Payment by Credit Card and Debit Card

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 301 [TD 8969] RIN 1545-AW37

TITLE: Payment by Credit Card and Debit Card

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations authorizing the
Commissioner to accept payment of internal revenue taxes by credit
card or debit card and limit the use and disclosure of information
relating to payment of taxes by credit card and debit card.
Additionally, the final regulations provide that payments of tax by
check or money order should be made payable to the United States
Treasury. The final regulations reflect changes to the law made by
the Taxpayer Relief Act of 1997 and affect persons who pay their tax
liabilities by credit card, debit card, check, or money order.

DATES: Effective Date: These final regulations are effective
December 14, 2001. Applicability Date: For dates of applicability,
see §301.6311-2(h).

FOR FURTHER INFORMATION CONTACT: Brinton Warren (202) 622-4940 (not
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations amending the Procedure and
Administration Regulations (26 CFR part 301) under sections 6103 and
6311 of the Internal Revenue Code (Code). The final regulations
reflect the amendment of sections 6103 and 6311 by section 1205 of
the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788)
(TRA 1997); section 4003(k) of the Tax and Trade Relief Extension
Act of 1998, Public Law 105-277 (112 Stat. 2681)(TREA 1998); and
section 3703 of the Internal Revenue Service Restructuring and
Reform Act of 1998, Public Law 105-206 (112 Stat. 685)(RRA 1998).

On December 15, 1998, the IRS and Treasury published temporary
regulations (TD 8793) in the Federal Register (63 FR 68995). A
notice of proposed rulemaking (REG-111435-98) cross- referencing

the temporary regulations was published on the same day in the
Federal Register (63 FR 69031). (References herein to the proposed
regulations shall be to the temporary regulations.) No public
hearing was requested or held. Two written comment letters were
received. After consideration of the comments, the proposed
regulations are adopted as revised by this Treasury decision, and
the corresponding temporary regulations are removed. The comments
and revisions are discussed below.

Explanation of Provisions

Section 301.6311-1 currently provides that checks or money orders
should be made payable to the Internal Revenue Service. Section 3703
of RRA 1998 states that the Secretary of the Treasury shall
establish such rules, regulations, and procedures as are necessary
to allow payment of taxes by check or money order payable to the
United States Treasury. The amendment to § 301.6311-1
accordingly provides that checks and money orders should be made
payable to the United States Treasury.

As amended by section 1205 of TRA 1997, section 6311(a) provides
that it shall be lawful for the Secretary of the Treasury to receive
payment for internal revenue taxes by any commercially acceptable
means that the Secretary deems appropriate, to the extent and under
the conditions provided in regulations prescribed by the Secretary.
The legislative history accompanying TRA 1997 explains that
commercially acceptable means include "electronic funds transfers,
including those arising from credit cards, debit cards, and charge
cards." H.R. Conf. Rep. No. 105-220, at 652 (1997). The current
regulations under § 301.6311-1 permit payment of taxes by
checks, drafts drawn on financial institutions, or money orders. The
final regulations add payments by credit cards (which includes
charge cards) and debit cards to the acceptable methods of payment
under section 6311. Section 6302 and the regulations thereunder
remain the authority for forms of payment by electronic funds
transfer other than payment by credit card or debit card.

Only credit cards or debit cards approved by the Commissioner may be
used for payment of internal revenue taxes under section 6311, only
the types of tax liabilities specified by the Commissioner may be
paid by credit card or debit card, and all such payments must be
made in the manner and in accordance with the forms, instructions,
and procedures prescribed by the Commissioner. The Commissioner has
entered into contracts with third party service providers who will
process the credit and debit card transactions. The Commissioner may
not impose any fee on persons making payment of taxes by credit card
or debit card. However, other persons participating in the program,
including third party service providers who process credit or debit
card transactions, are not prohibited from charging fees.

The final regulations provide, as required by section 6311(d)(3),
that the payment of taxes by credit card or debit card is subject to
the error resolution procedures of section 161 of the Truth in
Lending Act (TILA) (15 U.S.C. 1666), section 908 of the Electronic
Fund Transfer Act (EFTA) (15 U.S.C. 1693f), or any similar
provisions of state or local law. The payment, however, is subject
to the error resolution procedures of these statutes only for the
purpose of resolving errors relating to the credit card or debit
card account, and not for the purpose of resolving any errors,
disputes, or adjustments relating to the underlying tax liability.
These provisions ensure that any disputes concerning the merits of
the tax liability will be resolved in the traditional administrative
and judicial forums (e.g., by filing a petition in Tax Court or by
paying the disputed tax and filing a claim for refund), and will not
be raised in any dispute with the card issuer, financial
institution, or other person participating in the credit card or
debit card transaction.

