INCOME TAXRev. Rul. 98–45, page 4.Low-income housing credit; satisfactory bond; “bondfactor” amounts for the period July through Septem-ber 1998. This ruling announces the monthly bond factoramounts to be used by taxpayers who dispose of qualifiedlow-income buildings or interests therein during the periodJuly through September 1998.

EMPLOYEE PLANSAnnouncement 98–85, page 30.Forms 5300, 5303, 5307 and 6406, and Schedule Q (Form5300), used for requesting determination letters for ongoingemployee benefit plans, have been revised. The new revisiondate is July 1998.

EXEMPT ORGANIZATIONSAnnouncement 98–86, page 31.A list is provided of organizations that no longer qualify as or-ganizations to which contributions are deductible under sec-tion 170 of the Code.

ADMINISTRATIVERev. Proc. 98–48, page 7.Qualified small business stock; rollover of gain; elec-tion. Procedures are provided for taxpayers to make an

election under section 1045 of the Code to defer recogni-tion of gain on the sale of qualified small business stock.

Rev. Proc. 98–50, page 8.Form 1040 IRS e-file program. Participants in the Form1040 IRS e-file program are informed of their obligations tothe Service, taxpayers, and other participants. Rev. Proc.97–60 superseded.

Rev. Proc. 98–51, page 20.Form 1040 on-line filing program. Participants in theForm 1040 on-line filing program are informed of their oblig-ations to the Service, taxpayers, and other participants. Rev.Proc. 97–61 superseded.

Notice 98–49, page 5.Section 408A; Roth IRAs, reporting requirements. Thisnotice describes certain reporting requirements for RothIRAs as described in section 408A of the Code and certainchanges to IRAs contained in the Internal Revenue ServiceRestructuring and Reform Act of 1998. Notice 87–13 andNotice 87–16 modified.

Announcement 98–84, page 30.The Service announces a delay in changes to Forms W–2 andW–3 until tax year 2000. In Announcement 98–55, 1998–26I.R.B. 41, the Service requested comments on proposedchanges to the 1999 Forms W–2 and W–3. Based on a re-view of those comments, the Service will postpone makingmajor revisions to Forms W–2 and W–3 until tax year 2000forms, which will be filed in 2001.

Internal Revenue

bbuulllleettiinnBulletin No. 1998–38September 21, 1998

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

Department of the TreasuryInternal Revenue Service

Finding Lists begin on page 33.Announcement of Declaratory Judgment Proceedings Under section 7428 begins on page 31.

IRB 1998-38 9/16/98 11:49 AM Page 1

Mission of the Service

The purpose of the Internal Revenue Service is to collectthe proper amount of tax revenue at the least cost; servethe public by continually improving the quality of our prod-

ucts and services; and perform in a manner warrantingthe highest degree of public confidence in our integrity, effi-ciency, and fairness.

2

Statement of Principlesof Internal RevenueTax AdministrationThe function of the Internal Revenue Service is to adminis-ter the Internal Revenue Code. Tax policy for raising revenueis determined by Congress.

With this in mind, it is the duty of the Service to carry out thatpolicy by correctly applying the laws enacted by Congress;to determine the reasonable meaning of various Code provi-sions in light of the Congressional purpose in enacting them;and to perform this work in a fair and impartial manner, withneither a government nor a taxpayer point of view.

At the heart of administration is interpretation of the Code. Itis the responsibility of each person in the Service, chargedwith the duty of interpreting the law, to try to find the truemeaning of the statutory provision and not to adopt astrained construction in the belief that he or she is “protect-ing the revenue.” The revenue is properly protected onlywhen we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying andadministering the law in a reasonable, practical manner.Issues should only be raised by examining officers whenthey have merit, never arbitrarily or for trading purposes.At the same time, the examining officer should never hesi-tate to raise a meritorious issue. It is also important thatcare be exercised not to raise an issue or to ask a court toadopt a position inconsistent with an established Serviceposition.

Administration should be both reasonable and vigorous. Itshould be conducted with as little delay as possible andwith great courtesy and considerateness. It should nevertry to overreach, and should be reasonable within thebounds of law and sound administration. It should, howev-er, be vigorous in requiring compliance with law and itshould be relentless in its attack on unreal tax devices andfraud.

IRB 1998-38 9/16/98 11:49 AM Page 2

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents of a permanent nature are consoli-dated semiannually into Cumulative Bulletins, which are soldon a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisionsof the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions, and Subpart B, Legislation and RelatedCommittee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).

Part IV.—Items of General Interest.With the exception of the Notice of Proposed Rulemakingand the disbarment and suspension list included in this part,none of these announcements are consolidated in the Cumu-lative Bulletins.

The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a semiannual basisand are published in the first Bulletin of the succeeding semi-annual period, respectively.

3

Introduction

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

IRB 1998-38 9/16/98 11:49 AM Page 3

For a list of bond factor amounts ap-plicable to dispositions occurring duringother calendar years, see the followingrevenue rulings: Rev. Rul. 95–83, 1995–2 C.B. 8, for dispositions occurring dur-ing calendar year 1995; Rev. Rul. 98–3,1998–2 I.R.B. 4, for dispositions occur-ring during the calendar years 1996 and1997; Rev. Rul. 98–13, 1998–11 I.R.B. 4,for dispositions occurring during the pe-riod January through March 1998; andRev. Rul. 98–31, 1998–25 I.R.B. 4, fordispositions occurring during the periodApril through June 1998.

DRAFTING INFORMATION

The principal author of this revenueruling is Jack Malgeri of the Office of As-sistant Chief Counsel (Passthroughs and

Special Industries). For further informa-tion regarding this revenue ruling, contactMr. Malgeri at (202) 622-3040 (not a toll-free call).

Section 6012.—PersonsRequired To Make Returns ofIncome

26 CFR 1.6012–5: Composite return in lieu ofspecified form.

For the requirements for participation in theForm 1040 IRS e-file program, see Rev. Proc.98–50, page 8.

26 CFR 1.6012–5: Composite return in lieu ofspecified form.

For the requirements for participation in the

Form 1040 on-line filing program, see Rev. Proc.98–51, page 20.

Section 6061.—Signing ofReturns and Other Documents

26 CFR 1.6061–1: Signing of returns and otherdocuments by individuals.

For the requirements for participation in theForm 1040 IRS e-file program, see Rev. Proc.98–50, page 8.

26 CFR 1.6061–1: Signing of returns and otherdocuments by individuals.

For the requirements for participation in theForm 1040 on-line filing program, see Rev. Proc.98–51, page 20.

Section 42.—Low-IncomeHousing Credit

Low-income housing credit; satisfac-tory bond; “bond factor” amounts forthe period July through September1998.This ruling announces the monthlybond factor amounts to be used by tax-payers who dispose of qualified low-in-come buildings or interests therein duringthe period July through September 1998.

Rev. Rul. 98–45In Rev. Rul. 90–60, 1990–2 C.B. 3, the

Internal Revenue Service provided guid-ance to taxpayers concerning the generalmethodology used by the Treasury De-partment in computing the bond factoramounts used in calculating the amount ofbond considered satisfactory by the Sec-retary under § 42(j)(6) of the InternalRevenue Code. It further announced that

the Secretary would publish in the Inter-nal Revenue Bulletin a table of “bond fac-tor” amounts for dispositions occurringduring each calendar month.

This revenue ruling provides in Table 1the bond factor amounts for calculatingthe amount of bond considered satisfac-tory under § 42(j)(6) for dispositions ofqualified low-income buildings or inter-ests therein during the period July throughSeptember 1998

September 21, 1998 4 1998–38 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Table 1Rev. Rul. 98–45

Monthly Bond Factor Amounts for Dispositions ExpressedAs a Percentage of Total Credits

Calendar Year Building Placed in Serviceor, if Section 42(f)(1) Election Was Made,

the Succeeding Calendar Year

Month of 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998Disposition

Jul ’98 61.09 75.25 75.33 77.22 79.49 82.08 84.70 87.18 89.60 92.21 94.81 97.21Aug ’98 61.09 75.25 75.13 77.01 79.27 81.85 84.47 86.93 89.35 91.97 94.61 97.21Sep ’98 61.09 75.25 74.93 76.81 79.06 81.63 84.23 86.70 89.12 91.74 94.42 97.21

IRB 1998-38 9/16/98 11:49 AM Page 4

1998–38 I.R.B. 5 September 21, 1998

Roth IRA Guidance

Notice 98–49

PURPOSE AND BACKGROUND

This notice provides guidance relatingto Service-approved Roth IRA documentsand IRA reporting requirements. In addi-tion, this notice summarizes a number ofrecent changes in the law governing allIRAs, which affect Notice 87–13, 1987–1C.B. 432, and Notice 87–16, 1987–1 C.B.446.

Roth IRAs are a new type of IRA, de-scribed in § 408A of the Internal RevenueCode (“Code”), that individuals can usebeginning in 1998. Section 408A wasadded to the Code by § 302 of the Tax-payer Relief Act of 1997 (“TRA 97”),Pub. L. 105–34, to authorize a new typeof individual retirement arrangement (the“Roth IRA”). This notice reflectschanges relating to Roth IRAs containedin the Internal Revenue Service Restruc-turing and Reform Act of 1998 (the “IRSRestructuring Act”), Pub. L. 105–206.

The Internal Revenue Service recentlyissued proposed regulations, §§ 1.408A–1through 1.408A–9, relating to Roth IRAs,which were published in the Federal Reg-ister on September 3, 1998. This noticeincorporates definitions and terms that arecontained in those proposed regulations.

For more information on IRAs, includ-ing Roth IRAs, see Publication 590, Indi-vidual Retirement Arrangements (IRAs),and Publication 553, Highlights of 1997Tax Changes.

