Extending Religious and Family Member FICA and FUTA Exceptions to Disregarded Entities, 67363-67366 [2011-28176]
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Federal Register / Vol. 76, No. 211 / Tuesday, November 1, 2011 / Rules and Regulations
§ 42.24 Adoption under the Hague
Convention on Protection of Children and
Co-operation in Respect of Intercountry
Adoption and the Intercountry Adoption Act
of 2000.
safety, or state, local or tribal
governments or communities.
Executive Order 13563
The Department of State has
considered this rule in light of
Executive Order 13563, dated January
18, 2011, and affirms that this regulation
is consistent with the guidance therein.
Executive Orders 12372 and 13132:
Federalism
This regulation will not have
substantial direct effects on the States,
on the relationship between the national
government and the States, or the
distribution of power and
responsibilities among the various
levels of government. Nor will the rule
have federalism implications warranting
the application of Executive Orders No.
12372 and No. 13132.
Executive Order 13175
The Department of State has
determined that this rulemaking will
not have tribal implications, will not
impose substantial direct compliance
costs on Indian tribal governments, and
will not pre-empt tribal law.
Accordingly, the requirement of Section
5 of Executive Order 13175 does not
apply to this rulemaking.
Paperwork Reduction Act
This rule does not impose information
collection requirements under the
provisions of the Paperwork Reduction
Act, 44 U.S.C., Chapter 35.
(a) Except as described in paragraph
(n), for purposes of this section, the
definitions in 22 CFR 96.2 apply.
*
*
*
*
*
(n) Notwithstanding paragraphs (d)
through (m) of this section, an alien
described in paragraph (n)(1) of this
section may qualify for visa status under
INA section 101(b)(1)(G)(iii) without
meeting the requirements set forth in
paragraphs (d) through (m) of this
section.
(1) Per Section 4(b) of the Intercountry
Adoption Simplification Act, Public
Law 111–287 (IASA), an alien otherwise
described in INA section
101(b)(1)(G)(iii) who attained the age of
18 on or after April 1, 2008 shall be
deemed to meet the age requirement
imposed by INA section
101(b)(1)(G)(iii)(III), provided that a
petition is filed for such child in
accordance with DHS requirements not
later than November 30, 2012.
(2) For any alien described in
paragraph (n)(1) of this section, the
‘‘competent authority’’ referred to in
INA section 101(b)(1)(G)(i)(V)(aa) is the
passport issuing authority of the country
of origin.
Dated: October 21, 2011.
Janice L. Jacobs,
Assistant Secretary for Consular Affairs,
Department of State.
[FR Doc. 2011–28281 Filed 10–31–11; 8:45 am]
BILLING CODE 4710–06–P
List of Subjects in 22 CFR Part 42
DEPARTMENT OF THE TREASURY
Immigration, Passports and Visas.
Accordingly, for the reasons set forth
in the preamble, 22 CFR part 42 is
amended as follows:
Internal Revenue Service
PART 42—[AMENDED]
[TD 9554]
26 CFR Parts 31 and 301
RIN 1545–BJ07
1. The authority citation for part 42
continues to read as follows:
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■
Authority: 8 U.S.C. 1104 and 1182; Pub.
L. 105–277; Pub. L. 108–449; 112 Stat. 2681–
795 through 2681–801; The Convention on
Protection of Children and Co-operation in
Respect of Intercountry Adoption (done at
the Hague, May 29, 1993), S. Treaty Doc.
105–51 (1998), 1870 U.N.T.S. 167 (Reg. No.
31922 (1993)); The Intercountry Adoption
Act of 2000, 42 U.S.C. 14901–14954, Pub. L.
106–279.
2. Section 42.24 is amended by
revising paragraph (a) and adding
paragraph (n) to read as follows:
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Extending Religious and Family
Member FICA and FUTA Exceptions to
Disregarded Entities
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
This document contains final
and temporary regulations amending 26
CFR parts 31 and 301. These regulations
extend the exceptions from taxes under
the Federal Insurance Contributions Act
(‘‘FICA’’) and the Federal
Unemployment Tax Act (‘‘FUTA’’)
under sections 3121(b)(3) (concerning
SUMMARY:
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67363
individuals who work for certain family
members), 3127 (concerning members of
religious faiths), and 3306(c)(5)
(concerning persons employed by
children and spouses and children
under 21 employed by their parents) of
the Internal Revenue Code (‘‘Code’’) to
entities that are disregarded as separate
from their owners for federal tax
purposes. The temporary regulations
also clarify the existing rule that the
owners of disregarded entities, except
for qualified subchapter S subsidiaries,
are responsible for backup withholding
and related information reporting
requirements under section 3406. The
text of the temporary regulations also
serves as the text of the proposed
regulations set forth in the notice of
proposed rulemaking on this subject in
the Proposed Rules section in this issue
of the Federal Register.
DATES: Effective Date: These regulations
are effective on November 1, 2011.
Applicability Date: For dates of
applicability see §§ 31.3121(b)(3)–1T(e),
31.3127–1T(d), 31.3306(c)(5)–1T(e),
301.7701–2T(e)(5).