As authorized by section 6311(d)(3)(E), the final regulations permit
the Commissioner to return funds erroneously received due to errors
relating to the credit card or debit card account by arranging for a
credit to the taxpayer's account with the issuer of the credit card
or debit card or other appropriate financial institution or person.
Returns of funds through credit card or debit card account credits,
however, are available only to correct errors relating to the credit
card or debit card account, and not to refund overpayments of taxes.

The final regulations also provide the procedures required under
sections 6103(k)(9) and 6311(e) with respect to the use and
disclosure of information relating to payment of taxes by credit
card and debit card. Section 1205(c)(1) of TRA 1997 (as amended by
section 6012(b)(2) of RRA 1998) added section 6103(k)(9), which
authorizes the IRS to disclose returns and return information to
financial institutions and others to the extent necessary for the
administration of section 6311. Section 6103(k)(9) further provides
that disclosures of information for purposes other than to accept
payments by check or money order (for example, to accept payment by
credit card or debit card) shall be made only to the extent
authorized by written procedures promulgated by the Secretary.
Section 6311(e) provides that no person shall use or disclose any
information relating to credit card or debit card transactions
obtained pursuant to section 6103(k)(9), except to the extent
authorized by written procedures promulgated by the Secretary.

Pursuant to section 6311(e), the final regulations provide that
information received by any person in connection with the payment of
tax by credit card or debit card shall be treated as confidential by
all persons who receive such information, whether such information
is received from the IRS or from any other person, including the
taxpayer. IRS personnel are authorized to disclose to card issuers,
financial institutions, and other persons information necessary to
process the tax payment or to bill or collect the amount charged or
debited (for example, to resolve billing errors).

The final regulations set forth the limited purposes and activities
for which such information may be used or disclosed by card issuers,
financial institutions, and other persons. The permitted purposes
and activities principally involve credit card and debit card
processing, billing, collection, account servicing, account
transfers, internal business records, legal compliance, and legal
proceedings. The final regulations expressly prohibit the selling of
information, the sharing of information with credit bureaus, or the
use of information for any marketing purpose. Any person who uses or
discloses information in violation of section 6311(e) is subject to
civil liability for damages under section 7431(a)(2). See section
7431(h), added by section 1205(c)(2) of TRA 1997 (as amended by
section 6012(b)(3) of RRA 1998).

Summary of Comments

Commentators recommended that the final regulations be amended to
permit the IRS to compensate private sector companies for the
services they provide in connection with the payment of taxes by
credit and debit card. However, section 6311(d)(2) prohibits the
payment of such compensation. Thus, the final regulations do not
adopt this recommendation. Commentators also recommended that the
final regulations incorporate by reference the applicable
regulations and staff commentaries adopted by the Federal Reserve
Board under the provisions of TILA and EFTA referenced in the final
regulations. The final regulations do not adopt this recommendation
because the references in section 6311 and the final regulations to
section 161 of TILA and section 908 of EFTA are sufficient to make
the Federal Reserve Board regulations and other legal guidance under
section 161 of TILA and section 908 of EFTA applicable to the
payment of taxes by credit card or debit card, except as explicitly
excepted in sections 6311(d)(3)(A) and (C).

Commentators also recommended a clarification of §
301.6311-2T(c)(2) of the temporary regulations, which provides that
the United States has a lien for the guaranteed amount of a
transaction upon all the assets of the institution making the
guarantee if the United States is not duly paid after the taxpayer
tenders a payment of taxes by credit card or debit card. The
commentators note that the mere tendering of payment by credit card
or debit card is not sufficient for the United States to have a
lien. Rather, the parties involved in the transaction must also
follow the applicable procedures required to authorize the
transaction and to obtain the guarantee. Thus, the commentators
recommended that language be added to the final regulations to
provide that the United States will not have a lien unless the
parties involved follow the procedures required to authorize the
transaction and obtain a guarantee. Under the temporary regulations,
the financial institution must expressly guarantee the payment in
order for the United States to have a lien on the assets of the
institution making the guarantee. The financial institution's
express guarantee will arise only if the applicable procedures
necessary to authorize the transaction and obtain the guarantee are
properly followed. Additional language in the final regulations is
therefore unnecessary.