SECTION A. SERVICE-APPROVEDROTH IRA DOCUMENTS

Q. A–1. Are there model forms avail-able for establishing a Roth IRA?

A. A–1. Yes. The Service has issuedthree model forms, Form 5305–R, Form5305–RA and Form 5305–RB, that can beused to establish a Roth IRA as a trust ac-count, a custodial account or an annuity,respectively. In the case of Form 5305–RB, the model form is used as an endorse-ment to an insurance company’s annuitycontract. Model forms issued by the Ser-vice contain pre-approved language that,if followed, will satisfy the applicablestatutory requirements.

Q. A–2. Can the model forms beamended?

A. A–2. Article IX of each of thesemodel forms permits certain amendmentsto be made to provisions of the Roth IRAin accordance with the instructions to themodel forms. For example, under themodel forms, a spouse who is the soledesignated beneficiary is deemed to haveelected to treat the Roth IRA, upon thedeath of the owner, as his or her own. Themodel forms can be amended to give asurviving spouse who is the sole desig-nated beneficiary the option of not treat-ing the Roth IRA, upon the death of theowner, as his or her own.

Q. A–3. Is the Service currently ac-cepting applications for opinion letters onprototype Roth IRAs?

A. A–3. The Service is not currentlyaccepting applications for opinion letterson prototype Roth IRAs. Announcement97–122, 1997–50 I.R.B. 63, states thattransitional relief similar to that providedunder Rev. Proc. 97–29, 1997–1 C.B.698, will be provided to sponsors andtheir customers who establish Roth IRAswith documents that have not been pre-approved by the Service. Thus, for exam-ple, if in January 1998 an individual madea contribution to a trust or custodial ac-count or purchased an annuity using doc-uments or associated written material thatclearly designates the account or annuityas a Roth IRA, then, provided certain re-quirements are met, the individual will bedeemed to have established a Roth IRAon that date using a document approvedby the Service for use as a Roth IRA.

SECTION B. IRA REPORTINGREQUIREMENTS

Q. B–1. What reporting requirementsapply to the trustees in the case of arecharacterization of a contribution froma FIRST IRA to a SECOND IRA as de-scribed in § 1.408A–5 of the proposed In-come Tax Regulations?

A. B–1. The general reporting require-ments for Roth IRAs are described in pro-posed regulation § 1.408A–7. In addition,the following reporting requirementsapply to the trustees of the FIRST IRA andthe SECOND IRA when the IRA ownerelects to treat a contribution as having

been made to the SECOND IRA and notto the FIRST IRA in accordance with therules in § 1.408A–5. To the extent that theinstructions for the 1998 Forms 1099–Rand 5498 are inconsistent with the instruc-tions for completing those forms providedin this Q&A B–1, trustees must follow theguidance provided in this notice.

(1) Reporting by the trustee of theFIRST IRA. The trustee of the FIRSTIRA reports the contribution on Form5498 showing the character of the contri-bution (rollover, conversion amount, orregular). If the recharacterization (i.e.,the transfer) occurs in calendar year 1998,the trustee reports the recharacterizationas a distribution on Form 1099–R show-ing Code G for direct rollover and show-ing the gross amount (contribution andearnings) in Box 1-Gross distribution and0 (zero) in Box 2a-Taxable amount. Forrecharacterizations that occur in lateryears, the trustee reports in accordancewith applicable Federal tax forms and in-structions. For recharacterizations thatoccur in 1999, it is anticipated that the in-structions to Form 1099–R will indicatethat the trustee reports the recharacteriza-tion as a distribution on Form 1099–Rshowing new Code R for recharacteriza-tion and showing the gross amount (con-tribution and earnings) in Box 1-Grossdistribution and 0 (zero) in Box 2a-Tax-able amount.

(2) Reporting by the trustee of the SEC-OND IRA.For recharacterized amountsreceived on or before December 31, 1998,that are recharacterized as amounts con-tributed in calendar year 1998, the trusteeof the SECOND IRA reports the contribu-tion as a rollover contribution on a 1998Form 5498. For recharacterized amountsreceived after December 31, 1998, thetrustee reports in accordance with applic-able Federal tax forms and instructions. Itis anticipated that the instructions to the1999 Form 5498 will provide that arecharacterized amount received by thetrustee of the SECOND IRA will continueto be reported as a rollover contribution,but that (a) the checkbox entitled “Rothconv.” on the 1998 Form 5498 will beretitled to identify a contribution as arecharacterization, (b) the trustee of theSECOND IRA will check both the boxidentifying the contribution as a recharac-

Part III. Administrative, Procedural, and Miscellaneous

IRB 1998-38 9/16/98 11:49 AM Page 5

terization contribution and the box thatidentifies the type of IRA involved, and(c) the recharacterization must be re-ported on a Form 5498 that is separatefrom any Form 5498 otherwise requiredfor the SECOND IRA.

Q. B–2. How does a trustee report onForm 1099–R a distribution from a RothIRA that contains both regular and 1998conversion contributions?

A. B–2. In the case of a distributionfrom a Roth IRA that contains both regu-lar and 1998 conversion contributions, thetrustee must use Code K in Box 7 of Form1099–R.

SECTION C. OTHER RECENTCHANGES TO IRAS

Q. C–1. What effect does the recharac-terization of a contribution (as describedin § 1.408A–5 of the proposed IncomeTax Regulations) have on the rules gov-erning the nontaxable return of basis in thecase of traditional IRA distributions?

A. C–1. Part III, “Distributions,” ofNotice 87–16, sets forth the rules for cal-culating the nontaxable return of basis inthe case of distributions from traditionalIRAs. These rules continue to apply ex-cept as modified below.

The total IRA account balances, thetotal nondeductible contributions, and thedistribution amount (as these terms areused in Notice 87–16) for an individualfor a taxable year are each adjusted to re-flect recharacterized amounts contributedto, or distributed from, the traditionalIRAs. For purposes of making this ad-justment, the contribution that is beingrecharacterized as a contribution to theSECOND IRA is treated as having beenoriginally contributed to the SECONDIRA on the same date and (in the case of aregular contribution) for the same taxableyear that the contribution was made to theFIRST IRA. If the recharacterizationtransaction occurs after the close of thetaxable year and if the recharacterizationtransaction involves a regular contribu-tion for the prior taxable year, the rechar-acterization is disregarded for the priortaxable year in determining the total IRAaccount balances.

Q. C–2. Are there any new exceptionsto the 10-percent additional tax on earlydistributions from IRAs?

A. C–2. Yes. Section 203 of TRA 97added § 72(t)(2)(E) to the Code, which

provides that the additional 10-percent taxdoes not apply to IRA distributions forqualified higher education expenses of theIRA owner, the owner’s spouse, or a childor grandchild of either. Qualified highereducation expenses include tuition, sup-plies, and, for students who are at leasthalf-time, room and board. (See Notice97–60, 1997–46 I.R.B. 8.)

Section 303 of TRA 97 added § 72(t)(2)(F) to the Code, which providesthat the additional 10-percent tax does notapply to an IRA distribution to acquire afirst-time home for the IRA owner or amember of his or her family. To qualify,the distribution must be used for costsnormally associated with acquiring a prin-cipal residence and the IRA owner (and ifmarried, the owner’s spouse), generally,must not have had an ownership interestin a principal residence for the previous 2years. If the distributed money is notused for such purpose, the money can berecontributed by the 120th day after thedistribution to the IRA without incurringthe 10-percent tax. This exception for afirst-time home purchase is subject to alifetime cap of $10,000 for each IRAowner; thus, an individual and his or herspouse would each be subject to a sepa-rate $10,000 lifetime cap.

In addition, § 3436 of the IRS Restruc-turing Act added § 72(t)(2)(A)(vii) to theCode, which provides that the additional10-percent tax does not apply to a distribu-tion from a qualified retirement plan, in-cluding an IRA, that is made on account ofa levy under § 6331 on the qualified retire-ment plan. The provision applies to distri-butions made after December 31, 1999.

Previous guidance relating to § 72(t)was provided in Part D of Notice 87–13.These rules continue to apply except asmodified above.

Q. C–3. What changes are there in the“active participant” rules?

A. C–3. Section 301 of TRA 97amended § 219 of the Code to provide forincreased deductible contributions to tra-ditional IRAs that can be made by activeparticipants in employer-sponsored retire-ment plans. In 1998, the IRA deductionavailable to an unmarried active partici-pant is phased out ratably between ad-justed gross income of $30,000 and$40,000. This phase-out range is in-creased annually until 2005 when thephase-out range will be $50,000 to

$60,000. In the case of joint returns, thephase-out range is $50,000 to $60,000 for1998, rising to $80,000 to $100,000 for2007 and later years. In addition, an indi-vidual who is not an active participant butis married to someone who is can make afully deductible traditional IRA contribu-tion if their combined adjusted gross in-come is not more than $150,000, or a par-tially deductible traditional IRAcontribution if their combined adjustedgross income is between $150,000 and$160,000.

Previous guidance relating to the activeparticipant rules was provided in Part IAof Notice 87–16. These rules continue toapply except as modified above.

Q. C–4. Are there any changes to thepermissible investments available in anIRA?

A. C–4. Yes. Section 304 of TRA 97amended § 408(m) of the Code to permitIRAs to invest in certain platinum coinsand in gold, silver, platinum or palladiumbullion, provided the bullion is in thephysical possession of an IRA trustee.

Previous guidance relating to col-lectibles was provided in Part V of Notice87–16. These rules continue to apply ex-cept as modified above.

EFFECT ON OTHER DOCUMENTS

Notice 87–16 and Notice 87–13 aremodified.