FOR FURTHER INFORMATION CONTACT:
Joseph Perera (202) 622–6040 (not a toll
free call).
SUPPLEMENTARY INFORMATION:
Background
This document contains final and
temporary regulations amending the
Employment Tax Regulations (26 CFR
part 31) and the Procedure and
Administration Regulations (26 CFR
part 301) to extend the FICA and FUTA
exceptions for family members and
religious sect members to certain
entities that are disregarded as separate
from their owners for federal tax
purposes under § 301.7701–2(c). Section
301.7701–2(c)(2)(i) provides that
generally, except as otherwise provided,
a business entity that has a single owner
and is not a corporation under
§ 301.7701–2(b) is disregarded as an
entity separate from its owner. Prior to
2009, single-member entities
disregarded as separate from their
owners were generally disregarded for
employment taxes and certain other
requirements of law arising under
subtitle C. An employer is generally
defined as the person for whom an
individual performs services as an
employee. Sections 3401(d), 3121(d),
and 3306(a). Prior to 2009, the owner of
the disregarded entity was treated as the
employer for purposes of employment
tax liabilities and all other employment
tax obligations related to wages paid to
employees performing services for the
disregarded entity.
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67364
Federal Register / Vol. 76, No. 211 / Tuesday, November 1, 2011 / Rules and Regulations
Recent changes to § 301.7701–
2(c)(2)(iv) provide that, with respect to
wages paid after December 31, 2008, a
disregarded entity is treated as a
separate entity for purposes of
employment taxes imposed under
Subtitle C and related reporting
requirements. In addition, the separate
entity is treated as a corporation for
purposes of employment taxes imposed
under Subtitle C and related reporting
requirements. Therefore, the entity,
rather than the owner, is considered to
be the employer of any individual
performing services for the entity.
Sections 3111 and 3301 of the Code
impose FICA and FUTA taxes,
respectively, on the employer in an
amount equal to a percentage of the
wages paid by that employer with
respect to employment. Under section
3101, FICA tax is also imposed on the
employee. Sections 3121(b) and 3306(c)
define employment for FICA and FUTA
purposes as any service, of whatever
nature, performed by an employee for
the person employing him. However,
there are some services which are
explicitly excepted from the definition
of employment. For example, section
3121(b)(3)(A) provides that service
performed by a child under the age of
18 in the employ of his father or mother
is not considered employment for FICA
purposes. Section 3121(b)(3)(B)
provides that service performed by an
individual under the age of 21
employed by his father or mother, or
performed by an individual employed
by his spouse or son or daughter
(subject to certain conditions) for
domestic service in a private home of
the employer is not considered
employment for FICA purposes. Section
3306(c)(5) provides that service
performed by an individual in the
employ of his son, daughter, or spouse,
and service performed by a child under
the age of 21 in the employ of his father
or mother are not considered
employment for FUTA purposes.
Prior to the recent changes to
§ 301.7701–2(c), the services a family
member performed for a disregarded
entity wholly owned by another family
member could qualify for the exceptions
under sections 3121(b)(3) and 3306(c)(5)
if all the requirements were satisfied, as
the individual family member owner
was treated as the employer. However,
due to the recent changes to the
regulations, family members can no
longer qualify for the FICA and FUTA
exceptions that apply to family
employment because § 301.7701–
2(c)(2)(iv) regards the disregarded entity
as a separate entity and treats the
separate entity as a corporation for
employment tax purposes. Sections
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31.3121(b)(3)–1(c) and 31.3306(c)(5)–
1(c) explicitly state that services
performed in the employ of a
corporation are not within the
exceptions from employment that apply
because of the existence of a family
relationship between the employee and
the individual employing him.
Section 3127 provides an exception
from FICA taxes where both the
employer and the employee are
members of a religious faith opposed to
participation in the Social Security Act.
Both the employer and the employee
must be members of a recognized
religious sect and both must have filed
and had approved an application
certifying that they are members of a
qualifying religious faith. Prior to the
recent changes made to § 301.7701–2(c),
service performed by a member of a
qualifying religious sect for a
disregarded entity wholly owned by
another member of a qualifying religious
sect could qualify for this exception as
the individual sect member was
considered to be the employer.
However, as a result of the recent
changes to § 301.7701–2(c)(2)(iv), the
disregarded entity is regarded as a
separate entity for employment tax
purposes and the separate entity is
treated as a corporation. As a
corporation, the entity cannot be
considered a member of a qualifying
religious sect. Therefore, the exception
cannot apply, as the employer would
not be a member of a qualifying
religious sect.
Section 301.7701–2(c)(2)(iv) treats
disregarded entities as corporations for
employment tax purposes. Such entities
cannot qualify for the FICA and FUTA
exceptions contained in sections
3121(b)(3), 3127, and 3306(c)(5) because
the individual owner is no longer
considered the employer. The IRS and
the Treasury Department did not intend
to render these exceptions inapplicable
to disregarded entities that were eligible
for the exceptions prior to the effective
date of the new regulations in
§ 301.7701–2(c). The inability of these
entities to benefit from the exceptions
for family employees and members of
religious faiths has an adverse impact
on small businesses. Accordingly, a
change is necessary to correct this
problem.
