| REG-148568-04 |
February 6, 2006 |
Notice of Proposed Rulemaking by Cross-Reference
to Temporary Regulations, Notice of Proposed Rulemaking, and
Notice of Public Hearing Time for Filing Employment Tax Returns
and Modifications to the Deposit Rules
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking by cross-reference to temporary regulations,
notice of proposed rulemaking, and notice of public hearing.
In this issue of the Bulletin, the IRS is issuing temporary regulations
(T.D. 9239) relating to the annual filing of Federal employment tax returns
and requirements for employment tax deposits for employers in the Employers’
Annual Federal Tax Program (Form 944) (hereinafter referred to as the “Form
944 Program”). Those temporary regulations provide requirements for
filing returns to report the Federal Insurance Contributions Act (FICA) taxes
and income tax withheld under section 6011 of the Internal Revenue Code (Code)
and §§31.6011(a)-1 and 31.6011(a)-4. Those regulations also require
employers qualified for the Form 944 Program to file Federal employment tax
returns annually. In addition, those regulations provide requirements for
employers to make deposits of tax under FICA and the income tax withholding
provisions of the Code (collectively, employment taxes) under section 6302
of the Code and §31.6302-1. The text of those regulations serves, in
part, as the text of these proposed regulations. In addition to rules related
to the Form 944 Program, these proposed regulations provide an additional
method for quarterly return filers to determine whether the amount of accumulated
employment taxes is considered de minimis. This document
also provides notice of a public hearing.
Written or electronic comments must be received by April 3, 2006. Outlines
of topics to be discussed at the public hearing scheduled for April 26, 2006,
at 10 a.m. must be received by April 5, 2006.
Send submissions to: CC:PA:LPD:PR (REG-148568-04), room 5203, Internal
Revenue Service, PO 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-148568-04), Courier’s Desk,
Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or
sent electronically, via the IRS Internet site at http://www.irs.gov/regs or
via the Federal eRulemaking Portal at http://www.regulations.gov (IRS
REG-148568-04). The public hearing will be held in the Auditorium, Internal
Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations relating to section 6011, Raymond
Bailey, (202) 622-4910; concerning the proposed regulations relating to section
6302, Audra M. Dineen, (202) 622-4940; concerning submissions of comments
and the hearing, Treena Garrett, (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
Temporary regulations in this issue of the Bulletin amend the Regulations
on Employment Taxes and Collection of Income Tax at Source (26 CFR Part 31)
under sections 6011 and 6302. These amendments are designed to require employers
qualified for the Form 944 Program to file Federal employment tax returns
annually and to permit most employers in the Form 944 Program to remit their
accumulated employment taxes annually with their return. The text of those
temporary regulations also serves, in part, as the text of these proposed
regulations. The preamble to the temporary regulations explains the temporary
regulations and these proposed regulations. These proposed regulations are
one part of the IRS’s effort to reduce taxpayer burden by requiring
certain employers to file Federal employment tax returns annually rather than
quarterly and by permitting certain employers to remit employment taxes annually
with their return.
In addition to establishing the Form 944 Program, these proposed regulations
will provide a safe harbor for small employers that have an unexpected increase
in their deposit liability for a quarterly return period. The proposed regulations
provide an alternate method for determining whether the employer’s employment
tax obligations are de minimis, which is based on its
employment taxes due for the prior return period. This special rule applies
only to employers filing quarterly tax returns and therefore has no application
to the Form 944 Program.
Under the existing regulations, deposits of taxes reported on Form 941,
“Employer’s Quarterly Federal Tax Return,”
generally are due monthly or semi-weekly. If an employer fails to make timely
deposits of employment taxes, then, absent reasonable cause, the employer
will be subject to the penalty for failure to deposit under section 6656.
Currently, §31.6302-1(f)(4) (the de minimis deposit
rule) provides that, for quarterly and annual return periods, if the aggregate
amount of employment taxes for the return period is less than $2,500 and that
amount is deposited or remitted with a timely filed return for that return
period, the amount will be deemed to have been timely deposited and the employer
will not be subject to the penalty for failure to deposit. Thus, currently
under the de minimis deposit rule, employers remitting
their employment taxes with their timely filed quarterly returns will only
be deemed to have timely deposited their taxes if the amount of taxes due
is less than $2,500 for that quarter. Similarly, under the current de
minimis deposit rule, employers remitting their employment taxes
with their timely filed annual returns will only be deemed to have timely
deposited if the amount of taxes due is less than $2,500 for the entire year.
Under the proposed amendments, employers may remit their employment
taxes with their timely filed quarterly returns and be deemed to have timely
deposited if the amount of the taxes due for the current quarter or
for the prior quarter is less than $2,500. This special rule can
be illustrated by the following example: an employer has less than $50,000
in employment taxes reported during the lookback period and is therefore a
monthly depositor under §31.6302-1(b)(2). The employer’s employment
tax liabilities for the first and second quarters of 2004 were $2,450 and
$2,400, respectively. In the third quarter of 2004, however, the employer’s
employment tax liability was $2,550. Under the existing de minimis deposit
rule, if the employer remits the $2,550 with its third quarter return, the
amount is not considered timely deposited for that quarter and, therefore,
the employer would be assessed the section 6656 penalty for failure to deposit.
Modifying the de minimis deposit rule to allow employers
to base the determination on the employment taxes due for the immediately
preceding quarter provides a safe harbor for employers regarding their deposit
obligations. Thus, in this example, when the employer had an increase in
its employment tax liability for the third quarter of 2004, its remittance
would still be deemed to have been timely deposited because the taxes for
the immediately preceding return period were de minimis.
