e-News for Tax Professionals Issue 2012-48

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Issue Number:  2012-48

Inside This Issue

1. IRS Strengthens Integrity of ITIN System; Revised Application Procedures in Effect for Upcoming Filing Season
2. IRS Announces New Members for ETAAC
3. Interest Rates Remain the Same for the First Quarter of 2013
4. December Hot Issues Report
5. Phone Forum: Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims
6. Technical Guidance

The Internal Revenue Service announced updated procedures to strengthen the Individual Taxpayer Identification Number (ITIN) program requirements. The new modifications and documentation standards further protect the integrity of the ITIN application and refund processes while helping minimize burden for applicants.

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The Internal Revenue Service announced the selection of four new members and a chairperson for the Electronic Tax Administration Advisory Committee (ETAAC).

ETAAC provides an organized forum for discussion of issues in electronic tax administration and supports the goal of increasing electronic transactions between tax professionals and the IRS.  

The new members are:

• Shaun Barry, of New York City, is the Principal Solutions Architect in the Financial Crimes organization at SAS Institute. He develops solutions for managing fraud. Barry has 19 years of experience in designing, developing, and implementing technologies to improve tax administration.
• Mark Castro, of Woodinville, Wash., is a certified public accountant and governmental liaison at Petz Enterprises Inc. He promotes operational and compliance issues with regard to the IRS, e-file and tax preparation.   
• Steven Lewis, of Sarasota, Fla., is an enrolled agent and a director for Jackson Hewitt Tax Services Inc. He is responsible for the delivery of their Online Tax Software.
• Blair Whitworth, of Charlottesville, Va., is the president of PRO-TAX, the Tax University, and Tax Business Management. His companies provide retail tax preparation services, online tax training and management software for independent tax businesses.
• Alice Burnett, of Atlanta, Ga., has been elected by the members to serve as the Chairperson of ETAAC for 2012-2013. She is a small business owner with experience in addressing private sector and public sector stakeholder interests. Prior to starting her own practice, Burnett held a senior manager level position within a major financial institution for over 20 years, and led the implementation and operation of the Electronic Federal Tax Payment System (EFTPS). She has served for two years and is in her final year on ETAAC.

Each June, the ETAAC submits a report to Congress reporting on the progress of the IRS’ electronic tax initiatives. ETAAC was created in 1998 by the IRS Restructuring and Reform Act of 1998 (RRA 98).

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The Internal Revenue Service announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2013.  The rates will be: 

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during October 2012  to take effect  November 1, 2012, based on daily compounding.

Revenue Ruling 2012-32, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2012-52, dated December 27, 2012.

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This month’s Hot Issues report from the Issue Management Resolution System includes information about a new Spanish language small business webinar on the IRS video portal and the hiring deadline to claim the expanded Work Opportunity Tax Credit for hiring veterans.

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Sign up now for this Dec.11 Phone Forum. Announcement 2012-44 and the relief it provides for those affected by Hurricane Sandy will be addressed by Eric Slack, Acting Manager of Employee Plans Technical Guidance. The forum will focus on the announcement and the options available to employees, their families and plan sponsors. Mr. Slack will be answering a number of common questions resulting from the issued announcement. If you have a specific matter that you would like to be addressed, please let us know via email at ep.phoneforum@irs.gov on or before Dec. 7.

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Rev. Proc. 2012-50 

SECTION 1. PURPOSE 

This revenue procedure modifies Rev. Proc. 2007-44, 2007-2 C.B. 54, to provide that the sponsor of an individually designed governmental plan within the meaning of § 414(d) (“governmental plan”) may elect Cycle E (instead of Cycle C) as the second remedial amendment cycle for the plan by filing a determination letter application for the plan during the one-year submission period for the second Cycle E (February 1, 2015 through January 31, 2016) instead of the second Cycle C (February 1, 2013 through January 31, 2014). This modification applies only to the second remedial amendment cycle. 

SECTION 2. BACKGROUND 

.01 Section 401(b) provides a remedial amendment period during which a plan may be amended retroactively to comply with the qualification requirements of § 401(a). Section 1.401(b)-1 of the Income Tax Regulations describes the disqualifying provisions that may be amended retroactively and the remedial amendment period during which retroactive amendments may be adopted. The regulations also grant the Commissioner the discretion to designate certain plan provisions as disqualifying provisions. 