REQUEST FOR COMMENTS

The Service and Treasury invite com-ments and suggestions concerning theguidance provided in this notice. Anycorrespondence received will be evalu-ated to determine whether additionalguidance on Roth IRAs is necessary.

In particular, comments are requestedon appropriate reporting of recharacteri-zation transactions described in proposedregulation § 1.408A–5. The Service andTreasury recognize that recharacterizationtransactions present novel reporting is-sues for IRA trustees, and this notice pro-vides for reporting such transactions in amanner that most closely approximatesreporting for ordinary IRA distributions,contributions and trustee-to-trustee trans-fers. However, the Service and Treasuryare considering other possible reportingalternatives for recharacterization transac-tions. For example, it might be appropri-

September 21, 1998 6 1998–38 I.R.B.

IRB 1998-38 9/16/98 11:49 AM Page 6

ate to require that the recharacterized con-tribution be reported by the trustee of theSECOND IRA on a Form 5498 for theyear for which it is treated as having beencontributed, even if the recharacterizationoccurs in the subsequent year. Anotherpossible approach would be to requireonly the reporting by the trustee of theSECOND IRA involved in the recharac-terization transaction that would havebeen required if the contribution had ini-tially been made to the SECOND IRA andnever had been made to the FIRST IRA.

Comments can be addressed toCC:DOM:CORP:R (Notice 98–49), room5228, Internal Revenue Service, POB7604, Ben Franklin Station, Washington,DC 20044. In the alternative, commentsmay be hand delivered between the hoursof 8 a.m. and 5 p.m. to CC:DOM:CORP:R (Notice 98–49), Courier’s Desk, Inter-nal Revenue Service, 1111 ConstitutionAvenue NW, Washington, DC. Alterna-tively, taxpayers may transmit commentselectronically via the IRS Internet site at:http://www.irs.ustreas.gov/prod/tax_regs/comments.html.

DRAFTING INFORMATION

The principal author of this notice isRoger Kuehnle of the Employee Plans Di-vision. For further information regardingthis notice, please contact the EmployeePlans Division’s taxpayer assistance tele-phone service at (202) 622-6074/6075(not toll-free numbers), between the hoursof 1:30 and 3:30 p.m. Eastern Time, Mon-day through Thursday.

Section 1045: Rollover of GainFrom Qualified Small BusinessStock to Another Qualified SmallBusiness Stock

Rev. Proc. 98–48

SECTION 1. PURPOSE

This revenue procedure provides pro-cedures for taxpayers to make an electionunder § 1045 of the Internal RevenueCode (“§ 1045 election”) to defer recog-nition of certain gain on the sale of quali-fied small business stock (“QSB stock”).

SECTION 2. BACKGROUND

.01 Section 1045(a), as added by

§ 313(a) of the Taxpayer Relief Act of1997, Pub. L. No. 105–34, 111 Stat. 788(Aug. 5, 1997), and amended by § 6005(f)of the Internal Revenue Service Restruc-turing and Reform Act of 1998, Pub. L.No. 105–206, 112 Stat. 685 (July 22,1998), generally allows a taxpayer otherthan a C corporation to elect not to recog-nize gain from the sale of QSB stock heldby the taxpayer for more than six months.If the taxpayer makes the election under § 1045 and this revenue procedure, gainfrom such sale is recognized only to theextent that the amount realized on the saleexceeds:

(1) the cost of any QSB stock thatthe taxpayer purchases during the 60-dayperiod beginning on the date of sale, re-duced by

(2) any portion of the cost of the re-placement QSB stock that was previouslytaken into account under § 1045. How-ever, the election is not available to deferany gain on the sale that is treated as ordi-nary income for purposes of the Code.

.02 Under § 1045(b), “qualified smallbusiness stock” has the same meaning asprovided in § 1202(c).

.03 Section 1045(b)(5) provides that,for QSB stock held through passthroughentities, rules similar to the rules of § 1202(g) apply for purposes of § 1045.For example, a passthrough entity maymake a § 1045 election if the entity sellsQSB stock held for more than six monthsand purchases replacement QSB stockduring the 60-day period beginning on thedate of the sale. The benefit of deferralwith respect to a sale of QSB stock by thepassthrough entity will flow through totaxpayers (other than C corporations) thatheld interests in the entity during the en-tire period in which the entity held theQSB stock. Also, for example, if a pass-through entity sells QSB stock held formore than six months, an individual whohas held an interest in the entity duringthe entire period in which the entity heldthe QSB stock and who purchases re-placement QSB stock during the 60-dayperiod beginning on the date of the sale ofthe QSB stock may make the § 1045 elec-tion with respect to the individual’s shareof any gain on the sale that the entity doesnot defer under § 1045.

SECTION 3. PROCEDURE

.01 Time for Making the Election.

A § 1045 election must be made onor before the later of December 31, 1998,or the due date (including extensions) forfiling the income tax return for the taxableyear in which the QSB stock is sold.

.02 Manner of Making the Election. (1) In general.Except as provided

in section 3.02(2) of this revenue proce-dure, the election is made by:

(a) reporting the entire gain fromthe sale of QSB stock on Schedule D,Capital Gains and Losses, of the return inaccordance with the instructions forSchedule D;

(b) writing “section 1045 roll-over” directly below the line on which thegain is reported; and

(c) entering the amount of the gaindeferred under § 1045 on the same line as(b) above, as a loss, in accordance withthe instructions for Schedule D.

(2) Transition rule. If gain is re-portable on a return filed before October21, 1998, and the return does not satisfythe requirements of section 3.02(1) of thisrevenue procedure but discloses the gainand includes an affirmative statement tothe effect that a § 1045 election applies tothe gain, the requirements of section3.02(1) will be treated as satisfied and anamended return is not required to makethe § 1045 election. Otherwise, an origi-nal or amended return satisfying the re-quirements of section 3.02(1) of this rev-enue procedure is required to make the § 1045 election with respect to such gain.

.03 Scope of the Election.If a person has more than one sale of

QSB stock in a taxable year that qualifiesfor the § 1045 election, the person maymake a § 1045 election for any one ormore of those sales.

.04 Revocation.A § 1045 election is revocable only

with the prior written consent of the Com-missioner. To obtain the Commissioner’sconsent, the person who made the § 1045election must submit a request for a pri-vate letter ruling in accordance with theprovisions of Rev. Proc. 98–1, 1998–1I.R.B. 7 (or its successor).

SECTION 4. EFFECTIVE DATE

This revenue procedure is effective forsales of QSB stock occurring after August5, 1997.

DRAFTING INFORMATION

The principal author of this revenue

1998–38 I.R.B. 7 September 21, 1998

IRB 1998-38 9/16/98 11:49 AM Page 7

procedure is J. Peter Baumgarten of theoffice of Assistant Chief Counsel (IncomeTax and Accounting). For further infor-mation regarding this revenue procedure,contact Mr. Baumgarten on (202) 622-4950 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions.(Also Part I, Sections 6012, 6061; 1.6012–5,1.6061–1.)

Rev. Proc. 98–50

CONTENTSSECTION 1 PURPOSESECTION 2 BACKGROUND AND

CHANGESSECTION 3 FORM 1040 IRS e-file

PROGRAM PARTICI-PANTS—DEFINITIONS

SECTION 4 ACCEPTANCE IN THEFORM 1040 IRS e-filePROGRAM

SECTION 5 RESPONSIBILITIES OFAN AUTHORIZED IRSe-filePROVIDER

SECTION 6 PENALTIESSECTION 7 FORM 8453, U.S. INDI-

VIDUAL INCOME TAXDECLARATION FORAN IRS e-fileRETURN

SECTION 8 INFORMATION AN AU-THORIZED IRS e-filePROVIDER MUST FUR-NISH TO THE TAX-PAYER

SECTION 9 DIRECT DEPOSIT OFREFUNDS

SECTION 10 REFUND ANTICIPA-TION LOANS

SECTION 11 BALANCE DUE RE-TURNS

SECTION 12 ADVERTISING STAN-DARDS FOR AUTHO-RIZED IRS e-fi lePROVIDERS AND FI-NANCIAL INSTITU-TIONS

SECTION 13 MONITORING ANDSUSPENSION OF ANAUTHORIZED IRS e-filePROVIDER

SECTION 14 ADMINISTRATIVE RE-VIEW PROCESS FORDENIAL OF PARTICI-PATION IN THE FORM1040 IRS e-file PRO-GRAM

SECTION 15 ADMINISTRATIVE RE-VIEW PROCESS FORSUSPENSION FROMTHE FORM 1040 IRS e-file PROGRAM

SECTION 16 VITAAND TCE SPON-SORED PARTICIPA-TION IN THE FORM1040 IRS e-file PRO-GRAM

SECTION 17 EMPLOYER SPON-SORED PARTICIPA-TION IN THE FORM1040 IRS e-file PRO-GRAM

SECTION 18 PILOT PROGRAMSSECTION 19 EFFECT ON OTHER

DOCUMENTSSECTION 20 EFFECTIVE DATESECTION 21 INTERNAL REVENUE

SERVICE OFFICE CON-TACT

SECTION 22 PAPERWORK REDUC-TION ACT

SECTION 1. PURPOSE

This revenue procedure informs thosewho participate in the Form 1040 IRS e-file Program (formerly known as theForm 1040 Electronic Filing (ELF) Pro-gram) of their obligations to the InternalRevenue Service, taxpayers, and otherparticipants. The following returns can befiled under the Form 1040 IRS e-file Pro-gram: (1) Form 1040 and Form 1040A,U.S. Individual Income Tax Return; and(2) Form 1040EZ, Income Tax Return forSingle and Joint Filers With No Depen-dents. This revenue procedure updatesand supersedes Rev. Proc. 97–60, 1997–52 I.R.B. 38.