While § 301.7701–2(c)(2)(iv) treats an
entity that is disregarded as an entity
separate from its owner as a corporation
for employment tax purposes, such
entity remains disregarded for backup
withholding and related information
reporting purposes. The preamble to
Treasury Decision 9356, 2007–39 I.R.B.
675, which finalized the changes to
§ 301.7701–2(c) indicates that these
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regulations do not apply to reportable
payments under section 3406.
Accordingly, the owner of the
disregarded entity is responsible for any
backup withholding that is required
with respect to reportable payments
considered made by the owner rather
than the disregarded entity, other than
a qualified subchapter S subsidiary.
However, the final regulations
themselves do not explicitly state that
such disregarded entities are not
responsible for information reporting
and backup withholding. This has
caused some confusion as to the
responsible party for filing information
returns for reportable payments and
related backup withholding
requirements. Therefore, language has
been added to these regulations to
clarify the existing rules with respect to
backup withholding and related
information reporting responsibilities.
Explanation of Provisions
The temporary regulations would
allow certain disregarded entities under
§ 301.7701–2 to qualify for the FICA and
FUTA exceptions of sections 3121(b)(3),
3127 and 3306(c)(5). The disregarded
entity will continue to be treated as a
corporation for all employment tax
purposes, except the entity will be
disregarded for the limited purposes of
applying the FICA and FUTA
exceptions found in sections 3121(b)(3),
3127 and 3306(c)(5). For purposes of
applying these exceptions only, the
owner of the disregarded entity will be
treated as the employer and the
employee will be considered to be an
employee of the owner. Additionally,
the regulations clarify the existing rule
that disregarded entities under
§ 301.7701–2 are not responsible for
backup withholding and information
reporting of reportable payments under
section 3406. Rather, the owner of a
disregarded entity under § 301.7701–2 is
responsible for backup withholding and
information reporting of reportable
payments under section 3406. This does
not change the existing rule.
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, and because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, this
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Federal Register / Vol. 76, No. 211 / Tuesday, November 1, 2011 / Rules and Regulations
regulation will be 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
regulations is Joseph Perera, Office of
Associate Chief Counsel (Tax Exempt &
Government Entities). However, other
personnel from the IRS and Treasury
Department participated in their
development.
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 recording
requirements.
§ 31.3127–1T Exemption for employers
and their employees where both are
members of religious faiths opposed to
participation in Social Security Act
programs (temporary).
Amendments to the Regulations
Accordingly, 26 CFR parts 31 and 301
are 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:
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Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3121(b)(3)–1 is
amended by revising paragraph (c) and
adding paragraphs (d) and (e) to read as
follows:
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§ 31.3121(b)(3)–1
Family employment.
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(c) [Reserved]. For further guidance,
see § 31.3121(b)(3)–1T(c).
(d) [Reserved]. For further guidance,
see § 31.3121(b)(3)–1T(d).
(e) [Reserved]. For further guidance,
see § 31.3121(b)(3)–1T(e).
■ Par. 3. Section 31.3121(b)(3)–1T is
added to read as follows:
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§ 31.3121(b)(3)–1T
(temporary).
Family employment
(a) [Reserved]. For further guidance,
see § 31.3121(b)(3)–1(a).
(b) [Reserved]. For further guidance,
see § 31.3121(b)(3)–1(b).
(c) Services performed in the employ
of a corporation are not within the
exceptions, except as provided in
paragraph (d). Services performed in the
employ of a partnership are not within
the exception unless the requisite family
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relationship exists between the
employee and each of the partners
comprising the partnership.
(d) A disregarded entity that is treated
as a corporation under § 301.7701–
2(c)(2)(iv)(B) of this chapter (Procedure
and Administration Regulations) shall
not be treated as a corporation for
purposes of applying section 3121(b)(3).
For purposes of applying section
3121(b)(3), the owner of the disregarded
entity will be treated as the employer.
(e) Paragraphs (c) and (d) of this
section apply with respect to wages paid
on or after November 1, 2011. However,
taxpayers may apply paragraphs (c) and
(d) of this section to wages paid on or
after January 1, 2009.
(f) Expiration date. The applicability
of paragraphs (c) and (d) of this section
expires on or before October 31, 2014.
■ Par. 4. Section 31.3127–1T is added to
subpart B to read as follows:
(a) If an employer (or if the employer
is a partnership, each partner therein)
and their employee are members of a
recognized religious sect or division
described in section 1402(g)(1) of the
Code, both the employer and employee
adhere to the tenets and teachings of
that sect, and both the employer and
employee have filed and had approved
applications under section 3127(b) for
exemption from the taxes imposed by
sections 3111 and 3101 then the
employer is exempt from taxes imposed
by section 3111 with respect to the
wages paid to the eligible employee, and
the employee is exempt from the taxes
imposed by section 3101 with respect to
the wages paid by that employer.
(b) Services performed in the employ
of a corporation are not within the
exception, except as provided in
paragraph (c) of this section.
(c) A disregarded entity that is treated
as a corporation under § 301.7701–
2(c)(2)(iv)(B) of this chapter (Procedure
and Administration Regulations) shall
not be treated as a corporation for
purposes of applying section 3127. For
purposes of section 3127, the owner of
the disregarded entity will be treated as
the employer and the payor of the
employee’s wages.
