Notice

under § 170(f)(12)(D), O must report the information
contained in the acknowledgment on Copy A of Form
1098–C and file the report with the Service by February 28, 2008. But if O files electronically, the report
is due on March 31, 2008.

The filing of Form 1098–C does not relieve the donee organization of its obligation under § 6050L to report information
about dispositions of charitable deduction
property on Form 8282, Donee Information Return.
SECTION 4. INTERIM
GUIDANCE FOR REPORTING A
CONTEMPORANEOUS WRITTEN
ACKNOWLEDGMENT FURNISHED
TO A DONOR IN 2005
For any contemporaneous written acknowledgment furnished to a donor on or
before December 31, 2005, a donee organization may report to the Service the
information contained in such acknowledgment by filing either Copy A of Form
1098–C or a copy of the acknowledgment.
Electronic/magnetic media filing of Form
1098–C is permitted, but not required.
Reports filed on paper should be transmitted with Form 1096 and sent to the
Internal Revenue Service Center, Ogden,
UT 84201–0027, by February 28, 2006.
Even though it files a copy of an acknowledgment instead of a Form 1098–C, the
donee organization should check the box
on the transmittal Form 1096 that indicates
a Form 1098–C is being filed. But if a
donee organization already filed a report
with the Service in a reasonable manner
before January 6, 2006, it need not resubmit such report.
The guidance in this section supersedes
any instruction to the contrary in the 2005
Instructions for Form 1098–C.
SECTION 5. SPECIAL TRANSITION
RULE CONCERNING CONTENT OF
CONTEMPORANEOUS WRITTEN
ACKNOWLEDGMENT
Form 1098–C will be revised to reflect
the information described in clauses (v)
and (vi) of § 170(f)(12)(B) as added by
the GO Zone Act. Until Form 1098–C
is revised, a contemporaneous written
acknowledgment will be treated as meeting the requirements of § 170(f)(12)(B)
even if it does not contain the information described in clauses (v) and (vi) of
§ 170(f)(12)(B).

January 23, 2006

SECTION 6. SECTION 6720 PENALTY
Section 6720 imposes penalties on
any donee organization required under
§ 170(f)(12)(A) to furnish an acknowledgment to a donor that knowingly furnishes
a false or fraudulent acknowledgment, or
knowingly fails to furnish an acknowledgment in the manner, at the time, and
showing the information required under
§ 170(f)(12) or regulations thereunder.
The Service and the Treasury Department
intend to issue regulations under § 6720
clarifying that the donee organization information report described in section 3
of this notice is an integral part of the
acknowledgment requirement. The regulations will clarify the application of the
§ 6720 penalties to a donee organization
that knowingly files a false or fraudulent
information report with the Service, or
that knowingly fails to file such information report with the Service in the manner,
at the time, and showing the information
required under § 170(f)(12) or the regulations prescribed thereunder and this
notice. The regulations will be effective
as of the date of publication of this notice.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information in this
notice have been reviewed and approved
by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1980.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in section 3 of this notice are required from
donee organizations to satisfy the donee
reporting requirements of § 170(f)(12)(D).
The collections of information are mandatory. The likely respondents are tax-exempt charitable organizations.
The estimated total annual reporting
burden is 21,500 hours for donee organizations.
The estimated annual burden per donee
organization varies from 30 minutes to 16
hours, depending on individual circumstances. The estimated average annual
burdens are 5 hours for donee organiza-

348

tions. The estimated number of donee organizations is 4,300.
The estimated annual frequency of responses (used for reporting requirements
only) is annually.
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
§ 6103.
SECTION 8. DRAFTING
INFORMATION
The principal author of this notice is
Sean Barnett of the Exempt Organizations,
Tax Exempt and Government Entities Division. For further information regarding
this notice, contact Mr. Barnett at (202)
283–8912 (not a toll-free call).

Waiver for Reasonable
Cause for Failure to Report
Loan Origination Fees and
Capitalized Interest on
Qualified Education Loans
Notice 2006–5
PURPOSE
This notice provides information for
payees/filers who receive payments of
interest on qualified education loans to
request a waiver of penalties for failure to
report payments of loan origination fees
and capitalized interest received in 2005
for qualified education loans made on or
after September 1, 2004.
BACKGROUND
Section 6050S requires certain payees
who receive payments of interest on one or
more qualified education loans, as defined
in section 221(d)(1), to file information
returns with the Internal Revenue Service
(Service) and to furnish information statements to borrowers. In the case of interest
payments received or collected by a person on behalf of a payee, the information
reporting requirements are generally imposed on that other person (filer) and not
the payee. See section 1.6050S–3(e)(3)(i)
of the Income Tax Regulations. For qual-

2006–4 I.R.B.