SECTION 2. BACKGROUND ANDCHANGES

.01 Section 1.6012–5 of the IncomeTax Regulations provides that the Com-missioner may authorize the use, at theoption of a person required to make a re-turn, of a composite return in lieu of anyform specified in 26 CFR Part 1 (IncomeTax), subject to the conditions, limita-tions, and special rules governing thepreparation, execution, filing, and correc-tion thereof as the Commissioner maydeem appropriate.

.02 For purposes of this revenue proce-dure, an electronically filed Form 1040,

Form 1040A, or Form 1040EZ is a com-posite return consisting of electronicallytransmitted data and certain paper docu-ments. The paper portion of the returnconsists of Form 8453, U.S. IndividualIncome Tax Declaration for an IRS e-fileReturn, and other paper documents thatcannot be electronically transmitted.Form 8453 must be received by the Ser-vice before the composite return is con-sidered filed (see section 5.08 of this rev-enue procedure). The composite returnmust contain the same information that areturn filed completely on paper contains.See section 7 of this revenue procedurefor procedures for completing Form 8453.

.03 Each year prior to the start of thefiling season, the Service will issue Publi-cation 1345A, Filing Season Supplementfor Electronic Return Originators, andPublication 1346, Electronic Return FileSpecifications and Record Layouts for In-dividual Income Tax Returns. These pub-lications list the forms and schedules as-sociated with the Form 1040 series thatcan be electronically transmitted duringthe upcoming filing season.

.04 For purposes of the Form 1040 IRSe-file Program, a Form 1040, Form1040A, or Form 1040EZ for any taxableyear cannot be electronically filed afterthe 15th day of October following theclose of that taxable year, notwithstandingthe fact that the taxpayer has been grantedan extension to file a return beyond thatdate. If the 15th day of October falls on aSaturday, Sunday, or legal holiday, thenthe electronically filed return may be filedon the next succeeding day which is not aSaturday, Sunday, or legal holiday.

.05 An amended tax return cannot beelectronically filed under the Form 1040IRS e-file Program. A taxpayer must filean amended tax return on paper in accor-dance with the instructions for Form1040X, Amended U.S. Individual IncomeTax Return.

.06 A tax return that has a foreign ad-dress for the taxpayer cannot be electroni-cally filed under the Form 1040 IRS e-fileProgram. Army/Air Force (APO) andFleet (FPO) post offices are not consid-ered foreign addresses for this purpose.

.07 A tax return for a decedent cannotbe electronically filed under the Form1040 IRS e-file Program. The decedent’sspouse or personal representative mustfile a paper tax return for the decedent.

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.08 Some of the updates and changesto Rev. Proc. 97–60 are as follows:

(1) the name of the program haschanged to the “Form 1040 IRS e-fileProgram” and participants in the programare known as “Authorized IRS e-fileProviders”;

(2) references to specific dates and spe-cific tax years have been replaced withmore general references in order to elimi-nate the need for annual updates to thisrevenue procedure;

(3) the application period for new ap-plicants who intend to participate in theForm 1040 IRS e-fileProgram for any fil-ing season is extended beyond the begin-ning of the filing season (section 4.05);and

(4) the provisions of this revenue pro-cedure apply to participants in variouspilot programs conducted with respect tothe Form 1040 IRS e-file Program (sec-tion 18).

SECTION 3. FORM 1040 IRS e-filePROGRAM PARTICIPANTS—DEFINITIONS

.01 After acceptance into the Form1040 IRS e-file Program, as described insection 4 of this revenue procedure, a par-ticipant is referred to as an “AuthorizedIRS e-fileProvider.”

.02 The Authorized IRS e-file Providercategories are:

(1) ELECTRONIC RETURNORIGINATOR. An “Electronic ReturnOriginator” (ERO) is: (a) an “ElectronicReturn Preparer” who prepares tax re-turns, including Forms 8453, for taxpay-ers who intend to have their returns elec-tronically filed; and/or (b) an “ElectronicReturn Collector” who accepts completedtax returns, including Forms 8453, fromtaxpayers who intend to have their returnselectronically filed.

(2) SERVICE BUREAU. A “ServiceBureau” receives tax return informationon any media from an ERO, formats thereturn information, and either forwardsthe return information to a Transmitter orsends back the return information to theERO. A Service Bureau may send Forms8453 to the appropriate service center.

(3) SOFTWARE DEVELOPER. A“Software Developer” develops softwarefor the purposes of (a) formatting theelectronic portion of returns according toPublication 1346; and/or (b) transmitting

the electronic portion of returns directlyto the Service. A Software Developermay also sell its software.

(4) TRANSMITTER. A “Transmit-ter” transmits the electronic portion of areturn directly to the Service. An entitythat provides a “bump-up” service is aTransmitter. A bump-up service providerincreases the transmission rate or linespeed of formatted or reformatted infor-mation that is being sent to the Service viaa public switched telephone network. TheService accepts transmissions using a va-riety of telecommunications protocols.

.03 The Authorized IRS e-file Providercategories are not mutually exclusive.For example, an ERO can, at the sametime, be considered a Transmitter, Soft-ware Developer, or Service Bureau de-pending on the function(s) performed.

.04 An ERO may have a “Drop-OffCollection Point(s).” The activity at aDrop-Off Collection Point is limitedsolely to receiving a return or return infor-mation that a taxpayer wants to have elec-tronically filed and collecting a fee forelectronically filing that return. Returnpreparation activity may not be conductedat a Drop-Off Collection Point. Returnpreparation activity includes, but is notlimited to, comparing amounts listed onForm 8453 with those on the paper returnor return information provided by a tax-payer and verifying routing numbers andaccount numbers used for direct depositof refunds. Return preparation activitydoes not include collecting a fee for elec-tronic filing or ensuring that the taxpayerhas signed Form 8453. An ERO need nothave an ownership interest in the Drop-Off Collection Point.

SECTION 4. ACCEPTANCE IN THEFORM 1040 IRSe-filePROGRAM

.01 Except as provided in sections 4.02through 4.04 of this revenue procedure,an Electronic Filer or Authorized IRS e-file Provider that participated in themost recent Form 1040 ELF or Form1040 IRS e-file filing season does nothave to reapply to participate in the nextForm 1040 IRS e-file filing season. How-ever, an Authorized IRS e-file Providerthat intends to participate as a Transmitteror a Software Developer must first suc-cessfully complete, for each filing season,the testing referred to in section 4.08 ofthis revenue procedure. In addition, sec-

tion 4.15 of this revenue procedure pro-vides for the Service’s issuance of creden-tials necessary for participation in theForm 1040 IRS e-fileProgram.

.02 Applicants and Authorized IRS e-file Providers must file a new Form8633, Application to Participate in theIRS e-file Program, with completed fin-gerprint cards for the appropriate individ-uals, if:

(1) the applicant has never partici-pated in the Form 1040 ELF Program orthe Form 1040 IRS e-fileProgram;

(2) the applicant has previously beendenied participation in the Form 1040ELF Program or the Form 1040 IRS e-fileProgram;

(3) the applicant has been suspendedfrom the Form 1040 ELF Program or theForm 1040 IRS e-fileProgram; or

(4) the Authorized IRS e-fileProvider is participating in the Form 1040IRS e-file Program and wants to operatean IRS e-file business at an additional lo-cation (except that an individual listed onthe Authorized IRS e-file Provider’s ap-plication who has submitted a fingerprintcard with a previously accepted applica-tion need not submit an additional finger-print card).

.03 An Authorized IRS e-file Providermust submit a revised Form 8633, signedby all “Principals” and the “ResponsibleOfficial” (as described in sections 4.09through 4.12 of this revenue procedure),with completed fingerprint cards for thoseappropriate individuals who have not sub-mitted a fingerprint card with a previouslyaccepted application, if:

(1) the Authorized IRS e-file Pro-vider participated solely as a SoftwareDeveloper in the most recent Form 1040ELF or Form 1040 IRS e-file filing sea-son, and intends to participate as an ERO,Service Bureau, or Transmitter;

(2) there is an additional Principal,such as a partner or a corporate officer,that must be listed on Form 8633;

(3) there is a Principal listed on Form8633 that should be deleted; or

(4) the Responsible Official on Form8633 changes.

.04 Except as provided in section 4.03of this revenue procedure, an AuthorizedIRS e-fileProvider must submit either a re-vised Form 8633, or a letter containing thesame information contained in a revisedForm 8633, if any information on the Au-

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thorized IRS e-file Provider’s Form 8633has changed. A revised Form 8633 or let-ter submitted under this section should in-clude only the changed information andthe following identifying information:

(1) the Authorized IRS e-file Pro-vider’s legal name;

(2) the Authorized IRS e-file Pro-vider’s employer identification numberand/or social security number (EIN/SSN);

(3) the Authorized IRS e-file Pro-vider ’s “Doing Business As” (DBA)name;

(4) whether the Authorized IRS e-fileProvider is controlled or owned by an-other Authorized IRS e-fileProvider;

(5) the Authorized IRS e-fileProvider’s controlling office name;

(6) the Electronic Transmitter Identi-fication Number (ETIN) of the Autho-rized IRS e-file Provider’s controlling of-fice;

(7) the Electronic Filing Identifica-tion Number (EFIN) of the AuthorizedIRS e-file Provider’s controlling office;and

(8) the business address of the Au-thorized IRS e-file Provider’s controllingoffice. A Principal or the Responsible Officialmust sign the revised Form 8633 or theletter.