(d) This section applies with respect
to wages paid on or after November 1,
2011. However, taxpayers may apply
this section to wages paid on or after
January 1, 2009.
(e) Expiration date. The applicability
of this section expires on or before
[October 31, 2014].
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Par. 5. Section 31.3306(c)(5)–1 is
amended by revising paragraph (c) and
adding paragraphs (d) and (e) to read as
follows:
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§ 31.3306(c)(5)–1
Family Employment.
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(c) [Reserved]. For further guidance,
see § 31.3306(c)(5)–1T(c).
(d) [Reserved]. For further guidance,
see § 31.3306(c)(5)–1T(d).
(e) [Reserved]. For further guidance,
see § 31.3306(c)(5)–1T(e).
■ Par. 6. Section 31.3306(c)(5)–1T is
added to read as follows:
§ 31.3306(c)(5)–1T
(temporary).
Family employment
(a) [Reserved]. For further guidance,
see § 31.3306(c)(5)–1(a).
(b) [Reserved]. For further guidance,
see § 31.3306(c)(5)–1(b)
(c) Services performed in the employ
of a corporation are not within the
exception, except as provided in
paragraph (d) of this section. Services
performed in the employ of a
partnership are not within the exception
unless the requisite family relationship
exists between the employee and each
of the partners comprising the
partnership.
(d) A disregarded entity that is treated
as a corporation under § 301.7701–
2(c)(2)(iv)(B) of this chapter (Procedure
and Administration Regulations) shall
not be treated as a corporation for
purposes of applying section 3306(c)(5).
For purposes of applying section
3306(c)(5), the owner of the disregarded
entity will be treated as the employer.
(e) Paragraphs (c) and (d) of this
section apply with respect to wages paid
on or after November 1, 2011. However,
taxpayers may apply paragraphs (c) and
(d) of this section to wages paid on or
after January 1, 2009.
(f) Expiration date. The applicability
of paragraphs (c) and (d) of this section
expires on or before [October 31, 2014].
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 7. The authority citation for part
301 continues to read in part as follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 8. Section 301.7701–2 is
amended by:
■ 1. Revising paragraph (c)(2)(iv)(A).
■ 2. Redesignating paragraph
(c)(2)(iv)(C) as paragraph (c)(2)(iv)(D)
and adding new paragraph (c)(2)(iv)(C).
■
§ 301.7701–2
definitions.
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(c) * * *
(2) * * *
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Business entities;
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(iv) * * *
(A) [Reserved]. For further guidance,
see § 301.7701–2T(c)(2)(iv)(A).
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(C) [Reserved]. For further guidance,
see § 301.7701–2T(c)(2)(iv)(C).
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■ Par. 9. Section 301.7701–2T is revised
to read as follows:
(c)(2)(iv)(C) of this section expires on or
before [October 31, 2014].
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: November 19, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2011–28176 Filed 10–31–11; 8:45 am]
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§ 301.7701–2T Business entities;
definitions (temporary).
BILLING CODE 4830–01–P
(a) through (c)(2)(iv) [Reserved]. For
further guidance, see § 301.7701–2(a)
through (c)(2)(iv).
(A) In general. Section § 301.7701–
2(c)(2)(i) (relating to certain wholly
owned entities) does not apply to taxes
imposed under Subtitle C—Employment
Taxes and Collection of Income Tax
(Chapters 21, 22, 23, 23A, 24 and 25 of
the Internal Revenue Code). However,
§ 301.7701–2(c)(2)(i) does apply to
withholding requirements imposed
under section 3406 (backup
withholding). The owner of a business
entity that is disregarded under
§ 301.7701–2 is subject to the
withholding requirements imposed
under section 3406 (backup
withholding). Section 301.7701–
2(c)(2)(i) also applies to taxes imposed
under Subtitle A, including Chapter 2—
Tax on Self-Employment Income. The
owner of an entity that is treated in the
same manner as a sole proprietorship
under § 301.7701–2(a) will be subject to
tax on self-employment income.
(B) [Reserved]. For further guidance,
see § 301.7701–2(c)(2)(iv)(B).
(C) Exceptions. For exceptions to the
rule in § 301.7701–2(c)(2)(iv)(B), see
sections 31.3121(b)(3)–1(d), 31.3127–
1(c), and 31.3306(c)(5)–1(d).
(D) through (e)(4) [Reserved]. For
further guidance, see § 301.7701–
2(c)(2)(iv)(D) through (e)(4).
(5) Paragraphs (c)(2)(iv)(A) and
(c)(2)(iv)(C) of this section apply to
wages paid on or after November 1,
2011. For rules that apply to paragraph
(c)(2)(iv)(A) of this section before
November 1, 2011, see 26 CFR part 301
revised as of April 1, 2009. However,
taxpayers may apply paragraphs
(c)(2)(iv)(A) and (c)(2)(iv)(C) of this
section to wages paid on or after January
1, 2009.
(e)(6) through (e)(7) [Reserved]. For
further guidance, see § 301.7701–2(e)(6)
through (e)(7).