.02 Section 1.401(b)-1(f) provides that the Commissioner may extend the remedial amendment period at the Commissioner’s discretion. 

.03 Rev. Proc. 2007-44 provides a system of staggered, cyclical remedial amendment periods under § 401(b). Under this system, every individually designed plan has a five-year remedial amendment period or cycle, and every pre-approved plan (that is, a master and prototype or volume submitter plan) has a six-year remedial amendment period or cycle. In general, Rev. Proc. 2007-44 extends the remedial amendment period for any disqualifying provision to the end of a plan’s remedial amendment cycle that includes the date on which the remedial amendment period with respect to the provision would otherwise end under § 1.401(b)-1. 

.04 The five-year remedial amendment cycle applicable to an individually designed plan is generally based on the sponsoring employer’s taxpayer identification number. However, the applicable cycle for all individually designed governmental plans under Rev. Proc. 2007-44 is Cycle C. The six-year remedial amendment cycle for pre-approved plans, including governmental plans that are pre-approved, is contained in section 18 of Rev. Proc. 2007-44. 

.05 Rev. Proc. 2009-36, 2009-35 I.R.B. 304, modified Rev. Proc. 2007-44 to provide that the sponsor of an individually designed governmental plan could elect Cycle E (instead of Cycle C) as the initial remedial amendment cycle for the plan by submitting a determination letter application for the plan during the initial Cycle E submission period (instead of the initial Cycle C submission period). 

.06 Pursuant to Rev. Proc. 2007-44, the second Cycle C submission period begins February 1, 2013, and ends January 31, 2014. The second Cycle E submission period begins February 1, 2015, and ends January 31, 2016. 

SECTION 3. OPTION TO ELECT CYCLE E AS INDIVIDUALLY DESIGNED GOVERMENTAL PLAN’S SECOND REMEDIAL AMENDMENT CYCLE 

.01 The Service recognizes that sponsors of governmental plans face unique issues in the process of securing approval for amendments from the governing body with authority to consider plan amendments during legislative sessions. In order to have greater flexibility to deal with these issues, the sponsor of an individually designed governmental plan may elect Cycle E (instead of Cycle C) as the plan’s second remedial amendment cycle. The election is made by filing a determination letter application for the plan during the one-year submission period for the second Cycle E (February 1, 2015 through January 31, 2016). No election form or notice to the Service is required. 

.02 If the sponsor of an individually designed governmental plan elects to file a determination letter application for the plan during the Cycle E submission period, all requirements for an individually designed plan submitted for a determination letter during the Cycle E submission period are applicable to the sponsor’s plan, including the requirement to amend the plan for all applicable items on the Cycle E Cumulative List and the requirement to timely adopt any interim amendments that are required for a governmental plan during Cycle C and Cycle D. 

.03 A sponsor’s election of Cycle E, instead of Cycle C, as the second remedial amendment cycle for an individually designed governmental plan applies only to that plan and only to that cycle. For any subsequent remedial amendment cycle, the plan’s cycle will revert to Cycle C. Therefore, if a sponsor of a governmental plan files a determination letter application for the plan during the second Cycle E submission period ending on January 31, 2016, the determination letter that is issued will expire at the end of the third Cycle C submission period (January 31, 2019).

.04. A determination letter issued to a sponsor of an individually designed governmental plan for the initial remedial amendment cycle ordinarily expires at the end of the second Cycle C (January 31, 2014), regardless of whether the sponsor elected Cycle E as the plan’s initial cycle in accordance with Rev. Proc. 2009-36. This expiration date is hereby extended to the end of the second Cycle E (January 31, 2016) if the sponsor elects Cycle E as the plan’s second remedial amendment cycle in accordance with this revenue procedure. 

SECTION 4. EFFECT ON OTHER DOCUMENTS 

Rev. Proc. 2007-44 is modified. 

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective on February 1, 2013. 

DRAFTING INFORMATION 

The principal author of this revenue procedure is Angelique Carrington of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this revenue procedure, please contact the Employee Plans taxpayer assistance answering service at 1-877-829-5500 (a toll-free number) or e-mail Ms. Carrington at RetirementPlanQuestions@irs.gov.

