Disclosure of Returns and Return Information in Connection With Written Contracts or Agreements for the Acquisition of Property or Services for Tax Administration Purposes, 30974-30977 [E7-10798]

Download as PDF 30974 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Rules and Regulations (e) Public dissemination of declassified information. Declassification of information is not authorization for its public disclosure. Previously classified information that is declassified may be subject to withholding from public disclosure under the FOIA, the Privacy Act, and various statutory confidentiality provisions. DEPARTMENT OF THE TREASURY instead of being disabled, Employee C is receiving a hardship distribution. * * * Internal Revenue Service * § 9.10 AGENCY: Mandatory declassification review. All requests to the Department by a member of the public, a government employee, or an agency to declassify and release information shall result in a prompt declassification review of the information in accordance with procedures set forth in 22 CFR 171.20– 25. Mandatory declassification review requests should be directed to the Information and Privacy Coordinator, U.S. Department of State, SA–2, 515 22nd St., NW., Washington, DC 20522– 6001. § 9.11 Systematic declassification review. The Information and Privacy Coordinator shall be responsible for conducting a program for systematic declassification review of historically valuable records that were exempted from the automatic declassification provisions of section 3.3 of the Executive Order. The Information and Privacy Coordinator shall prioritize such review on the basis of researcher interest and the likelihood of declassification upon review. § 9.12 Access to classified information by historical researchers and certain former government personnel. For Department procedures regarding the access to classified information by historical researchers and certain former government personnel, see Sec. 171.24 of this Title. § 9.13 Safeguarding. cprice-sewell on PROD1PC71 with RULES Specific controls on the use, processing, storage, reproduction, and transmittal of classified information within the Department to provide protection for such information and to prevent access by unauthorized persons are contained in Volume 12 of the Department’s Foreign Affairs Manual. Dated: May 25, 2007. Lee Lohman, Deputy Assistant Secretary, Department of State. [FR Doc. E7–10778 Filed 6–4–07; 8:45 am] 15:27 Jun 04, 2007 26 CFR Part 1 [TD 9324] RIN 1545–BF04 Designated Roth Accounts Under Section 402A; Correction Internal Revenue Service (IRS), Treasury. ACTION: Correcting amendments. SUMMARY: This document contains corrections to final regulations (TD 9324) that were published in the Federal Register on Monday, April 30, 2007 (72 FR 21103) providing guidance concerning the taxation of distributions from designated Roth accounts under qualified cash or deferred arrangments under section 401(k). DATES: The correction is effective June 5, 2007. FOR FURTHER INFORMATION CONTACT: R. Lisa Mojiri-Azad or William D. Gibbs at 202–622–6060, or Cathy A. Vohs, 202– 622–6090 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background The final regulations that are the subject of this correction are under sections 401(k), 402(g), 402A, and 408A of the Internal Revenue Code. Need for Correction As published, final regulations (TD 9324) contain errors that may prove to be misleading and are in need of clarification. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Correction of Publication Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments: I PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: I Authority: 26 U.S.C. 7805 * * * I Par. 2. Section 1.402A–1 is amended by revising the first sentence of Example. of A–8.(b) to read as follows: § 1.402A–1 * Designated Roth Accounts. * * A–8. * * * (b) * * * * * Example. The facts are the same as in the Example in A–7 of this section, except that BILLING CODE 4710–24–P VerDate Aug<31>2005 * * * * Par. 3. Section 1.402A–2 is amended by revising paragraph (2) of A–2.(a) to read as follows: I Jkt 211001 PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 § 1.402A–2 Reporting and recordkeeping requirements with respect to designated Roth accounts. * * * * * A–2. * * * (a) * * * (2) If the distribution is not a direct rollover to a designated Roth account under another plan, the plan administrator or responsible party must provide to the employee, upon request, the same information described in paragraph (a)(1) of this A–2, except the statement need not indicate the first year of the 5-taxable-year period described in A–1 of this section. * * * * * LaNita Van Dyke, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). [FR Doc. E7–10802 Filed 6–4–07; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [TD 9327] RIN 1545–BC92 Disclosure of Returns and Return Information in Connection With Written Contracts or Agreements for the Acquisition of Property or Services for Tax Administration Purposes Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: SUMMARY: This document contains final regulations relating to the disclosure of returns and return information pursuant to section 6103(n) of the Internal Revenue Code (Code). The final regulations describe the circumstances under which officers or employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice, may disclose returns and return information to obtain property or services for tax administration purposes, pursuant to a written contract or agreement. The final regulations also set forth safeguard requirements that are designed to protect the confidentiality of returns and return information in the E:\FR\FM\05JNR1.SGM 05JNR1 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Rules and Regulations cprice-sewell on PROD1PC71 with RULES hands of contractors, agents, and subcontractors, and their officers and employees, and notification requirements that must be provided, in writing, to officers and employees of the contractors, agents, and subcontractors to inform them that any returns or return information they receive pursuant to these regulations may only be used for the purpose for which it is disclosed to them and that they are subject to the civil and criminal provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of the returns or return information. The final regulations will affect officers and employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice, who disclose returns or return information in connection with a written contract or agreement for the acquisition of property or services for tax administration purposes. The final regulations also will affect any person, or officer, employee, agent, or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information in connection with a written contract or agreement for the acquisition of property or services. DATES: Effective Date: These regulations are applicable June 5, 2007. Applicability Date: For dates of applicability, see § 301.6103(n)–1(g). FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202–622–4570 (not a toll-free number). