Extension of Due Date for Electronically Filed Information
Returns; Limitation of Failure to Pay Penalty for
Individuals During Period of Installment Agreement

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1, 31, and 301 [REG-105279-99]
RIN 1545-AX31

TITLE: Extension of Due Date for Electronically Filed Information
Returns; Limitation of Failure to Pay Penalty for Individuals During
Period of Installment Agreement

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations implementing
section 6071(b) relating to the extension of the due date for
certain electronically filed information returns. The regulations
also provide rules under section 6651(h) relating to a penalty
reduction for certain individuals who have agreed with the IRS to
make installment payments in satisfaction of their tax liability.
The regulations relating to extension of filing dates affect payors
required to file information returns after December 31, 1999. The
regulations relating to penalty reduction affect individual
taxpayers with installment agreements in effect during months
beginning after December 31, 1999.

DATES: Written or electronic comments and requests for a public
hearing must be received by April 26, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-105279-99), 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-105279-99), 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

FOR FURTHER INFORMATION CONTACT: Concerning the regulations relating
to the extension of due dates, Marilyn E. Brookens, (202) 622-4920;
concerning the regulations relating to penalty reductions, Robert B.
Taylor, (202) 622-4940; concerning submissions of comments, Guy
Traynor, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Income Tax
Regulations, Employment Tax Regulations, and Procedure and
Administration Regulations (26 CFR Parts 1, 31, and 301), and
implements sections 6071(b) and 6651(h), which were added to the
Internal Revenue Code (Code) by the Internal Revenue Service
Restructuring and Reform Act of 1998, Public Law 105-206 (112 Stat.
685, 724 (1998 Act)). Section 6071(b) was added to the Code by
section 2002 of the 1998 Act and extends the due date for
information returns required by chapter 61, subchapter A, part III,
subparts B and C (sections 6041 through 6053) that are filed
electronically. Under section 6071(b) such information returns are
due on or before March 31 of the year following the calendar year to
which the returns relate. Section 6071(b) applies to information
returns required to be filed with the IRS or the Social Security
Administration after December 31, 1999. Section 6651(h) was added to
the Code by section 3303 of the 1998 Act and provides that, for
individuals, the failure to pay penalty is reduced from 0.5 percent
per month to 0.25 percent per month during the period an installment
agreement under section 6159 is in effect with regard to a timely
filed return. Section 6651(h) applies to any Federal tax liability
of an individual (including a liability under subtitle C) and is
effective for determining the addition to tax for months beginning
after December 31, 1999.

1. Proposed Regulations Implementing Section 6071(b) Sections 6041
through 6053 of the Code require the filing of information returns
that report income, payments, or gross proceeds resulting from
certain transactions. Under current law, these returns are generally
due to the IRS or the Social Security Administration by (1) February
28 of the year following the calendar year to which the returns
relate or (2) the last day of February following the calendar year
to which the returns relate. Certain returns, however, such as those
required by section 6050I (relating to cash receipts of more than
$10,000) are due on a date other than February 28 or the last day of
February. The due date for filing information returns is the same
whether the returns are filed on paper, electronically, or by other
forms of magnetic media (such as magnetic tape, cartridges, and
diskettes).

As an incentive to filers of information returns to use electronic
filing, section 6071(b) extends by 1 month the due date for certain
information returns required by sections 6041 through 6053 if the
return is filed electronically. H.R. Conf. Rep. No. 599, 105th
Cong., 2nd Sess. 235. Accordingly, beginning on January 1, 2000,
information returns currently required by sections 6041 through 6053
to be filed by February 28, or the last day of February, of the year
following the calendar year to which the returns relate may be filed
electronically as late as March 31 of the year following the
calendar year to which the returns relate. The information returns
affected by the proposed regulations include the Form W-2 series,
Form W-2G, the Form 1098 series, the Form 1099 series, and Form
8027. Section 6071(b) does not affect information returns required
to be filed on or before a date other than February 28 or the last
day of February. Section 6071(b) also does not affect information
returns filed on paper or by means of magnetic media (such as
magnetic tape, cartridges or diskettes) other than electronic
filing.

The proposed regulations affect only information returns for which a
due date is currently prescribed by regulation. Section 6071(b) also
applies to other information returns required under sections 6041
through 6053 and extends the due date for electronic filing of those
returns in cases in which a due date of February 28 or the last day
of February is prescribed by form or other nonregulatory guidance.

