* * * * *

Par. 3. Section 801.7 is added to read as follows:

The provisions of §§801.1 through 801.6 apply before October 17, 2005. For the applicable provisions on or after October 17, 2005, see §§801.1T through 801.7T.

Par. 4. Sections 801.1T through 801.8T and a new center heading are added to read as follows:

(a) In general. (1) The regulations in this part 801 implement the provisions of sections 1201 and 1204 of the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-106, 112 Stat. 685, 715-716, 722) (the Act) and provide rules relating to the establishment by the Internal Revenue Service (IRS) of a balanced performance measurement system.

(2) Modern management practice and various statutory and regulatory provisions require the IRS to set performance goals for organizational units and to measure the results achieved by those units with respect to those goals. To fulfill these requirements, the IRS has established a balanced performance measurement system, composed of three elements: Customer Satisfaction Measures; Employee Satisfaction Measures; and Business Results Measures. The IRS is likewise required to establish a performance evaluation system for individual employees.

(b) [Reserved].

The performance measures that comprise the balanced measurement system will, to the maximum extent possible, be stated in objective, quantifiable, and measurable terms and will be used to measure the overall performance of various operational units within the IRS. In addition to implementing the requirements of the Act, the measures described here will, where appropriate, be used in establishing performance goals and making performance evaluations established, inter alia, under Division E, National Defense Authorization Act for Fiscal Year 1996 (the Clinger-Cohen Act of 1996) (Public Law 104-106, 110 Stat. 186, 679); the Government Performance and Results Act of 1993 (Public Law 103-62, 107 Stat. 285); and the Chief Financial Officers Act of 1990 (Public Law 101-576, 108 Stat. 2838). Thus, organizational measures of customer satisfaction, employee satisfaction, and business results (including quality and quantity measures as described in §801.6T) may be used to evaluate the performance of or to impose or suggest production goals for, any organizational unit.

(a) In general. All employees of the IRS will be evaluated according to the critical elements and standards or such other performance criteria as may be established for their positions. In accordance with the requirements of 5 U.S.C. 4312, 4313, and 9508 and section 1201 of the Act, the performance criteria for each position as are appropriate to that position, will be composed of elements that support the organizational measures of Customer Satisfaction, Employee Satisfaction, and Business Results; however, such organizational measures will not directly determine the evaluation of individual employees.

(b) Fair and equitable treatment of taxpayers. In addition to all other criteria required to be used in the evaluation of employee performance, all employees of the IRS will be evaluated on whether they provided fair and equitable treatment to taxpayers.

(c) Senior Executive Service and special positions. Employees in the Senior Executive Service will be rated in accordance with the requirements of 5 U.S.C. 4312 and 4313 and employees selected to fill positions under 5 U.S.C. 9503 will be evaluated pursuant to workplans, employment agreements, performance agreements, or similar documents entered into between the IRS and the employee.

(d) General workforce. The performance evaluation system for all other employees will—

(1) Establish one or more retention standards for each employee related to the work of the employee and expressed in terms of individual performance;

(2) Require periodic determinations of whether each employee meets or does not meet the employee’s established retention standards;

(3) Require that action be taken in accordance with applicable laws and regulations, with respect to employees whose performance does not meet the established retention standards;

(4) Establish goals or objectives for individual performance consistent with the IRS’s performance planning procedures;

(5) Use such goals and objectives to make performance distinctions among employees or groups of employees; and

(6) Use performance assessments as a basis for granting employee awards, adjusting an employee’s rate of basic pay, and other appropriate personnel actions, in accordance with applicable laws and regulations.

(e) Limitations. (1) No employee of the IRS may use records of tax enforcement results (as described in §801.6T) to evaluate any other employee or to impose or suggest production quotas or goals for any employee.

(i) For purposes of the limitation contained in this paragraph (e), employee has the meaning as defined in 5 U.S.C. 2105(a).

(ii) For purposes of the limitation contained in this paragraph (e), evaluate includes any process used to appraise or measure an employee’s performance for purposes of providing the following:

(A) Any required or requested performance rating.

(B) A recommendation for an award covered by Chapter 45 of Title 5; 5 U.S.C. 5384; or section 1201(a) of the Act.