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545– 1821. The collection of information in these final regulations is in §§ 301.6103(n)– 1(d) and 301.6103(n)–1(e)(3). This information is required and will be used to ensure compliance with the internal revenue laws and regulations, and to protect the privacy of taxpayers. Estimated total annual reporting burden: 250 hours. Estimated average annual burden per respondent: 6 minutes. Estimated number of respondents: 2500. Estimated annual frequency of responses: Annually. Comments concerning the accuracy of this burden estimate and suggestions for VerDate Aug<31>2005 15:27 Jun 04, 2007 Jkt 211001 reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224 and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by 26 U.S.C. 6103. Background Under section 6103(a), returns and return information are confidential unless the Code authorizes disclosure. Section 6103(n) authorizes, pursuant to regulations prescribed by the Secretary, returns and return information to be disclosed to any person, including any person described in section 7513(a), for purposes of tax administration, to the extent necessary in connection with: (1) The processing, storage, transmission, and reproduction of returns and return information; (2) the programming, maintenance, repair, testing, and procurement of equipment; and (3) the providing of other services. On January 12, 2005, a notice of proposed rulemaking (REG–148867–03) was published in the Federal Register (70 FR 2076). The proposed regulations clarified that redisclosures of returns or return information by contractors to their agents or subcontractors are permissible provided that the IRS, in writing, authorizes the redisclosures. The proposed regulations also clarified that agents and subcontractors are persons described in section 6103(n) and, accordingly, are subject to the civil and criminal penalty provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of returns or return information. The proposed regulations further clarified that agents and subcontractors are required to comply with any written notification requirements and safeguard restrictions that may be imposed by the IRS. Finally, the proposed regulations clarified that section 6103(n) applies to written contracts or agreements that are entered into to obtain property or services for tax administration purposes, PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 30975 including contracts that are not awarded under the Federal Acquisition Regulations, 48 CFR parts 1 through 53. One written comment responding to the notice of proposed rulemaking was received. No public hearing was requested or held. After consideration of the comment, the regulations are adopted as proposed. Summary of Comment The commentator recommended that the final regulations provide that any contractor and its agent or subcontractor, who has access to returns or return information under section 6103(n), be required to designate a natural person in the employ of each contractor, agent, or subcontractor who shall have: (1) Cognizance and control over all disclosures by such contractor, agent, or subcontractor; (2) the authority to flow down the sanctions set forth in § 301.6103(n)–1(e)(4) to lower-tiered agents or subcontractors in the event of their breach of or noncompliance with § 301.6103(n)–1; and (3) the authority to apprise promptly the IRS and/or highertiered contractors, agents, or subcontractors of such breaches or noncompliance. The commentator explained that imposition of the above requirement would be helpful in discouraging and preventing unauthorized disclosures of returns and return information in the context of contracting and subcontracting. Because the comment was more in the nature of a contractual (case-by-case) rather than a regulatory recommendation, the final regulations do not adopt this recommendation. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 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. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that any burden on taxpayers is minimal in that the estimated average burden per respondent for complying with the collection of information imposed by these regulations is 6 minutes. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were E:\FR\FM\05JNR1.SGM 05JNR1 30976 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Rules and Regulations submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses. Drafting Information The principal author of these regulations is Helene R. Newsome, Office of the Associate Chief Counsel (Procedure & Administration), Disclosure & Privacy Law Division. List of Subjects in 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 301 is amended as follows: I PART 301—PROCEDURE AND ADMINSTRATION Paragraph 1. The authority citation for part 301 continues to read, in part, as follows: I Authority: 26 U.S.C. 7805 * * * I Par. 2. Section 301.6103(n)–1 is revised to read as follows: cprice-sewell on PROD1PC71 with RULES § 301.6103(n)–1 Disclosure of returns and return information in connection with written contracts or agreements for the acquisition of property or services for tax administration purposes. (a) General rule. (1) Pursuant to the provisions of section 6103(n) of the Internal Revenue Code and