The proposed regulations also remove references to two obsolete
forms (Form 1099F and Form 1099L) and make ministerial changes to
the phrasing and forms of citation used in various provisions.

2. Proposed Regulations Implementing Section 6651(h) Section 6651(a)
(2) imposes a penalty for failure to pay the amount shown as tax on
a return on or before the due date prescribed for payment of such
tax (with regard to extensions), unless it is shown that such
failure is due to reasonable cause and not due to willful neglect.
The amount of the penalty is 0.5 percent of the amount of such tax
if the failure is for not more than 1 month, with an additional 0.5
percent for each additional month or fraction thereof during which
such failure continues, not exceeding 25 percent in the aggregate.

Section 6651(a)(3) imposes a penalty for failure to pay any amount
in respect of any tax required to be shown on a return, which is not
so shown, within 21 calendar days from the date of notice and demand
therefor (10 business days if the amount for which such notice and
demand is made equals or exceeds $100,000), unless it is shown that
such failure is due to reasonable cause and not due to willful
neglect. The amount of the penalty is 0.5 percent of the amount of
tax stated in the notice and demand if the failure is for not more
than 1 month, with an additional 0.5 percent for each additional
month or fraction thereof during which such failure continues, not
exceeding 25 percent in the aggregate.

Section 6651(h), added to the Code by section 3303 of the 1998 Act,
provides that for an individual who enters into an installment
agreement under section 6159 with regard to a timely filed return,
the failure to pay penalties will be reduced from 0.5 percent to
0.25 percent during the period of the installment agreement. This
provision was added to the Code because Congress believed that it
was "inappropriate to apply the full penalty for failure to pay
taxes to taxpayers who are in fact paying their taxes through an
installment agreement." H.R. Rep. No. 364, 105th Cong., 1st Sess.
81; S. Rep. No. 174, 105th Cong., 2nd Sess. 63. This provision is
effective for purposes of determining additions to tax for months
beginning after December 31, 1999.

Accordingly, for an individual who enters into an installment
agreement under section 6159 with regard to a timely filed return,
the proposed regulations provide that the failure.7 to pay penalties
under section 6651(a)(2) and (3) will be reduced from 0.5 percent
per month to 0.25 percent per month during the period of the
installment agreement.

Proposed Effective Date

The provisions of these regulations under section 6071(b) are
proposed to be applicable for returns required to be filed after
December 31, 1999. The provisions of these regulations under section
6651(h) are proposed to be applicable for determining the addition
to tax for months beginning after December 31, 1999.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has
also 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, 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 Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and
eight (8) copies) or electronic comments that are submitted timely
to the IRS. The IRS and Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and
copying. A public hearing may be scheduled if requested by any
person that timely submits comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will
be published in the Federal Register.

Drafting Information

The principal author of the regulations relating to the extension of
due dates under section 6071(b) is Marilyn E. Brookens, Office of
Assistant Chief Counsel (Income Tax & Accounting). The principal
author of the regulations relating to the reduction in the penalty
under section 6651(h) is Robert B. Taylor, Office of Assistant Chief
Counsel (Income Tax & Accounting). However, other personnel from the
IRS and Treasury Department participated in their development.

List of Subjects

26 CFR Part 1 Income taxes, Reporting and recordkeeping
requirements.

26 CFR Part 31 Employment taxes.

26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift
taxes, Income taxes, Penalties, Reporting and recordkeeping
requirements.

Proposed Amendments to the Regulations Accordingly, 26 CFR parts 1,
31, and 301 are proposed to be amended as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in
part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. In
§1.6041-2, paragraph (a)(3)(ii) is revised to read as follows:

§1.6041-2 Return of information as to payments to employees.

(a) * * *

(3) * * *

(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under §31.6011(a)-4 or 31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under this paragraph
for any calendar year shall be filed on or before February 28 (March
31 if filed electronically) of the following year.

* * * * *

Par. 3. In §1.6041-6, the first sentence is revised to read as
follows:

§1.6041-6 Returns made on Forms 1096 and 1099 under section 6041;
contents and time and place for filing. Returns made under section
6041 on Forms 1096 and 1099 for any calendar year shall be filed on
or before February 28 (March 31 if filed electronically) of the
following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for such forms. *
* *

Par. 4. In §1.6042-2, the first sentence of paragraph (c) is revised
to read as follows: §1.6042-2 Returns of information as to dividends
paid in calendar years after 1962.