(C) An assessment of an employee’s qualifications for promotion, reassignment, or other change in duties.

(D) An assessment of an employee’s eligibility for incentives, allowances, or bonuses.

(E) Ranking of employees for release/recall and reductions in force.

(2) Employees who are responsible for exercising judgment with respect to tax enforcement results in cases concerning one or more taxpayers may be evaluated on work done on such cases only in the context of their critical elements and standards.

(3) Performance measures based in whole or in part on quantity measures (as described in §801.6T) will not be used to evaluate the performance of any non-supervisory employee who is responsible for exercising judgment with respect to tax enforcement results (as described in §801.6T).

The customer satisfaction goals and accomplishments of operating units within the IRS will be determined on the basis of information gathered through various methods. For example, questionnaires, surveys and other types of information gathering mechanisms may be employed to gather data regarding customer satisfaction. Information to measure customer satisfaction for a particular work unit will be gathered from a statistically valid sample of the customers served by that operating unit and will be used to measure, among other things, whether those customers believe that they received courteous, timely, and professional treatment by the IRS personnel with whom they dealt. Customers will be permitted to provide information requested for these purposes under conditions that guarantee them anonymity. For purposes of this section, customers may include individual taxpayers, organizational units, or employees within the IRS and external groups affected by the services performed by the IRS operating unit.

The employee satisfaction numerical ratings to be given operating units within the IRS will be determined on the basis of information gathered through various methods. For example, questionnaires, surveys, and other information gathering mechanisms may be employed to gather data regarding satisfaction. The information gathered will be used to measure, among other factors bearing upon employee satisfaction, the quality of supervision and the adequacy of training and support services. All employees of an operating unit will have an opportunity to provide information regarding employee satisfaction within the operating unit under conditions that guarantee them anonymity.

(a) In general. The business results measures will consist of numerical scores determined under the quality measures and the quantity measures described elsewhere in this section.

(b) Quality measures. Quality measures will be determined on the basis of a review by a specially dedicated staff within the IRS of a statistically valid sample of work items handled by certain functions or organizational units determined by the Commissioner or his delegate such as the following:

(1) Examination and collection units and Automated Collection System Units (ACS). The quality review of the handling of cases involving particular taxpayers will focus on such factors as whether IRS personnel devoted an appropriate amount of time to a matter, properly analyzed the facts, and complied with statutory, regulatory, and IRS procedures, including timeliness, adequacy of notifications, and required contacts with taxpayers.

(2) Toll-free telephone sites. The quality review of telephone services will focus on such factors as whether IRS personnel provided accurate tax law and account information.

(3) Other work units. The quality review of other work units will be determined according to criteria prescribed by the Commissioner or his delegate.

(c) Quantity measures. Quantity measures will consist of outcome-neutral production and resource data that does not contain information regarding the tax enforcement result reached in any case that involves particular taxpayers. Examples of quantity measures include, but are not limited to—

(1) Cases started;

(2) Cases closed;

(3) Work items completed;

(4) Customer education, assistance, and outreach efforts completed;

(5) Time per case;

(6) Direct examination time/out of office time;

(7) Cycle time;

(8) Number or percentage of overage cases;

(9) Inventory information;

(10) Toll-free level of access; and

(11) Talk time.

(d) Definitions—(1) Tax enforcement results. A tax enforcement result is the outcome produced by an IRS employee’s exercise of judgment in recommending or determining whether or how the IRS should pursue enforcement of the tax laws. Examples of tax enforcement results include a lien filed, a levy served, a seizure executed, the amount assessed, the amount collected, and a fraud referral. Examples of data that are not tax enforcement results include a quantity measure and data derived from a quality review or from a review of an employee’s or a work unit’s work on a case, such as the number or percentage of cases in which correct examination adjustments were proposed or appropriate lien determinations were made.

(2) Records of tax enforcement results. Records of tax enforcement results are data, statistics, compilations of information or other numerical or quantitative recordations of the tax enforcement results reached in one or more cases. Such records may be used for purposes such as forecasting, financial planning, resource management, and the formulation of case selection criteria. Records of tax enforcement results may be used to develop methodologies and algorithms for use in selecting tax returns to audit. Records of tax enforcement results do not include tax enforcement results of individual cases when used to determine whether an employee exercised appropriate judgment in pursuing enforcement of the tax laws based upon a review of the employee’s work on that individual case.