(8) Expiration Date. The applicability
of paragraphs (c)(2)(iv)(A) and
ENVIRONMENTAL PROTECTION
AGENCY
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40 CFR Part 52
[EPA–R09–OAR–2011–0382; FRL–9477–4]
Revisions to the California State
Implementation Plan, Placer County
Air Pollution Control District and
Sacramento Metro Air Quality
Management District
Environmental Protection
Agency (EPA).
ACTION: Direct final rule.
AGENCY:
EPA is taking direct final
action to approve revisions to the Placer
County Air Pollution Control District
(PCAPCD) and Sacramento Metro Air
Quality Management District
(SMAQMD) portions of the California
State Implementation Plan (SIP). These
revisions concern oxides of nitrogen
(NOX) emissions from industrial,
institutional and commercial boilers,
stationary internal combustion engines
and water heaters. We are approving
local rules that regulate these emission
sources under the Clean Air Act as
amended in 1990 (CAA or the Act).
DATES: This rule is effective on January
3, 2012 without further notice, unless
EPA receives adverse comments by
December 1, 2011. If we receive such
comments, we will publish a timely
withdrawal in the Federal Register to
notify the public that this direct final
rule will not take effect.
ADDRESSES: Submit comments,
identified by docket number EPA–R09–
OAR–2011–0382, by one of the
following methods:
1. Federal eRulemaking Portal: https://
www.regulations.gov. Follow the on-line
instructions.
2. Email: steckel.andrew@epa.gov.
3. Mail or deliver: Andrew Steckel
(Air-4), U.S. Environmental Protection
Agency Region IX, 75 Hawthorne Street,
San Francisco, CA 94105–3901.
Instructions: All comments will be
included in the public docket without
change and may be made available
SUMMARY:
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online at https://www.regulations.gov,
including any personal information
provided, unless the comment includes
Confidential Business Information (CBI)
or other information whose disclosure is
restricted by statute. Information that
you consider CBI or otherwise protected
should be clearly identified as such and
should not be submitted through https://
www.regulations.gov or email. https://
www.regulations.gov is an ‘‘anonymous
access’’ system, and EPA will not know
your identity or contact information
unless you provide it in the body of
your comment. If you send email
directly to EPA, your email address will
be automatically captured and included
as part of the public comment. If EPA
cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EPA may not be
able to consider your comment.
Electronic files should avoid the use of
special characters, any form of
encryption, and be free of any defects or
viruses.
Docket: Generally, documents in the
docket for this action are available
electronically at https://
www.regulations.gov and in hard copy
at EPA Region IX, 75 Hawthorne Street,
San Francisco, California. While all
documents in the docket are listed at
https://www.regulations.gov, some
information may be publicly available
only at the hard copy location (e.g.,
copyrighted material, large maps), and
some may not be publicly available in
either location (e.g., CBI). To inspect the
hard copy materials, please schedule an
appointment during normal business
hours with the contact listed in the FOR
FURTHER INFORMATION CONTACT section.
FOR FURTHER INFORMATION CONTACT:
´
Idalia Perez, EPA Region IX, (415) 972–
3248, perez.idalia@epa.gov.
SUPPLEMENTARY INFORMATION:
Throughout this document, ‘‘we,’’ ‘‘us,’’
and ‘‘our’’ refer to EPA.
Table of Contents
I. The State’s Submittal
A. What rules did the State submit?
B. Are there other versions of these rules?
C. What is the purpose of the submitted
rules?
II. EPA’s Evaluation and Action
A. How is EPA evaluating the rules?
B. Do the rules meet the evaluation
criteria?
C. EPA Recommendations To Further
Improve the Rules
D. Public Comment and Final Action
III. Statutory and Executive Order Reviews
I. The State’s Submittal
A. What rules did the State submit?
Table 1 lists the rules we are
approving with the dates that they were
E:\FR\FM\01NOR1.SGM
01NOR1
]]>Agencies
[Federal Register Volume 76, Number 211 (Tuesday, November 1, 2011)]
[Rules and Regulations]
[Pages 67363-67366]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28176]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 31 and 301
[TD 9554]
RIN 1545-BJ07
Extending Religious and Family Member FICA and FUTA Exceptions to
Disregarded Entities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations
amending 26 CFR parts 31 and 301. These regulations extend the
exceptions from taxes under the Federal Insurance Contributions Act
(``FICA'') and the Federal Unemployment Tax Act (``FUTA'') under
sections 3121(b)(3) (concerning individuals who work for certain family
members), 3127 (concerning members of religious faiths), and 3306(c)(5)
(concerning persons employed by children and spouses and children under
21 employed by their parents) of the Internal Revenue Code (``Code'')
to entities that are disregarded as separate from their owners for
federal tax purposes. The temporary regulations also clarify the
existing rule that the owners of disregarded entities, except for
qualified subchapter S subsidiaries, are responsible for backup
withholding and related information reporting requirements under
section 3406. The text of the temporary regulations also serves as the
text of the proposed regulations set forth in the notice of proposed
rulemaking on this subject in the Proposed Rules section in this issue
of the Federal Register.
DATES: Effective Date: These regulations are effective on November 1,
2011.
