or employees of the IRS or the Department of Treasury.

The proposed Circular 230 regulations require registered tax return preparers to complete fifteen hours of continuing education each registration year. As an interim rule, there is no continuing education requirement for registered tax return preparers or tax return preparers who obtain a provisional PTIN during the first year of registration, which commenced on September 30, 2010.

The proposed Circular 230 regulations include registered tax return preparers in the definition of individuals described as practitioners and authorize these individuals to practice before the IRS. Practice as a registered tax return preparer, therefore, will be subject to applicable duties and restrictions relating to practice before the IRS under Circular 230. Accordingly, as an interim rule, practice before the IRS by a tax return preparer who obtains a provisional PTIN or any individual who for compensation prepares, or assists in the preparation of, all or a substantial portion of a document pertaining to any taxpayer’s tax liability for submission to the IRS also is subject to applicable duties and restrictions relating to practice before the IRS under Circular 230. Tax return preparers holding a provisional PTIN and other individuals who for compensation prepare, or assist in the preparation of, all or a substantial portion of a document pertaining to any taxpayer’s tax liability for submission to the IRS must not engage in disreputable conduct under section 10.51 of Circular 230. The IRS may, by written notification, revoke a provisional PTIN if the tax return preparer willfully violates applicable duties and restrictions prescribed in Circular 230 or engages in disreputable conduct under section 10.51 of Circular 230. The tax return preparer may, within 30 days after receipt of the notice of revocation of the provisional PTIN, file a written protest of the notice of revocation as prescribed in the revocation notice. A protest is not a proceeding under subpart D of Circular 230.

The interim rules described in this notice and any final regulations apply to all tax return preparers who prepare all or substantially all of a tax return or claim for refund for compensation. As discussed in section 1 of this notice, all tax returns, claims for refund, or other documents submitted to the IRS unless otherwise provided for in section 1 of this notice or other guidance are tax returns for purposes of the PTIN regulations.

(1) Additional disclosure of facts relevant to, or positions taken with respect to, issues involving any of the items set forth below is unnecessary for purposes of reducing any understatement of income tax under section 6662(d) (except as otherwise provided in section 4.02(3) concerning Schedules M-1 and M-3), provided that the forms and attachments are completed in a clear manner and in accordance with their instructions.

(2) The money amounts entered on the forms must be verifiable, and the information on the return must be disclosed in the manner described below. For purposes of this revenue procedure, a number is verifiable if, on audit, the taxpayer can prove the origin of the amount (even if that number is not ultimately accepted by the Internal Revenue Service) and the taxpayer can show good faith in entering that number on the applicable form.

(3) The disclosure of an amount as provided in section 4.02 below is not adequate when the understatement arises from a transaction between related parties. If an entry may present a legal issue or controversy because of a related-party transaction, then that transaction and the relationship must be disclosed on a Form 8275 or Form 8275-R.

(4) When the amount of an item is shown on a line that does not have a preprinted description identifying that item (such as on an unnamed line under an “Other Expense” category) the taxpayer must clearly identify the item by including the description on that line. For example, to disclose a bad debt for a sole proprietorship, the words “bad debt” must be written or typed on the line of Schedule C that shows the amount of the bad debt. Also, for Schedule M-3 (Form 1120), Part II, line 25, Other income (loss) items with differences, or Part III, line 35, Other expense/deduction items with differences, the entry must provide descriptive language; for example, “Cost of non-compete agreement deductible not capitalizable.” If space limitations on a form do not allow for an adequate description, the description must be continued on an attachment.

(5) Although a taxpayer may literally meet the disclosure requirements of this revenue procedure, the disclosure will have no effect for purposes of the section 6662 accuracy-related penalty if the item or position on the return: (1) Does not have a reasonable basis as defined in Treas. Reg. § 1.6662-3(b)(3); (2) Is attributable to a tax shelter item as defined in section 6662(d)(2); or (3) Is not properly substantiated or the taxpayer failed to keep adequate books and records with respect to the item or position.

(6) Disclosure also will have no effect for purposes of the section 6694(a) penalty as applicable to tax return preparers if the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies.

(1) Form 1040, Schedule A, Itemized Deductions:

(a) Medical and Dental Expenses: Complete lines 1 through 4, supplying all required information.

(b) Taxes: Complete lines 5 through 9, supplying all required information. Line 8 must list each type of tax and the amount paid.

(c) Interest Expenses: Complete lines 10 through 15, supplying all required information. This section 4.02(1)(c) does not apply to (i) amounts disallowed under section 163(d) unless Form 4952, Investment Interest Expense Deduction, is completed, or (ii) amounts disallowed under section 265.

