[Federal Register: July 13, 2004 (Volume 69, Number 133)]
[Rules and Regulations]
[Page 41938-41943]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jy04-13]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 31, 301, and 602
[TD 9136]
RIN 1545-BA17
Information Reporting and Backup Withholding for Payment Card
Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains final regulations relating to the
information reporting requirements, information reporting penalties,
and backup withholding requirements for payment card transactions. This
document also contains final regulations relating to the IRS TIN
Matching Program. The regulations in this document affect payors (and
their authorized agents) and payees of certain reportable payments and
provide guidance necessary to comply with the law.
DATES: Effective date: These regulations are effective July 13, 2004.
Applicability dates: The amendments to Sec. 31.3406(g)-1 are
applicable for payments made on or after January 1, 2005. The
amendments to Sec. 301.6724-1 are applicable for information returns
required to be filed, and information statements required to be
furnished, after December 31, 2005. Section 31.3406(j)-1(a) and (f) are
applicable January 31, 2003.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Donna
Welch, (202) 622-4910 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been submitted to the Office of Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d))
under control number 1545-1819.
The collection of information is in Sec. 31.3406(g)-1(f)(3). This
information is necessary to notify a cardholder/payor that a merchant/
payee is not a qualified payee for purposes of the regulations. This
information will alert a cardholder/payor that backup withholding under
section 3406 may apply for future reportable payments. The collection
of information is voluntary to obtain a benefit. The likely respondents
are business or other for-profit institutions.
Estimated total annual reporting burden: 11,750,000 hours.
Estimated average annual burden per respondent: 5,875 hours.
Estimated number of respondents: 2,000.
Estimated annual frequency of responses: monthly.
Comments concerning the accuracy of this burden and suggestions for
reducing this burden should be sent to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC
20224, and to the Office of Management and Budget, Attn: Desk Officer
for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
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
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains amendments to 26 CFR part 31 relating to
backup withholding and the IRS TIN Matching Program under section 3406
of the Internal Revenue Code (Code). It also contains amendments to 26
Part 301 relating to waivers under section 6724 of information
reporting penalties under sections 6721 and 6722.
Section 6041(a) requires persons engaged in a trade or business and
making payment in the course of such trade or business to another
person of rent, salaries, wages, premiums, annuities, compensations,
remunerations, emoluments, or other fixed or determinable gains,
profits, and income of $600 or more in any one taxable year to file
information returns with the IRS and to furnish information statements
to payees. Among other items, the payor must include the payee's name
and taxpayer identification number (TIN) on the information return and
the information statement.
In general, section 6721(a)(1) imposes a $50 penalty for each
failure to file an information return on or before the required filing
date, for any failure to include all of the information required to be
shown on the return, or for the
[[Page 41939]]
inclusion of incorrect information. Section 6724(a) provides that no
penalty will be imposed under section 6721 if it is shown that the
failure is due to reasonable cause and not to willful neglect.
Section 3406(a)(1) requires a payor to withhold on any reportable
payment (as defined in section 3406(b)(1)) if (1) the payee fails to
furnish the payee's TIN to the payor as required or (2) the Secretary
notifies the payor that the TIN furnished by the payee is incorrect.
Section 3406(a)(1) also requires withholding in certain other
situations that are not addressed in these regulations. Section 3406(i)
provides that the Secretary shall prescribe the regulations necessary
or appropriate to carry out the purposes of section 3406.
A payment card transaction is a transaction in which a cardholder/
payor uses a payment card to purchase goods or services and a merchant
agrees to accept a payment card as a means of obtaining payment. A
payment card is a card (or an account) that (1) is issued by a payment
card organization or one of its members, affiliates, or licensees to a
cardholder/payor and (2) represents, upon presentation to a merchant/
payee, an agreement of the cardholder to pay the merchant through the
payment card organization. A payment card organization is an entity
that sets the standards and provides the mechanism, acting directly or
indirectly through its members, affiliates, or licensees, for
effectuating payment between a purchaser and a merchant in a payment
card transaction.
