Time for Filing Employment Tax Returns and Modifications to the Deposit Rules, 46-48 [05-24563]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 1 (Tuesday, January 3, 2006)]
[Proposed Rules]
[Pages 46-48]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-24563]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG-148568-04]
RIN 1545-BD93


Time for Filing Employment Tax Returns and Modifications to the 
Deposit Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations, notice of proposed rulemaking, and notice of public 
hearing.

-----------------------------------------------------------------------

SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations 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 Sec. Sec.  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 Sec.  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.

DATES: 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.

ADDRESSES: 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 https://www.irs.gov/regs or via the Federal eRulemaking 
Portal at https://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 a toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register 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.

[[Page 47]]

De Minimis Deposit Rule

    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, Sec.  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 Sec.  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 Sec.  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.

Special Analyses

    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.

Drafting Information

    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.

List of Subjects in 26 CFR Part 31

    Employment taxes, 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 31.6011(a)-1 is amended by revising paragraph 
(a)(5) to read as follows:

[[Page 48]]

Sec.  31.6011(a)-1  Returns under Federal Insurance Contributions Act.

    (a) * * *
    (5) [The text of proposed Sec.  31.6011(a)-1(a)(5) is the same as 
the text of Sec.  31.6011(a)-1T(a)(5) published elsewhere in this issue 
of the Federal Register].
* * * * *
    Par. 3. Section 31.6011(a)-4 is amended by revising paragraph 
(a)(4) to read as follows:


Sec.  31.6011(a)-4  Returns of income tax withheld.

    (a) * * *
    (4) [The text of proposed Sec.  31.6011(a)-4(a)(4) is the same as 
the text of Sec.  31.6011(a)-4T(a)(4) published elsewhere in this issue 
of the Federal Register].
* * * * *
    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:


Sec.  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 Sec.  31.6302-1(b)(4)(i) is the same 
as the text of Sec.  31.6302-1T(b)(4)(i) published elsewhere in this 
issue of the Federal Register].
    (ii) [The text of the proposed Sec.  31.6302-1(b)(4)(ii) is the 
same as the text of Sec.  31.6302-1T(b)(4)(ii) published elsewhere in 
this issue of the Federal Register].
    (c) * * *
    (5) [The text of proposed Sec.  31.6302-1(c)(5) is the same as the 
text of Sec.  31.6302-1T(c)(5) published elsewhere in this issue of the 
Federal Register].
    (6) [The text of proposed Sec.  31.6302-1(c)(6 is the same as the 
text of Sec.  31.6302-1T(c)(6) published elsewhere in this issue of the 
Federal Register].
    (d) * * *

    Example 6. [The text of proposed Sec.  31.6302-1(d) Example 6 is 
the same as the text of Sec.  31.6302-1T(d) Example 6 published 
elsewhere in this issue of the Federal Register].
* * * * *
    (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 Sec.  31.6302-1(f)(4)(iii) is the same 
as the text of Sec.  31.6302-1T(f)(4)(iii) published elsewhere in this 
issue of the Federal Register].
    (5) * * *

    Example 3. [The text of proposed Sec.  31.6302-1(f)(5) Example 3 
is the same as the text of Sec.  31.6302-1T(f)(5) Example 3 
published elsewhere in this issue of the Federal Register]
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-24563 Filed 12-30-05; 8:45 am]
BILLING CODE 4830-01-P