Applicability Date: For dates of applicability see Sec. Sec.
31.3121(b)(3)-1T(e), 31.3127-1T(d), 31.3306(c)(5)-1T(e), 301.7701-
2T(e)(5).
FOR FURTHER INFORMATION CONTACT: Joseph Perera (202) 622-6040 (not a
toll free call).
SUPPLEMENTARY INFORMATION:
Background
This document contains final and temporary regulations amending the
Employment Tax Regulations (26 CFR part 31) and the Procedure and
Administration Regulations (26 CFR part 301) to extend the FICA and
FUTA exceptions for family members and religious sect members to
certain entities that are disregarded as separate from their owners for
federal tax purposes under Sec. 301.7701-2(c). Section 301.7701-
2(c)(2)(i) provides that generally, except as otherwise provided, a
business entity that has a single owner and is not a corporation under
Sec. 301.7701-2(b) is disregarded as an entity separate from its
owner. Prior to 2009, single-member entities disregarded as separate
from their owners were generally disregarded for employment taxes and
certain other requirements of law arising under subtitle C. An employer
is generally defined as the person for whom an individual performs
services as an employee. Sections 3401(d), 3121(d), and 3306(a). Prior
to 2009, the owner of the disregarded entity was treated as the
employer for purposes of employment tax liabilities and all other
employment tax obligations related to wages paid to employees
performing services for the disregarded entity.
[[Page 67364]]
Recent changes to Sec. 301.7701-2(c)(2)(iv) provide that, with
respect to wages paid after December 31, 2008, a disregarded entity is
treated as a separate entity for purposes of employment taxes imposed
under Subtitle C and related reporting requirements. In addition, the
separate entity is treated as a corporation for purposes of employment
taxes imposed under Subtitle C and related reporting requirements.
Therefore, the entity, rather than the owner, is considered to be the
employer of any individual performing services for the entity.
Sections 3111 and 3301 of the Code impose FICA and FUTA taxes,
respectively, on the employer in an amount equal to a percentage of the
wages paid by that employer with respect to employment. Under section
3101, FICA tax is also imposed on the employee. Sections 3121(b) and
3306(c) define employment for FICA and FUTA purposes as any service, of
whatever nature, performed by an employee for the person employing him.
However, there are some services which are explicitly excepted from the
definition of employment. For example, section 3121(b)(3)(A) provides
that service performed by a child under the age of 18 in the employ of
his father or mother is not considered employment for FICA purposes.
Section 3121(b)(3)(B) provides that service performed by an individual
under the age of 21 employed by his father or mother, or performed by
an individual employed by his spouse or son or daughter (subject to
certain conditions) for domestic service in a private home of the
employer is not considered employment for FICA purposes. Section
3306(c)(5) provides that service performed by an individual in the
employ of his son, daughter, or spouse, and service performed by a
child under the age of 21 in the employ of his father or mother are not
considered employment for FUTA purposes.
Prior to the recent changes to Sec. 301.7701-2(c), the services a
family member performed for a disregarded entity wholly owned by
another family member could qualify for the exceptions under sections
3121(b)(3) and 3306(c)(5) if all the requirements were satisfied, as
the individual family member owner was treated as the employer.
However, due to the recent changes to the regulations, family members
can no longer qualify for the FICA and FUTA exceptions that apply to
family employment because Sec. 301.7701-2(c)(2)(iv) regards the
disregarded entity as a separate entity and treats the separate entity
as a corporation for employment tax purposes. Sections 31.3121(b)(3)-
1(c) and 31.3306(c)(5)-1(c) explicitly state that services performed in
the employ of a corporation are not within the exceptions from
employment that apply because of the existence of a family relationship
between the employee and the individual employing him.
Section 3127 provides an exception from FICA taxes where both the
employer and the employee are members of a religious faith opposed to
participation in the Social Security Act. Both the employer and the
employee must be members of a recognized religious sect and both must
have filed and had approved an application certifying that they are
members of a qualifying religious faith. Prior to the recent changes
made to Sec. 301.7701-2(c), service performed by a member of a
qualifying religious sect for a disregarded entity wholly owned by
another member of a qualifying religious sect could qualify for this
exception as the individual sect member was considered to be the
employer. However, as a result of the recent changes to Sec. 301.7701-
2(c)(2)(iv), the disregarded entity is regarded as a separate entity
for employment tax purposes and the separate entity is treated as a
corporation. As a corporation, the entity cannot be considered a member
of a qualifying religious sect. Therefore, the exception cannot apply,
as the employer would not be a member of a qualifying religious sect.
Section 301.7701-2(c)(2)(iv) treats disregarded entities as
corporations for employment tax purposes. Such entities cannot qualify
for the FICA and FUTA exceptions contained in sections 3121(b)(3),
3127, and 3306(c)(5) because the individual owner is no longer
considered the employer. The IRS and the Treasury Department did not
intend to render these exceptions inapplicable to disregarded entities
that were eligible for the exceptions prior to the effective date of
the new regulations in Sec. 301.7701-2(c). The inability of these
entities to benefit from the exceptions for family employees and
members of religious faiths has an adverse impact on small businesses.
Accordingly, a change is necessary to correct this problem.