Rev. Proc. 2012-51  

SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2012-15, 2012-7 I.R.B. 369 and identifies circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or a position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) of the Internal Revenue Code (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under section 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. This revenue procedure does not apply with respect to any other penalty provisions (including the disregard provisions of the section 6662(b)(1) accuracy-related penalty, the section 6662(i) increased accuracy-related penalty in the case of nondisclosed noneconomic substance transactions, and the section 6662(j) increased accuracy-related penalty in the case of undisclosed foreign financial asset understatements). If this revenue procedure does not include an item, disclosure is adequate with respect to that item only if made on a properly completed Form 8275 or 8275–R, as appropriate, attached to the return for the year or to a qualified amended return.

This revenue procedure applies to any income tax return filed on 2012 tax forms for a taxable year beginning in 2012, and to any income tax return filed on 2012 tax forms in 2013 for short taxable years beginning in 2013.

SECTION 2. CHANGES FROM REV. PROC. 2012-15

Editorial changes have been made throughout this revenue procedure. No substantive changes have been made.

SECTION 3. BACKGROUND

.01 If section 6662 applies to any portion of an underpayment of tax required to be shown on a return, an amount equal to 20 percent of the portion of the underpayment to which the section applies is added to the tax (the penalty rate is 40 percent in the case of gross valuation misstatements under section 6662(h), nondisclosed noneconomic substance transactions under section 6662(i), or undisclosed foreign financial asset understatements under section 6662(j)). Section 6662(b)(2) applies to the portion of an underpayment of tax that is attributable to a substantial understatement of income tax.

.02 Section 6662(d)(1) provides that there is a substantial understatement of income tax if the amount of the understatement exceeds the greater of 10 percent of the amount of tax required to be shown on the return for the taxable year or $5,000. Section 6662(d)(1)(B) provides a special rule for corporations. A corporation (other than an S corporation or a personal holding company) has a substantial understatement of income tax if the amount of the understatement exceeds the lesser of (i) 10 percent of the tax required to be shown on the return for a taxable year (or, if greater, $10,000) or (ii) $10,000,000. Section 6662(d)(2) defines an understatement as the excess of the amount of tax required to be shown on the return for the taxable year over the amount of the tax that is shown on the return reduced by any rebate.

.03 In the case of an item not attributable to a tax shelter, section 6662(d)(2)(B)(ii) provides that, if there is a reasonable basis for the tax treatment of the item by taxpayer, the amount of the understatement is reduced by the portion of the understatement attributable to any item with respect to which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return.

.04 Section 6694(a) imposes a penalty on a tax return preparer who prepares a return or claim for refund reflecting an understatement of liability due to an “unreasonable position” if the tax return preparer knew (or reasonably should have known) of the position. A position (other than a position with respect to a tax shelter or a reportable transaction to which section 6662A applies) is generally treated as unreasonable unless (i) there is or was substantial authority for the position, or (ii) the position was properly disclosed in accordance with section 6662(d)(2)(B)(ii)(I) and had a reasonable basis. 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, the position is treated as unreasonable unless it is reasonable to believe that the position would more likely than not be sustained on the merits. See Notice 2009-5, 2009-3 I.R.B. 309 (January 21, 2009) for interim penalty compliance rules for tax shelter transactions.

.05 In general, this revenue procedure provides guidance for determining when disclosure by return is adequate for purposes of section 6662(d)(2)(B)(ii) and section 6694(a)(2)(B). For purposes of this revenue procedure, the taxpayer must furnish all required information in accordance with the applicable forms and instructions, and the money amounts entered on these forms must be verifiable.

.06 Fiscal and short tax year returns. (a) In general. This revenue procedure may apply to a return for a fiscal tax year that begins in 2012 and ends in 2013. This revenue procedure may also apply to a short year return for a period beginning in 2013 if the return is to be filed before the 2013 forms are available. (Note that individuals are generally not put in this position, as the only situation in which a short year arises is when filing a decedent's final return for a fractional part of a year, which is due the fifteenth day of the fourth month following the close of the 12-month period that began with the first day of such fractional part of the year (after the 2013 form is available). See Treas. Reg. § 1.6072-1(b).) In the case of fiscal year and short year returns, the taxpayer must take into account any tax law changes that are effective for tax years beginning after December 31, 2012, even though these changes are not reflected on the form.