.05 Applicants and Authorized IRS e-file Providers described in section 4.02of this revenue procedure must submitnew applications within the followingtime periods:

(1) except as provided in section4.05(2) of this revenue procedure, the ap-plication period for new applicants whointend to participate in the Form 1040 IRSe-file Program for any filing season be-gins on the 1st day of August precedingthe filing season and continues into thefiling season (see the Form 8633 instruc-tions for the last date to file a new appli-cation); however, applications submittedafter the 1st day of December precedingthe filing season may not be processed intime for the applicant to participate in theForm 1040 IRS e-fileProgram by the startof the filing season; and

(2) if an applicant purchases an ex-isting Authorized IRS e-file Provider’sbusiness, a new application and proof ofsale must be submitted during the periodbeginning 45 days before, and ending 30days after, the date of the purchase.

.06 Revised applications described insections 4.03 and 4.04 of this revenueprocedure must be submitted within 30days of the change(s) reflected on the re-vised Form 8633 or in the letter. Autho-rized IRS e-file Providers that fail to sub-mit revised applications may betemporarily dropped from the Form 1040IRS e-fileProgram.

.07 Applicants and Authorized IRS e-file Providers described in sections 4.02through 4.04 of this revenue proceduremust file Form 8633 (or a letter as pro-vided in section 4.04 of this revenue pro-cedure) with the Application ProcessingCenter at the address listed in the instruc-tions for Form 8633.

.08 Applicants and Authorized IRS e-file Providers described in sections 4.01through 4.04 of this revenue procedurethat intend to participate as a Transmitteror a Software Developer in the Form 1040IRS e-file Program must first successfullycomplete the necessary testing at the ap-propriate service center(s). Such testingmust be completed for each filing seasonduring which the applicant or AuthorizedIRS e-file Provider intends to participateas a Transmitter or Software Developer.

.09 Each individual listed as a Princi-pal or a Responsible Official on a Form8633 must:

(1) be a United States citizen or analien lawfully admitted for permanent res-idence as described in 8 U.S.C. § 1101(a)(20) (1994);

(2) have attained the age of 21 as ofthe date of application;

(3) submit with Form 8633 one stan-dard fingerprint card with a full set of fin-gerprints taken by a law enforcementagency, except as provided in section 4.13of this revenue procedure;

(4) except as provided in section4.17 of this revenue procedure, pass asuitability check that includes a creditcheck, a tax compliance check, and a fin-gerprint check; and

(5) meet any applicable state andlocal licensing and/or bonding require-ments in connection with the preparationof tax returns and the collection of pre-pared returns that taxpayers intend to haveelectronically filed. However, if the stateand local licensing and/or bonding re-quirements apply to a business entity, theindividual(s) must demonstrate that thebusiness entity meets the requirements.

.10 A Principal for a firm or organiza-tion includes the following:

(1) Sole Proprietorship. The soleproprietor is the Principal for a sole pro-prietorship.

(2) Partnership. Each partner whohas a 5 percent or more interest in thepartnership is a Principal of the partner-ship. If no partner has at least a 5 percentor more interest in the partnership, thePrincipal is an individual authorized to actfor the partnership in legal and/or tax mat-ters (at least one such individual must belisted on Form 8633).

(3) Corporation. The President,Vice-President, Secretary, and Treasurerof the corporation are each a Principal ofthe corporation.

(4) Other. The Principal for a for-profit entity that is not a sole proprietor-ship, partnership, or corporation, is an in-dividual authorized to act for the entity inlegal and/or tax matters (at least one suchindividual must be listed on Form 8633).

.11 A Responsible Official is the indi-vidual who oversees the daily operationsof an Authorized IRS e-file Provider’s of-fice. A Responsible Official may also bea Principal. As set forth in section 4.12 ofthis revenue procedure, a Responsible Of-ficial may be responsible for more thanone office.

.12 The Responsible Official cate-gories are:

(1) TIER I RESPONSIBLE OFFI-CIAL. A “Tier I Responsible Official” isa Responsible Official who does not meetthe definition of a “Tier II ResponsibleOfficial.” A Tier I Responsible Officialshould be able to visit on a daily basiseach office for which he or she is listed asa Responsible Official. A Tier I Respon-sible Official may be listed on a maxi-mum of ten applications (Forms 8633).

(2) TIER II RESPONSIBLE OFFI-CIAL. A “Tier II Responsible Official” isan individual who has participated in theForm 1040 ELF Program or Form 1040IRS e-file Program as a Responsible Offi-cial during at least the two most recent fil-ing seasons and who has never been sus-pended from participation in the Form1040 ELF Program or Form 1040 IRS e-file Program. A Tier II Responsible Offi-cial should be able to visit on a daily basisany office for which he or she is listed asa Responsible Official. A Tier II Respon-sible Official may be listed on a maxi-

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mum of twenty applications (Forms8633).

.13 In lieu of a standard fingerprintcard, an individual may choose to submitevidence that the individual is:

(1) an attorney in good standing ofthe bar of the highest court of any State,Commonwealth, possession, territory, orthe District of Columbia, and is not cur-rently under suspension or disbarmentfrom practice before the Service or the barof the highest court of any State, Com-monwealth, possession, territory, or theDistrict of Columbia;

(2) a certified public accountant whois duly qualified to practice as a certifiedpublic accountant in any State, Common-wealth, possession, territory, or the Dis-trict of Columbia, and is not currentlyunder suspension or disbarment frompractice before the Service or whose li-cense to practice is not currently sus-pended or revoked by any State, Com-monwealth, possession, territory, or theDistrict of Columbia;

(3) an enrolled agent pursuant to part10 of 31 C.F.R. Subtitle A;

(4) an officer of a publicly held cor-poration; or

(5) a banking official who is bondedand has been fingerprinted within the lasttwo years.

.14 If an Authorized IRS e-fileProvider has a foreign location, the state-side contact representative will receive allService correspondence for the foreign lo-cation relating to the Form 1040 IRS e-fileProgram.

.15 The Service will issue credentialseach year to eligible applicants, Autho-rized IRS e-fileProviders that do not haveto reapply pursuant to section 4.01 of thisrevenue procedure, and Authorized IRS e-file Providers that comply with section4.03 or 4.04 of this revenue procedure,provided they have first satisfactorilycompleted the testing described in section4.08 of this revenue procedure if they in-tend to participate as a Transmitter orSoftware Developer. No one may partici-pate in the Form 1040 IRS e-file Programwithout the following credentials:

(1) a letter of acceptance into theForm 1040 IRS e-fileProgram;

(2) an EFIN or a Service BureauIdentification Number (SBIN);

(3) if appropriate, an ETIN; and

(4) if appropriate, a Collection PointIdentification Number (CPIN).

.16 The Service will not issue a letterof acceptance to an ERO to participate inany Form 1040 IRS e-file filing season ifthe Service did not receive and acceptduring the immediately preceding filingseason any electronically filed returnscontaining the ERO’s EFIN. In addition,an ERO who has been issued a letter ofacceptance for any filing season may bedropped from the Form 1040 IRS e-fileProgram if the Service does not receiveand accept, prior to the 15th day of Aprilof that filing season, any electronicallyfiled returns containing the ERO’s EFIN.In either case, the Service will notify theERO that it has been dropped from theForm 1040 IRS e-file Program and ex-plain what steps the ERO needs to takefor future participation in the program.

.17 If an Authorized IRS e-fileProvider is a Software Developer that per-forms no other function in the Form 1040IRS e-file Program but software develop-ment, no Principal or Responsible Officialneeds to pass a suitability check.

.18 If an ERO will have a Drop-OffCollection Point(s) (as defined in section3.04 of this revenue procedure), the EROmust submit a Form 8633 that lists eachDrop-Off Collection Point. By listing aDrop-Off Collection Point on Form 8633,an ERO becomes a “parent” in relation toa listed Drop-Off Collection Point.

.19 The Service may reject an applica-tion to participate in the Form 1040 IRSe-file Program for the following reasons(this list is not all-inclusive). These rea-sons apply to any firm, organization, Prin-cipal, or Responsible Official listed onForm 8633:

(1) conviction of any criminal of-fense under the revenue laws of theUnited States, or of any offense involvingdishonesty or breach of trust;

(2) failure to file timely and accuratetax returns, including returns indicatingthat no tax is due (unless the applicant didnot have a legal filing requirement);

(3) failure to timely pay any tax lia-bilities;

(4) assessment of any tax penalties;(5) suspension/disbarment from

practice before the Service;(6) disreputable conduct or other

facts that would reflect adversely on theForm 1040 IRS e-fileProgram;

(7) misrepresentation on an applica-tion;

(8) suspension or rejection from theprogram in a prior year;

(9) unethical practices in returnpreparation;

(10) assessment against the applicantof a penalty under § 6695(g) of the Inter-nal Revenue Code;

(11) stockpiling returns prior to offi-cial acceptance into the Form 1040 IRS e-file Program (see section 5.14 of thisrevenue procedure);

(12) knowingly and directly or indi-rectly employing or accepting assistancefrom any firm, organization, or individualthat is prohibited from applying to partici-pate in the Form 1040 IRS e-file Program(see section 14.09 of this revenue proce-dure) or that is suspended from participat-ing in the Form 1040 IRS e-file Program(see section 13.11 of this revenue proce-dure). This includes any individualwhose actions resulted in the rejection orsuspension of a corporation or a partner-ship from the Form 1040 ELF Program orthe Form 1040 IRS e-fileProgram; or

(13) knowingly and directly or indi-rectly accepting employment as an associ-ate, correspondent, or as a subagent from,or sharing fees with, any firm, organiza-tion, or individual that is prohibited fromapplying to participate in the Form 1040IRS e-file Program (see section 14.09 ofthis revenue procedure) or that is sus-pended from participating in the Form1040 IRS e-file Program (see section13.11 of this revenue procedure). This in-cludes any individual whose actions re-sulted in the rejection or suspension of acorporation or a partnership from theForm 1040 ELF Program or the Form1040 IRS e-fileProgram.