While Sec. 301.7701-2(c)(2)(iv) treats an entity that is
disregarded as an entity separate from its owner as a corporation for
employment tax purposes, such entity remains disregarded for backup
withholding and related information reporting purposes. The preamble to
Treasury Decision 9356, 2007-39 I.R.B. 675, which finalized the changes
to Sec. 301.7701-2(c) indicates that these regulations do not apply to
reportable payments under section 3406. Accordingly, the owner of the
disregarded entity is responsible for any backup withholding that is
required with respect to reportable payments considered made by the
owner rather than the disregarded entity, other than a qualified
subchapter S subsidiary. However, the final regulations themselves do
not explicitly state that such disregarded entities are not responsible
for information reporting and backup withholding. This has caused some
confusion as to the responsible party for filing information returns
for reportable payments and related backup withholding requirements.
Therefore, language has been added to these regulations to clarify the
existing rules with respect to backup withholding and related
information reporting responsibilities.
Explanation of Provisions
The temporary regulations would allow certain disregarded entities
under Sec. 301.7701-2 to qualify for the FICA and FUTA exceptions of
sections 3121(b)(3), 3127 and 3306(c)(5). The disregarded entity will
continue to be treated as a corporation for all employment tax
purposes, except the entity will be disregarded for the limited
purposes of applying the FICA and FUTA exceptions found in sections
3121(b)(3), 3127 and 3306(c)(5). For purposes of applying these
exceptions only, the owner of the disregarded entity will be treated as
the employer and the employee will be considered to be an employee of
the owner. Additionally, the regulations clarify the existing rule that
disregarded entities under Sec. 301.7701-2 are not responsible for
backup withholding and information reporting of reportable payments
under section 3406. Rather, the owner of a disregarded entity under
Sec. 301.7701-2 is responsible for backup withholding and information
reporting of reportable payments under section 3406. This does not
change the existing rule.
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, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, this
[[Page 67365]]
regulation will be 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 regulations is Joseph Perera, Office
of Associate Chief Counsel (Tax Exempt & Government Entities). However,
other personnel from the IRS and Treasury Department participated in
their development.
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 recording requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 31 and 301 are amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
0
Paragraph 1. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 31.3121(b)(3)-1 is amended by revising paragraph (c)
and adding paragraphs (d) and (e) to read as follows:
Sec. 31.3121(b)(3)-1 Family employment.
* * * * *
(c) [Reserved]. For further guidance, see Sec. 31.3121(b)(3)-
1T(c).
(d) [Reserved]. For further guidance, see Sec. 31.3121(b)(3)-
1T(d).
(e) [Reserved]. For further guidance, see Sec. 31.3121(b)(3)-
1T(e).
0
Par. 3. Section 31.3121(b)(3)-1T is added to read as follows:
Sec. 31.3121(b)(3)-1T Family employment (temporary).
(a) [Reserved]. For further guidance, see Sec. 31.3121(b)(3)-1(a).
(b) [Reserved]. For further guidance, see Sec. 31.3121(b)(3)-1(b).
(c) Services performed in the employ of a corporation are not
within the exceptions, except as provided in paragraph (d). Services
performed in the employ of a partnership are not within the exception
unless the requisite family relationship exists between the employee
and each of the partners comprising the partnership.
(d) A disregarded entity that is treated as a corporation under
Sec. 301.7701-2(c)(2)(iv)(B) of this chapter (Procedure and
Administration Regulations) shall not be treated as a corporation for
purposes of applying section 3121(b)(3). For purposes of applying
section 3121(b)(3), the owner of the disregarded entity will be treated
as the employer.
(e) Paragraphs (c) and (d) of this section apply with respect to
wages paid on or after November 1, 2011. However, taxpayers may apply
paragraphs (c) and (d) of this section to wages paid on or after
January 1, 2009.
(f) Expiration date. The applicability of paragraphs (c) and (d) of
this section expires on or before October 31, 2014.
0
Par. 4. Section 31.3127-1T is added to subpart B to read as follows:
Sec. 31.3127-1T Exemption for employers and their employees where
both are members of religious faiths opposed to participation in Social
Security Act programs (temporary).
(a) If an employer (or if the employer is a partnership, each
partner therein) and their employee are members of a recognized
religious sect or division described in section 1402(g)(1) of the Code,
both the employer and employee adhere to the tenets and teachings of
that sect, and both the employer and employee have filed and had
approved applications under section 3127(b) for exemption from the
taxes imposed by sections 3111 and 3101 then the employer is exempt
from taxes imposed by section 3111 with respect to the wages paid to
the eligible employee, and the employee is exempt from the taxes
imposed by section 3101 with respect to the wages paid by that
employer.
(b) Services performed in the employ of a corporation are not
within the exception, except as provided in paragraph (c) of this
section.
(c) A disregarded entity that is treated as a corporation under
Sec. 301.7701-2(c)(2)(iv)(B) of this chapter (Procedure and
Administration Regulations) shall not be treated as a corporation for
purposes of applying section 3127. For purposes of section 3127, the
owner of the disregarded entity will be treated as the employer and the
payor of the employee's wages.