Information reporting compliance is difficult in payment card
transactions because an invoice may not be issued, and the employee
representing the cardholder/payor in the transaction may not request
and obtain the name/TIN combination of the merchant/payee at the time
of the transaction. In addition, backup withholding may be difficult
because a merchant receives payment from the payment card organization
within a few days after the transaction, but the cardholder does not
pay the payment card organization until after it receives a payment
card monthly billing statement.
The Temporary and Proposed Regulations
On January 31, 2003, temporary regulations relating to the IRS TIN
Matching Program were published in the Federal Register (TD 9041; 68 FR
4922). The temporary regulations permit a payor's authorized agent to
participate in the IRS TIN Matching Program on behalf of the payor.
Under the authority of these temporary regulations, the IRS issued Rev.
Proc. 2003-9 (2003-1 C.B. 516) that allows payors' authorized agents,
as well as all payors, to participate in the IRS TIN Matching Program.
A notice of proposed rulemaking (REG-116641-01) cross-referencing
the temporary regulations was also published in the Federal Register
(68 FR 4970) for January 31, 2003. The notice of proposed rulemaking
contained additional proposed rules relating to the information
reporting and backup withholding requirements for payment card
transactions effectuated through a Qualified Payment Card Agent (QPCA).
The proposed regulations provide limited exceptions to the backup
withholding requirements for payment card transactions. The principal
exception applies if the payment is made through a QPCA and the payee
is a qualified payee.
A payee is qualified for this purpose if, at the time of the
payment, the QPCA has validated the payee's TIN through the IRS TIN
Matching Program or if the payment is made during the six-month period
following the date on which the QPCA first obtained the payee's TIN
(six-month grace period). Under the proposed regulations, a QPCA must
notify a cardholder/payor of any merchant/payees that are not qualified
payees. The notice must appear on the billing information for the
payment.
The proposed regulations provide a second exception for payments to
persons other than qualified payees. Under this exception, reportable
payments made through a QPCA are exempt from backup withholding if the
payment is made within 60 days after the date of the first payment with
respect to which the QPCA is required to provide notification to the
payor that the payee is not a qualified payee.
In addition, the proposed regulations provide that cardholder/
payors may establish reasonable cause for a failure to include all of
the information required to be shown on their information returns, or
for the inclusion of incorrect information, based on reliance on
merchant/payee TINs supplied through a QPCA.
The proposed regulations provide that the rules relating to backup
withholding and information reporting for payment card transactions
apply during 2004. The temporary rule permitting agents to participate
in the TIN matching program was effective January 31, 2003.
A public hearing was held on the proposed regulations on May 2,
2003. The IRS also received written and electronic comments responding
to the notice of proposed rulemaking.
Explanation of Provisions and Summary of Comments
After consideration of all the comments, the proposed regulations
relating to the backup withholding requirements for payment card
transactions effectuated through a QPCA and the reasonable cause
exception to information reporting penalties are adopted as revised by
this Treasury decision. The revisions are discussed below. The
temporary amendments to the regulations relating to the IRS TIN
Matching Program are also adopted as final regulations and the
corresponding temporary regulations are removed.
1. Backup Withholding
Several commentators recommended that the final regulations
eliminate the qualified payee requirement and provide a complete
exemption from backup withholding for payment card transactions made
through a QPCA. One commentator noted that Sec. 31.3406(g)-2(e) of the
regulations provides that a real estate reporting person is not
required to backup withhold on a real estate transaction subject to
reporting under section 6045. As an alternative to backup withholding,
this commentator suggested that the QPCA should provide a list to the
IRS of the merchant/payees for whom the QPCA cannot obtain valid TINs.
The commentator further suggested that the IRS should impose penalties
on the merchant/payees who fail to furnish valid TINs, rather than
require backup withholding.
The regulatory exception for real estate transactions is based on
section 3406(h)(5)(D), which provides that, except as otherwise
provided in regulations, a real estate broker (as defined in section
6045(e)(2)) is not a broker for purposes of section 3406. The Code also
includes limited grants of regulatory authority to except otherwise
reportable payments from backup withholding in section 3406(b)(5)
(relating to payments that do not exceed $10) and in section 3406(g)
(relating to payments to specified payees). The IRS and the Treasury
Department do not view these limited grants of regulatory authority as
authorizing a regulatory exemption for a broad class of transactions,
which according to the comments involve payments of over $100 billion
per year, regardless of the payee's identity or compliance with its tax
obligations. Therefore, the final regulations do not adopt the
recommendation for a complete exemption from backup withholding for
payment card transactions made through a QPCA.