SECTION 5. RESPONSIBILITIES OFAN AUTHORIZED IRS e-filePROVIDER

.01 To ensure that complete returns areaccurately and efficiently filed, an Autho-rized IRS e-file Provider must complywith all publications and notices of theService relating to the Form 1040 IRS e-file Program. The Service will fromtime to time update such publications andnotices to reflect changes to the program.It is the responsibility of the AuthorizedIRS e-file Provider to ensure that it com-

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plies with the latest version of all publica-tions and notices. The publications andnotices governing the Form 1040 IRS e-fileProgram include:

(1) Publication 1345, Handbook forElectronic Return Originators of Individ-ual Income Tax Returns, and Publication1345A;

(2) Publication 1346; (3) Publication 1436, Test Package

for Electronic Filing of Individual IncomeTax Returns; and

(4) Postings to the Electronic FilingSystem Bulletin Board (EFS BulletinBoard) and the IRS “Digital Daily” website at:

http://www.irs.ustreas.gov

on the Internet;.02 An Authorized IRS e-file Provider

must maintain a high degree of integrity,compliance, and accuracy.

.03 An Authorized IRS e-file Providermay accept returns for the Form 1040 IRSe-file Program only from the taxpayer fil-ing the return, Drop-Off Collection Pointsas listed on the ERO’s Form 8633 (seesection 4.18 of this revenue procedure), orfrom another Authorized IRS e-fileProvider.

.04 If the taxpayer’s address on a FormW–2, Wage and Tax Statement, FormW–2G, Statement for Recipients of Cer-tain Gambling Winnings, Form 1099–R,Distributions From Pensions, Annuities,Retirement or Profit-Sharing Plans, IRAs,Insurance Contracts, etc., Form 1040,Schedule C, Profit or Loss From Business(Sole Proprietorship), or Form 1040,Schedule C-EZ, Profit or Loss FromBusiness - Short Version, or any other taxform is different than the taxpayer’s ad-dress in the entity section of the electronicportion of the taxpayer’s Form 1040, theERO or the Service Bureau must input fortransmission to the Service those ad-dresses that differ from the taxpayer’s ad-dress on the electronic portion of the tax-payer’s Form 1040.

.05 If an Authorized IRS e-file Pro-vider charges a fee for the transmission ofthe electronic portion of a tax return, thefee may not be based on a percentage ofthe refund amount or any other amountfrom the tax return. An Authorized IRS e-file Provider may not charge a separatefee for Direct Deposit. See section 9 ofthis revenue procedure.

.06 An Authorized IRS e-file Provider

must submit a revised Form 8633 (or aletter as provided in section 4.04 of thisrevenue procedure) to the ApplicationProcessing Center within 30 days of whenany of the conditions or changes de-scribed in section 4.03 or 4.04 of this rev-enue procedure occur. See section 4.06 ofthis revenue procedure.

.07 An Authorized IRS e-file Providermust notify the Application ProcessingCenter (at the address listed in the instruc-tions for Form 8633) within 30 days ofdiscontinuing its participation in the Form1040 IRS e-file Program. This does notpreclude reapplication in the future.

.08 An Authorized IRS e-file Providermust ensure that it promptly processes re-turns submitted to it for electronic filing.See sections 5.14, 5.15, 5.16, and 7.01 ofthis revenue procedure. However, an Au-thorized IRS e-file Provider that receivesa return for electronic filing on or beforethe due date of the return must ensure thatthe electronic portion of the return istransmitted on or before that due date (in-cluding extensions). An electronicallyfiled return is not considered filed untilthe electronic portion of the tax return hasbeen acknowledged by the Service as ac-cepted for processing and a completedand signed Form 8453 has been receivedby the Service. However, if the electronicportion of a return is successfully trans-mitted on or shortly before the due dateand the Authorized IRS e-file Providercomplies with section 7.01 of this revenueprocedure, the return will be deemedtimely filed. If the electronic portion of areturn is transmitted on or shortly beforethe due date and is ultimately rejected, butthe Authorized IRS e-fileProvider and thetaxpayer comply with section 5.13 of thisrevenue procedure, the return will bedeemed timely filed. For a balance duereturn, see section 11 of this revenue pro-cedure for instructions on how to make atimely payment of tax.

.09 An Authorized IRS e-file Providerthat functions as an ERO must:

(1) comply with the procedures forcompleting and securing Forms 8453 de-scribed in section 7 of this revenue proce-dure;

(2) comply with the procedures de-scribed in section 11 of this revenue pro-cedure for handling a balance due return;

(3) while returns are being filed bythe ERO, retain and make available to the

Service upon request the following mater-ial at the business address from which areturn was accepted for electronic filing:

(a) a copy of the signed Form8453 and paper copies of Forms W–2,W–2G, and 1099-R;

(b) a complete copy of the elec-tronic portion of the return (which may beretained on magnetic media) that can bereadily and accurately converted into anelectronic transmission that the Servicecan process; and

(c) the acknowledgement file(stating that the Service accepts the elec-tronic portion of the taxpayer’s return forprocessing) received from the Service orfrom a third party Transmitter; and

(4) retain until the end of the calen-dar year in which a return was filed, andmake available to the Service upon re-quest the materials described in section5.09(3) of this revenue procedure at eitherthe business address from which a returnwas electronically filed or from the con-tact representative named on Form 8633.

.10 An ERO who is the paid preparerof an electronic tax return must also retainfor the prescribed amount of time the ma-terials described in § 1.6107–1(b) that arerequired to be kept by an income tax re-turn preparer.

.11 An ERO must identify the paid pre-parer (if any) in the appropriate field ofthe electronic portion of the return and en-sure that the paid preparer signed Form8453. If Form 8453 is not signed by thepaid preparer, the ERO must attach toForm 8453 a copy of pages 1 and 2 of theForm 1040EZ, Form 1040A, or Form1040 signed by the paid preparer. Thesecopies must be marked “COPY-DO NOTPROCESS” to prevent duplicate filings.

.12 An ERO must ensure against theunauthorized use of its EFIN and, if ap-plicable, the CPIN(s) issued to its Drop-Off Collection Point(s). An ERO mustnot transfer its EFIN or the CPIN(s) of itsDrop-Off Collection Point(s) by sale,merger, loan, gift, or otherwise to anotherentity.

.13 If the Service rejects the electronicportion of a taxpayer’s return (the Servicestates that it rejects the electronic portionof a taxpayer’s return for processing inthe acknowledgment file), and the reasonfor the rejection cannot be rectified by theactions described in section 6.02(3) ofthis revenue procedure, the ERO, within

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24 hours of receiving the rejection, musttake reasonable steps to inform the tax-payer that the taxpayer’s return has notbeen filed. When the ERO advises thetaxpayer that the taxpayer’s return has notbeen filed, the ERO must provide the tax-payer with the reject code(s), an explana-tion of the reject code(s), and the se-quence number of each reject code(s) (seePublication 1345A). If the taxpayerchooses not to have the electronic portionof the return corrected and transmitted tothe Service, or if the electronic portion ofthe return cannot be accepted for process-ing by the Service, the taxpayer must filea paper return by the later of:

(1) the due date of the return; or (2) ten calendar days after the date

the Service gives notification that theelectronic portion of the return is rejectedor that the electronic portion of the returncannot be accepted for processing. The paper return should include an expla-nation of why the return is being filedafter the due date.

.14 An ERO is responsible for ensur-ing that stockpiling does not occur at itsoffice(s) or Drop-Off Collection Point(s).Stockpiling means collecting returns fromtaxpayers or from another Authorized IRSe-file Provider prior to official acceptanceinto the Form 1040 IRS e-file Program,or, after official acceptance into the Form1040 IRS e-file Program, waiting morethan three calendar days to send a returnto the Service after receiving the informa-tion necessary for transmission of theelectronic portion of a tax return.

.15 An Authorized IRS e-file Providerthat participates as a Service Bureaumust:

(1) deliver all electronic returns to aTransmitter or to the ERO who gave theelectronic returns to the Service Bureauwithin three calendar days of receipt;

(2) retrieve the acknowledgementfile from the Transmitter within one cal-endar day of receipt by the Transmitter;

(3) send the acknowledgement file tothe ERO (whether related or not) withinone work day of retrieving the acknowl-edgement file;

(4) if the Service Bureau processesForms 8453, send back to the ERO anyreturn and Form 8453 that needs correc-tion, unless the correction is described insection 6.02(3) of this revenue procedure;

(5) accept tax return informationonly from Authorized IRS e-fileProviders;

(6) include its SBIN and the ERO’sEFIN with all return information the Ser-vice Bureau forwards to a Transmitter orsends back to an ERO;

(7) retain each acknowledgement filereceived from a Transmitter until the endof the calendar year in which the elec-tronic return was filed;

(8) if requested, serve as a contactpoint between its client EROs and theService;

(9) if requested, provide the Servicewith a list of each client ERO; and

(10) ensure against the unauthorizeduse of its SBIN. A Service Bureau mustnot transfer its SBIN by sale, merger,loan, gift, or otherwise to another entity.