subject to the conditions of this section, officers and employees of the Treasury Department, a State tax agency, the Social Security Administration, or the Department of Justice, are authorized to disclose returns and return information (as defined in section 6103(b)) to any person (including, in the case of the Treasury Department, any person described in section 7513(a)), or to an officer or employee of the person, for purposes of tax administration (as defined in section 6103(b)(4)), to the extent necessary in connection with a written contract or agreement for the acquisition of— (i) Equipment or other property; or (ii) Services relating to the processing, storage, transmission, or reproduction of returns or return information, the programming, maintenance, repair, or testing of equipment or other property, or the providing of other services. (2) Any person, or officer or employee of the person, who receives returns or return information under paragraph (a)(1) of this section, may— VerDate Aug<31>2005 15:27 Jun 04, 2007 Jkt 211001 (i) Further disclose the returns or return information to another officer or employee of the person whose duties or responsibilities require the returns or return information for a purpose described in this paragraph (a); or (ii) Further disclose the returns or return information, when authorized in writing by the Internal Revenue Service (IRS), to the extent necessary to carry out the purposes described in this paragraph (a). Disclosures may include disclosures to an agent or subcontractor of the person, or officer or employee of the agent or subcontractor. (3) An agent or subcontractor, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a)(2)(ii) of this section, may further disclose the returns or return information to another officer or employee of the agent or subcontractor whose duties or responsibilities require the returns or return information for a purpose described in this paragraph (a). (4) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under this paragraph (a), may, subject to the provisions of § 301.6103(p)(2)(B)–1 (concerning disclosures by a Federal, State, or local agency, or its agents or contractors), further disclose the returns or return information for a purpose authorized, and subject to all applicable conditions imposed, by section 6103. (b) Limitations. (1) Disclosure of returns or return information in connection with a written contract or agreement for the acquisition of property or services described in paragraph (a) of this section will be treated as necessary only if the performance of the contract or agreement cannot otherwise be reasonably, properly, or economically carried out without the disclosure. (2) Disclosure of returns or return information in connection with a written contract or agreement for the acquisition of property or services described in paragraph (a) of this section shall be made only to the extent necessary to reasonably, properly, or economically perform the contract. For example, disclosure of returns or return information to employees of a contractor for purposes of programming, maintaining, repairing, or testing computer equipment used by the IRS or a State tax agency shall be made only if the services cannot be reasonably, properly, or economically performed without the disclosure. If it is determined that disclosure of returns or return information is necessary, and if PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 the services can be reasonably, properly, or economically performed by disclosure of only parts or portions of a return or if deletion of taxpayer identity information (as defined in section 6103(b)(6)) reflected on a return would not seriously impair the ability of the employees to perform the services, then only the parts or portions of the return, or only the return with taxpayer identity information deleted, may be disclosed. (c) Penalties. Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, is subject to the civil and criminal penalty provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of the returns or return information. (d) Notification requirements. Any person, or agent or subcontractor of the person, who receives returns or return information under paragraph (a) of this section shall provide written notice to his, her, or its officers and employees receiving the returns or return information that— (1) Returns or return information disclosed to the officer or employee may be used only for a purpose and to the extent authorized by paragraph (a) of this section and that the officer or employee is subject to the civil and criminal penalty provisions of sections 7431, 7213, and 7213A for the unauthorized inspection or disclosure of the returns or return information; (2) Further inspection of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a misdemeanor, punishable upon conviction by a fine of as much as $1,000, or imprisonment for as long as 1 year, or both, together with costs of prosecution; (3) Further disclosure of any returns or return information for a purpose or to an extent not authorized by paragraph (a) of this section constitutes a felony, punishable upon conviction by a fine of as much as $5,000, or imprisonment for as long as 5 years, or both, together with the costs of prosecution; (4) Further inspection or disclosure of returns or return information by any person who is not an officer or employee of the United States for a purpose or to an extent not authorized by paragraph (a) of this section may result also in an award of civil damages against that person in an amount not less than $1,000 for each act of unauthorized inspection or disclosure; or the sum of actual damages sustained by the plaintiff as a result of the E:\FR\FM\05JNR1.SGM 05JNR1 cprice-sewell on PROD1PC71 with RULES Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Rules and Regulations unauthorized inspection or disclosure plus, in the case of a willful inspection or disclosure or an inspection or disclosure that is the result of gross negligence, punitive damages. In addition, costs and reasonable attorneys fees may be awarded; and (5) A conviction for an offense referenced in paragraph (d)(2) or (3) of this section