IRS ANNOUNCES HEARING ON REGULATIONS CONCERNING INFORMATION REPORTING PENALTIES AND THE REASONABLE CAUSE WAIVER

July 31, 1991 TO: TAX COMMITTEE NO. 25-91 OPERATIONS COMMITTEE NO. 24-91 TRANSFER AGENT ADVISORY COMMITTEE NO. 36-91 RE: IRS ANNOUNCES HEARING ON REGULATIONS CONCERNING INFORMATION REPORTING PENALTIES AND THE REASONABLE CAUSE WAIVER __________________________________________________________ In the attached notice, the IRS announces a public hearing on September 9, 1991 on the temporary and proposed regulations issued earlier this year on information reporting penalties and the reasonable cause waiver. As we previously informed you, these regulations contain a definition for the new "reasonable cause" standard for waiving information reporting penalties which generally reflects the suggestions made by the Institute for relaxing the old "due diligence" standard, which applied to information returns and payee statements filed before January 1, 1990. (See Institute Memorandum to Tax Members No. 6-91, Operations Members No. 7-91, Closed-End Fund Members No. 9-91, Unit Investment Trust Members No. 9-91 and Transfer Agent Advisory Committee No. 10-91, dated February 25, 1991.) The Institute's Backup Withholding Task Force examined these regulations and suggested a few relatively technical clarifications to the reasonable cause standard, which the Institute made in the attached comment letter. First, a payor should be deemed to have made an initial solicitation for a payee's taxpayer identification number ("TIN") when (a) the payor furnishes the payee with an application to purchase fund shares that requests the payee's TIN and (b) the payee uses the application to purchase the shares. Second, the deadline for making the first annual solicitation following notification of an incorrect TIN should be on or before the later of December 31 or 30 days after the date that the payer is notified of the incorrect TIN (rather than on or before December 31, regardless of notification date). Third, the regulations should be amended to provide explicitly that a payor need not make two additional annual solicitations for a payee's TIN if the payor has already made two consecutive annual mailings in a form which would generally satisfy the annual mailing requirements of the new regulations. Finally, the "transition rules" of Temp. Treas. Reg. section 301.6724-IT(h)(2), which apply to information returns required to be filed after December 31, 1989 and on or - 1 - before April 22, 1991, should be clarified through the use of examples which illustrate how the various transition rules are met. The Institute must provide to the IRS by August 26 an outline of oral comments we will present at the hearing on September 9. If you have any additional comments on these regulations that you wish the Institute to present, please inform me of them (at 202/955-3585) no later that August 21. We will keep you informed of developments. Keith D. Lawson Associate Counsel - Tax Attachments KDL:bmb