(d) Contributions: Complete lines 16 through 19, supplying all required information. Enter the amount of the contribution reduced by the value of any substantial benefit (goods or services) provided by the donee organization in consideration, in whole or in part. Entering the value of the contribution unreduced by the value of the benefit received will not constitute adequate disclosure. If a contribution of $250 or more is made, this section will not apply unless a contemporaneous written acknowledgment, as required by section 170(f)(8), is obtained from the donee organization. If a contribution of cash of less than $250 is made, this section will not apply unless a bank record or written communication from the donee, as required by section 170(f)(17), is obtained from the donee organization. If a contribution of property other than cash is made and the amount claimed as a deduction exceeds $500, attach a properly completed Form 8283, Noncash Charitable Contributions, to the return. In addition to the Form 8283, if a contribution of a qualified motor vehicle, boat, or airplane has a value of more than $500, this section will not apply unless a contemporaneous written acknowledgment, as required by section 170(f)(12), is obtained from the donee organization and attached to the return. An acknowledgment under section 170(f)(8) is not required if an acknowledgment under section 170(f)(12) is required.

(e) Casualty and Theft Losses: Complete Form 4684, Casualties and Thefts, and attach to the return. Each item or article for which a casualty or theft loss is claimed must be listed on Form 4684.

(2) Certain Trade or Business Expenses (including, for purposes of this section, the following six expenses as they relate to the rental of property):

(a) Casualty and Theft Losses: The procedure outlined in section 4.02(1)(e) must be followed.

(b) Legal Expenses: The amount claimed must be stated. This section does not apply, however, to amounts properly characterized as capital expenditures, personal expenses, or non-deductible lobbying or political expenditures, including amounts that are required to be (or that are) amortized over a period of years.

(c) Specific Bad Debt Charge-off: The amount written off must be stated.

(d) Reasonableness of Officers’ Compensation: Form 1120, Schedule E, Compensation of Officers, must be completed when required by its instructions. The time devoted to business must be expressed as a percentage as opposed to “part” or “as needed.” This section does not apply to “golden parachute” payments, as defined under section 280G. This section will not apply to the extent that remuneration paid or incurred exceeds the employee-remuneration deduction limitations under section 162(m), if applicable.

(e) Repair Expenses: The amount claimed must be stated. This section does not apply, however, to any repair expenses properly characterized as capital expenditures or personal expenses.

(f) Taxes (other than foreign taxes): The amount claimed must be stated.

(3) Differences in book and income tax reporting.

For Schedule M-1 and all Schedules M-3, including those listed in (a)-(f) below, the information provided must reasonably apprise the Service of the potential controversy concerning the tax treatment of the item. If the information provided does not so apprise the Service, a Form 8275 or Form 8275-R must be used to adequately disclose the item (see Part II of the instructions for those forms).

Combining unlike items, whether on Schedule M-1 or Schedule M-3 (or on an attachment when directed by the instructions), will not constitute an adequate disclosure.

Additionally, for taxpayers that file the Schedule M-3 (Form 1120), the new Schedule B, Additional Information for Schedule M-3 Filers, must also be completed. For taxpayers that file the Schedule M-3 (Form 1065), the new Schedule C, Additional Information for Schedule M-3 Filers, must also be completed. When required, these new Schedules are necessary to constitute adequate disclosure.

(a) Form 1065. Schedule M-3 (Form 1065), Net Income (Loss) Reconciliation for Certain Partnerships: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).

(b) Form 1120. (i) Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return.

(ii) Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items) and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items); and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).

(c) Form 1120-L. Schedule M-3 (Form 1120-L), Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).

(d) Form 1120-PC. Schedule M-3 (Form 1120-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).

(e) Form 1120S. Schedule M-3 (Form 1120S), Net Income (Loss) Reconciliation for S Corporations With Total Assets of $10 Million or More: Column (a), Income (Loss) per Income Statement, of Part II (reconciliation of income (loss) items) and Column (a), Expense per Income Statement, of Part III (reconciliation of expense/deduction items); Column (b), Temporary Difference, and Column (c), Permanent Difference, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items); and Column (d), Income (Loss) per Tax Return, of Part II (reconciliation of income (loss) items) and Column (d), Deduction per Tax Return, of Part III (reconciliation of expense/deduction items).

(f) Form 1120-F. Schedule M-3 (Form 1120-F), Net Income (Loss) Reconciliation for Foreign Corporations With Total Assets of $10 Million or More: Column (b), Temporary Difference, Column (c), Permanent Difference, and Column (d), Other Permanent Differences for Allocations to Non-ECI and ECI, of Part II (reconciliation of income (loss) items) and Part III (reconciliation of expense/deduction items).

(4) Foreign Tax Items:

(a) International Boycott Transactions: Transactions disclosed on Form 5713, International Boycott Report; Schedule A, International Boycott Factor (Section 999(c)(1)); Schedule B, Specifically Attributable Taxes and Income (Section 999(c)(2)); and Schedule C, Tax Effect of the International Boycott Provisions, must be completed when required by their instructions.

(b) Treaty-Based Return Position: Transactions and amounts under section 6114 or section 7701(b) as disclosed on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), must be completed when required by its instructions.

(5) Other:

(a) Moving Expenses: Complete Form 3903, Moving Expenses, and attach to the return.

(b) Employee Business Expenses: Complete Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, and attach to the return. This section does not apply to club dues, or to travel expenses for any non-employee accompanying the taxpayer on the trip.

(c) Fuels Credit: Complete Form 4136, Credit for Federal Tax Paid on Fuels, and attach to the return.

(d) Investment Credit: Complete Form 3468, Investment Credit, and attach to the return.