One commentator questioned the use of the term commercial
transactions in § 301.6311-2T(d)(2)(D). The commentator
recommended removing the word commercial because, in general, TILA
does not apply to commercial transactions. The final regulations
adopt this recommendation by replacing §301.6311-2T(d)(2)(D) in
the final regulations with a provision covering other types of
errors similar to the ones explicitly covered by error resolution
procedures in the final regulations. One commentator recommended
clarification of §301.6311- 2T(g)(3)(i), which prohibits use or
disclosure of information relating to credit and debit card
transactions for purposes related to the sale or exchange of such
information separate from the underlying receivable or account. The
commentator stated that this provision conflicts with other
provisions in the temporary regulations that specifically permit an
exchange of credit and debit card information to process credit and
debit card transactions and resolve billing errors without a sale or
exchange of the underlying receivable or account. The commentator's
concern stems from an ambiguity created by the use of the term
exchange. To avoid confusion, the final regulations replace exchange
with transfer for consideration.

Explanation of Other Revisions

Other changes to the final regulations include the following. First,
the final regulations clarify that sending receipts or confirmation
of a transaction to the taxpayer, including secured electronic
transmissions and facsimiles, is a permissible disclosure. See
§301.6311-2(g)(1)(i)(E). Second, the final regulations clarify
that disclosure of information necessary to complete a transaction
by the taxpayer with a state or local government agency (for
example, to pay state or local tax by credit card or debit card) is
a permissible disclosure when explicitly authorized by the taxpayer.
This allows a taxpayer to make a state or local tax payment
immediately after making a federal tax payment without requiring the
taxpayer to reenter information (for example, name and Taxpayer
Identification Number). See §301.6311-2(g)(1)(i)(F). Third, the
final regulations provide that the term tax as used in these final
regulations includes interest, penalties, additional amounts, and
additions to tax. See §301.6311-2(a)(1). The temporary
regulations did not refer to additional amounts.

Special Analyses

It has been determined that this Treasury decision 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 final regulations, and
because these final regulations do not impose a collection of
information on small entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Code, the notice of proposed rulemaking preceding these final
regulation was submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.

Drafting Information

The principal author of these final regulations is R. Bradley Taylor
of the Office of Associate Chief Counsel, Procedure and
Administration (Administrative Provisions and Judicial Practice
Division).

List of Subjects in 26 CFR Part 301 Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and
recordkeeping requirements.

Adoption of Amendments to the Regulations Accordingly, 26 CFR part
301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 is amended by
adding entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Section 301.6103(k)(9)-1 also issued under 26 U.S.C. 6103(k)(9) and
26 U.S.C. 6103(q). * * *

Section 301.6311-2 also issued under 26 U.S.C. 6311. * * *

Par. 2. Section 301.6103(k)(9)-1 is added to read as follows:

§301.6103(k)(9)-1 Disclosure of returns and return information
relating to payment of tax by credit card and debit card. Officers
and employees of the Internal Revenue Service may disclose to card
issuers, financial institutions, or other persons such return
information as the Commissioner deems necessary in connection with
processing credit card and debit card transactions to effectuate
payment of tax as authorized by § 301.6311-2. Officers and
employees of the Internal Revenue Service may disclose such return
information to such persons as the Commissioner deems necessary in
connection with billing or collection of the amounts charged or
debited, including resolution of errors relating to the credit card
or debit card account as described in § 301.6311-2(d).
§301.6103(k)(9)-1T [Removed]

Par. 3. Section 301.6103(k)(9)-1T is removed. §301.6311-1
[Amended]

Par. 4. In section 301.6311-1, paragraph(a)(1)(i) is revised by
removing the language "Internal Revenue Service" from the third
sentence and adding the language "United States Treasury" in its
place.