[[Page 41940]]
Several comments criticized the specific rules for determining
whether a payee is a qualified payee and when backup withholding is
required with respect to a payee who is not qualified. In general, the
commentators viewed these rules as incompatible with current business
practice because they require QPCAs to evaluate the status of payees at
the time of each transaction and to communicate to cardholders through
the billing process. The commentators suggested various changes to
conform the rules to current business practices.
The IRS and the Treasury Department agree that the rules should
accommodate current business practices to the extent practicable but
believe some of the suggestions in the comments go beyond what is
necessary and provide excessive periods of exemption from backup
withholding for noncompliant payees. Accordingly, the final regulations
include a number of new rules to address the commentators' concerns but
do not adopt all of the specific changes suggested in the comments.
As suggested in the comments, the final regulations eliminate the
requirement that QPCAs include information regarding payee status with
the billing statement furnished to the payor. Instead, the final
regulations require that the information be furnished within four
months of the date of the payment and permit the information to be
furnished as part of a quarterly or other regular report of payee data
to the cardholder. To eliminate the need to evaluate the status of
payees at the time of each payment, the final regulations permit QPCAs
to treat all payments made during a calendar quarter or any shorter
reporting period as being made on the last day of the period. Thus, for
a QPCA choosing this treatment, a payee will be treated as a qualified
payee with respect to all payments during the period if the QPCA
obtains and verifies the payee's TIN at any time before the end of the
period. Similarly, payments will be treated as being made on the last
day of the reporting period for purposes of determining whether they
are made within the six-month grace period. In this case, however, the
regulations also provide that the grace period with respect to a payee
will be treated as beginning not on the date of the first payment to
the payee but on the first day of the reporting period in which the
QPCA makes the payment.
The 60-day exception from backup withholding for payments made to
persons that are not qualified payees is also modified to reflect the
new rules for determining payee status and notifying cardholders. The
exception in the final regulations applies to purchases made no later
than two months after the last date for providing the first notice
informing the cardholder that the payee is not a qualified payee.
One commentator suggested that a QPCA should be allowed to furnish
information regarding payee status electronically on a secure website.
The IRS and the Treasury Department are continuing to consider this
comment and may issue further guidance on this issue.
Several commentators requested that the final regulations clarify
that the individual to whom the card is issued is not the cardholder/
payor if another person is responsible for paying the charges on the
card. The commentators were concerned that employees might be treated
as cardholders in situations where payment cards are issued to
employees of the person responsible for paying charges on the card. The
final regulations provide the requested clarification.
Several commentators requested that the final regulations clarify
that a QPCA may act directly or indirectly through its members,
affiliates, or licensees. The final regulations also provide this
clarification.
Several commentators requested clarification of the cardholder/
payor's obligations if the payor receives notification that a payee is
not a qualified payee. Under the final regulations, backup withholding
may be required for purchases made more than two months after the last
date for furnishing the first notification that the payee is not a
qualified payee. For purchases after that date, the payor must backup
withhold on any reportable payment unless it has obtained the payee's
TIN in accordance with the generally applicable rules under section
3406 or the QPCA has remedied the failure that caused the
disqualification by obtaining and verifying the payee's TIN. If the
payor is required to backup withhold and ordinarily uses a payment
method incompatible with backup withholding, the continued use of that
payment method will not relieve the payor of its backup withholding
obligation. (See section 3406(h)(10), which provides payments subject
to backup withholding are treated as wages paid by an employer to an
employee; and section 3403, which provides that an employer is liable
for taxes required to be withheld and deducted.)
2. Effective Dates
Because the proposed rules relating to backup withholding and
information reporting for payment card transactions were not finalized
before the beginning of 2004, their effective dates have been delayed.
The final rules relating to backup withholding will apply to payments
made after 2004 and final rules relating to information reporting will
apply to returns due after 2005. The temporary rule permitting agents
to participate in the TIN matching program is adopted as a final
regulation with no change to its effective date of January 31, 2003.
