Final Regs on Extensions for Making Elections

   DEPARTMENT OF THE TREASURY

 ACTION: Final regulations.

 SUMMARY: This document contains the final regulations under 26 CFR part 301 concerning the extension of time for making elections or applications for relief when that time is not expressly prescribed by statute. The change permits the Commissioner to grant taxpayers an extension of time for making these elections or applications under any subtitle of the Code other than subtitle E, governing Alcohol, Tobacco, and Certain Other Excise Taxes; subtitle G, governing the Joint Committee on Taxation; subtitle H, governing the Financing of Presidential Elections; and subtitle I, governing the Trust Fund Code.

 DATES: These amendments are effective February 13, 1959.

 FOR FURTHER INFORMATION CONTACT: Barbara B. Walker 202-566-5985 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

Section 1.9100-1 of the Income Tax Regulations was originally adopted in 1959, 24 FR 1206 (February 17, 1959), and amended in 1970, 35 FR 17840 (November 20, 1970), under the authority of section 7805(a) of the Internal Revenue Code ("the Code"). Temporary regulations (T.D. 8342), relating to section 1.9100-1, were published in the Federal Register on April 5, 1991 (56 FR 14023). A notice of proposed rulemaking by cross-reference to the temporary regulations was published in the Federal Register on April 5, 1991 (56 FR 14041). A notice of hearing on the proposed regulations was published in the Federal Register on May 30, 1991 (56 FR 24357), and a public hearing was held June 3, 1991. After consideration of all written and oral comments regarding the proposed amendments, this Treasury Decision adopts, under the authority of section 7805 of the Code, the text of the temporary regulations without substantive changes.

EXPLANATION OF PROVISIONS

 Under section 1.9100-1(a), the Commissioner, in his discretion, may grant a reasonable extension of time for making an election under subtitle A of the Code when the time for making the election is not expressly prescribed by statute. Since the adoption of this provision in 1959, the number of elections with due dates prescribed by regulations under other subtitles of the Code has substantially increased.

 Taxpayers failing to make these elections by their prescribed due dates had no avenue for requesting relief. Accordingly, the Service issued proposed amendments to section 1.9100-1 to permit the Commissioner to grant reasonable extensions of time for making elections with non-statutory due dates under all subtitles of the Code except subtitle E, governing Alcohol, Tobacco, and Certain Other Excise Taxes; subtitle G, governing the Joint Committee on Taxation; subtitle H, governing the Financing of Presidential Elections; and subtitle I, governing the Trust Fund Code. The amendments do not apply to these subtitles because the Service does not have jurisdiction over the provisions of subtitles E, G, H, and I (except for section 5881, under subtitle E, which imposes an excise tax on greenmail but contains no election provision).

 The proposed regulations provided a special transitional rule for elections or applications for relief required to be made prior to April 5, 1991, for any year as to which the period of limitations has not expired under subtitle B, Estate and Gift taxes; subtitle C, Employment taxes; subtitle D, Miscellaneous Excise taxes; and subtitle F, Procedure and Administration. For these elections or applications the proposed regulations provided that taxpayers must request relief by the later of October 2, 1991, or the date that is one year after the date the election or application was required to be made ("the window period"). Due to the potential for prejudice to the interest of the Government in connection with significant delays in making elections and applications, the proposed regulations provided that a taxpayer seeking relief under this special transitional rule must provide clear evidence of intent to make the specific election or application, in addition to satisfying the requirements of Rev. Proc. 79-63, 1979-2 C.B. 578 (other than sec. 4.01(2)), or any successor procedure ("the evidence standard"). Ordinarily, the evidence standard will require the production of written contemporaneous documents demonstrating the taxpayer's intent to make the specific election or application.

 The specific requirements for obtaining relief under section 1.9100-1 set forth in Rev. Proc. 79-63, 1979-2 C.B. 578 may not be compatible with certain characteristics of some of the elections required to be made under the subtitles added to the Commissioner's discretionary authority by this regulation. Until the issuance of further guidance, the Service will apply Rev. Proc. 79-63 to elections under all the subtitles now included in section 301.9100-1 of the regulations taking into account their special characteristics, if any.