* * * * *

(c) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of
such year, but not before the payer's final payment for the year,
and on or before February 28 (March 31 if filed electronically) of
the following year with any of the Internal Revenue Service Centers,
the addresses of which are listed in the instructions for Form 1096.
* * *

* * * * *

Par. 5. In §1.6043-2, paragraph (a) is revised to read as follows:

§1.6043-2 Return of information respecting distributions in
liquidation.

(a) Unless the distribution is one in respect of which information
is required to be filed pursuant to §1.332-6(b), 1.368-3(a), or
1.1081-11, every corporation making any distribution of $600 or more
during a calendar year to any shareholder in liquidation of the
whole or any part of its capital stock shall file a return of
information on Forms 1096 and 1099, giving all the information
required by such form and by the regulations in this part. A
separate Form 1099 must be prepared for each shareholder to whom
such distribution was made, showing the name and address of such
shareholder, the number and class of shares owned by him in
liquidation of which such distribution was made, and the total
amount distributed to him on each class of stock. If the amount
distributed to such shareholder on any class of stock consisted in
whole or in part of property other than money, the return on such
form shall in addition show the amount of money distributed, if any,
and shall list separately each class of property other than money
distributed, giving a description of the property in each such class
and a statement of its fair market value at the time of the
distribution. Such forms, accompanied by transmittal Form 1096
showing the number of Forms 1099 filed therewith, shall be filed on
or before February 28 (March 31 if filed electronically) of the year
following the calendar year in which such distribution was made with
any of the Internal Revenue Service Centers, the addresses of which
are listed in the instructions for Form 1096.

* * * * *

Par. 6. In §1.6044-2, the first sentence of paragraph (d) is revised
to read as follows:

§1.6044-2 Returns of information as to payments of patronage
dividends with respect to patronage occurring in taxable years
beginning after 1962.

* * * * *

(d) Time and place for filing. The return required under this
section on Forms 1096 and 1099 for any calendar year shall be filed
after September 30 of such year, but not before the payer's final
payment for the year, and on or before February 28 (March 31 if
filed electronically) of the following year, with any of the
Internal Revenue Service Centers, the addresses of which are listed
in the instructions for such forms. * * *

* * * * *

Par. 7. Section §1.6045-1 is amended by adding paragraph (r) to read
as follows: §1.6045-1 Returns of information of brokers and barter
exchanges.

* * * * *

(r) Electronic filing. Notwithstanding the time prescribed for
filing in paragraph (j) of this section, Forms 1096 and 1099
required under this section for reporting periods ending during a
calendar year shall, if filed electronically, be filed after the
last calendar day of the reporting period elected by the broker or
barter exchange and on or before March 31 of the following calendar
year.

Par. 8. In §1.6045-2, paragraph (g)(3) is revised to read as
follows:

§1.6045-2 Furnishing statement required with respect to certain
substitute payments.

* * * * *

(g) * * *

(3) Time and place of filing. The returns required under this
paragraph (g) for any calendar year shall be filed after September
30 of such year, but not before the final substitute payment for the
year is received by the broker, and on or before February 28 (March
31 if filed electronically) of the following year with any of the
Internal Revenue Service Centers, the addresses of which are listed
in the instructions for Form 1096.

* * * * *

Par. 9. In §1.6045-4, the first sentence of paragraph (j) is revised
to read as follows:

§1.6045-4 Information reporting on real estate transactions with
dates of closing on or after January 1, 1991.

* * * * *

(j) Time and place for filing. A reporting person shall file the
information returns required by this section with respect to a real
estate transaction after December 31 of the calendar year that
includes the date of closing (as determined under paragraph (h)(2)
(ii) of this section) and on or before February 28 (March 31 if
filed electronically) of the following calendar year. * * *

* * * * *

Par. 10. In §1.6047-1, the first sentence of paragraph (a)(6) is
revised to read as follows: §1.6047-1 Information to be furnished
with regard to employee retirement plan covering an owner-employee.

