Retention of Income Tax Return Preparers' Signatures

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8803] RIN 1545-AW83

TITLE: Retention of Income Tax Return Preparers' Signatures

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations that
provide income tax return preparers with two alternative means of
meeting the requirement that a preparer retain the manually signed
(by the preparer) copy of the return or claim.

The regulations are necessary to inform preparers of the two
alternatives and provide preparers with the guidance needed to
comply with the alternatives. 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 Federal Register.

DATES: Effective date. These regulations are effective December 31,
1998.

Applicability date: For dates of applicability, see §1.6695-1T(g) of
these regulations.

FOR FURTHER INFORMATION CONTACT: Marc C. Porter (202) 622-4940 (not
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26
CFR part 1) relating to the penalty for failure to sign an income
tax return under section 6695(b) of the Internal Revenue Code.
Section 6695(b) provides that any person who is an income tax return
preparer with respect to a return or claim for refund, who is
required by regulations prescribed by the Secretary to sign the
return or claim, and who fails to comply with those regulations,
must pay a penalty of $50 for such failure, unless it is shown that
the failure is due to reasonable cause and not willful neglect. The
maximum penalty imposed with respect to documents filed during a
calendar year will not exceed $25,000.

Section 7701(a)(36)(A) provides that, in general, the term "income
tax return preparer" means any person who prepares for compensation,
or who employs one or more persons to prepare for compensation, any
return of tax or claim for refund imposed by subtitle A. For
purposes of the preceding sentence, the preparation of a substantial
portion of a return or claim is treated as if it were the
preparation of such return or claim.

Section 1.6695-1(b)(1) and (c) generally provides that an income tax
return preparer, with respect to a return or claim for refund, must
manually sign the return or claim (which may be a photocopy) in the
appropriate space provided on the return or claim after it is
completed and before it is presented to the taxpayer (or nontaxable
entity) for signature.

Section 1.6695-1(b)(4)(i) provides that the manual signature
requirement may be satisfied by a photocopy of a copy of the return
or claim for refund if the copy is manually signed by the income tax
return preparer after completion of its preparation.

The taxpayer may file a photocopy of this manually signed return
with the IRS, see Rev. Proc. 78-370, (1978-2 C.B. 335). The employer
of the preparer or the partnership in which the preparer is a
partner, or the preparer (if not employed or engaged by a preparer
and not a partner of a partnership which is a preparer), must retain
the manually signed copy of the return or claim.

Explanation of Provisions

The regulations provide that, if an income tax return preparer
presents for a taxpayer's signature a return or claim for refund
that has a copy of the preparer's manual signature, the preparer may
either retain a photocopy of the manually signed copy of the return
or claim for refund or use an electronic storage system meeting the
requirements of section 4 of Rev.

Proc. 97-22, (1997-1 C.B. 652) or procedures subsequently prescribed
by the Commissioner, to store and produce a copy of the return or
claim manually signed by the preparer.

Special Analyses

It has been determined that this Treasury decision 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, 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
Internal Revenue Code, these temporary regulations will be submitted
to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.

Drafting Information

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
recordkeeping requirements.

Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1
is 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 1.6695-1T also issued under 26 U.S.C. 6695(b) * * *

Par. 2. Section 1.6695-1 is amended by revising paragraph (b)(4)(i)
to read as follows:

§1.6695-1 Other assessable penalties with respect to the preparation
of income tax returns for other persons.

* * * * *

(b) * * *

(4)(i) [Reserved]. For further guidance on acceptable methods of
meeting the manual signature requirement of paragraph (b)(1) and
(2), see §1.6695-1T(b)(4)(i).

* * * * *

Par. 3. Section 1.6695-1T is added to read as follows:

§1.6695-1T Other assessable penalties with respect to the
preparation of income tax returns for other persons (temporary).

(a) through (b)(3) [Reserved]. For further guidance, see
§1.6695-1(a) through (b)(3).

(4)(i) The manual signature requirement of paragraph 1.6695- 1(b)(1)
and (2) of this section may be satisfied by a photocopy of a copy of
the return or claim for refund which copy is manually signed by the
preparer after completion of its preparation. After a copy of the
return or claim for refund is signed by the preparer and before it
is photocopied, no person other than the preparer may alter any
entries on the copy other than to correct arithmetical errors
discernible on the return or claim for refund. The employer of the
preparer or the partnership in which the preparer is a partner, or
the preparer (if not employed or engaged by a preparer and not a
partner of a partnership which is a preparer), must retain the
manually signed copy of the return or claim for refund. In the
alternative, for a return or claim for refund presented to a
taxpayer for signature after December 31, 1998 and for returns or
claims for refund retained on or before that date, the person
required to retain the manually signed copy of the return or claim
for refund may choose to retain a photocopy of the manually signed
copy of the return or claim for refund, or use an electronic storage
system to store and produce a copy of the manually signed return or
claim for refund. For purposes of paragraph (b)(4)(i) of this
section, an electronic storage system must meet the electronic
storage system requirements prescribed in section 4 of Rev. Proc.

97-22 (1997-1 C.B. 652) or procedures subsequently prescribed by the
Commissioner. A record of any arithmetical errors corrected must be
retained and made available upon request by the person required to
retain the manually signed copy of the return or claim for refund.

(b)(4)(ii) through (f) [Reserved]. For further guidance, see
§1.6695-1(b)(4)(ii) through (f).

(g) Effective date. This section applies to income tax returns and
claims for refund presented to a taxpayer for signature after
December 31, 1998 and for returns or claims for refund retained on
or before that date. This section expires on December 31, 2001.

Deputy Commissioner of Internal Revenue
Robert E. Wenzel
Approved: December 17, 1998
Assistant Secretary of the Treasury
Donald C. Lubick

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