shall, in addition to any other punishment, result in dismissal from office or discharge from employment if the person convicted is an officer or employee of the United States. (e) Safeguards. (1) Any person, or agent or subcontractor of the person, who may receive returns or return information under paragraph (a) of this section, shall agree, before disclosure of any returns or return information to the person, agent, or subcontractor, to permit an inspection by the IRS of his, her, or its site or facilities. (2) Any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, shall comply with all applicable conditions and requirements as the IRS may prescribe from time to time (prescribed requirements) for the purposes of protecting the confidentiality of returns and return information and preventing any disclosure or inspection of returns or return information in a manner not authorized by this section. (3) The terms of any written contract or agreement for the acquisition of property or services as described in paragraph (a) of this section shall provide, or shall be amended to provide, that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, shall comply with the prescribed requirements. Any contract or agreement shall be made available to the IRS before execution of the contract or agreement. For purposes of this paragraph (e)(3), a written contract or agreement shall include any contract or agreement between a person and an agent or subcontractor of the person to provide the property or services described in paragraph (a) of this section. (4) If the IRS determines that any person, or officer, employee, agent or subcontractor of the person, or officer or employee of the agent or subcontractor, who receives returns or return information under paragraph (a) of this section, has failed to, or does not, satisfy the prescribed requirements, the IRS, VerDate Aug<31>2005 15:27 Jun 04, 2007 Jkt 211001 consistent with the regulations under section 6103(p)(7), may take any actions it deems necessary to ensure that the prescribed requirements are or will be satisfied, including— (i) Suspension of further disclosures of returns or return information by the IRS to the State tax agency, the Social Security Administration, or the Department of Justice, until the IRS determines that the conditions and requirements have been or will be satisfied; (ii) Suspension of further disclosures by the Treasury Department otherwise authorized by paragraph (a) of this section; and (iii) Suspension or termination of any duty or obligation arising under a contract or agreement with the Treasury Department. (f) Definitions. For purposes of this section— (1) The term Treasury Department includes the IRS, the Office of the Chief Counsel for the IRS, and the Office of the Treasury Inspector General for Tax Administration; (2) The term State tax agency means an agency, body, or commission described in section 6103(d); and (3) The term Department of Justice includes offices of the United States Attorneys. (g) Effective date. This section is applicable on June 5, 2007. Kevin M. Brown, Deputy Commissioner for Services and Enforcement. Approved: May 19, 2007. Eric Solomon, Assistant Secretary for Tax Policy. [FR Doc. E7–10798 Filed 6–4–07; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF THE TREASURY Fiscal Service 31 CFR Part 363 Regulations Governing Securities Held in TreasuryDirect Bureau of the Public Debt, Fiscal Service, Treasury. ACTION: Final rule. AGENCY: SUMMARY: TreasuryDirect is an accountbased, book-entry, online system for purchasing, holding, and conducting transactions in Treasury securities. An account owner currently accesses his or her account using a password to authenticate the account owner’s identity. Treasury is now introducing additional customer-based PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 30977 authentication mechanisms for accessing accounts. This final rule provides Treasury the flexibility to require additional methods of authentication for the protection of customer accounts. Treasury is also strengthening its ability to respond to attempted fraud and abuse of TreasuryDirect. Currently, Treasury has the authority to close any account. This rule explicitly permits Treasury to liquidate the securities held in the account to be closed and pay the proceeds to the person entitled. DATES: Effective: June 5, 2007. ADDRESSES: You can download this final rule at the following Internet addresses: http://www.publicdebt.treas.gov or http://www.gpoaccess.gov/ecfr. FOR FURTHER INFORMATION CONTACT: Elisha Whipkey, Director, Division of Program Administration, Office of Securities Operations, Bureau of the Public Debt, at (304) 480–6319 or elisha.whipkey@bpd.treas.gov. Susan Sharp, Attorney-Adviser, Dean Adams, Assistant Chief Counsel, Edward Gronseth, Deputy Chief Counsel, Office of the Chief Counsel, Bureau of the Public Debt, at (304) 480–8692 or susan.sharp@bpd.treas.gov. Treasury is committed to protecting its TreasuryDirect investors from potential losses through authentication of the investor at account access. Authentication is the process of ensuring that the person accessing his or her account is the same as the person whose identity was initially verified at account establishment. Authentication methods involve something that the user knows (such as a password), something that the user has (such as a gridcard), or something that the user is (such as a fingerprint). Multifactor authentication consists of requiring two or more methods of authentication to access an account. To date, Treasury has used single factor authentication, requiring passwords and other information that an account holder knows to conduct transactions in TreasuryDirect. Treasury now intends to introduce technology that uses multifactor authentication, which is more reliable and difficult to compromise than single factor authentication. Through this final rule, Treasury will have the flexibility to introduce additional methods of authentication for TreasuryDirect users to ensure that their accounts remain secure. In addition, Treasury is strengthening its ability to respond to attempted fraud SUPPLEMENTARY INFORMATION: E:\FR\FM\05JNR1.SGM 05JNR1