ified education loans made on or after
September 1, 2004, payees/filers are required to report on Form 1098–E, “Student
Loan Interest Statement,” payments of interest received on qualified education
loans, including payments of loan origination fees and capitalized interest. See
section 1.6050S–3(e)(1)(ii) of the regulations (T.D. 9125, 2004–1 C.B. 1012),
published on May 7, 2004. 67 Fed. Reg.
25,489. A prior version of these regulations (T.D. 8992, 2002–1 C.B. 981),
published on April 29, 2002, provided
that, for calendar year 2003 returns and
later years, payees/filers were not required
to report payments of loan origination fees
and capitalized interest for qualified education loans made before January 1, 2004.
67 Fed. Reg. 20,901.
After publication of the amended final
section 1.6050S–3 regulations on May 7,
2004, the Treasury Department and Service received comments that additional
time was required to make the programming changes necessary to comply with
the reporting requirements for loan origination fees and capitalized interest under those regulations. In response, the
Treasury Department and Service issued
Notice 2004–63, 2004–2 C.B. 597, which
provides that the Service will not assert
penalties under section 6721 or section
6722 for the failure to report on Form
1098–E returns payments attributable to
loan origination fees and capitalized interest received in calendar year 2004 on a
qualified education loan made on or after
September 1, 2004. The notice explained
that the penalty relief was limited to calendar year 2004 returns and would provide
payees/filers additional time to make the
necessary programming changes to capture information on and report payments
of loan origination fees and capitalized
interest received in 2005 and future calendar years, consistent with the reporting
requirements of the section 6050S regulations.
Some payees/filers have taken steps to
comply with the reporting requirements
for loan origination fees and capitalized
interest for calendar year 2005 returns.
However, some commentators have requested additional relief to provide more
time to comply with the reporting requirements for calendar year 2005 returns.

2006–4 I.R.B.

REQUEST FOR WAIVER FOR
REASONABLE CAUSE
A payee/filer who is not able to comply with the reporting requirements under section 1.6050S–3 for loan origination
fees and capitalized interest for calendar
year 2005 returns may request that the Service waive, under section 6724 and the
regulations thereunder, any penalty that
might otherwise be imposed under section 6721 or section 6722 for failure to report these amounts. Section 6724 authorizes the Service to waive the penalties under section 6721 (failure to file correct information returns) or section 6722 (failure to furnish correct payee statements) if
the failure was due to reasonable cause
and not due to willful neglect. Under
section 301.6724–1(a)(2) of the Regulations on Procedure and Administration, a
payee/filer may establish reasonable cause
if there are significant mitigating factors
with respect to the failure, or if the failure
arose from events beyond the payee/filer’s
control. In addition, a payee/filer must
show that it acted in a responsible manner
both before and after the failure occurred.
A payee/filer seeking a waiver under
this notice should send its request in the
text of an e-mail to: 1098ewaiver@irs.gov
on or before the due date of the information
returns. The Service will acknowledge receipt of a waiver request under this notice.
The waiver request must include the following information:
(1) a notation at the top of the request in
large letters stating, “Form 1098–E Waiver
Request under Notice 2006–5”;
(2) the payee/filer’s name, taxpayer
identification number, and mailing address;
(3) a statement that describes:
(a) the steps the payee/filer has taken in
an attempt to report loan origination fees
and capitalized interest, including the date
on which the payee/filer first took steps
to attempt to implement systems to comply with the reporting requirements and the
amount of time and resources devoted to
efforts to comply; and
(b) the undue hardship that would result
by complying with the obligation to report
loan origination fees and capitalized interest, including an indication of the size of
the payee/filer’s student loan portfolio and
the revenue derived from the loan portfolio;

349

(4) a statement that the payee/filer is in
compliance with the Additional Rules set
forth in this notice; and
(5) a statement, made under penalty of
perjury, that the information contained in
the waiver request is true, correct, and
complete to the best of the payee/filer’s
knowledge and belief. The perjury statement must be signed by a person who is authorized to sign federal tax returns on behalf of the payee/filer by entering his or her
name and date of birth.
The Service currently anticipates that
it will decide, within six months after receipt of a complete request for a waiver,
whether to grant a waiver of penalties for
failure to report information required by
section 6050S and the regulations thereunder based on each payee/filer’s particular facts and circumstances as described
in the waiver request. For purposes of
this notice, the Service generally will
waive penalties if the payee/filer’s request
demonstrates that: (1) the payee/filer
acted in a responsible manner because it
took reasonable efforts sufficiently before
the due date of the information return to
attempt to implement necessary programming changes to enable the payee/filer to
capture information on and report payments of loan origination fees and capitalized interest; and (2) there are significant
mitigating factors or the failure arose from
events beyond the payee/filer’s control,
including hardship resulting from incremental costs to the payee/filer.
ADDITIONAL RULES
A payee/filer who is not able to comply
with the reporting requirements for loan
origination fees and capitalized interest received in calendar year 2005 on a qualified
education loan made on or after September
1, 2004, and who seeks a penalty waiver
under this notice, must:
(1) file and furnish in a timely manner
a Form 1098–E (or other appropriate information statement) that (i) includes the
amount of interest (except for any loan
origination fees or capitalized interest) received in 2005 in Box 1, (ii) does not include a check mark in Box 2, and (iii) includes all other required information; and
(2) furnish a statement to the borrower
indicating that the amount of interest reported in Box 1 of Form 1098–E for calendar year 2005 does not include payments

