This document contains amendments to 25 CFR part 301. Section 6103(j)(1)(A) authorizes the Secretary of Treasury to furnish, upon written request by the Secretary of Commerce, such return or return information as the Secretary of Treasury may prescribe by regulation to officers and employees of the Bureau for the purpose of, but only to the extent necessary in, the structuring of censuses and conducting related statistical activities authorized by law. Section 301.6103(j)(1)–1 of the existing regulations further defines such purposes by reference to 13 U.S.C. chapter 5 and provides an itemized description of the return information authorized to be disclosed for such purposes.

By letter dated May 10, 2013, the Secretary of Commerce requested that additional items of return information be disclosed to the Bureau for the structuring of the decennial census. Specifically, the Secretary of Commerce requested disclosure of the following additional items: (1) From Form 1040, “U.S. Individual Income Tax Return,” processing: Electronic Filing System Indicator, Return Processing Indicator, and Paid Preparer Code and (2) From Form 1098, “Mortgage Interest Statement”: Payee/Payer/Employee Taxpayer Identification Number , Payee/Payer/Employee Name (First, Middle, Last, Suffix), Street Address, City, State, ZIP Code (9 digit), Posting Cycle Week, Posting Cycle Year, and Document Code.

The Secretary of Commerce determined that these items of return information are needed to design a decennial census that costs less per housing unit and still maintains high quality results. A major cost in previous decennial censuses was the high number of follow-up, in-person attempts to collect information from housing units that did not return a completed census form. The Bureau intends to conduct research and testing for the next decennial census using administrative data from federal agencies, state agencies, and commercial vendors to determine whether the number of non-response follow-up visits can be reduced through the strategic reuse of this data. Specifically, the Bureau aims to achieve the following research initiatives: (1) Validating and enhancing the Master Address File; (2) Designing and assigning resources to carry out the next decennial census; (3) Un-duplicating public, private, and census lists; and (4) Imputing missing data. All administrative data from the above sources, including return information, will be integrated into the Bureau’s data system that is used for the next decennial census and housing counts and will be done in a manner such that the source (for example, commercial vendor, IRS, or Social Security Administration) will not be associated with any data element in the final decennial person-level census records.

Thus, the Secretary of Commerce asserted that good cause exists to amend § 301.6103(j)(1)–1 of the regulations to add these items to the list of items of return information that may be disclosed to the Bureau. The Treasury Department and the IRS agree that amending existing regulations to permit disclosure of these items to the Bureau is appropriate to meet the needs of the Bureau.

The text of the temporary regulations also serves as the text of the proposed regulations set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Bulletin.

Section 6103(j)(1)–1T will authorize the disclosure of the following additional items of return information from income tax returns (Form 1040): (1) Electronic Filing System Indicator; (2) Return Processing Indicator; and (3) Paid Preparer Code. Section 6103(j)(1)–1T will authorize the disclosure of the following items of return information from Form 1098: (1) Payee/Payer/Employee Taxpayer Identification Number; (2) Payee/Payer/Employee Name (First, Middle, Last, Suffix); (3) Street Address; (4) City; (5) State; (6) ZIP Code (9 digit); (7) Posting Cycle Week; (8) Posting Cycle Year; and (9) Document Code.

It has been determined that these temporary regulations are not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations and because the regulation does 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, this regulation has been 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 301 continues to read in part as follows:

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

Par. 2. Section 301.6103(j)(1)–1T is added to read as follows:

This document amends the Income Tax Regulations (26 CFR Part 1) and the Procedure and Administration Regulations (26 CFR Part 301) to authorize filers of information returns to truncate a payee’s or other person’s nine-digit identifying number on payee statements and certain other documents. The goal of these amendments is to reduce the risk of identity theft that may stem from the inclusion of a taxpayer’s entire identifying number on a payee statement or other document.

Concerned about the risks of identity theft, including its effect on tax administration, the IRS established a pilot program allowing filers of information returns who met certain requirements to truncate an individual payee’s identifying number on paper payee statements (Forms 1098, 1099, and 5498) for calendar years 2009 and 2010. See Notice 2009–93, 2009–51 IRB 863. The IRS subsequently extended the pilot program for payee statements for calendar years 2011 and 2012, and modified the program by removing the Form 1098–C from the list of eligible documents on which a TTIN can be used because it is an acknowledgement under section 170(f)(12) rather than a payee statement. See Notice 2011–38, 2011–20 IRB 784.

On January 7, 2013, the Treasury Department and the IRS published a notice of proposed rulemaking (REG–148873–09) in the Federal Register, 78 FR 913, establishing an IRS truncated taxpayer identification number, a TTIN, and setting forth guidelines for its use. The scope of the proposed regulations mirrored that of the pilot project as reflected in Notice 2011–38 with one exception made in conformance with comments received in response to the pilot program: The proposed regulations permitted use of a TTIN on electronic payee statements in addition to paper payee statements. A public hearing was scheduled for March 12, 2013. One request to testify at the public hearing was received but later withdrawn, and the public hearing was cancelled. Eleven written comments responding to the NPRM were received and are available for public inspection at http://www.regulations.gov or upon request. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision. The amendments are discussed in the next section.