(b) Tax law changes effective after December 31, 2012. This document does not take into account the effect of tax law changes effective for tax years beginning after December 31, 2012. If a line referenced in this revenue procedure is affected by such a change and requires additional reporting, a taxpayer may have to file Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, until the Service prescribes criteria for complying with the requirement.

.07 A complete and accurate disclosure of a tax position on the appropriate year’s Schedule UTP, Uncertain Tax Position Statement, will be treated as if the corporation filed a Form 8275 or Form 8275-R regarding the tax position. The filing of a Form 8275 or Form 8275-R, however, will not be treated as if the corporation filed a Schedule UTP.  

SECTION 4. PROCEDURE

.01 General

(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 37, 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.

.02 Items

(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 1125-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).

Note: An item reported on a line with a pre-printed description, shown on an attached schedule or “itemized” on Schedule M-1, may represent the aggregate amount of several transactions producing that item (i.e., a group of similar items, such as amounts paid or incurred for supplies by a taxpayer engaged in business). In some instances, a potentially controversial item may involve a portion of the aggregate amount disclosed on the schedule. The Service will not be reasonably apprised of a potential controversy by the aggregate amount disclosed. In these instances, the taxpayer must use Form 8275 or Form 8275-R regarding that portion of the item.

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), Schedule B, Additional Information for Schedule M-3 Filers, must also be completed. For taxpayers that file the Schedule M-3 (Form 1065), Schedule C, Additional Information for Schedule M-3 Filers, must also be completed. When required, these 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 1120-S. Schedule M-3 (Form 1120-S), 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.

SECTION 5. EFFECTIVE DATE

This revenue procedure applies to any income tax return filed on a 2012 tax form for a taxable year beginning in 2012, and to any income tax return filed on a 2012 tax form in 2013 for a short taxable year beginning in 2013.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Elizabeth Cowan of the Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this revenue procedure, contact Branch 2 of Procedure and Administration at (202) 622-4940 (not a toll free call).

Notice 2012-70 

I. Purpose 

This notice extends the deadline, as set forth in Notice 2011-96, 2011-52 I.R.B. 915, to amend a defined benefit plan to satisfy the requirements of § 436 of the Internal Revenue Code and provides associated relief from the requirements of § 411(d)(6). 

II. Background 

Section 401(b) provides a period during which a plan may be amended retroactively to comply with the Code’s qualification requirements. Section 1.401(b)-1 and Rev. Proc. 2007-44, 2007-2 C.B. 54, describe the disqualifying provisions that may be amended retroactively and the remedial amendment period during which retroactive amendments may be adopted. The regulations also grant the Commissioner the discretion to extend the remedial amendment period. 

Section 5.05 of Rev. Proc. 2007-44 provides that when there are statutory or regulatory changes to the plan qualification requirements that will impact provisions of the written plan document, the adoption of an interim amendment will generally be required by the later of the end of the plan year in which the change is first effective or the due date of the employer’s tax return for the tax year that includes the date the change is first effective. Pursuant to section 5.02 of Rev. Proc. 2007-44, an interim amendment is an amendment with respect to a plan provision that is a disqualifying provision because the provision (1) causes the plan to fail to satisfy the qualification requirements of the Code by reason of a change in those requirements, or (2) is integral to a changed qualification requirement, but only if the provision is also integral to a plan provision that is a disqualifying provision under (1). A change in a qualification requirement includes a statutory change or a change in the requirements provided in regulations or other guidance published in the Internal Revenue Bulletin. A disqualifying provision includes the absence from a plan of a provision required by or, if applicable, integral to the applicable change in the qualification requirements of the Code. 

The filing of a determination letter application for an individually designed plan generally requires the plan to be restated to take into account changes in qualification requirements and guidance that are listed in the Cumulative List of Changes in Plan Qualification Requirements in effect at the time the application is filed. (See sections 4 and 12.03 of Rev. Proc. 2007-44.) 

Section 411(d)(6) provides, generally, that a plan will not satisfy § 401(a) if an amendment to the plan decreases a participant’s accrued benefit. For this purpose, a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy or eliminating an optional form of benefit with respect to benefits attributable to service before the amendment is treated as reducing accrued benefits. Section 401(b) does not relieve a plan of the requirement to satisfy § 411(d)(6) with respect to any amendment. 