Agencies

[Federal Register Volume 72, Number 107 (Tuesday, June 5, 2007)]
[Rules and Regulations]
[Pages 30974-30977]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10798]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9327]
RIN 1545-BC92


Disclosure of Returns and Return Information in Connection With 
Written Contracts or Agreements for the Acquisition of Property or 
Services for Tax Administration Purposes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations relating to the 
disclosure of returns and return information pursuant to section 
6103(n) of the Internal Revenue Code (Code). The final regulations 
describe the circumstances under which officers or employees of the 
Treasury Department, a State tax agency, the Social Security 
Administration, or the Department of Justice, may disclose returns and 
return information to obtain property or services for tax 
administration purposes, pursuant to a written contract or agreement. 
The final regulations also set forth safeguard requirements that are 
designed to protect the confidentiality of returns and return 
information in the

[[Page 30975]]

hands of contractors, agents, and subcontractors, and their officers 
and employees, and notification requirements that must be provided, in 
writing, to officers and employees of the contractors, agents, and 
subcontractors to inform them that any returns or return information 
they receive pursuant to these regulations may only be used for the 
purpose for which it is disclosed to them and that they are subject to 
the civil and criminal provisions of sections 7431, 7213, and 7213A for 
the unauthorized inspection or disclosure of the returns or return 
information.
    The final regulations will affect officers and employees of the 
Treasury Department, a State tax agency, the Social Security 
Administration, or the Department of Justice, who disclose returns or 
return information in connection with a written contract or agreement 
for the acquisition of property or services for tax administration 
purposes. The final regulations also will affect any person, or 
officer, employee, agent, or subcontractor of the person, or officer or 
employee of the agent or subcontractor, who receives returns or return 
information in connection with a written contract or agreement for the 
acquisition of property or services.

DATES: Effective Date: These regulations are applicable June 5, 2007. 
Applicability Date: For dates of applicability, see Sec.  301.6103(n)-
1(g).