(a) The rules of §801.3T are illustrated by the following examples:

Example 1. (i) Each year Division A’s Examination and Collection functions develop detailed workplans that set goals for specific activities (e.g., number of audits or accounts closed) and for other quantity measures such as cases started, cycle time, overage cases, and direct examination time. These quantity measure goals are developed nationally and by Area Office based on budget allocations, available resources, historical experience, and planned improvements. These plans also include information on measures of quality, customer satisfaction, and employee satisfaction. Results are updated monthly to reflect how each organizational unit is progressing against its workplan, and this information is shared with all levels of management.

(ii) Although specific workplans are not developed at the Territory level, Headquarters management expects the Area Directors to use the information in the Area plans to guide the activity in their Territories. For 2005, Area Office 1’s workplan has a goal to close 1,000 examinations of small business corporations and 120,000 taxpayer delinquent accounts (TDAs), and there are 10 Exam Territories and 12 Collection Territories in Area Office 1. While taking into account the mix and priority of workload, and available staffing and grade levels, the Examination Area Director communicates to the Territory Managers the expectation that, on average, each Territory should plan to close about 100 cases. The Collection Area Director similarly communicates to each Territory the expectation that, on average, they will close about 10,000 TDAs, subject to similar factors of workload mix and staffing.

(iii) Similar communications then occur at the next level of management between Territory Managers and their Group Managers, and between Group Managers and their employees. These communications will emphasize the overall goals of the organization and each employee’s role in meeting those goals. The communications will include expectations regarding the average number of case closures that would have to occur to reach those goals, taking into account the fact that each employee’s actual closures will vary based upon the facts and circumstances of specific cases.

(iv) Setting these quantity measure goals, and the communication of those goals, is permissible because case closures are a quantity measure. Case closures are an example of outcome-neutral production data that does not specify the outcome of any specific case such as the amount assessed or collected.

Example 2. In conducting a performance evaluation, a supervisor is permitted to take into consideration information the supervisor has developed showing that the employee failed to propose an appropriate adjustment to tax liability in one of the cases the employee examined, provided that information is derived from a review of the work done on the case. All information derived from such a review of individual cases handled by the employee, including time expended, issues raised, and enforcement outcomes reached should be considered and discussed with the employee and used in evaluating the employee.

Example 3. When assigning a case, a supervisor is permitted to discuss with the employee the merits, issues, and development of techniques of the case based upon a review of the case file.

Example 4. A supervisor is not permitted to establish a goal for proposed adjustments in a future examination.

(b) [Reserved].

(a) The provisions of §§801.1T through 801.7T apply on or after October 17, 2005.

(b) The applicability of §§801.1T through 801.7T expires on or before October 14, 2008.

Approved October 3, 2005.

Under the Internal Revenue Code (Code) and its regulations, qualified subchapter S subsidiaries (QSubs) (under section 1361(b)(3)(B)) and certain single-owner eligible entities (under §§301.7701-1 through 301.7701-3 of the Procedure and Administration Regulations) are disregarded as entities separate from their owners (“disregarded entities”). The disregarded entity rules of section 1361(b)(3)(A) and §§301.7701-1 through 301.7701-3 apply for all purposes of the Code, including employment and excise taxes.

Employers are required to deduct and withhold income and Federal Insurance Contributions Act (FICA) taxes from their employees’ wages under sections 3402(a) and 3102(a), and are separately liable for their share of FICA taxes as well as for Federal Unemployment Tax Act (FUTA) taxes under sections 3111 and 3301 (the withholding, FICA and FUTA taxes are collectively referred to herein as employment taxes). Sections 3403, 3102(b), 3111, and 3301 provide that the employer is the person liable for the withholding and payment of employment taxes. In addition, the employer is required to make timely tax deposits, file employment tax returns, and issue wage statements (Forms W-2) to employees (collectively, other employment tax obligations). An employer is generally defined as the person for whom an individual performs services as an employee. Sections 3401(d), 3121(d), and 3306(a). Because a disregarded entity is not recognized for Federal tax purposes, the owner of the disregarded entity is treated as the employer for purposes of employment tax liabilities and all other employment tax obligations related to wages paid to employees performing services for the disregarded entity.