 The majority of comments on the proposed regulations focused on the special transitional rule. One commentator suggested that the evidence standard be amplified so that the circumstances of an election would be considered sufficient evidence of a taxpayer's intent to make the election. For example, the commentator stated that the fact that a QTIP-eligible trust has an exclusively charitable remainder should be sufficient evidence of intent to make a QTIP election.

 One commentator stated that the evidence standard is unduly burdensome because, given the complexity and number of elections, taxpayers and their practitioners may not have been aware of an election at the time the return was prepared. This commentator suggested that the evidence standard be changed to require evidence of the intent to make the election at the time it was discovered that an election was required but omitted.

 The final regulations do not adopt these suggestions. The retroactive relief provided by the regulations significantly expands the availability of relief under section 1.9100-1 of the regulations, which generally requires taxpayers to seek relief promptly after the failure to make an election. In view of the expansive retroactive relief provided, the Service believes it is appropriate to require that taxpayers seeking relief demonstrate a contemporaneous affirmative intent to make the election in question. Because intent may be shown by the contents of any and all relevant documents, such as a will or an estate tax return, a taxpayer that intended to make an election, for example, a QTIP election, should be able to meet the evidence standard in the regulations.

 Another commentator stated that the evidence standard is superfluous and that the standards articulated in Rev. Proc. 79-63, 1979-2 C.B. 578 are sufficient to protect the interests of the government.

 The regulations do not adopt this approach. Rev. Proc. 79-63 focuses in significant part on the promptness with which a taxpayer seeks relief. If in determining eligibility for relief under the retroactive provision of the amended regulation, all the standards developed under Rev. Proc. 79-63 were strictly applied without regard to an election's special characteristics (if any), many applications, particularly those relating to elections under the estate tax provisions, would receive unfavorable responses, either because too much time has elapsed since the due date of the election or because the failure to make the election has been discovered by the Service rather than the taxpayer. The special transitional rule eliminates these barriers and at the same time protects the interests of the government, avoids the benefits of hindsight, and limits the potential for abuse.

 One commentator objected to the window period for requesting relief under the special transitional rule, stating that no ascertainable tax policy rationale exists for the window period.

 Because due diligence is the basic standard for granting relief, a window period is necessary to ensure that taxpayers act promptly and diligently. For this reason, the final regulations retain the window period. Thus, in the case of elections or applications for relief required to be made prior to April 5, 1991, for any years as to which the period of limitations has not expired under subtitles 8, C, D, and F, taxpayers must request relief by the later of October 2, 1991, or the date that is one year after the date the election or application was required to be made.

 Three comments did not address the substance of the proposed regulations. Therefore, those comments are not addressed here.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations; therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, a copy of these regulations was 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 Barbara B. Walker, Office of the Assistant Chief Counsel (Income Tax and Accounting), Internal Revenue Service. However, personnel from other offices of the IRS and Treasury Department participated in their development.

LIST OF SUBJECTS

26 CFR Part 1

Income taxes.

26 CFR Part 301

Administrative practice and procedure, Alimony, Bankruptcy, Child support, Continental shelf, Courts, Crime, Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Investigations, Law enforcement, Oil pollution, Penalties, Pensions, Reporting and recordkeeping requirements, Statistics, Taxes.

Treasury Decision 8378

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, title 26, parts 1 and 301, of the Code of Federal Regulations are amended as follows.

PART 1 -- INCOME TAXES; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

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

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

Par. 2. Section 1.9100-1 is removed.

PART 301 -- PROCEDURE AND ADMINISTRATION

Par. 3. The authority for part 301 continues to read in part:

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

Par. 4. Section 301.9100-1T is redesignated as section 301.9100-1 and the section heading is amended by removing "(temporary)".