One payment card organization suggested that the IRS repropose the
regulations or issue them with an effective date of not less than two
years after publication. The comment noted that reproposing the
regulations would provide an opportunity for further study and comment
and would provide time to test the rules in a pilot program. This
suggestion was not adopted. The IRS and the Treasury Department
recognize that providing an opportunity for further comment may result
in improved rules, but there is no assurance that this will be the
case. The IRS and the Treasury Department believe that the
indeterminate benefit suggested in the comment does not outweigh the
certainty that the suggested delay would deny payors any benefit from
the backup withholding exception and penalty relief contained in the
final regulations during the period of the delay.
Other Guidance
The IRS is also issuing two revenue procedures to implement the
rules contained in the final regulations. The first of these revenue
procedures sets forth the requirements that a payment card organization
must satisfy to obtain an IRS determination that it is a QPCA. The
revenue procedure also provides that a QPCA may act on behalf of a
cardholder/payor for purposes of soliciting, collecting, and validating
the names/TINs of the merchant/payees and on behalf of a merchant/payee
for purposes of furnishing the payee's name and TIN to the cardholder/
payor.
The second revenue procedure provides an optional procedure for
payors and their authorized agents to use in determining whether
payment card transactions are reportable under section 6041 or section
6041A and are reportable payments for purposes of the IRS TIN Matching
Program. In general, this revenue procedure classifies businesses by
Merchant Category Codes (MCCs), or other equivalent Industry Codes,
according to whether they predominantly furnish services (for which
payments are reportable) or predominantly provide goods (for which
payments are not reportable). Under the
[[Page 41941]]
revenue procedure, payment card organizations would be permitted to
assign MCCs, or other equivalent Industry Codes, to payees and payors
would be permitted to rely on the assigned codes for information
reporting and TIN matching purposes.
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 has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations.
It is hereby certified pursuant to the Regulatory Flexibility Act
(5 U.S.C. chapter 6) that the collection of information contained in
these regulations will not have a significant economic impact on a
substantial number of small entities. The reporting burden affects
payment card organizations and financial institutions that issue
payment cards. Most payment card organizations and payment card issuers
are large businesses. To the extent that small financial institutions
have a reporting burden, the burden is expected to be insignificant.
Accordingly, a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations 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 the regulations is Donna Welch, Office of
Associate Chief Counsel (Procedure and Administration), Administrative
Provisions and Judicial Practice Division. However, other personnel
from the IRS and the Treasury Department participated in the
development of the regulations.
List of Subjects
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 31, 301, and 602 are amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
0
Paragraph 1. The authority citation for part 31 is amended by removing
the entry for section 31.3406(j)-1T to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
0
Par. 2. Section 31.3406(g)-1 is amended by adding paragraph (f) to read
as follows:
Sec. 31.3406(g)-1 Exceptions for payments to certain payees and
certain other payments.
* * * * *
(f) Special rule for certain payment card transactions--(1) In
general. No withholding under section 3406 is required for a reportable
payment made through a payment card organization if the payment is made
on or after January 1, 2005, the organization is a Qualified Payment
Card Agent (QPCA), and--
(i) The payee is a qualified payee (as defined in paragraph
(f)(2)(vi) of this section) with respect to the payment; or
(ii) The cardholder/payor made the purchase to which the payment
relates no later than two months after the last date prescribed under
paragraph (f)(3) of this section for furnishing the QPCA's first
notification to the cardholder/payor that the payee is not a qualified
payee.
(2) Definitions--(i) Payment card defined. For purposes of this
section, a payment card is a card (or an account) issued by a payment
card organization, or one of its members, affiliates, or licensees, to
a cardholder/payor which, upon presentation to a merchant/payee,
represents an agreement of the cardholder to pay the merchant through
the payment card organization.
(ii) Payment card organization defined. For purposes of this
section, a payment card organization is an entity that sets the
standards and provides the mechanism, either directly or indirectly
through members, affiliates, or licensees, for effectuating payment
between a purchaser and a merchant in a payment card transaction. A
payment card organization acting directly or indirectly through its
members, affiliates, or licensees generally provides such a payment
mechanism by issuing payment cards, enrolling merchants as authorized
acceptors of payment cards for payment for goods or services, and
ensuring the system conducts the transactions in accordance with
prescribed standards for payment card transactions.