If an entity is disregarded for Federal tax purposes under section 1361(b)(3)(A) or §§301.7701-1 through 301.7701-3, Notice 99-6, 1999-1 C.B. 321, provides that employment taxes and other employment tax obligations with respect to employees performing services for the disregarded entity may be satisfied in one of two ways: (1) calculation and payment of all employment taxes and satisfaction of all other employment tax obligations with respect to employees performing services for the disregarded entity by its owner under the owner’s name and employer identification number (EIN); or (2) separate calculation and payment of all employment taxes and satisfaction of all other employment tax obligations by the disregarded entity with respect to employees performing services for the disregarded entity by the disregarded entity under its own name and EIN. The notice states that ultimate liability for employment taxes remains with the owner of the disregarded entity regardless of which alternative is chosen.

Liability for federal excise taxes is imposed on certain transactions and activities under the following chapters of the Internal Revenue Code (Code).

Chapter 31 imposes retail excise taxes on the sale or use of special fuels (section 4041); the use of fuel in commercial transportation on inland waterways (section 4042); and the sale of heavy trucks and trailers (section 4051).

Chapter 32 imposes manufacturers excise taxes on the sale of gas guzzler automobiles (section 4064); the sale of highway-type tires (section 4071); the removal, entry, or sale of taxable fuel (section 4081); the sale of coal (section 4121); the sale of vaccines (section 4131); and the sale of sporting goods (section 4161).

Chapter 33 imposes excise taxes on payments for communications facilities and services (section 4251); payments for transportation of persons by air (section 4261); and payments for transportation of property by air (section 4271).

Chapter 34 imposes excise taxes on policies issued by foreign insurers (section 4371).

Chapter 35 imposes excise taxes on wagers (sections 4401 and 4411).

Chapter 36 imposes excise taxes on transportation by water (section 4471) and the use of heavy highway vehicles (section 4481).

Chapter 38 imposes excise taxes on the sale of ozone-depleting chemicals and imported taxable products (section 4681).

The IRS does not administer, and these regulations have no effect on the chapter 32 tax on firearms (section 4181) or the chapter 36 tax on port use (section 4461).

A person may be required to register with the IRS for certain excise tax purposes. Registration may be required under section 4101 with respect to the taxes imposed on motor fuels or under section 4412 in the case of persons subject to the occupational tax on wagering. In addition, section 4222 generally permits sales for certain exempt purposes to be made on a tax-free basis only if the sellers and purchasers are registered.

The Code allows excise taxpayers to claim credits or refunds for overpayments, including overpayments determined under sections 4081(e), 6415, 6416, and 6419 (section 6402). The Code generally allows non-excise taxpayers to claim credits or payments for fuels used for nontaxable purposes (sections 6420, 6421, and 6427) and allows blenders to claim credits or payments for the production of alcohol and biodiesel mixtures (sections 6426 and 6427(e)). Section 34 provides an income tax credit for amounts payable for the nontaxable use of fuels under sections 6420, 6421, and 6427, if these amounts have not been previously claimed, and section 38 provides an income tax credit (general business credit) for alcohol or biodiesel used as a fuel (under sections 40 and 40A).

Administrative difficulties have arisen from the interaction of the disregarded entity rules and the federal employment tax provisions. Problems have arisen for both taxpayers and the IRS with respect to reporting, payment and collection of employment taxes, particularly where state employment tax law also sets requirements for reporting, payment and collection that may be in conflict with the federal disregarded entity rules. The Treasury Department and the IRS believe that treating the disregarded entity as the employer for purposes of federal employment taxes will improve the administration of the tax laws and simplify compliance.

