[Federal Register Volume 76, Number 89 (Monday, May 9, 2011)]
[Proposed Rules]
[Pages 26678-26679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10758]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[REG-151687-10]
RIN 1545-BJ98
Withholding on Payments by Government Entities to Persons
Providing Property or Services
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to
withholding by government entities on payments to persons providing
property or services. The proposed regulations reflect changes in the
law made by the Tax Increase Prevention and Reconciliation Act of 2005
that require Federal, State, and local government entities to withhold
income tax when making payments to persons providing property or
services. These proposed regulations would change the provisions
related to the effective date of the final regulations concerning these
withholding requirements that are being issued concurrently with these
proposed regulations. The guidance affects government entities that are
required to withhold from payments to persons providing property or
services and persons receiving the payments.
DATES: Written or electronic comments and requests for a public hearing
must be received by August 8, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-151687-10), room
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
151687-10), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC or sent electronically via the Federal
eRulemaking Portal at http://www.regulations.gov/ (IRS REG-151687-10).
FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations,
A.G. Kelley, (202) 622-6040; concerning submissions of comments or to
request a public hearing, Oluwafunmilayo Taylor at (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to 26 CFR Part 31 under
section 3402(t) of the Internal Revenue Code (Code). Section 3402(t) of
the Code was added by section 511 of the Tax Increase Prevention and
Reconciliation Act of 2005, Public Law 109-222 (TIPRA), 120 Stat. 345,
which was enacted into law on May 17, 2006. Section 3402(t)(1) provides
that the Government of the United States, every State, every political
subdivision thereof, and every instrumentality of the foregoing
(including multi-State agencies) making any payment to any person
providing any property or services (including any payment made in
connection with a government voucher or certificate program which
functions as a payment for property or services) shall deduct and
withhold from such payment a tax in an amount equal to 3 percent of
such payment. Section 3402(t)(2) provides exceptions to withholding
under section 3402(t).
Section 1511 of the American Recovery and Reinvestment Act of 2009
(Pub. L. 111-5), 123 Stat. 115, 355, amended the effective date of
section 3402(t) withholding. As amended, the statute provides that
section 3402(t) applies to payments made after December 31, 2011.
Notice 2010-91, 2010-52 IRB 915, provided interim guidance on the
application of section 3402(t) to payments by debit cards, credit
cards, stored value cards, and other payment cards.
Proposed regulations under sections 3402(t), 3406, 6011, 6051,
6071, and 6302 of the Code were published in the Federal Register on
December 5, 2008 (REG-158747-06, 73 FR 74082, 2009-4 IRB 362) (the
``2008 proposed regulations''). The 2008 proposed regulations proposed
applying the withholding obligations to payments beginning on January
1, 2011, but proposed excluding payments made under contracts existing
on January 1, 2011, unless those contracts were materially modified.
The final regulations provide an additional one-year extension beyond
the amended effective date of the statute. Thus, under the final
regulations, the withholding obligation applies to payments made after
December 31, 2012, and the exclusion applies to contracts existing on
December 31, 2012, that are not materially modified on or after
December 31, 2012. These final regulations under sections 3402(t),
3406, 6011, 6051, 6071, and 6302 of the Code (REG-158747-06, Treasury
decision) are being published in the Federal Register concurrently with
these proposed regulations.
Several commenters on the 2008 proposed regulations expressed
concern that the requirement to differentiate between payments subject
to withholding and payments not subject to withholding based on whether
the payment was made under a contract existing on December 31, 2011,
and whether that contract had been materially modified, would be
burdensome to apply. In response to these concerns, these proposed
regulations would provide that the exclusion for payments under
existing contracts that had not been materially modified would
terminate with payments after December 31, 2013. Thus, these proposed
regulations would subject payments under all contracts to section
3402(t) withholding after December 31, 2013, unless another exception
applied. This rule would avoid the administrative burden of
distinguishing between payments made under existing contracts and all
other payments while allowing time to address concerns about applying
the withholding requirements to existing contracts.
Proposed Effective Date
These regulations are proposed to apply to payments made after
December 31, 2011.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined
[[Page 26679]]
in Executive Order 12866. Therefore, a regulatory assessment is not
required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
this regulation, and because the regulation does not impose a
collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, this regulation has been submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are timely submitted to the
IRS. All comments will be available at http://www.regulations.gov or
for public inspection and copying upon request. A public hearing will
be scheduled if requested in writing by any person that timely submits
written or electronic comments. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Drafting Information
The principal author of these proposed regulations is A.G. Kelley,
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities). However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Fishing vessels, Gambling, Income taxes,
Penalties, Pensions, Railroad retirement, Reporting and recordkeeping
requirements, Social Security, Unemployment compensation.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 31 is proposed to be amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Paragraph 1. The authority citation for part 31 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3402(t)-1 is amended by revising paragraph
(d)(2) to read as follows:
Sec. 31.3402(t)-1 Withholding requirement on certain payments made by
government entities.
* * * * *
(d) * * *
(2) Payments made under a written binding contract that was in
effect on December 31, 2012, are not subject to the withholding
requirements of this section for payments made prior to January 1,
2014. The preceding sentence does not apply to payments made under any
contract that is materially modified after December 31, 2012. For this
purpose, a material modification includes only a modification that
materially affects the property or services to be provided under the
contract, the terms of payment for the property or services under the
contract, or the amount payable for the property or services under the
contract. Notwithstanding the foregoing, a material modification does
not include a mere renewal of a contract. A material modification also
does not include a modification to the contract required by applicable
Federal, State or local law. The amendment to Sec. 31.3402(t)-1(d)(2)
applies with respect to payments made after December 31, 2012.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-10758 Filed 5-6-11; 8:45 am]
BILLING CODE 4830-01-P