Section 1.411(d)-4, A-2(b)(2)(i), provides that a plan may be amended to eliminate or reduce a § 411(d)(6) protected benefit, within the meaning of § 1.411(d)-4, A-1, if the following requirements are met: the amendment constitutes timely compliance with a change in law affecting plan qualification; there is an exercise of § 7805(b) relief by the Commissioner; and the elimination or reduction is made only to the extent necessary to enable the plan to continue to satisfy the requirements for qualified plans.

Notice 2011-96 provides a sample plan amendment that a sponsor of a single employer defined benefit plan may adopt to amend the terms of the plan to satisfy the requirements of § 436, relating to benefit restrictions that apply to underfunded plans. Notice 2011-96 also provides that the deadline to adopt an interim amendment for § 436 is the latest of: 

(1) the last day of the first plan year that begins on or after January 1, 2012, 

(2) the last day of the plan year for which § 436 is first effective for the plan, or 

(3) the due date (including extensions) of the employer’s tax return for the tax year (determined in accordance with section 5.06(2) of Rev. Proc. 2007-44, in the case of a tax-exempt employer) that contains the first day of the plan year for which § 436 is first effective for the plan. 

However, if an application for a determination letter for an individually designed plan is filed on or after February 1, 2012 (or, in the case of an eligible cooperative, charity, or PBGC settlement plan described in section 104 or 105 of the Pension Protection Act of 2006 (PPA ’06), Pub. L. 109-280, as amended, the first day of the plan year for which § 436 is first effective for the plan, if later), Notice 2011-96 requires the restated plan submitted with the application to incorporate an interim amendment with respect to § 436.  

Pursuant to § 7805(b) and § 1.411(d)-4, A-2(b)(2)(i), Notice 2011-96 also provides that a plan amendment adopted with respect to § 436 that eliminates or reduces a § 411(d)(6) protected benefit does not cause a plan to fail to meet the anti-cutback requirements of § 411(d)(6) if the amendment is adopted by the deadline described above and the elimination or reduction is made only to the extent necessary to enable the plan to meet the requirements of § 436.  

Notice 2011-97, 2011-52 I.R.B. 923, contains the Cumulative List of Changes in Plan Qualification Requirements, as described in section 4 of Rev. Proc. 2007-44, for 2011 (the “2011 Cumulative List”). The 2011 Cumulative List is to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2012, and ending January 31, 2013. The Service’s review of plans submitted during this period will take into account the changes in law and guidance on the 2011 Cumulative List. Footnote 2 of Notice 2011-97 provides that the Service will not consider the requirements of § 436 in its review of any determination letter application submitted during the period beginning February 1, 2012, and ending January 31, 2013. 

III. Extension of Amendment Deadline and Associated Relief under § 411(d)(6)

As noted in section II of this notice, pursuant to Notice 2011-96, an interim amendment to satisfy the requirements of § 436 would generally be required to be adopted by the last day of the first plan year beginning on or after January 1, 2012. If an application for a determination letter for the plan were filed on or after February 1, 2012, an amendment for § 436 generally would need to be incorporated in the restated plan that is submitted with the application. However, an application for a determination letter that is filed during the 12-month submission period beginning on February 1, 2012, would not be reviewed with respect to the requirements of § 436.  

To ensure that a plan amendment for § 436 is not required to be included in a plan that is filed for a determination letter with the Service when the Service will not consider such an amendment in its review of the determination letter application, Notice 2011-96 is modified. In particular, the deadline to adopt an interim amendment for § 436 is extended to the latest of: 

(a) the last day of the first plan year that begins on or after January 1, 2013, 

(b) the last day of the plan year for which § 436 is first effective for the plan, or 

(c) the due date (including extensions) of the employer’s tax return for the tax year (determined in accordance with section 5.06(2) of Rev. Proc. 2007-44, in the case of a tax-exempt employer) that contains the first day of the plan year for which § 436 is first effective for the plan. 

However, if an application for a determination letter for an individually designed plan is filed on or after February 1, 2013 (or, in the case of a plan described in section 104 or 105 of PPA ’06, as amended, the first day of the plan year for which § 436 is first effective for the plan, if later), the restated plan submitted with the application must incorporate an amendment with respect to § 436. As noted in section 12.03 of Rev. Proc. 2007-44, the filing of a determination letter application may accelerate the time by which the plan must be amended to satisfy the requirements of § 436.  