FOR FURTHER INFORMATION CONTACT: Helene R. Newsome, 202-622-4570 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1821.
    The collection of information in these final regulations is in 
Sec. Sec.  301.6103(n)-1(d) and 301.6103(n)-1(e)(3). This information 
is required and will be used to ensure compliance with the internal 
revenue laws and regulations, and to protect the privacy of taxpayers.
    Estimated total annual reporting burden: 250 hours. Estimated 
average annual burden per respondent: 6 minutes.
    Estimated number of respondents: 2500.
    Estimated annual frequency of responses: Annually.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, 
SE:W:CAR:MP:T:T:SP, Washington, DC 20224 and to the Office of 
Management and Budget, Attn: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, DC 
20503.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
return information are confidential, as required by 26 U.S.C. 6103.

Background

    Under section 6103(a), returns and return information are 
confidential unless the Code authorizes disclosure. Section 6103(n) 
authorizes, pursuant to regulations prescribed by the Secretary, 
returns and return information to be disclosed to any person, including 
any person described in section 7513(a), for purposes of tax 
administration, to the extent necessary in connection with: (1) The 
processing, storage, transmission, and reproduction of returns and 
return information; (2) the programming, maintenance, repair, testing, 
and procurement of equipment; and (3) the providing of other services.
    On January 12, 2005, a notice of proposed rulemaking (REG-148867-
03) was published in the Federal Register (70 FR 2076). The proposed 
regulations clarified that redisclosures of returns or return 
information by contractors to their agents or subcontractors are 
permissible provided that the IRS, in writing, authorizes the 
redisclosures. The proposed regulations also clarified that agents and 
subcontractors are persons described in section 6103(n) and, 
accordingly, are subject to the civil and criminal penalty provisions 
of sections 7431, 7213, and 7213A for the unauthorized inspection or 
disclosure of returns or return information. The proposed regulations 
further clarified that agents and subcontractors are required to comply 
with any written notification requirements and safeguard restrictions 
that may be imposed by the IRS.
    Finally, the proposed regulations clarified that section 6103(n) 
applies to written contracts or agreements that are entered into to 
obtain property or services for tax administration purposes, including 
contracts that are not awarded under the Federal Acquisition 
Regulations, 48 CFR parts 1 through 53.
    One written comment responding to the notice of proposed rulemaking 
was received. No public hearing was requested or held. After 
consideration of the comment, the regulations are adopted as proposed.

Summary of Comment

    The commentator recommended that the final regulations provide that 
any contractor and its agent or subcontractor, who has access to 
returns or return information under section 6103(n), be required to 
designate a natural person in the employ of each contractor, agent, or 
subcontractor who shall have: (1) Cognizance and control over all 
disclosures by such contractor, agent, or subcontractor; (2) the 
authority to flow down the sanctions set forth in Sec.  301.6103(n)-
1(e)(4) to lower-tiered agents or subcontractors in the event of their 
breach of or noncompliance with Sec.  301.6103(n)-1; and (3) the 
authority to apprise promptly the IRS and/or higher-tiered contractors, 
agents, or subcontractors of such breaches or noncompliance. The 
commentator explained that imposition of the above requirement would be 
helpful in discouraging and preventing unauthorized disclosures of 
returns and return information in the context of contracting and 
subcontracting. Because the comment was more in the nature of a 
contractual (case-by-case) rather than a regulatory recommendation, the 
final regulations do not adopt this recommendation.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 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. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based on the fact that any burden on 
taxpayers is minimal in that the estimated average burden per 
respondent for complying with the collection of information imposed by 
these regulations is 6 minutes. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, the proposed 
regulations preceding these regulations were

[[Page 30976]]

submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses.

Drafting Information

    The principal author of these regulations is Helene R. Newsome, 
Office of the Associate Chief Counsel (Procedure & Administration), 
Disclosure & Privacy Law Division.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINSTRATION

0
Paragraph 1. The authority citation for part 301 continues to read, in 
part, as follows:

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


0
Par. 2. Section 301.6103(n)-1 is revised to read as follows:


Sec.  301.6103(n)-1  Disclosure of returns and return information in 
connection with written contracts or agreements for the acquisition of 
property or services for tax administration purposes.