Par. 5. Section 301.6311-2 is added to read as follows:
§301.6311-2 Payment by credit card and debit card. (a)
Authority to receive--(1) Payments by credit card and debit card.
Internal revenue taxes may be paid by credit card or debit card as
authorized by this section. Payment of taxes by credit card or debit
card is voluntary on the part of the taxpayer. Only credit cards or
debit cards approved by the Commissioner may be used for this
purpose, only the types of tax liabilities specified by the
Commissioner may be paid by credit card or debit card, and all such
payments must be made in the manner and in accordance with the
forms, instructions and procedures prescribed by the Commissioner.
All references in this section to tax also include interest,
penalties, additional amounts, and additions to tax.

(2) Payments by electronic funds transfer other than payments by
credit card and debit card. Provisions relating to payments by
electronic funds transfer other than payments by credit card and
debit card are contained in section 6302 and the Treasury
Regulations promulgated pursuant to section 6302.

(3) Definitions--(i) Credit card means any credit card as defined in
section 103(k) of the Truth in Lending Act (15 U.S.C. 1602(k)),
including any credit card, charge card, or other credit device
issued for the purpose of obtaining money, property, labor, or
services on credit.

(ii) Debit card means any accepted card or other means of access as
defined in section 903(1) of the Electronic Fund Transfer Act (15
U.S.C. 1693a(1)), including any debit card or similar device or
means of access to an account issued for the purpose of initiating
electronic fund transfers to obtain money, property, labor, or
services.

(b) When payment is deemed made. A payment of tax by credit card or
debit card shall be deemed made when the issuer of the credit card
or debit card properly authorizes the transaction, provided that the
payment is actually received by the United States in the ordinary
course of business and is not returned pursuant to paragraph (d)(3)
of this section.

(c) Payment not made--(1) Continuing liability of taxpayer. A
taxpayer who tenders payment of taxes by credit card or debit card
is not relieved of liability for such taxes until the payment is
actually received by the United States and is not required to be
returned pursuant to paragraph (d)(3) of this section. This
continuing liability of the taxpayer is in addition to, and not in
lieu of, any liability of the issuer of the credit card or debit
card or financial institution pursuant to paragraph (c)(2) of this
section.

(2) Liability of financial institutions. If a taxpayer has tendered
a payment of internal revenue taxes by credit card or debit card,
the credit card or debit card transaction has been guaranteed
expressly by a financial institution, and the United States is not
duly paid, then the United States shall have a lien for the
guaranteed amount of the transaction upon all the assets of the
institution making such guarantee. The unpaid amount shall be paid
out of such assets in preference to any other claims whatsoever
against such guaranteeing institution, except the necessary costs
and expenses of administration and the reimbursement of the United
States for the amount expended in the redemption of the circulating
notes of such institution.

(d) Resolution of errors relating to the credit card or debit card
account--(1) In general. Payments of taxes by credit card or debit
card shall be subject to the applicable error resolution procedures
of section 161 of the Truth in Lending Act (15 U.S.C. 1666), section
908 of the Electronic Fund Transfer Act (15 U.S.C. 1693f), or any
similar provisions of state or local law, for the purpose of
resolving errors relating to the credit card or debit card account,
but not for the purpose of resolving any errors, disputes or
adjustments relating to the underlying tax liability.

(2) Matters covered by error resolution procedures. (i) The error
resolution procedures of paragraph (d)(1) of this section apply to
the following types of errors- -

(A) An incorrect amount posted to the taxpayer's account as a result
of a computational error, numerical transposition, or similar
mistake;

(B) An amount posted to the wrong taxpayer's account;

(C) A transaction posted to the taxpayer's account without the
taxpayer's authorization; and

(D) Other similar types of errors that would be subject to
resolution under section 161 of the Truth in Lending Act (15 U.S.C.
1666), section 908 of the Electronic Fund Transfer Act (15 U.S.C.
1693f), or similar provisions of state or local law.

(ii) An error described in paragraph (d)(2)(i)of this section may be
resolved only through the procedures referred to in paragraph (d)(1)
of this section and cannot be a basis for any claim or defense in
any administrative or court proceeding involving the Commissioner or
the United States.

(3) Return of funds pursuant to error resolution procedures.
Notwithstanding section 6402, if a taxpayer is entitled to a return
of funds pursuant to the error resolution procedures of paragraph
(d)(1) of this section, the Commissioner may, in the Commissioner's
sole discretion, effect such return by arranging for a credit to the
taxpayer's account with the issuer of the credit card or debit card
or any other financial institution or person that participated in
the transaction in which the error occurred.