(d) This section applies with respect to wages paid on or after
November 1, 2011. However, taxpayers may apply this section to wages
paid on or after January 1, 2009.
(e) Expiration date. The applicability of this section expires on
or before [October 31, 2014].
0
Par. 5. Section 31.3306(c)(5)-1 is amended by revising paragraph (c)
and adding paragraphs (d) and (e) to read as follows:
Sec. 31.3306(c)(5)-1 Family Employment.
* * * * *
(c) [Reserved]. For further guidance, see Sec. 31.3306(c)(5)-
1T(c).
(d) [Reserved]. For further guidance, see Sec. 31.3306(c)(5)-
1T(d).
(e) [Reserved]. For further guidance, see Sec. 31.3306(c)(5)-
1T(e).
0
Par. 6. Section 31.3306(c)(5)-1T is added to read as follows:
Sec. 31.3306(c)(5)-1T Family employment (temporary).
(a) [Reserved]. For further guidance, see Sec. 31.3306(c)(5)-1(a).
(b) [Reserved]. For further guidance, see Sec. 31.3306(c)(5)-1(b)
(c) Services performed in the employ of a corporation are not
within the exception, except as provided in paragraph (d) of this
section. Services performed in the employ of a partnership are not
within the exception unless the requisite family relationship exists
between the employee and each of the partners comprising the
partnership.
(d) A disregarded entity that is treated as a corporation under
Sec. 301.7701-2(c)(2)(iv)(B) of this chapter (Procedure and
Administration Regulations) shall not be treated as a corporation for
purposes of applying section 3306(c)(5). For purposes of applying
section 3306(c)(5), the owner of the disregarded entity will be treated
as the employer.
(e) Paragraphs (c) and (d) of this section apply with respect to
wages paid on or after November 1, 2011. However, taxpayers may apply
paragraphs (c) and (d) of this section to wages paid on or after
January 1, 2009.
(f) Expiration date. The applicability of paragraphs (c) and (d) of
this section expires on or before [October 31, 2014].
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 7. The authority citation for part 301 continues to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 8. Section 301.7701-2 is amended by:
0
1. Revising paragraph (c)(2)(iv)(A).
0
2. Redesignating paragraph (c)(2)(iv)(C) as paragraph (c)(2)(iv)(D) and
adding new paragraph (c)(2)(iv)(C).
Sec. 301.7701-2 Business entities; definitions.
* * * * *
(c) * * *
(2) * * *
[[Page 67366]]
(iv) * * *
(A) [Reserved]. For further guidance, see Sec. 301.7701-
2T(c)(2)(iv)(A).
* * * * *
(C) [Reserved]. For further guidance, see Sec. 301.7701-
2T(c)(2)(iv)(C).
* * * * *
0
Par. 9. Section 301.7701-2T is revised to read as follows:
Sec. 301.7701-2T Business entities; definitions (temporary).
(a) through (c)(2)(iv) [Reserved]. For further guidance, see Sec.
301.7701-2(a) through (c)(2)(iv).
(A) In general. Section Sec. 301.7701-2(c)(2)(i) (relating to
certain wholly owned entities) does not apply to taxes imposed under
Subtitle C--Employment Taxes and Collection of Income Tax (Chapters 21,
22, 23, 23A, 24 and 25 of the Internal Revenue Code). However, Sec.
301.7701-2(c)(2)(i) does apply to withholding requirements imposed
under section 3406 (backup withholding). The owner of a business entity
that is disregarded under Sec. 301.7701-2 is subject to the
withholding requirements imposed under section 3406 (backup
withholding). Section 301.7701-2(c)(2)(i) also applies to taxes imposed
under Subtitle A, including Chapter 2--Tax on Self-Employment Income.
The owner of an entity that is treated in the same manner as a sole
proprietorship under Sec. 301.7701-2(a) will be subject to tax on
self-employment income.
(B) [Reserved]. For further guidance, see Sec. 301.7701-
2(c)(2)(iv)(B).
(C) Exceptions. For exceptions to the rule in Sec. 301.7701-
2(c)(2)(iv)(B), see sections 31.3121(b)(3)-1(d), 31.3127-1(c), and
31.3306(c)(5)-1(d).
(D) through (e)(4) [Reserved]. For further guidance, see Sec.
301.7701-2(c)(2)(iv)(D) through (e)(4).
(5) Paragraphs (c)(2)(iv)(A) and (c)(2)(iv)(C) of this section
apply to wages paid on or after November 1, 2011. For rules that apply
to paragraph (c)(2)(iv)(A) of this section before November 1, 2011, see
26 CFR part 301 revised as of April 1, 2009. However, taxpayers may
apply paragraphs (c)(2)(iv)(A) and (c)(2)(iv)(C) of this section to
wages paid on or after January 1, 2009.
(e)(6) through (e)(7) [Reserved]. For further guidance, see Sec.
301.7701-2(e)(6) through (e)(7).
(8) Expiration Date. The applicability of paragraphs (c)(2)(iv)(A)
and (c)(2)(iv)(C) of this section expires on or before [October 31,
2014].
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: November 19, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-28176 Filed 10-31-11; 8:45 am]
BILLING CODE 4830-01-P