(iii) Payment card transaction defined. For purposes of this
section, a payment card transaction is a transaction in which a
cardholder/payor uses a payment card to purchase goods or services and
a merchant agrees to accept a payment card as a means of obtaining
payment.
(iv) Cardholder/payor defined. For purposes of this section, a
cardholder/payor is the person that agrees to make payments through the
payment card organization. Thus, in the case of a payment card issued
to an employee of a person that agrees to make payments through the
payment card organization, the employer rather than the employee is the
cardholder/payor.
(v) Qualified Payment Card Agent (QPCA) defined. For purposes of
this section, a Qualified Payment Card Agent (QPCA) is a payment card
organization that has a current QPCA determination from the Internal
Revenue Service (IRS) under applicable procedures (see Sec.
601.601(d)(2) of this chapter).
(vi) Qualified payee defined. For purposes of this section, a payee
is a qualified payee with respect to a reportable payment if--
(A) At the time the QPCA makes the payment, the QPCA has obtained
the payee's TIN and the payee's TIN has been validated through the IRS
TIN Matching Program; or
(B) The QPCA makes the payment during the six-month period
beginning on the date on which the QPCA first makes a payment to the
payee.
(3) Notification of payee status. In the case of a payment to a
payee other than a qualified payee as defined in paragraph (f)(2)(vi)
of this section with respect to the payment, the QPCA acting directly
or indirectly through its members, affiliates, or licensees must notify
the payor that the payee is not a qualified payee. The notification
must be furnished during the four-month period beginning on the date on
which the QPCA makes the payment. Notification may be provided in a
quarterly or other regular report of payee data to the cardholder/payor
and may consist of an asterisk, footnote, or other mark next to the
payee's name, with the text of the notification at the bottom of the
page or at the end of the list of payee data. Notification by the QPCA
that a payee is not a qualified payee does not constitute notice by the
IRS that the payee's TIN is incorrect for purposes of section
3406(a)(1)(B) and Sec. 31.3406(d)-5.
[[Page 41942]]
(4) Time of payment. A QPCA that makes reports to cardholders on
the basis of a calendar quarter or any shorter period (the reporting
period) may choose to treat all payments made during the reporting
period as being made on the last day of the period for purposes of
paragraphs (f)(2)(vi) and (f)(3) of this section. If the QPCA treats
payments as being made on the last day of a reporting period, the six-
month period in paragraph (f)(2)(vi) of this section and the four-month
period in paragraph (f)(3) of this section are treated as beginning on
the first day of the reporting period in which the QPCA makes the
payment that would otherwise begin the six-month or four-month period.
(5) Examples. The following examples illustrate the rules of this
section. For purposes of the examples, assume that Q meets all
requirements and fulfills all duties necessary to obtain a QPCA
determination from the IRS. The examples are as follows:
Example 1. (i) Q, a QPCA, enrolls Merchant X on January 20,
2005, to accept the Q payment card as a means for obtaining payment.
(The results in this example are the same whether the acts
attributed to Q are performed by Q itself or by a member, affiliate,
or licensee of Q.) At the time of enrollment, Q obtains Merchant X's
taxpayer identification number (TIN). Merchant X is a sole
proprietor engaged in the trade or business of repairing automobiles
and trucks. Q's first payment to Merchant X for purchases through
the payment card is made on January 31, 2005.
(ii) On March 1, 2005, Q issues a Q payment card to Customer A
to use for the purchase of goods or services in the course of its
trade or business from merchants that accept the Q payment card.
During 2005, Customer A uses Q payment card to purchase repairs to
A's vehicles from Merchant X on April 29, 2005, July 29, 2005, and
December 19, 2005. Q makes payments for the repairs on May 2, 2005,
August 1, 2005, and December 20, 2005. Q provides reports of payee
data to each of its cardholders, including Customer A, on the 15th
of April, July, October, and January for the quarter ending on the
last day of the preceding month, but does not choose to treat
payments as being made on the last day of the quarter for purposes
of paragraphs (f)(2)(vi) and (f)(3) of this section.