Difficulties also have arisen from the interaction of the disregarded entity rules and certain federal excise tax provisions. Many of these provisions rely on state law, rather than federal law, to determine liability for an excise tax, attachment of a tax, and allowance of a credit, refund, or payment. For example, §48.0-2(b) of the Manufacturers and Retailers Excise Tax Regulations provides that such excise taxes attach when title to an article passes to the purchaser. In general, determining when title passes depends on the intention of the parties. Absent express intention, however, the laws of the jurisdiction where the sale is made govern this determination. Such a determination is required also in applying certain excise tax credit, refund, and payment provisions that allow claims by ultimate purchasers, ultimate vendors, and producers.

The proposed regulations would eliminate disregarded entity status for purposes of federal employment taxes. A disregarded entity would be regarded for employment tax purposes, and, accordingly, become liable for employment taxes on wages paid to employees of the disregarded entity, and be responsible for satisfying other employment tax obligations (e.g., backup withholding under section 3406, making timely deposits of employment taxes, filing returns, and providing wage statements to employees on Forms W-2). The owner of the disregarded entity would no longer be liable for employment taxes or satisfying other employment tax obligations with respect to the employees of the disregarded entity. The disregarded entity would continue to be disregarded for other Federal tax purposes. The proposed regulations contain an example illustrating the interaction of the income tax provisions and employment tax provisions. For example, the proposed regulations illustrate that an individual owner of a disregarded entity would continue to be treated as self-employed for purposes of Self Employment Contributions Act (SECA) taxes (section 1401 et sequitur), and not as an employee of the disregarded entity for employment tax purposes.

The employment tax provisions of these regulations are proposed to apply to wages paid on or after January 1 following the date these regulations are published as final regulations in the Federal Register. QSubs, single-owner eligible entities disregarded under §§301.7701-1 through 301.7701-3, and the owners of such entities may continue to use the procedures permitted by Notice 99-6 to satisfy the owners’ employment tax liabilities and other employment tax obligations for periods before the effective date of these regulations. As required by Notice 99-6, if the owner currently satisfies the employment tax liabilities and other employment tax obligations with respect to wages paid to employees performing services for the disregarded entity, then the owner must continue to satisfy such liabilities and obligations until these regulations become final and effective, at which time Notice 99-6 will be obsoleted.

The proposed regulations would eliminate disregarded entity status for purposes of certain excise taxes. An entity that is disregarded for other federal tax purposes would be required to pay and report excise taxes, required and allowed to register, and allowed to claim any credits (other than income tax credits), refunds, and payments. The excise tax provisions that are excluded from the proposed regulations are specified. Because a disregarded entity does not file an income tax return, the credit on Form 4136 under section 34 is claimed on the owner’s income tax return and appropriate identification of the single-owner entity and its taxpayer identification number is required. The income tax credit under section 38 (including any credit under sections 40 and 40A) is not affected by these proposed regulations.

The excise tax provisions in these regulations are proposed to apply to liabilities imposed and actions first required or permitted in periods beginning on or after January 1 following the date these regulations are published as final regulations in the Federal Register. For periods beginning before the effective date of these regulations, the IRS will treat payments made by a disregarded entity, or other actions taken by a disregarded entity, with respect to the excise taxes affected by these regulations as having been made or taken by the sole owner of that entity. Thus, for such periods, the owner of a disregarded entity will be treated as satisfying the owner’s obligations with respect to the excise taxes affected by these regulations, provided that those obligations are satisfied either (i) by the owner itself or (ii) by the disregarded entity on behalf of the owner.

Amounts payable under sections 6420, 6421, and 6427 to a business entity that is treated as separate from its owner under §1.1361-4(a)(8) (relating to certain qualified subchapter S subsidiaries) or §301.7701-2(c)(2)(v) of this chapter (relating to certain wholly-owned entities) are, for purposes of section 34, treated as payable to the owner of that entity.

(a) * * *

(7) Treatment of QSubs for purposes of employment taxes—(i) In general. A QSub is treated as a separate corporation for purposes of Subtitle C — Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A, 24, and 25 of the Internal Revenue Code).

(ii) Effective date. This paragraph (a)(7) applies with respect to wages paid on or after January 1 following the date these regulations are published as final regulations in the Federal Register.