(a) * * *

(6) Time and place for filing. The return required under this
section for any calendar year shall be filed after the close of that
year and on or before February 28 (March 31 if filed electronically)
of the following year with any of the Internal Revenue Service
Centers, the addresses of which are listed in the instructions for
Form 1096. * * *

* * * * *

Par. 11. Section 1.6049-4 is amended by:

1. Revising the first sentence of paragraph (g)(1).

2. Revising the first sentence of paragraph (g)(2). The revisions
read as follows: §1.6049-4 Return of information as to interest paid
and original issue discount includible in gross income after
December 31, 1982.

* * * * *

(g) * * * (1) Annual return. Except as provided in paragraph (g)(2)
of this section, the returns required under this section for any
calendar year for the payment of interest shall be filed after
September 30 of such year, but not before the payor's final payment
to the payee for the year, and on or before February 28 (March 31 if
filed electronically) of the following year. * * *

(2) Transactional return. In the case of a return under paragraph
(e) of this section, relating to returns on a transactional basis,
such return shall be filed at any time but in no event later than
February 28 (March 31 if filed electronically) of the year following
the calendar year in which the interest was paid. * * *

* * * * * Par. 12. In §1.6049-7, the first sentence of paragraph (b)
(2)(iv) is revised to read as follows: §1.6049-7 Returns of
information with respect to REMIC regular interests and
collateralized debt obligations.

* * * * *

(b) * * *

(2) * * *

(iv) Time and place for filing a return with respect to amounts
includible as interest. The returns required under paragraph (b)(2)
of this section for any calendar year must be filed after September
30 of that year, but not before the payor's final payment to the
payee for the year, and on or before February 28 (March 31 if filed
electronically) of the following year. * * *

* * * * *

Par. 13. In §1.6050A-1, paragraph (b) is revised to read as follows:
§1.6050A-1 Reporting requirements of certain fishing boat operators.

* * * * *

(b) Time and place for filing. Returns required to be made under
this section on Form 1099-MISC shall be filed with the Internal
Revenue Service Center, designated in the instructions for Form
1099-MISC, on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which the
relevant services were performed.

* * * * *

Par. 14. In §1.6050D-1, paragraph (b) is revised to read as follows:
§1.6050D-1 Information returns relating to energy grants and
financing.

* * * * *

(b) Time and place for filing. Returns required to be made under
this section shall be filed with the Internal Revenue Service Center
designated in the instructions for Form 6497 or 1099-G on or before
the last day of February (March 31 if filed electronically) of the
year following the calendar year for which the return is made.

Par. 15. In §1.6050E-1, the first sentence of paragraph (h) is
revised to read as follows: §1.6050E-1 Reporting of State and local
income tax refunds.

* * * * *

(h) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of
that calendar year, but not before the refund officer's final
payment (or allowance of credit or offset) for the year, and on or
before February 28 (March 31 if filed electronically) of the
following year. * * *

* * * * *

Par. 16. In §1.6050H-2, the first and second sentences of paragraph
(a)(4) are revised to read as follows: §1.6050H-2 Time, form, and
manner of reporting interest received on qualified mortgage.

(a) * * *

(4) Time and place for filing return. An interest recipient must
file a return required by paragraph (a) of this section on or before
February 28 (March 31 if filed electronically) of the year following
the calendar year for which it receives the mortgage interest. If no
interest is required to be reported for the calendar year, but a
reimbursement of interest on a qualified mortgage is required to be
reported for the calendar year, then a return required by paragraph
(a) of this section must be filed on or before February 28 (March 31
if filed electronically) of the year following the calendar year in
which the reimbursement was made. * * *

* * * * *

Par. 17. In §1.6050J-1T, A-33 is revised to read as follows:
§1.6050J-1T Questions and answers concerning information returns
relating to foreclosures and abandonments of security (temporary).

* * * * *

A-33: The return or returns must be filed on or before February 28
(March 31 if filed electronically) of the year following the
calendar year in which the acquisition of an interest in the
property occurs or in which the lender knows or has reason to know
of the abandonment of the property.

* * * * *

Par. 18. In §1.6050P-1, paragraph (a)(4)(i) is revised to read as
follows: §1.6050P-1 Information reporting for discharges of
indebtedness by certain financial entities.