The proposed amendment has no application to the One-Day rule in §31.6302-1(c)(2),
which requires employers to make a deposit on the next banking day if they
accumulate $100,000 or more of employment taxes.
It has been determined that this notice of proposed rulemaking is not
a significant regulatory action as defined in Executive Order 12866. Therefore,
a regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations and because these regulations do not impose
a collection of information on small entities, the provisions of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, this notice of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Comments and 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 submitted timely to the IRS. The
IRS and Treasury Department request comments on the clarity of the proposed
rules and how they can be made easier to understand. In addition, the IRS
and Treasury Department are considering expanding the Form 944 program in
the future and seek comments on the eligibility requirements and how best
to change them. All comments will be available for public inspection and
copying.
A public hearing has been scheduled for April 26, 2006, beginning at
10 a.m. in the Auditorium of the Internal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC. Due to building security procedures, visitors
must enter at the Constitution Avenue entrance. In addition, all visitors
must present photo identification to enter the building. Because of access
restrictions, visitors will not be admitted beyond the immediate entrance
area more than 30 minutes before the hearing starts. For information about
having your name placed on the building access list to attend the hearing,
see the FOR FURTHER INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit electronic or written
comments and an outline of the topics to be discussed and the time to be devoted
to each topic (signed original and eight (8) copies) by April 5, 2006. A
period of 10 minutes will be allotted to each person for making comments.
An agenda showing the scheduling of the speakers will be prepared after the
deadline for receiving outlines has passed. Copies of the agenda will be
available free of charge at the hearing.
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 31.6011(a)-1 is amended by revising paragraph (a)(5)
to read as follows:
§31.6011(a)-1 Returns under Federal Insurance Contributions
Act.
(a) * * *
(5) [The text of proposed §31.6011(a)-1(a)(5) is the same as the
text of §31.6011(a)-1T(a)(5) published elsewhere in this issue of the
Bulletin].
* * * * *
Par. 3. Section 31.6011(a)-4 is amended by revising paragraph (a)(4)
to read as follows:
§31.6011(a)-4 Returns of income tax withheld.
(a) * * *
(4) [The text of proposed §31.6011(a)-4(a)(4) is the same as the
text of §31.6011(a)-4T(a)(4) published elsewhere in this issue of the
Bulletin].
* * * * *
Par. 4. Section 31.6302-1 is amended by revising paragraphs (b)(4),
(c)(5) and 6, (d) Example 6, (f)(4), and (f)(5) Example
3 to read as follows:
§31.6302-1 Federal tax deposit rules for withheld income
taxes and taxes under the Federal Insurance Contributions Act (FICA) attributable
to payments made after December 31, 1992.
* * * * *
(b) * * *
(4) * * *
(i) [The text of the proposed §31.6302-1(b)(4)(i) is the same as
the text of §31.6302-1T(b)(4)(i) published elsewhere in this issue of
the Bulletin].
(ii) [The text of the proposed §31.6302-1(b)(4)(ii) is the same
as the text of §31.6302-1T(b)(4)(ii) published elsewhere in this issue
of the Bulletin].
(c) * * *
(5) [The text of proposed §31.6302-1(c)(5) is the same as the text
of §31.6302-1T(c)(5) published elsewhere in this issue of the Bulletin].
(6) [The text of proposed §31.6302-1(c)(6) is the same as the text
of §31.6302-1T(c)(6) published elsewhere in this issue of the Bulletin].
(d) * * *
Example 6. [The text of proposed §31.6302-1(d) Example
6 is the same as the text of §31.6302-1T(d) Example
6 published elsewhere in this issue of the Bulletin].
* * * * *
(f) * * *
(4) De minimis rule—(i) De minimis
deposit rule for quarterly and annual return periods beginning on or after
January 1, 2001. If the total amount of accumulated employment
taxes for the return period is de minimis and the amount
is fully deposited or remitted with a timely filed return for the return period,
the amount deposited or remitted will be deemed to have been timely deposited.
The total amount of accumulated employment taxes is de minimis if
it is less than $2,500 for the return period or if it is de minimis pursuant
to paragraph (f)(4)(ii) of this section.
(ii) De minimis deposit rule for quarterly return periods.
For purposes of paragraph (f)(4)(i) of this section, if the total amount
of accumulated employment taxes for the immediately preceding quarter was
less than $2,500, unless paragraph (c)(3) of this section applies to require
a deposit at the close of the next banking day, then the employer will be
deemed to have timely deposited the employer’s employment taxes for
the current quarter if the employer complies with the time and method of payment
requirements contained in paragraph (f)(4)(i) of this section.
(iii) [The text of proposed §31.6302-1(f)(4)(iii) is the same as
the text of §31.6302-1T(f)(4)(iii) published elsewhere in this issue
of the Bulletin].
(5) * * *
Example 3. [The text of proposed §31.6302-1(f)(5) Example
3 is the same as the text of §31.6302-1T(f)(5) Example
3 published elsewhere in this issue of the Bulletin]
* * * * *
Mark E. Matthews,
Deputy
Commissioner for
Services and Enforcement.
Note
(Filed by the Office of the Federal Register on December 30, 2005, 8:45
a.m., and published in the issue of the Federal Register for January 3, 2006,
71 F.R. 46)
The principal authors of these proposed regulations are Raymond Bailey,
Audra M. Dineen, and Emly B. Berndt of the Office of the Associate Chief Counsel
(Procedure and Administration), Administrative Provisions and Judicial Practice
Division.
* * * * *
Internal Revenue Bulletin 2006-06
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