(8) Treatment of QSubs for purposes of certain excise taxes—(i) In general. A QSub is treated as a separate corporation for purposes of—

(A) Federal tax liabilities imposed by Chapters 31, 32 (other than section 4181), 33, 34, 35, 36 (other than section 4461), and 38 of the Internal Revenue Code, or any floor stocks tax imposed on articles subject to any of these taxes;

(B) Collection of tax imposed by Chapter 33 of the Internal Revenue Code;

(C) Registration under sections 4101, 4222, and 4412; and

(D) Claims of a credit (other than a credit under section 34), refund, or payment related to a tax described in paragraph (a)(8)(A) of this section.

(ii) Effective date. This paragraph (a)(8) applies to liabilities imposed and actions first required or permitted in periods beginning on or after January 1 following the date these regulations are published as final regulations in the Federal Register.

Par. 5. Section 1.1361-6 is amended as follows:

The language “Except as otherwise provided in §§1.1361-4(a)(3)(iii), 1.1361-4(a)(5)(i), and 1.1361-5(c)(2)" is removed, and "Except as provided in §§1.1361-4(a)(3)(iii), 1.1361-4(a)(5)(i), 1.1361-4(a)(6)(iii), 1.1361-4(a)(7)(ii), 1.1361-4(a)(8)(ii), and 1.1361-5(c)(2)" is added in its place.

(a) * * * But see paragraphs (c)(2)(iv) and (v) of this section for special employment and excise tax rules that apply to an eligible entity that is otherwise disregarded as an entity separate from its owner.

* * * * *

(c) * * *

(2) * * *

(iv) Special rule for employment tax purposes—(A) In general. Paragraph (c)(2)(i) of this section (relating to certain wholly owned entities) does not apply to taxes imposed under Subtitle C — Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A, 24, and 25 of the Internal Revenue Code).

(B) Example. The following example illustrates the application of paragraph (c)(2)(iv) of this section:

Example. (i) LLCA is an eligible entity owned by individual A and is generally disregarded as an entity separate from its owner for federal tax purposes. However, LLCA is treated as an entity separate from its owner for purposes of subtitle C of the Internal Revenue Code. LLCA has employees and pays wages as defined in sections 3121(a), 3306(b), and 3401(a).

(ii) LLCA is subject to the provisions of subtitle C of the Internal Revenue Code and related provisions under 26 CFR subchapter C, Employment Taxes and Collection of Income Tax at Source, parts 31 through 39. Accordingly, LLCA is required to perform such acts as are required of an employer under those provisions of the Code and regulations thereunder that apply. All provisions of law (including penalties) and the regulations prescribed in pursuance of law applicable to employers in respect of such acts are applicable to LLCA. Thus, for example, LLCA is liable for income tax withholding, Federal Insurance Contributions Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) taxes. See sections 3402 and 3403 (relating to income tax withholding); 3102(b) and 3111 (relating to FICA taxes), and 3301 (relating to FUTA taxes). In addition, LLCA must file under its name and EIN the applicable Forms in the 94X series, for example, Form 941, “Employer’s Quarterly Federal Tax Return,” Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return;” file with the Social Security Administration and furnish to LLCA’s employees statements on Forms W-2, “Wage and Tax Statement;” and make timely employment tax deposits. See §§31.6011(a)-1, 31.6011(a)-3, 31.6051-1, 31.6051-2, and 31.6302-1 of this chapter.

(iii) A is self-employed for purposes of subtitle A, chapter 2, Tax on Self-Employment Income, of the Internal Revenue Code. Thus, A is subject to tax under section 1401 on A’s net earnings from self-employment with respect to LLCA’s activities. A is not an employee of LLCA for purposes of subtitle C of the Code. Because LLCA is treated as a sole proprietorship of A for income tax purposes, A is entitled to deduct trade or business expenses paid or incurred with respect to activities carried on through LLCA, including the employer’s share of employment taxes imposed under sections 3111 and 3301, on A’s Form 1040, Schedule C, “Profit or Loss From Business (Sole Proprietorship).”