(4) Matters not subject to error resolution procedures. The error
resolution procedures of paragraph (d)(1) of this section do not
apply to any error, question, or dispute concerning the amount of
tax owed by any person for any year. For example, these error
resolution procedures do not apply to determine a taxpayer's
entitlement to a refund of tax for any year for any reason, nor may
they be used to pay a refund. All such matters shall be resolved
through administrative and judicial procedures established pursuant
to the Internal Revenue Code and the rules and regulations
thereunder.

(5) Section 170 of the Truth in Lending Act not applicable. Payments
of taxes by credit card or debit card are not subject to section 170
of the Truth in Lending Act (15 U.S.C. 1666i) or to any similar
provision of state or local law.

(e) Fees or charges. The Internal Revenue Service may not impose any
fee or charge on persons making payment of taxes by credit card or
debit card. This section does not prohibit the imposition of fees or
charges by issuers of credit cards or debit cards or by any other
financial institution or person participating in the credit card or
debit card transaction. The Internal Revenue Service may not receive
any part of any fees that may be charged.

(f) Authority to enter into contracts. The Commissioner may enter
into contracts related to receiving payments of tax by credit card
or debit card if such contracts are cost beneficial to the
Government. The determination of whether the contract is cost
beneficial shall be based on an analysis appropriate for the
contract at issue and at a level of detail appropriate to the size
of the Government's investment or interest. The Commissioner may not
pay any fee or charge or provide any other monetary consideration
under such contracts for such payments.

(g) Use and disclosure of information relating to payment of taxes
by credit card and debit card. Any information or data obtained
directly or indirectly by any person other than the taxpayer in
connection with payment of taxes by a credit card or debit card
shall be treated as confidential, whether such information is
received from the Internal Revenue Service or from any other person
(including the taxpayer).

(1) No person other than the taxpayer shall use or disclose such
information except as follows-

(i) Card issuers, financial institutions, or other persons
participating in the credit card or debit card transaction may use
or disclose such information for the purpose and in direct
furtherance of servicing cardholder accounts, including the
resolution of errors in accordance with paragraph (d) of this
section. This authority includes the following- -

(A) Processing the credit card or debit card transaction, in all of
its stages through and including the crediting of the amount charged
on account of tax to the United States Treasury;

(B) Billing the taxpayer for the amount charged or debited with
respect to payment of the tax liability;

(C) Collecting the amount charged or debited with respect to payment
of the tax liability;

(D) Returning funds to the taxpayer in accordance with paragraph (d)
(3) of this section;

(E) Sending receipts or confirmation of a transaction to the
taxpayer, including secured electronic transmissions and facsimiles;
and

(F) Providing information necessary to make a payment to state or
local government agencies, as explicitly authorized by the taxpayer
(e.g., name, address, taxpayer identification number).

(ii) Card issuers, financial institutions or other persons
participating in the credit card or debit card transaction may use
and disclose such information for the purpose and in direct
furtherance of any of the following activities--

(A) Assessment of statistical risk and profitability;

(B) Transfer of receivables or accounts or any interest therein;

(C) Audit of account information;

(D) Compliance with federal, state, or local law; and

(E) Cooperation in properly authorized civil, criminal, or
regulatory investigations by federal, state, or local authorities.

(2) Notwithstanding the provisions of paragraph (g)(1), use or
disclosure of information relating to credit card and debit card
transactions for purposes related to any of the following is not
authorized-

(i) Sale of such information (or transfer of such information for
consideration) separate from a sale of the underlying account or
receivable (or transfer of the underlying account or receivable for
consideration);

(ii) Marketing for any purpose, such as, marketing tax-related
products or services, or marketing any product or service that
targets those who have used a credit card or debit card to pay
taxes; and

(iii) Furnishing such information to any credit reporting agency or
credit bureau, except with respect to the aggregate amount of a
cardholder's account, with the amount attributable to payment of
taxes not separately identified.

(3) Use and disclosure of information other than as authorized by
this paragraph (g) may result in civil liability under sections
7431(a)(2) and (h)..(h) Effective date. This section applies to
payments of taxes made on and after December 14, 2001.

§301.6311-2T [Removed]

Par. 6. Section 301.6311-2T is removed.

Deputy Commissioner of Internal Revenue.

Approved:

Acting Assistant Secretary of the Treasury.

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