In addition, pursuant to § 7805(b) and § 1.411(d)-4, A-2(b)(2)(i), this notice also provides that a plan amendment adopted with respect to § 436 that eliminates or reduces a § 411(d)(6) protected benefit does not cause the plan to fail to meet the anti-cutback requirements of § 411(d)(6) if the amendment is adopted by the deadline described above and the elimination or reduction is made only to the extent necessary to enable the plan to meet the requirements of § 436. 

IV. Effect on Other Documents 

Notice 2011-96 is modified. 

Drafting Information 

The principal author of this notice is Angelique Carrington of the Employee Plans, Tax Exempt and Government Entities Division. Questions regarding this revenue procedure may be sent via e-mail to retirementplanquestions@irs.gov.

Notice 2012-71 

PURPOSE

   This notice postpones the deadline for transitional relief described in Notice 2011-43, 2011-25 I.R.B. 882, from December 31, 2012, to February 1, 2013, for certain small organizations affected by Hurricane Sandy.

BACKGROUND 

     Notice 2011-43 provides transitional relief for certain small organizations that have lost their tax-exempt status because they failed to file a required return or electronic notice (Form 990-N e-Postcard) for their taxable years beginning in 2007, 2008, and 2009. A small organization that qualifies for the transitional relief under Notice 2011-43 and applies for reinstatement of tax-exempt status on or before December 31, 2012, will, if its application for reinstatement is approved, be treated by the Internal Revenue Service (IRS) as having established reasonable cause for its filing failures and its tax-exempt status will be reinstated retroactive to the date it was automatically revoked. In addition, these organizations are eligible for a reduced user fee of $100 for the application of reinstatement of tax-exempt status. See Rev. Proc. 2011-36, 2011-25 I.R.B. 915. Notice 2011-43 sets forth specific eligibility criteria and requirements for receiving this transitional relief.

AFFECTED ORGANIZATIONS FOR WHICH THE NOTICE 2011-43 DEADLINE IS POSTPONED 

     For purposes of this notice, an affected organization is any small organization that lost its tax-exempt status and is eligible to apply for reinstatement of tax-exempt status under Notice 2011-43 whose principal place of business is located in, or whose books and records necessary to complete the application are maintained in, a county or Tribal Nation that has been identified as a covered disaster area because of the devastation caused by Hurricane Sandy. Covered disaster areas are federally declared disaster areas identified by the Federal Emergency Management Agency (FEMA) as being eligible for individual assistance. These areas are contained in News Releases issued by the IRS relating to Hurricane Sandy, which are found on IRS.gov at: http://www.irs.gov/uac/Newsroom/Help-for-Victims-of-Hurricane-Sandy.

GRANT OF RELIEF

     Any affected organization, as defined above, that applies for reinstatement of tax-exempt status as described in Notice 2011-43 and this notice on or before February 1, 2013 (or a later date subsequently announced in future guidance or IRS news releases), will be deemed to have timely filed its application under Notice 2011-43. All eligibility and filing requirements described in Notice 2011-43 (other than the December 31, 2012 filing deadline) continue to apply to such applications.

     In addition to the requirements described in Notice 2011-43, each affected organization seeking transitional relief under Notice 2011-43 and this notice should write “Notice 2011-43” and “Sandy Relief” on the top of the form it uses to apply for reinstatement of tax-exempt status and on the envelope used to mail the application.

     An organization that is not an affected organization but wishes to apply for transitional relief under Notice 2011-43 must do so on or before December 31, 2012, as provided in Notice 2011-43. Otherwise, organizations should consult Notice 2011-44, 2011-25 I.R.B. 883, for guidance on how to apply for reinstatement of tax-exempt status and request retroactive reinstatement.

DRAFTING INFORMATION

     The principal author of this notice is Brad Bedingfield of the Tax Exempt and Government Entities Division of the IRS. For further information regarding this notice, call the TE/GE Customer Account Services toll free number: (877) 829-5500.

Notice 2012-74

Branded Prescription Drug Fee; Guidance for the 2013 Fee Year

Purpose

             This notice provides guidance on the branded prescription drug fee for the 2013 fee year related to (1) the submission of Form 8947, “Report of Branded Prescription Drug Information,” (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting error reports for the dispute resolution process, and (4) the time for notifying covered entities of their final fee calculation.