(v) Special rule for certain excise tax purposes—(A) In general. Paragraph (c)(2)(i) of this section (relating to certain wholly owned entities) does not apply for purposes of—

(1) Federal tax liabilities imposed by Chapters 31, 32 (other than section 4181), 33, 34, 35, 36 (other than section 4461), and 38 of the Internal Revenue Code, or any floor stocks tax imposed on articles subject to any of these taxes;

(2) Collection of tax imposed by Chapter 33 of the Internal Revenue Code;

(3) Registration under sections 4101, 4222, and 4412; and

(4) Claims of a credit (other than a credit under section 34), refund, or payment related to a tax described in paragraph (c)(2)(v)(A)(1) of this section.

(B) Example. The following example illustrates the provisions of this paragraph (c)(2)(v).

Example. (i) LLCB is an eligible entity that has a single owner, B. LLCB is generally disregarded as an entity separate from its owner. However, under paragraph (c)(2)(v) of this section, LLCB is treated as an entity separate from its owner for certain purposes relating to excise taxes.

(ii) LLCB mines coal from a coal mine located in the United States. Section 4121 of chapter 32 of the Internal Revenue Code imposes a tax on the producer’s sale of such coal. Section 48.4121-1(a) of this chapter defines a "producer" generally as the person in whom is vested ownership of the coal under state law immediately after the coal is severed from the ground. LLCB is the person that owns the coal under state law immediately after it is severed from the ground. Under paragraph (c)(2)(v)(A)(1) of this section, LLCB is the producer of the coal and is liable for tax on its sale of such coal under chapter 32 of the Internal Revenue Code. LLCB must report and pay tax on Form 720, “Quarterly Federal Excise Tax Return,” under its own name and taxpayer identification number.

(iii) LLCB uses undyed diesel fuel in an earthmover that is not registered or required to be registered for highway use. Such use is an off-highway business use of the fuel. Under section 6427(l), the ultimate purchaser is allowed to claim an income tax credit or payment related to the tax imposed on diesel fuel used in an off-highway business use. Under paragraph (c)(2)(v) of this section, for purposes of the credit or payment allowed under section 6427(l), LLCB is the person that could claim the amount on its Form 720 or on a Form 8849, “Claim for Refund of Excise Taxes.” Alternatively, if LLCB did not claim a payment during the time prescribed in section 6427(i)(2) for making a claim under section 6427, §1.34-1 of this chapter provides that B, the owner of LLCB, could claim the income tax credit allowed under section 34 for the nontaxable use of diesel fuel by LLCB.

* * * * *

(e) * * *

(3) Paragraph (c)(2)(iv) of this section applies with respect to wages paid on or after January 1 following the date these regulations are published as final regulations in the Federal Register.

(4) Paragraph (c)(2)(v) of this section applies to liabilities imposed and actions first required or permitted in periods beginning on or after January 1 following the date these regulations are published as final regulations in the Federal Register.

[The text of proposed §801.1 is the same as the text of §801.1T published elsewhere in this issue of the Bulletin].

Par. 3. Section 801.2T is redesignated as §801.2 and amended by revising the section heading to read as follows:

[The text of proposed §801.2 is the same as the text of §801.2T published elsewhere in this issue of the Bulletin.]

Par. 4. Section 801.3T is redesignated as §801.3 and amended by revising the section heading to read as follows:

[The text of proposed §801.3 is the same as the text of §801.3T published elsewhere in this issue of the Bulletin].

Par. 5. Section 801.4T is redesignated as §801.4 and amended by revising the section heading to read as follows:

[The text of proposed §801.4 is the same as the text of §801.4T published elsewhere in this issue of the Bulletin].

Par. 6. Section 801.5T is redesignated as §801.5 and amended by revising the section heading to read as follows:

[The text of proposed §801.5 is the same as the text of §801.5T published elsewhere in this issue of the Bulletin].

Par. 7. Section 801.6T is redesignated as §801.6 and amended by revising the section heading to read as follows:

[The text of proposed §801.6 is the same as the text of §801.6T published elsewhere in this issue of the Bulletin].

Par. 8. Section 801.7T is redesignated as §801.7 and amended by revising the section heading to read as follows:

[The text of the proposed §801.7 is the same as the text of §801.7T published elsewhere in this issue of the Bulletin.]

Par. 9. Section 801.8T is redesignated as §801.8 and revised to read as follows:

[The text of proposed §801.8 is the same as the text of §801.8T(a) published elsewhere in this issue of the Bulletin].