(iii) On March 15, 2005, Q attempts to validate Merchant X's
name/TIN through the IRS TIN Matching Program. On March 20, 2005,
the IRS notifies Q that the name/TIN furnished by Merchant X does
not match IRS data. On June 15, 2005, and September 15, 2005, Q
makes further unsuccessful attempts to validate Merchant X's name/
TIN through the IRS TIN Matching Program.
(iv) Under paragraph (f)(2)(vi)(B) of this section, Merchant X
is treated as a qualified payee for the six-month period beginning
on January 31, 2005 (the date of Q's first payment to Merchant X),
and ending on July 30, 2005. Accordingly, the payment on May 2,
2005, is a payment to a qualified payee and, under paragraph
(f)(1)(i) of this section, is not subject to backup withholding.
(v) Q has not validated Merchant X's TIN at the time of the
payments on August 1, 2005, and December 20, 2005. Accordingly,
under paragraph (f)(3) of this section, Q must notify Customer A
within four months of each of these payments that Merchant X is not
a qualified payee with respect to the payments. In the case of the
August 1 payment, the notification must be furnished no later than
November 30, 2005. Q may provide the notification in its quarterly
report of payee data for the July-September quarter furnished on
October 15, 2005.
(vi) Although Merchant X is not a qualified payee with respect
to the payments on August 1, 2005, and December 20, 2005, paragraph
(f)(1)(ii) of this section provides that backup withholding is not
required for purchases made no later than two months after the last
date prescribed for furnishing the first notification that Merchant
X is not a qualified payee. The last date for furnishing the first
notification is November 30, 2005, and the two-month period expires
on January 30, 2006. Because the payments relate to purchases on
July 29, 2005, and December 19, 2005, backup withholding is not
required with respect to either payment. Backup withholding may be
required with respect to any payment Customer A makes through the Q
payment card for purchases from Merchant X after January 30, 2006,
unless Q has previously succeeded in validating Merchant X's TIN.
Example 2. (i) Assume the same facts as in example (1) except
that Q chooses to treat payments as being made on the last day of
the quarter for purposes of paragraphs (f)(2)(vi) and (f)(3) of this
section.
(ii) The payment Q makes on January 31, 2005, is treated under
paragraph (f)(4) of this section as being made on March 31, 2005.
Similarly, the payments made on May 2, 2005, August 1, 2005, and
December 20, 2005, are treated as being made on June 30, 2005,
September 30, 2005, and December 31, 2005.
(iii) Under paragraphs (f)(2)(vi)(B) and (f)(4) of this section,
Merchant X is treated as a qualified payee for the six-month period
beginning on January 1, 2005 (the beginning of the reporting period
during which Q makes the first payment to Merchant X), and ending on
June 30, 2005. Accordingly, the payment treated as made on June 30,
2005, is a payment to a qualified payee and, under paragraph
(f)(1)(i) of this section, is not subject to backup withholding.
(iv) Q has not validated Merchant X's TIN at the time of the
payments that are treated as being made on September 30, 2005, and
December 31, 2005. Accordingly, under paragraphs (f)(3) and (f)(4)
of this section, Q must notify Customer A within four months of the
beginning of each reporting period during which Q makes these
payments that Merchant X is not a qualified payee with respect to
the payments. In the case of the September 30 payment, the
notification must be furnished no later than October 31, 2005. Q may
provide the notification in its quarterly report of payee data for
the July-September quarter furnished on October 15, 2005.
(v) Although Merchant X is not a qualified payee with respect to
the payments that are treated as being made on September 30, 2005,
and December 31, 2005, paragraph (f)(1)(ii) of this section provides
that backup withholding is not required for purchases made no later
than two months after the last date prescribed for furnishing the
first notification that Merchant X is not a qualified payee. The
last date for furnishing the first notification is October 31, 2005,
and the two-month period expires on December 31, 2005. Because the
payments relate to purchases on July 29, 2005, and December 19,
2005, backup withholding is not required with respect to either
payment. Backup withholding may be required with respect to any
payment Customer A makes through the Q payment card for purchases
from Merchant X after December 31, 2005, unless Q has previously
succeeded in validating Merchant X's TIN.