While comments received in response to the NPRM overwhelmingly supported the proposed regulations, one commenter recommended against finalizing the proposed regulations because he failed to see the benefit of a TTIN and believed issuance of a TTIN would use funds for a structure that already exists. As defined in § 301.6109–4(a) of the proposed regulations, a TTIN is simply a method for partially masking taxpayer identifying numbers that already exist. Use of a TTIN does not require issuance of a new number and no funds will be expended for that purpose. The Treasury Department and the IRS believe that the truncation of TINs will reduce the risk of identity theft. Therefore, the final regulations do not adopt this recommendation.

Almost all commenters recommended allowing use of a TTIN in place of an EIN. Some commenters stated that, due to technical constraints or incomplete data records, many filers could not segregate payees with EINs from payees with individual taxpayer identifying numbers (SSNs, ITINs, and ATINs) that could be truncated under the proposed regulations. Therefore, these filers were not able to use TTINs at all. Other commenters stated that small businesses and closely-held entities have the same privacy concerns that individuals have, and should be granted the same benefits in protecting their identifying information. In light of these comments, the Treasury Department and the IRS believe that allowing truncated EINs will encourage filers to use TTINs for all payees and will further reduce risk of identity theft. Accordingly, § 301.6109–4 of the final regulations permits truncation of EINs.

Most commenters recommended expanding the authorization to use a TTIN on more documents than just payee statements in the Forms 1098, 1099, and 5498 series. Commenters specifically recommended that the IRS consider allowing a TTIN to be used on a grantor trust letter as required by § 1.671–4(b); a widely held fixed investment trust (WHFIT) statement as required by § 1.671–5(e); a copy of a Schedule K–1 issued to a partner, shareholder, or beneficiary under section 6012(a)(4), 6031(a)–(b), 6034A, or 6037(b); any Form 1097 series return; a Form 2439 “Notice to Shareholder of Undistributed Long-Term Capital Gains”; or any other payee statement.

Under the proposed regulations, use of a TTIN was permitted only if affirmatively authorized by the IRS. Commenters expressed concern that allowing TTINs to be used only when authorized unduly limits the documents on which TTINs may be used, which in turn reduces the effect of using TTINs to help combat identity theft. Continued use of this approach would impose an administrative burden on IRS to keep updated the list of documents on which TTINs are permitted. The commenters suggested that allowing TTINs to be used unless prohibited would address these concerns. The Treasury Department and the IRS agree that TTINs should be permitted on most documents that the internal revenue laws require to be provided to payees and other persons. Accordingly, the final regulations permit use of a TTIN on any federal tax-related payee statement or other document required to be furnished to another person unless prohibited by the Internal Revenue Code, regulations, other guidance published in the Internal Revenue Bulletin, forms, or instructions.

Under this modified approach, there is no need to amend every information reporting regulation to permit the use of a TTIN. However, it may be unclear whether language in certain regulations could be interpreted as requiring use of an unmasked SSN, ITIN, ATIN, or EIN, thereby prohibiting use of a TTIN. Accordingly, to avoid confusion, the final regulations retain the provisions in the proposed regulations that amend specific information reporting regulations that contained language that could be interpreted as specifically requiring use of an unmasked SSN, ITIN, ATIN, or EIN.

One commenter recommended allowing use of TTINs on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipts of Certain Foreign Gifts, and Form 3520A, Annual Information Return of Foreign Trust With a U.S. Owner (Under Section 6048(b)). Taxpayer identifying numbers on returns and statements filed with the IRS are necessary for the IRS to determine compliance with the tax laws and to validate the information provided. Therefore, the final regulations retain the rule in the proposed regulations that TTINs may not be used on a return filed with the IRS. Accordingly, because Forms 3520 and 3520A are returns required to be filed with the IRS this recommendation is not adopted.

Consistent with the approach adopted in the final regulations, the regulations were revised to list the circumstances where use of a TTIN is not permitted. Under § 301.6109–4(b)(2), a TTIN may not be used (1) where prohibited by statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions; (2) where a statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions, specifically requires use of an SSN, ITIN, ATIN, or EIN; or (3) on any return or statement required to be filed with, or furnished to, the IRS. Further, a person may not truncate its own taxpayer identification number on any tax form, statement, or other document that person furnishes to another person. For example, an employer cannot use a TTIN in place of its EIN on a Form W–2, Wage and Tax Statement, that the employer furnishes to an employee; and a person may not use a TTIN in place of its TIN on a Form W–9, Request for Taxpayer Identification Number and Certification.

An example was added to § 301.6109–4 of the regulations to illustrate the operation of the revised rule. In addition, because use of a TTIN is not limited by type of form, the definitions set forth in § 301.6109–4(b) of the proposed regulations are no longer necessary and have been deleted from the final regulations.