(a) * * *

(4) * * * (i) In general. Except as provided in paragraph (a)(4)(ii)
of this section, returns required by this section must be filed with
the Internal Revenue Service office designated in the instructions
for Form 1099-C on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which the
identifiable event occurs.

* * * * *

Par. 19. In §1.6052-1, paragraph (b)(1)(ii) is revised to read as
follows: §1.6052-1 Information returns regarding payment of wages in
the form of group-term life insurance.

* * * * *

(b) * * * (1) * * *

(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under §31.6011(a)-4 or §31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under paragraph (a)
of this section for any calendar year shall be filed on or before
February 28 (March 31 if filed electronically) of the following
year.

* * * * *

PART 31-EMPLOYMENT TAXES

Par. 20. The authority citation for part 31 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 21. In §31.3402(q)-1, the first
sentence of paragraph (f)(1) is revised to read as follows:
§31.3402(q)-1 Extension of withholding to certain gambling.20
winnings.

* * * * *

(f) * * * (1) In general. Every person making payment of winnings
for which a statement is required under paragraph (e) of this
section shall file a return on Form W-2G with the Internal Revenue
Service Center serving the district in which is located the
principal place of business of the person making the return on or
before February 28 (March 31 if filed electronically) of the
calendar year following the calendar year in which the payment of
winnings is made. * * *

* * * * *

Par. 22. In §31.6053-3, the first sentence of paragraph (a)(4) is
revised to read as follows: §31.6053-3 Reporting by certain large
food or beverage establishments with respect to tips.

(a) * * *

(4) Time and place for filing. The information return required by
this paragraph shall be filed on or before the last day of February
(March 31 if filed electronically) of the year following the
calendar year for which the return is made with the Internal Revenue
Service Center specified by the Form 8027 or its instructions. * * *

* * * * *

Par. 23. In §31.6071(a)-1, paragraph (a)(3)(i) is revised to read as
follows:.21 §31.6071(a)-1 Time for filing returns and other
documents.

(a) * * *

(3) * * * (i) General rule. Each information return in respect of
wages as defined in the Federal Insurance Contributions Act or of
income tax withheld from wages which is required to be made under
§31.6051-2 shall be filed on or before the last day of February
(March 31 if filed electronically) of the year following the
calendar year for which it is made, except that, if a tax return
under §31.6011(a)-5(a) is filed as a final return for a period
ending prior to December 31, the information statement shall be
filed on or before the last day of the second calendar month
following the period for which the tax return is filed.

* * * * *

PART 301-PROCEDURE AND ADMINISTRATION Par. 24. The authority
citation for part 301 continues to read in part as follows:

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

Par. 25. Section 301.6651-1 is amended by:

1. Revising the last sentence in paragraph (a)(2).

2. Revising the second sentence in paragraph (a)(3).

3. Adding paragraph (a)(4).

The revisions and additions read as follows: §301.6651-1 Failure to
file tax return or to pay tax.

(a) * * *

(2) * * * Except as provided in paragraph (a)(4) of this section,
the amount to be added to the tax is 0.5 percent of the amount of
tax shown on the return if the failure is for not more than 1 month,
with an additional 0.5 percent for each additional month or fraction
thereof during which the failure continues, but not to exceed 25
percent in the aggregate.

(3) * * * Except as provided in paragraph (a)(4) of this section,
the amount to be added to the tax is 0.5 percent of the amount
stated in the notice and demand if the failure is for not more than
1 month, with an additional 0.5 percent for each additional month or
fraction thereof during which the failure continues, but not to
exceed 25 percent in the aggregate. * * *

(4) Reduction of failure to pay penalty during the period an
installment agreement is in effect--(i) In general. In the case of a
return filed by an individual on or before the due date for the
return (including extensions)--

(A) The amount added to tax for a month or fraction thereof is
determined by substituting 0.25 percent for 0.5 percent under
paragraph (a)(2) of this section if at any time during the month an
installment agreement under section 6159 is in effect for the
payment of such tax; and

(B) The amount added to tax for a month or fraction thereof is
determined by substituting 0.25 percent for 0.5 percent under
paragraph (a)(3) of this section if at any time during the month an
installment agreement under section 6159 is in effect for the
payment of such tax.

(ii) Effective date. This paragraph (a)(4) applies for purposes of
determining additions to tax for months beginning after December 31,
1999.

* * * * *

Deputy Commissioner Internal Revenue

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