||December 23, 1998
Preparer Due Diligence Requirements for
Determining Earned Income Credit Eligibility
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-120168-97] RIN 1545-AW73
TITLE: Preparer Due Diligence Requirements for Determining Earned
Income Credit Eligibility
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to
temporary regulations and notice of public hearing.
SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS is issuing temporary regulations relating
to the due diligence requirements in determining eligibility for the
earned income credit for paid preparers of federal income tax
returns or claims for refund. The text of those regulations also
serves as the text of these proposed regulations. This document also
provides notice of a public hearing on these proposed regulations.
DATES: Written comments must be received by, March 22, 1999.
Outlines of topics to be discussed at the public hearing scheduled
for Thursday, May 20, 1999, at 10 a.m. must be received by Thursday,
April 29, 1999.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-120168-97), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG-120168-97), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue NW., Washington, DC.
Alternatively, taxpayers may submit comments electronically via the
Internet by selecting the "Tax Regs" option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments.html. The public
hearing will be held in room 2615 of the Internal Revenue Building,
1111 Constitution Avenue NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning submissions, LaNita Van
Dyke, (202) 622-7190; concerning the regulations, Marc C.
Porter, (202) 622-4940 (not toll-free numbers).
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk
Officer for the Department of Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Comments on the collection of
information should be received by, February 19, 1998. Comments are
specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of service to provide
The collection of information in this proposed regulation is in
§1.6695-2T. This information is required by the IRS to determine
preparer due diligence compliance. This information will be used to
avoid the imposition of the penalty imposed by section 6695(g) of
the Internal Revenue Code. The collection of information is
mandatory. The likely recordkeepers are individuals, business or
other for profit institutions, and small businesses or
The collection of information in §1.6695-2T is generally satisfied
by completing: 1) the required information on the Checklist
published in Notice 97-65 or the Form 8867,Paid Preparer's Earned
Income Credit Checklist; and 2) the required Worksheet information
on the Earned Income Credit Worksheet contained in the instructions
to the Form 1040. The burden for the Checklist requirement is
reflected in the burden estimate for Form 8867. The burden for the
Worksheet requirement is reflected in the burden estimate for the
Earned Income Credit Worksheet contained in the instructions to the
Form 1040. Preparers may also choose to record the information
necessary to complete the Checklist and Worksheet in their paper or
electronic files (alternative method).
The information collections in this regulation were originally
included in Notice 97-65 and have been approved by the Office of
Management and Budget under control number 1545-1570.
The collection of information for preparers who choose to record the
information required by the regulations in alternative paper or
electronic form is as follows:
Estimated total annual recordkeeping burden: 507,136 hoU.S.
Estimated average annual burden hours per recordkeeper: 5 hours 4
minutes (40 minutes per return or claim for refund, 7.6 returns per
Estimated number of recordkeepers: 100,000.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Books and records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
Background and Explanation of Provisions
Temporary regulations in the Rules and Regulations section of this
issue of the Federal Register amend the Income Tax Regulations (26
CFR part 1) relating to section 6695. The temporary regulations set
forth due diligence requirements that paid preparers of federal
income tax returns or claims for refund involving the Earned Income
Credit (EIC) must meet to avoid imposition of the penalty under
section 6695(g) for taxable years beginning after December 31, 1996.
The text of those regulations also serves as the text of these
proposed regulations. The preamble to the temporary regulations
explains the amendments.
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 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. Further, it is hereby certified, pursuant to
sections 603(a) and 605(b) of the Regulatory Flexibility Act, that
the collection of information in these regulations will not have a
significant economic impact on a substantial number of small
entities. This certification is based upon the fact that the amount
of time necessary to record and retain the required information will
be minimal for those income tax return preparers that choose to use
the Alternative Eligibility Record and Alternative Computation
Record. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments (a signed original and
eight (8) copies) that are submitted timely to the IRS. The IRS and
Treasury specifically request comments on the clarity of the
proposed rule and how it may be made easier to understand. All
comments will be available for public inspection and copying.
A public hearing has been scheduled for May 20, 1999, beginning at
10 a.m. in room 2615 of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10th Street entrance, located
between Constitution and Pennsylvania Avenues, NW. In addition, all
visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 15 minutes before the hearing
For information about having your name placed on the building access
list to attend the hearing, see the "FOR FURTHER INFORMATION
CONTACT" section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons who wish to present oral comments at the hearing must submit
written comments and an outline of the topics to be discussed and
the time to be devoted to each topic (signed original and eight (8)
copies) by (April 29, 1999). A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
The principal author of these regulations is Marc C. Porter, Office
of Assistant Chief Counsel (Income Tax & Accounting).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1 Income taxes, Reporting and
Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 2. Section 1.6695-2 is added to read as follows:
§1.6695-2 Preparer due diligence requirements for determining earned
income tax credit eligibility.
[The text of proposed §1.6695-2 is the same as the text of
§1.6695-2T published elsewhere in this issue of the Federal
David S. Mader
Acting Deputy Commissioner of Internal Revenue
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