Background

An annual fee on covered entities engaged in the business of manufacturing or importing branded prescription drugs is imposed by section 9008 of the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)).

The Branded Prescription Drug Fee Regulations in 26 C.F.R. Part 51, which were published on August 18, 2011 (76 FR 51245), provide the method by which each covered entity’s annual fee is calculated. These regulations also define terms for the administration of the fee. As relevant for this notice, § 51.2T(g) defines fee year as the calendar year in which the fee for a particular sales year must be paid and § 51.2T(m) defines sales year as the second calendar year preceding the fee year.

Section 51.3T provides that annually, each covered entity may submit a completed Form 8947, “Report of Branded Prescription Drug Information,” in accordance with the instructions for the form. Generally, the form solicits information from covered entities on National Drug Codes, orphan drugs, designated entities, rebates, and other information specified by the form or its instructions. The form is to be filed by the date prescribed in guidance published in the Internal Revenue Bulletin.

Section 51.6T provides that for each sales year the IRS will make a preliminary fee calculation for each covered entity and will notify each covered entity of this calculation by the date prescribed in guidance published in the Internal Revenue Bulletin. This notification will also include additional prescribed information. As used in this notice, “notice of preliminary fee calculation” includes the additional prescribed information.

Section 51.7T provides that upon receipt of its preliminary fee calculation, each covered entity will have an opportunity to dispute this calculation by submitting to the IRS an error report with prescribed information. Sections 51.7T(b) and (c) set out the information that a covered entity must submit to support each asserted error. Section 51.7T(d) provides that each covered entity must submit its error report(s) in the form and manner that is prescribed in guidance published in the Internal Revenue Bulletin. This guidance will also prescribe the date by which each covered entity must submit its report(s).

Section 51.8T provides that the IRS will send each covered entity its final fee calculation no later than August 31^st of each fee year and also provides that covered entities must pay their fee by September 30^th of the fee year.

Submission of Form 8947

            For the 2013 fee year, a covered entity that chooses to submit Form 8947 must file the form by December 17, 2012.

Time and manner for notifying covered entities of their preliminary fee calculation

      For the 2013 fee year, the IRS will mail each covered entity a paper notice of its preliminary fee calculation by April 1, 2013. This mailing will include a National Drug Code (NDC) attachment (NDC attachment) that lists the covered entity’s NDCs and the sales data reported to the IRS by each government program pursuant to § 51.4T.

           A covered entity may request that the IRS send a CD-ROM with the NDC attachment in Microsoft Excel format. The covered entity must make this request by March 15, 2013. This request must be made either by telephone to Ingrid Taylor at (908) 301-2118 or Mi Lim at (312) 292-3775 (not toll-free calls) or by email to it.bpd.fee@irs.gov. If a covered entity makes this request timely, the IRS will mail the covered entity its notice of preliminary fee calculation on paper and the NDC attachment on paper and CD-ROM by April 1, 2013.

Time and manner for submitting error reports for the dispute resolution process

            For the 2013 fee year, a covered entity that chooses to submit an error report regarding its preliminary fee calculation must mail the error report by May 16, 2013.       When the IRS mails each covered entity a notice of its preliminary fee calculation by April 1, 2013, the IRS will also send each covered entity a template on a CD-ROM that the covered entity must use to prepare its error report. All completed templates and the supporting documentation must be submitted on a CD-ROM and sent by mail to:

            Department of the Treasury

            Internal Revenue Service – Branded Prescription Drug Fee

            1973 N. Rulon White Boulevard, Mail Stop 4916

                  Ogden, UT 84404

Notification of Final Fee Calculation

      In accordance with § 51.8T(a), the IRS will notify each covered entity of its final fee calculation for 2013 by August 31, 2013. In accordance with § 51.8T(c), each covered entity must pay this fee by September 30, 2013.

Effect on Other Documents

            Notice 2011-92, 2011-48 I.R.B. 809, which provides guidance for the 2012 fee year, is obsoleted. 

Drafting Information

            The principal author of this notice is Celia Gabrysh of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Celia Gabrysh at (202) 622-3130 (not a toll-free call).

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