January 23, 2006

attributable to either loan origination fees
or capitalized interest received on qualified education loans made on or after
September 1, 2004, and that the borrower
may be able to deduct amounts in addition
to the amounts reported in Box 1.
Notwithstanding sections 1.163–7(a)
and 1.1275–2(a), a borrower who receives
a Form 1098–E (or other appropriate information statement) indicating that it does
not include payments of loan origination
fees may use any reasonable method to
allocate the loan origination fees over the
term of the loan for purposes of the deduction allowable under section 221. A
method that results in the double deduction
of the same portion of a loan origination
fee would not be reasonable.
PAPERWORK REDUCTION ACT
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–1996.
An agency may not conduct or sponsor,
and a person is not required to respond
to a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this notice is required in order for a payee/filer to
receive a waiver of penalties for failure to
report loan origination fees and capitalized
interest. The collection of information is
required to obtain benefits. The likely respondents are for profit organizations as
well as not for profit organizations.
The estimated total annual recordkeeping and reporting burden is 5,000. The estimated annual recordkeeping and reporting burden per respondent is 10 hours. The
estimated number of respondents is 500.
Books or records relating to a collection
of information must be retained so long as
their contents may become material in administration of any internal revenue law.
Generally, tax returns and return information are confidential, as required by section
6103.
CONTACT INFORMATION
For further information regarding a waiver of penalties, contact
Kelli Winegardner (Office of Penalties
and Interest Administration) at (202)

January 23, 2006

283–0454 (not a toll-free call). For further
information regarding this notice, contact
Donna Welch (Office of Associate Chief
Counsel (Procedure and Administration))
at (202) 622–4910 (not a toll-free call).
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 446, 471, 472, 481; 1.446–1,
1.471–3(d), 1.472–8, 1.481–1.)

Rev. Proc. 2006–14
SECTION 1. PURPOSE
This revenue procedure provides heavy
equipment dealers (as defined in section
4.05 of this revenue procedure) with a
safe harbor method of accounting for
their heavy equipment parts inventory (as
defined in section 4.06 of this revenue procedure). This safe harbor method permits
heavy equipment dealers to approximate
the cost of their heavy equipment parts
inventory using the replacement cost of
the heavy equipment parts pursuant to
the replacement cost method described
in section 4 of this revenue procedure.
This revenue procedure also provides procedures for heavy equipment dealers to
obtain the automatic consent of the Commissioner to change to the replacement
cost method.
SECTION 2. BACKGROUND
.01 Section 471 of the Internal Revenue Code provides that inventories must
be taken on such basis as the Secretary may
prescribe as conforming as nearly as may
be to the best accounting practice in the
trade or business and as most clearly reflecting income.
.02 Section 1.471–3(d) of the Income
Tax Regulations provides that in any industry in which the usual rules for computation of cost are inapplicable, cost may
be approximated upon such basis as may
be reasonable and in conformity with established trade practice in the particular industry.
.03 Section 472(a) provides that a taxpayer may use the last-in, first-out (LIFO)
inventory method. Under the LIFO inventory method, a taxpayer treats those goods
remaining on hand at the close of the taxable year as being: First, those included in
the opening inventory of the taxable year

350

(in the order of acquisition) to the extent
thereof, and second, those acquired in the
taxable year. The change to, and use of,
the LIFO inventory method must be in accordance with such regulations as the Secretary may prescribe as necessary in order
that the use of such method may clearly reflect income.
.04 Section 472(b)(2) provides that a
taxpayer using the LIFO inventory method
must inventory its goods at cost.
.05 Section 1.472–8(a) provides that a
taxpayer may elect to determine the cost
of its LIFO inventories under the dollarvalue LIFO method, provided such method
is used consistently and clearly reflects the
income of the taxpayer in accordance with
the rules of that section.
.06 Section 1.472–8(e)(2)(ii) provides
that the total current-year cost of items
making up a dollar-value LIFO pool may
be determined: (a) by reference to the actual cost of the goods most recently purchased or produced; (b) by reference to
the actual cost of the goods purchased or
produced during the taxable year in the order of acquisition; (c) by application of an
average unit cost equal to the aggregate
cost of all the goods purchased or produced
throughout the taxable year divided by the
total number of units so purchased or produced; or (d) pursuant to any other proper
method which, in the opinion of the Commissioner, clearly reflects income.
.07 Section 263A generally requires direct costs and an allocable portion of indirect costs of certain property produced
or acquired for resale by a taxpayer to be
included in inventory costs, in the case of
property that is inventory, or to be capitalized, in the case of other property. Section 1.263A–1(e)(2)(ii) provides that resellers must capitalize the acquisition costs
of property acquired for resale. In addition, resellers must capitalize the indirect costs described in § 1.263A–1(e)(3),
which are properly allocable to property
acquired for resale. These indirect costs
often include purchasing, handling, and
storage costs. See § 1.263A–3(c)(1).
.08 In Mountain State Ford v.
Commissioner, 112 T.C. 58 (1999), the
Tax Court held that a taxpayer that sold
heavy truck parts and used the dollar-value
LIFO method to account for its parts inventory was not entitled to determine
the current-year cost of the parts in its
ending inventory by reference to their

2006–4 I.R.B.