    (a) General rule. (1) Pursuant to the provisions of section 6103(n) 
of the Internal Revenue Code and subject to the conditions of this 
section, officers and employees of the Treasury Department, a State tax 
agency, the Social Security Administration, or the Department of 
Justice, are authorized to disclose returns and return information (as 
defined in section 6103(b)) to any person (including, in the case of 
the Treasury Department, any person described in section 7513(a)), or 
to an officer or employee of the person, for purposes of tax 
administration (as defined in section 6103(b)(4)), to the extent 
necessary in connection with a written contract or agreement for the 
acquisition of--
    (i) Equipment or other property; or
    (ii) Services relating to the processing, storage, transmission, or 
reproduction of returns or return information, the programming, 
maintenance, repair, or testing of equipment or other property, or the 
providing of other services.
    (2) Any person, or officer or employee of the person, who receives 
returns or return information under paragraph (a)(1) of this section, 
may--
    (i) Further disclose the returns or return information to another 
officer or employee of the person whose duties or responsibilities 
require the returns or return information for a purpose described in 
this paragraph (a); or
    (ii) Further disclose the returns or return information, when 
authorized in writing by the Internal Revenue Service (IRS), to the 
extent necessary to carry out the purposes described in this paragraph 
(a). Disclosures may include disclosures to an agent or subcontractor 
of the person, or officer or employee of the agent or subcontractor.
    (3) An agent or subcontractor, or officer or employee of the agent 
or subcontractor, who receives returns or return information under 
paragraph (a)(2)(ii) of this section, may further disclose the returns 
or return information to another officer or employee of the agent or 
subcontractor whose duties or responsibilities require the returns or 
return information for a purpose described in this paragraph (a).
    (4) Any person, or officer, employee, agent or subcontractor of the 
person, or officer or employee of the agent or subcontractor, who 
receives returns or return information under this paragraph (a), may, 
subject to the provisions of Sec.  301.6103(p)(2)(B)-1 (concerning 
disclosures by a Federal, State, or local agency, or its agents or 
contractors), further disclose the returns or return information for a 
purpose authorized, and subject to all applicable conditions imposed, 
by section 6103.
    (b) Limitations. (1) Disclosure of returns or return information in 
connection with a written contract or agreement for the acquisition of 
property or services described in paragraph (a) of this section will be 
treated as necessary only if the performance of the contract or 
agreement cannot otherwise be reasonably, properly, or economically 
carried out without the disclosure.
    (2) Disclosure of returns or return information in connection with 
a written contract or agreement for the acquisition of property or 
services described in paragraph (a) of this section shall be made only 
to the extent necessary to reasonably, properly, or economically 
perform the contract. For example, disclosure of returns or return 
information to employees of a contractor for purposes of programming, 
maintaining, repairing, or testing computer equipment used by the IRS 
or a State tax agency shall be made only if the services cannot be 
reasonably, properly, or economically performed without the disclosure. 
If it is determined that disclosure of returns or return information is 
necessary, and if the services can be reasonably, properly, or 
economically performed by disclosure of only parts or portions of a 
return or if deletion of taxpayer identity information (as defined in 
section 6103(b)(6)) reflected on a return would not seriously impair 
the ability of the employees to perform the services, then only the 
parts or portions of the return, or only the return with taxpayer 
identity information deleted, may be disclosed.
    (c) Penalties. Any person, or officer, employee, agent or 
subcontractor of the person, or officer or employee of the agent or 
subcontractor, who receives returns or return information under 
paragraph (a) of this section, is subject to the civil and criminal 
penalty provisions of sections 7431, 7213, and 7213A for the 
unauthorized inspection or disclosure of the returns or return 
information.
    (d) Notification requirements. Any person, or agent or 
subcontractor of the person, who receives returns or return information 
under paragraph (a) of this section shall provide written notice to 
his, her, or its officers and employees receiving the returns or return 
information that--
    (1) Returns or return information disclosed to the officer or 
employee may be used only for a purpose and to the extent authorized by 
paragraph (a) of this section and that the officer or employee is 
subject to the civil and criminal penalty provisions of sections 7431, 
7213, and 7213A for the unauthorized inspection or disclosure of the 
returns or return information;
    (2) Further inspection of any returns or return information for a 
purpose or to an extent not authorized by paragraph (a) of this section 
constitutes a misdemeanor, punishable upon conviction by a fine of as 
much as $1,000, or imprisonment for as long as 1 year, or both, 
together with costs of prosecution;
    (3) Further disclosure of any returns or return information for a 
purpose or to an extent not authorized by paragraph (a) of this section 
constitutes a felony, punishable upon conviction by a fine of as much 
as $5,000, or imprisonment for as long as 5 years, or both, together 
with the costs of prosecution;
    (4) Further inspection or disclosure of returns or return 
information by any person who is not an officer or employee of the 
United States for a purpose or to an extent not authorized by paragraph 
(a) of this section may result also in an award of civil damages 
against that person in an amount not less than $1,000 for each act of 
unauthorized inspection or disclosure; or the sum of actual damages 
sustained by the plaintiff as a result of the