Sec. 31.3406(j)-1T [Removed]
0
Par. 3. Section 31.3406(j)-1T is removed.
0
Par. 4. Section 31.3406(j)-1 is amended by revising paragraphs (a) and
(f) to read as follows:
Sec. 31.3406(j)-1 Taxpayer Identification Number (TIN) matching
program.
(a) The matching program. Under section 3406(i), the Commissioner
has the authority to establish Taxpayer Identification Number (TIN)
matching programs. The Commissioner may prescribe in a revenue
procedure (see Sec. 601.601(d)(2) of this chapter) or other
appropriate guidance the scope and the terms and conditions of
participating in any TIN matching program. In general, under a matching
program, prior to filing information returns with respect to reportable
payments as defined in section 3406(b)(1), a payor of those reportable
payments who is entitled to participate in the matching program may
contact the Internal Revenue Service (IRS) with respect to the TIN
furnished by a payee who has received or is likely to receive a
reportable payment. The IRS will inform the payor whether or not a
name/TIN combination furnished by the payee matches a name/TIN
combination maintained in the data base utilized for the particular
matching program. For purposes of this section, the term payor includes
an agent designated by the payor to participate in TIN matching on the
payor's behalf.
* * * * *
(f) Effective date. The last sentence in paragraph (a) of this
section is applicable on January 31, 2003. All other provisions of this
section are applicable on and after June 18, 1997.
[[Page 41943]]
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 5. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805. * * *
0
Par. 6. Section 301.6724-1 is amended by:
0
1. Revising the introductory language of paragraph (c)(6).
0
2. Adding paragraphs (e)(1)(vi)(H) and (f)(5)(vii).
The revision and additions read as follows:
Sec. 301.6724-1 Reasonable cause.
* * * * *
(c)* * *
(6) Actions of the payee or any other person. In order to establish
reasonable cause under paragraph (c)(1) of this section due to the
actions of the payee or any other person, such as a broker as defined
in section 6045(c) or a Qualified Payment Card Agent (QPCA) as defined
in Sec. 31.3406(g)-1(f)(2)(v) of this chapter, providing information
with respect to the return or payee statement, the filer must show
either--
* * * * *
(e) * * * (1) * * *
(vi) * * *
(H) In the case of information returns required to be filed, and
information statements required to be furnished, after December 31,
2005, the filer--
(1) Satisfies the solicitation requirements of paragraphs (e)(1)(i)
and (ii) of this section with respect to a payment made through a QPCA
if the filer relies in good faith on the QPCA to solicit, record,
validate, and furnish the payee's TIN; and
(2) Satisfies the solicitation requirement of paragraph (e)(1)(iii)
of this section with respect to such a payment if, on or before
December 31 of the year immediately succeeding the calendar year in
which the payment is made, the filer undertakes a solicitation of the
payee's TIN or receives from the QPCA a TIN that the filer believes in
good faith to be the payee's correct TIN.
* * * * *
(f) * * *
(5) * * *
(vii) In the case of information returns required to be filed, and
information statements required to be furnished, after December 31,
2005, the filer--
(A) Satisfies the solicitation requirement of paragraph (f)(1)(i)
of this section with respect to a payment made through a QPCA if the
filer relies in good faith on the QPCA to solicit, record, validate,
and furnish the payee's TIN; and
(B) Satisfies the solicitation requirement of paragraph (f)(1)(ii)
or (iii) of this section, whichever is applicable, with respect to such
a payment if, after the date the filer is notified that the account of
the payee contains an incorrect TIN and on or before the date by which
the applicable requirement must be satisfied, the filer solicits the
payee's correct TIN in a manner that satisfies the applicable
requirement or receives from the QPCA a TIN that the filer believes in
good faith to be the payee's correct TIN.
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 7. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 8. In Sec. 602.101, paragraph (b) is amended by revising the
entry for 31.3406(g)-1 in the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control
No.
------------------------------------------------------------------------
* * * * *
31.3406(g)-1............................................... 1545-0096
1545-0112
1545-1819
* * * * *
------------------------------------------------------------------------
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved by: July 1, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-15751 Filed 7-12-04; 8:45 am]
BILLING CODE 4830-01-P