.16 An Authorized IRS e-file Providerthat participates as a Transmitter must:

(1) send to the Service all electronicportions of returns within three calendardays of receipt;

(2) retrieve the acknowledgementfile within two work days of transmission;

(3) match the acknowledgement fileto the original transmission file and sendthe acknowledgement file to the ERO orthe Service Bureau (whether or not theERO or the Service Bureau are related tothe Transmitter) within two work days ofretrieving the acknowledgement file;

(4) retain an acknowledgement filereceived from the Service until the end ofthe calendar year in which the electronicreturn was filed;

(5) immediately contact the appro-priate service center for further instruc-tions if an acknowledgement of accep-tance for processing has not been receivedby the Transmitter within two work daysof transmission or if a Transmitter re-ceives an acknowledgement for a returnthat was not transmitted on the designatedtransmission;

(6) promptly correct any transmis-sion error that causes an electronic trans-mission to be rejected;

(7) contact the service center that re-jected the electronic portion of the returnfor assistance if that portion of the returnhas been rejected after three transmissionattempts;

(8) ensure the security of all trans-mitted data;

(9) ensure against the unauthorizeduse of its EFIN or ETIN. A Transmittermust not transfer its EFIN or ETIN bysale, merger, loan, gift, or otherwise to an-other entity; and

(10) not use software that has a Ser-vice assigned production password builtinto the software.

.17 A Transmitter must accept elec-tronic returns for transmission to the Ser-vice only from Authorized IRS e-fileProviders. A Transmitter must include theERO’s EFIN and if applicable, the CPINon each return that the Transmitter ac-cepts from an ERO. In addition, a Trans-mitter must also include a Service Bu-reau’s SBIN if a Service Bureau formatsthe return information.

.18 An Authorized IRS e-file Providerthat participates as a Software Developermust:

(1) promptly correct any softwareerror which causes the electronic portionof a return to be rejected;

(2) promptly distribute any softwarecorrection;

(3) ensure that any software packagethat will be used to transmit electronicportions of returns from multiple Autho-rized IRS e-file Providers has the capabil-ity of combining returns from these Au-thorized IRS e-file Providers into oneService transmission file taking into ac-count the sorting requirements of the Dec-laration Control Number (DCN);

(4) ensure that no other entity usesthe Software Developer’s EFIN or ETIN.A Software Developer must not transferby sale, merger, loan, gift, or otherwise itsEFIN or ETIN to another entity; and

(5) not incorporate into its software aService assigned production password.

.19 An ERO with a Drop-Off Collec-tion Point must clearly display its name ateach Drop-Off Collection Point. The Ser-vice will hold the ERO responsible forany violation of the advertising standardsdescribed in section 12 or any other viola-tion of this revenue procedure that occursat a Drop-Off Collection Point listed onthe ERO’s Form 8633. The ERO mustalso serve as the contact point betweenthe Service and the Drop-Off CollectionPoint for all correspondence includingproblem resolution and report evaluation.

.20 In addition to the specific responsi-bilities described in this section, an Au-

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thorized IRS e-file Provider must meet allthe requirements in this revenue proce-dure to retain the privilege of participat-ing in the Form 1040 IRS e-fileProgram.

SECTION 6. PENALTIES

.01 Penalties for Disclosure or Use ofInformation.

(1) An Authorized IRS e-file Pro-vider, except a Software Developer, is atax return preparer (Preparer) under thedefinition of § 301.7216–1(b) of the Regu-lations on Procedure and Administration.A Preparer is subject to a criminal penaltyfor unauthorized disclosure or use of taxreturn information. See § 7216 of the In-ternal Revenue Code and § 301.7216–1(a). In addition, § 6713 establishes civilpenalties for unauthorized disclosure oruse of tax return information.

(2) Under § 301.7216–2(h), disclo-sure of tax return information among Au-thorized IRS e-file Providers for the pur-pose of preparing a return is permissible.For example, an ERO may pass on tax re-turn information to a Service Bureauand/or a Transmitter for the purpose ofhaving an electronic return formatted andtransmitted to the Service. However, ifthe tax return information is disclosed orused in any other way, a Service Bureauand/or a Transmitter may be subject to thepenalties described in section 6.01(1) ofthis revenue procedure.

.02 Other Preparer Penalties.(1) Preparer penalties may be as-

serted against an individual or firm meet-ing the definition of an income tax returnpreparer under § 7701(a)(36) and § 301.7701–15. Preparer penalties thatmay be asserted under appropriate cir-cumstances include, but are not limited to,those set forth in §§ 6694, 6695, and6713.

(2) Under § 301.7701–15(d), Elec-tronic Return Collectors, Service Bu-reaus, Transmitters, and Software Devel-opers are not income tax return preparersfor the purpose of assessing most preparerpenalties as long as their services are lim-ited to “typing, reproduction, or other me-chanical assistance in the preparation of areturn or claim for refund.”

(3) If an Electronic Return Collector,Service Bureau, Transmitter, or the prod-uct of a Software Developer alters the re-turn information in a nonsubstantive way,this alteration will be considered to come

under the “mechanical assistance” excep-tion described in § 301.7701–15(d)(1). Anonsubstantive change is a correction orchange limited to a transposition error,misplaced entry, spelling error, or arith-metic correction that falls within the fol-lowing tolerances:

(a) the amount of “Total tax”,“Federal income tax withheld”, “Refund”,or “Amount you owe” on Form 8453 dif-fers from the corresponding amount onthe electronic portion of the tax return byno more than $7;

(b) the amount of “Total income”on Form 8453 differs from the corre-sponding amount on the electronic por-tion of the tax return by no more than $25;or

(c) dropping cents and rounding towhole dollars.

(4) If an Electronic Return Collector,Service Bureau, or Transmitter alters thereturn information in a substantive way,rather than having the taxpayer alter thereturn, the Electronic Return Collector,Service Bureau, or Transmitter will beconsidered to be an income tax return pre-parer for purposes of § 7701(a)(36).

(5) If an Electronic Return Collector,Service Bureau, or Transmitter, or theproduct of a Software Developer, goes be-yond mechanical assistance, any of theseparties may be held liable for income taxreturn preparer penalties. See Rev. Rul.85–189, 1985–2 C.B. 341 (which de-scribes a situation where a Software De-veloper was determined to be an incometax return preparer and subject to certainpreparer penalties).

.03 Other Penalties. In addition to theabove specified provisions, the Servicereserves the right to assert all appropriatepreparer, nonpreparer, and disclosurepenalties against an Authorized IRS e-fileProvider as warranted under the circum-stances.

SECTION 7. FORM 8453, U.S.INDIVIDUAL INCOME TAXDECLARATION FOR AN IRS e-fileRETURN

.01 Procedures for Completing Form8453.

(1) Form 8453 must be completed inaccordance with the instructions for thatform.

(2) The taxpayer(s)’s name, address,social security number(s), and tax return

information in the electronic transmissionmust be identical to the information onthe Form 8453 that the taxpayer(s) signedand provided for submission to the Ser-vice.

(3) An Authorized IRS e-fileProvider, a financial institution, or anyother entity associated with the electronicfiling of a taxpayer’s return must not putits address in the section reserved for thetaxpayer’s address on Form 8453 or any-where in the electronic portion of a return.

(4) Before the electronic portion ofthe return is transmitted, the taxpayermust verify the information on the elec-tronic portion of the return and on Form8453, and must sign Form 8453. Bothspouses’ signatures are required on theForm 8453 prior to the electronic trans-mission of a joint tax return. The tax-payer may verify the information on theelectronic portion of the return by view-ing this information on a computer dis-play terminal. A taxpayer need not verifythe electronic portion of the return prior toits transmission if the taxpayer provided acompleted paper return for filing and theinformation on the electronic portion isidentical to the information provided bythe taxpayer.

(5) An Authorized IRS e-file Pro-vider must submit the taxpayer’s Form8453 to the service center that acknowl-edged acceptance of the electronic portionof the return within one work day after theAuthorized IRS e-file Provider receivesthe acknowledgment file.

(6) An Authorized IRS e-file Pro-vider functioning as an ERO must signthe “Declaration of ERO” on Form 8453.

(7) If the ERO is also the paid pre-parer, the ERO must check the “Paid Pre-parer” box and sign the “Declaration ofERO” on Form 8453.

.02 Corrections to Form 8453.(1) A new Form 8453 is not required

for a nonsubstantive change. A nonsub-stantive change is limited to a correctionthat does not exceed the tolerances de-scribed in section 7.02(2) of this revenueprocedure for arithmetic errors, a transpo-sition error, a misplaced entry, or aspelling error. The incorrect nonsubstan-tive information must be neatly linedthrough on the Form 8453 and the correctdata entered next to the lined-throughentry. Also, the individual making thecorrection must initial the correction.

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(2) The tolerances for section 7.02(1)of this revenue procedure are:

(a) the amount of “Total income”does not differ from the amount on theelectronic portion of the tax return bymore than $25; or

(b) the amount of “Total tax”,“Federal income tax withheld”, “Refund”,or “Amount you owe” does not differfrom the amount on the electronic portionof the tax return by more than $7.

(3) If the ERO makes a substantivechange to the electronic portion of the re-turn after Form 8453 has been signed bythe taxpayer, but before it is transmitted,the ERO must have all the necessary par-ties described above sign a new Form8453 that reflects the corrections beforethe electronic portion of the return istransmitted.

(4) Dropping cents or rounding towhole dollars does not constitute a sub-stantive change or alteration to the returnunless the amount differs by more thanthe above tolerances. All rounding shouldbe accomplished in accordance with theinstructions in the Form 1040 tax pack-age.

.03 Missing Form 8453.If the Servicedetermines that a Form 8453 is missing,the ERO must provide the Service with areplacement. The ERO must also providea copy of the Form(s) W–2, W–2G,1099R, and all other attachments to Form8453.

.04 Substitute Form 8453.If a substi-tute Form 8453 is used, it must be ap-proved by the Service prior to use.