Because a TTIN is a permissible method of displaying the taxpayer identifying number, use of a TTIN when permitted by § 301.6109–4 of the final regulations satisfies the requirement to include a taxpayer identifying number on a document or statement. To eliminate any potential confusion, § 301.6109–4(b) of the final regulations is amended to state that use of a TTIN as permitted in these regulations will not result in application of any penalty (e.g., a penalty under section 6722 for failure to timely furnish a correct statement) for failure to include a taxpayer identifying number on any payee statement or other document.

Section 301.6109–4 of the final regulations is effective July 15, 2014. The amendments to the specific information reporting regulations are generally effective for payee statements due after December 31, 2014. As stated in the proposed TTIN regulations, taxpayers were allowed to rely on the rules in the proposed regulations prior to publication of these final regulations. Finally, modifications have been made to the effective date sections of some of these information reporting regulations to remove outdated references.

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. 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 the 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 that preceded these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

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

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

Par. 2. Section 1.6042–4 is amended by revising paragraphs (b) and (g) to read as follows:

This document contains proposed amendments to 26 CFR Part 301 relating to section 6103(j)(1)(A) of the Internal Revenue Code (Code). Section 6103(j)(1)(A) authorizes the Secretary of the Treasury to furnish, upon written request by the Secretary of Commerce, such return or return information as the Secretary of Treasury may prescribe by regulation to officers and employees of the Bureau for the purpose of, but only to the extent necessary in, the structuring of censuses and conducting related statistical activities authorized by law. Section 301.6103(j)(1)–1 of the regulations further defines such purposes by reference to 13 U.S.C. chapter 5 and provides an itemized description of the return information authorized to be disclosed for such purposes. This document contains proposed regulations authorizing the disclosure of additional items of return information requested by the Secretary of Commerce. Temporary regulations in the Rules and Regulations section of this issue of the Bulletin amend 26 CFR part 301. The text of those temporary regulations serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does 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, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

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

Paragraph 1. The authority for part 301 continues to read in part as follows:

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

Par. 2. Section 301.6103(j)(1)–1 is amended by adding paragraphs (b)(1)(xviii) through (b)(1)(xx), (b)(7)(i) through (b)(7)(ix), and revising paragraph (e) to read as follows:

Section 408(d) governs distributions from IRAs. Generally, section 408(d)(1) provides that any amount distributed from an IRA is includible in gross income by the payee or distributee. Section 408(d)(3)(A)(i) allows a payee or distributee of an IRA distribution to exclude from gross income any amount paid or distributed from an IRA that is subsequently paid into an IRA not later than the 60th day after the day on which the payee or distributee receives the distribution. Section 408(d)(3)(A)(i) and (d)(3)(D)(i). Section 408(d)(3)(B) provides that an individual is permitted to make only one nontaxable rollover described in section 408(d)(3)(A)(i) in any 1-year period.

On July 14, 1981, the Federal Register published proposed regulations (46 FR 36198) that would have amended § 1.408–4 of the Income Tax Regulations by adding a new paragraph (b)(4)(ii). Those proposed regulations provide that the rollover limitation of section 408(d)(3)(B) is applied on an IRA-by-IRA basis. This rule is reflected in IRS Publication 590, Individual Retirement Arrangements (IRAs). However, section 408(d)(3)(B) provides that the exclusion from gross income for IRA rollovers pursuant to subparagraph (A)(i) does not apply “if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.”

Based on the language in section 408(d)(3)(B), a recent Tax Court opinion, Bobrow v. Commissioner, T.C. Memo. 2014–21, held that the limitation applies on an aggregate basis. Thus, under Bobrow, an individual cannot make an IRA-to-IRA rollover if the individual has made an IRA-to-IRA rollover involving any of the individual’s IRAs in the preceding 1-year period. The IRS intends to follow the opinion in Bobrow and, accordingly, is withdrawing paragraph (b)(4)(ii) of § 1.408–4 of the proposed regulations and will revise Publication 590. This interpretation of the rollover rules under section 408(d)(1)(B) does not affect the ability of an IRA owner to transfer funds from one IRA trustee or custodian directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation of section 408(d)(3)(B). See Rev. Rul. 78–406, 1978–2 C.B. 157.

In response to comments expressing concern over implementation of the rollover limitation as interpreted in Bobrow, the IRS released Announcement 2014–15, 2014–16 I.R.B. 973, on March 20, 2014. Announcement 2014–15 addresses the application to Individual Retirement Accounts and Individual Retirement Annuities of the one-rollover-per-year limitation of section 408(d)(3)(B) and provides transition relief for owners. Consistent with that Announcement, the IRS will not apply the Bobrow interpretation of section 408(d)(3)(B) to any rollover that involves a distribution occurring before January 1, 2015.

* * * * *

For the reasons stated in the preamble and under the authority of 26 U.S.C. 7805, the Internal Revenue Service withdraws the proposed amendment to § 1.408–4(b)(4)(ii).