[[Page 30977]]

unauthorized inspection or disclosure plus, in the case of a willful 
inspection or disclosure or an inspection or disclosure that is the 
result of gross negligence, punitive damages. In addition, costs and 
reasonable attorneys fees may be awarded; and
    (5) A conviction for an offense referenced in paragraph (d)(2) or 
(3) of this section shall, in addition to any other punishment, result 
in dismissal from office or discharge from employment if the person 
convicted is an officer or employee of the United States.
    (e) Safeguards. (1) Any person, or agent or subcontractor of the 
person, who may receive returns or return information under paragraph 
(a) of this section, shall agree, before disclosure of any returns or 
return information to the person, agent, or subcontractor, to permit an 
inspection by the IRS of his, her, or its site or facilities.
    (2) Any person, or officer, employee, agent or subcontractor of the 
person, or officer or employee of the agent or subcontractor, who 
receives returns or return information under paragraph (a) of this 
section, shall comply with all applicable conditions and requirements 
as the IRS may prescribe from time to time (prescribed requirements) 
for the purposes of protecting the confidentiality of returns and 
return information and preventing any disclosure or inspection of 
returns or return information in a manner not authorized by this 
section.
    (3) The terms of any written contract or agreement for the 
acquisition of property or services as described in paragraph (a) of 
this section shall provide, or shall be amended to provide, that any 
person, or officer, employee, agent or subcontractor of the person, or 
officer or employee of the agent or subcontractor, who receives returns 
or return information under paragraph (a) of this section, shall comply 
with the prescribed requirements. Any contract or agreement shall be 
made available to the IRS before execution of the contract or 
agreement. For purposes of this paragraph (e)(3), a written contract or 
agreement shall include any contract or agreement between a person and 
an agent or subcontractor of the person to provide the property or 
services described in paragraph (a) of this section.
    (4) If the IRS determines that any person, or officer, employee, 
agent or subcontractor of the person, or officer or employee of the 
agent or subcontractor, who receives returns or return information 
under paragraph (a) of this section, has failed to, or does not, 
satisfy the prescribed requirements, the IRS, consistent with the 
regulations under section 6103(p)(7), may take any actions it deems 
necessary to ensure that the prescribed requirements are or will be 
satisfied, including--
    (i) Suspension of further disclosures of returns or return 
information by the IRS to the State tax agency, the Social Security 
Administration, or the Department of Justice, until the IRS determines 
that the conditions and requirements have been or will be satisfied;
    (ii) Suspension of further disclosures by the Treasury Department 
otherwise authorized by paragraph (a) of this section; and
    (iii) Suspension or termination of any duty or obligation arising 
under a contract or agreement with the Treasury Department.
    (f) Definitions. For purposes of this section--
    (1) The term Treasury Department includes the IRS, the Office of 
the Chief Counsel for the IRS, and the Office of the Treasury Inspector 
General for Tax Administration;
    (2) The term State tax agency means an agency, body, or commission 
described in section 6103(d); and
    (3) The term Department of Justice includes offices of the United 
States Attorneys.
    (g) Effective date. This section is applicable on June 5, 2007.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.

    Approved: May 19, 2007.
Eric Solomon,
Assistant Secretary for Tax Policy.
[FR Doc. E7-10798 Filed 6-4-07; 8:45 am]
BILLING CODE 4830-01-P