SECTION 8. INFORMATION ANAUTHORIZED IRSe-filePROVIDERMUST FURNISH TO THE TAXPAYER

.01 The ERO must furnish the tax-payer with a complete paper copy of thetaxpayer’s return. However, the copyneed not contain the social security num-ber of the paid preparer. See Rev. Rul.78–317, 1978–2 C.B. 335. A completecopy of a taxpayer’s return includes:

(1) Form 8453 and other paper docu-ments that cannot be electronically trans-mitted; and

(2) a printout of the electronic por-tion of the return.See section 2.02 of this revenue proce-dure. The electronic portion of the returncan be contained on a replica of an offi-cial form or on an unofficial form. How-

ever, on an unofficial form, data entriesmust be referenced to the line numbers onan official form. Also, a printout of theelectronic portion of the return does nothave to be provided to the taxpayer if thetaxpayer provided a completed paper re-turn for electronic filing and the informa-tion on the electronic portion of the returnis identical to the information provided bythe taxpayer.

.02 The ERO must advise the taxpayerto retain a complete copy of the return andany supporting material.

.03 The ERO must advise the taxpayerthat an amended return, if needed, mustbe filed as a paper return and mailed tothe service center that would handle thetaxpayer’s paper return.

.04 The ERO must, upon request, pro-vide the taxpayer with the DCN and thedate the Service acknowledged that theelectronic portion of the taxpayer’s returnwas accepted for processing.

.05 The ERO must advise taxpayers ofthe appropriate IRS TeleTax number to in-quire about the status of their tax refund.The ERO should also advise taxpayers towait at least three weeks from the date theService acknowledged that the electronicportion of the taxpayer’s return was ac-cepted for processing before calling theTeleTax number.

.06 If a taxpayer chooses to use an ad-dress other than his or her home addresson the return, the ERO must inform thetaxpayer that the address on the electronicportion of the return, once processed bythe Service, will be used to update thetaxpayer’s address of record. The Serviceuses the taxpayer’s address of record forvarious notices that are required to be sentto a taxpayer’s “last known address”under the Internal Revenue Code, and forrefunds of overpayments of tax (unlessotherwise specifically directed by the tax-payer, such as by Direct Deposit).

SECTION 9. DIRECT DEPOSIT OFREFUNDS

.01 The Service will ordinarily processa request for Direct Deposit but reservesthe right to issue a paper refund check.

.02 The Service does not guarantee aspecific date by which a refund will be di-rectly deposited into the taxpayer’s finan-cial institution account.

.03 Neither the Service nor FinancialManagement Service (FMS) is responsi-

ble for the misapplication of a Direct De-posit that is caused by error, negligence,or malfeasance on the part of the tax-payer, Authorized IRS e-file Provider, fi-nancial institution, or any of their agents.

.04 An ERO must:(1) advise taxpayers of the option to

receive their refund by paper check or di-rect deposit;

(2) not charge a separate fee for a Di-rect Deposit;

(3) accept any Direct Deposit elec-tion to any eligible financial institutiondesignated by the taxpayer;

(4) ensure that the taxpayer is eligi-ble to choose Direct Deposit;

(5) caution the taxpayer that once theelectronic portion of the return has beenaccepted for processing by the Service:

(a) the Direct Deposit electioncannot be rescinded;

(b) the routing number of the fi-nancial institution cannot be changed; and

(c) the taxpayer’s account numbercannot be changed; and

(6) advise the taxpayer that refundinformation is available by calling the ap-propriate IRS TeleTax number. See sec-tion 8.05 of this revenue procedure.

SECTION 10. REFUNDANTICIPATION LOANS

.01 A Refund Anticipation Loan(RAL) is money borrowed by a taxpayerthat is based on a taxpayer’s anticipatedincome tax refund. The Service has noinvolvement in RALs. A RAL is a con-tract between the taxpayer and the lender.

.02 Any entity that is involved in theForm 1040 IRS e-file Program, includinga financial institution that accepts directdeposits of income tax refunds, has anobligation to every taxpayer who appliesfor a RAL to clearly explain to the tax-payer that a RAL is in fact a loan, and nota substitute for, or a quicker way of, re-ceiving an income tax refund. An Autho-rized IRS e-file Provider must advise thetaxpayer that if a Direct Deposit is nottimely, the taxpayer may be liable to thelender for additional interest on the RAL.

.03 An Authorized IRS e-file Providermay assist a taxpayer in applying for aRAL.

.04 An Authorized IRS e-file Providermay charge a flat fee to assist a taxpayerin applying for a RAL. The fee must beidentical for all of the Authorized IRS

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e-file Provider’s customers and must notbe related to the amount of the refund or aRAL. The Authorized IRS e-file Providermust not accept a fee from a financial in-stitution for any service connected with aRAL that is contingent upon the amountof the refund or a RAL.

.05 The Service has no responsibilityfor the payment of any fees associatedwith the preparation of a return, the trans-mission of the electronic portion of a re-turn, or a RAL.

.06 An Authorized IRS e-file Providermay disclose tax information to the lend-ing financial institution in connectionwith an application for a RAL only withthe taxpayer’s written consent as speci-fied in § 301.7216–3(b).

.07 An Authorized IRS e-file Providerthat is also the return preparer, and the fi-nancial institution or other lender thatmakes an RAL, may not be related tax-payers within the meaning of § 267 or § 707.

.08 Section 6695(f) imposes a $500penalty on a return preparer who endorsesor negotiates a refund check issued to anytaxpayer other than the return preparer.However, a bank, as defined in § 581,may accept the full amount of a refundcheck as a deposit in the taxpayer’s ac-count for the benefit of the taxpayer. Sec-tion 1.6695-1(f) clarifies § 6695(f) by ex-plaining that the prohibition on a returnpreparer negotiating a refund check islimited to a refund check for a return thatthe return preparer prepared. A preparerthat is also a financial institution, but hasnot made a loan to the taxpayer on thebasis of the taxpayer’s anticipated refund,may (1) cash a refund check and remit allof the cash to the taxpayer or accept a re-fund check for deposit in full to a tax-payer’s account, provided the bank doesnot initially endorse or negotiate thecheck; or (2) endorse a refund check fordeposit in full to a taxpayer’s account pur-suant to a written authorization of the tax-payer. A preparer bank may also subse-quently endorse or negotiate a refundcheck as part of the check-clearingprocess through the financial system afterinitial endorsement. Any income tax re-turn preparer that violates this provisionmay be suspended from the Form 1040IRS e-fileProgram.

SECTION 11. BALANCE DUERETURNS

.01 All service centers that accept elec-tronically filed returns will accept elec-tronically filed balance due returns.

.02 Taxpayers who file balance due re-turns under the Form 1040 IRS e-file Pro-gram for any taxable year are responsiblefor making full and timely payment ofany tax that is due. Failure to make fullpayment on or before the due date of thereturn (determined without regard to ex-tensions) will result in the imposition ofinterest and may result in the impositionof penalties.

.03 Taxpayers have several options forpaying balances due, including the fol-lowing:

(1) DIRECT DEBIT. Taxpayersmay authorize the Service to debit theirchecking or savings account for theamount of the balance due;

(2) PAY BY CHECK. Taxpayersmay pay any balance due by sending acheck, along with Form 1040-V, PaymentVoucher, to the Service. The AuthorizedIRS e-file Provider must furnish Form1040-V to any taxpayer paying a balancedue by check; and

(3) INSTALLMENT AGREE-MENT. Taxpayers who cannot pay thebalance due with the return may requestan installment payment arrangement byfiling Form 9465, Installment AgreementRequest, with their return.

SECTION 12. ADVERTISINGSTANDARDS FOR AUTHORIZED IRSe-file PROVIDERS AND FINANCIALINSTITUTIONS

.01 An Authorized IRS e-file Providermust comply with the advertising and so-licitation provisions of 31 C.F.R. Part 10(Treasury Department Circular No. 230).This circular prohibits the use or partici-pation in the use of any form of publiccommunication containing a false, fraud-ulent, misleading, deceptive, unduly in-fluencing, coercive, or unfair statement orclaim. Any claims concerning faster re-funds by virtue of electronic filing mustbe consistent with the language in officialService publications.

.02 An Authorized IRS e-file Providermust adhere to all relevant federal, state,

and local consumer protection laws thatrelate to advertising and soliciting.

.03 An Authorized IRS e-file Providermust not use the Service’s name, “InternalRevenue Service” or “IRS”, within afirm’s name. However, once acceptedinto the Form 1040 IRS e-file Program, aparticipant may represent itself as an “Au-thorized IRS e-fileProvider.”

.04 An Authorized IRS e-file Providermust not use improper or misleading ad-vertising in relation to the Form 1040 IRSe-file Program (including the time framesfor refunds and RALs).

.05 An Authorized IRS e-file Providerusing promotional materials or logos pro-vided by the Service must comply with allService instructions pertaining to the pro-motional materials or logos.

.06 An Authorized IRS e-file Providerusing the Direct Deposit name and logomust comply with the following:

(1) The name “Direct Deposit” willbe used with initial capital letters or allcapital letters;

(2) The logo/graphic for Direct De-posit will be used whenever feasible inadvertising copy; and

(3) The color or size of the DirectDeposit logo/graphic may be changedwhen used in advertising pieces.

.07 Advertising materials must notcarry the FMS, IRS, or other TreasurySeals.

.08 Advertising for a cooperative elec-tronic return filing project (public/privatesector) must clearly state the names of allcooperating parties.

.09 In advertising the availability of aRAL, an Authorized IRS e-file Providerand a financial institution must clearly(and, if applicable, in easily readableprint) refer to or describe the funds beingadvanced as a loan, not a refund; that is, itmust be made clear in the advertising thatthe taxpayer is borrowing against the an-ticipated refund and not obtaining the re-fund itself from the financial institution.

.10 If an Authorized IRS e-file Pro-vider uses radio or television broadcastingto advertise, the broadcast must be pre-recorded. The Authorized IRS e-fileProvider must keep a copy of the pre-recorded advertisement for a period of atleast 36 months from the date of the lasttransm