Treatment of Income From Indian Fishing Rights-Related Activity as Compensation, 68780-68782 [2013-27331]

Download as PDF 68780 Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. The subject of the public hearing is under section 851(c) of the Internal Revenue Code. The public comment period for these regulations expired on October 31, 2013. The notice of proposed rulemaking and notice of public hearing instructed those interested in testifying at the public hearing to submit a request to speak and an outline of the topics to be addressed. As of Friday, November 8, 2013, no one has requested to speak. Therefore, the public hearing scheduled for December 9, 2013, is cancelled. Martin V. Franks, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). [FR Doc. 2013–27451 Filed 11–14–13; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG–120927–13] RIN–1545–BL61 Treatment of Income From Indian Fishing Rights-Related Activity as Compensation Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. AGENCY: This document contains proposed regulations that would clarify that amounts paid to an Indian tribe member as remuneration for services performed in a fishing rights-related activity may be treated as compensation for purposes of applying the limits on qualified plan benefits and contributions. These regulations would affect sponsors of, and participants in, employee benefit plans of Indian tribal governments. DATES: Comments and requests for a public hearing must be received by February 13, 2014. ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–120927–13), room 5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be handdelivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–120927–13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC 20224, or sent electronically via the Federal eRulemaking Portal at emcdonald on DSK67QTVN1PROD with PROPOSALS SUMMARY: VerDate Mar<15>2010 16:36 Nov 14, 2013 Jkt 232001 www.regulations.gov (IRS REG–120927– 13). FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Sarah Bolen or Pamela Kinard at (202) 622–6060 or (202) 317–6700; concerning the submission of comments or to request a public hearing, Oluwafunmilayo Taylor, (202) 622–7180 or (202) 317–6901 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background Indian tribal governments (ITGs) and individual tribe members conduct fishing activities to generate revenue, protect critical habitats, and preserve tribal customs and traditions. Various treaties, federal statutes, and Presidential executive orders reserve to Indian tribe members the right to fish for subsistence and commercial purposes both on and off reservations. Because many of the treaties, statutes, and executive orders were adopted before passage of the Federal income tax, they often do not expressly address the question of whether income derived by Indians and ITGs from protected fishing activities is exempt from taxation. See H.R. Rep. 100–1104, at p. 77 (1988). Congress added section 7873 to the Internal Revenue Code as part of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100–647). Section 7873(a)(1) provides that no income tax shall be imposed on income derived from a fishing rights-related activity of an Indian tribe by (A) a member of the tribe directly or through a qualified Indian entity, or (B) a qualified Indian entity. Section 7873(a)(2) provides that no employment tax shall be imposed on remuneration paid for services performed in a fishing rights-related activity of an Indian tribe by a member of such tribe for another member of such tribe or for a qualified Indian entity. Thus, section 7873(a) exempts income derived from a fishing rights-related activity (‘‘fishing rights-related income’’) from both income and employment taxes. Section 7873(b)(1) defines fishing rights-related activity with respect to an Indian tribe as any activity directly related to harvesting, processing, or transporting fish harvested in the exercise of a recognized fishing right of the tribe or to selling such fish but only if substantially all of such harvesting was performed by members of such tribe. Section 415(a)(1) provides that a trust that is part of a pension, profit-sharing, or stock bonus plan shall not constitute PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 a qualified trust under section 401(a) if (A) in the case of a defined benefit plan, the plan provides for the payment of benefits with respect to a participant which exceed the limitation of section 415(b), or (B) in the case of a defined contribution plan, contributions and other additions under the plan with respect to any participant for any taxable year exceed the limitation of section 415(c). Section 415(b)(1) provides that benefits with respect to a participant exceed the annual limitation for defined benefit plans if, when expressed as an annual benefit (within the meaning of section 415(b)(2)), the participant’s annual benefit is greater than the lesser of $160,000 (as adjusted in accordance with section 415(d)(1)) or 100 percent of the participant’s average compensation for the participant’s high 3 years. Section 415(b)(3) provides that, for purposes of section 415(b)(1), a participant’s high 3 years will be the period of consecutive calendar years (not more than 3) during which the participant had the greatest aggregate compensation from the employer. In the case of an employee within the meaning of section 401(c)(1) (that is, a selfemployed individual treated as an employee), the preceding sentence is applied by substituting for ‘‘compensation from the employer’’ the following: ‘‘the participant’s earned income (within the meaning of section 401(c)(2) but determined without regard to any exclusion under section 911).’’ Section 415(c)(1) provides that contributions and other additions with respect to a participant exceed the annual limitation for defined contribution plans if, when expressed as an annual addition (within the meaning of section 415(c)(2)) to the participant’s account, the participant’s annual addition is greater than the lesser of $40,000 (as adjusted in accordance with section 415(d)(1)) or 100 percent of the participant’s compensation. Section 415(c)(3) provides that the term ‘‘participant’s compensation’’ means the compensation of the participant from the employer for the year. Section 1.415(c)–2(a) of the Income Tax Regulations generally provides that compensation from the employer within the meaning of section 415(c)(3) includes all items of remuneration described in § 1.415(c)–2(b), but excludes the items of remuneration described in § 1.415(c)–2(c). Section 1.415(c)–2(b) generally provides that, for purposes of applying the limitations of section 415, the term compensation means remuneration for services. Specifically, under § 1.415(c)– 2(b)(1), compensation includes E:\FR\FM\15NOP1.SGM 15NOP1 emcdonald on DSK67QTVN1PROD with PROPOSALS Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules employee wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the employer maintaining the plan, to the extent that the amounts are includible in gross income. In addition, § 1.415(c)–2(b)(2) provides that in the case of an employee within the meaning of section 401(c)(1) (a self-employed employee), compensation includes the employee’s earned income (as described in section 401(c)(2)) plus amounts deferred at the election of the employee that would be includible in gross income but for the rules of section 402(e)(3), 402(h)(1)(B), 402(k), or 457(b). Section 1.415(c)–2(c) excludes certain items from the definition of compensation under section 415(c)(3). Specifically, § 1.415(c)–2(c)(1) excludes contributions (other than certain elective contributions) made by the employer to a plan of deferred compensation to the extent that the contributions are not includible in the gross income of the employee for the taxable year in which contributed. Likewise, distributions from plans (whether qualified or not) are generally not considered to be compensation for section 415 purposes. Section 1.415(c)– 2(c)(2) excludes from compensation amounts realized from the exercise of nonstatutory options and amounts realized when restricted stock or other property held by an employee becomes freely transferable or is no longer subject to a substantial risk of forfeiture. Section 1.415(c)–2(c)(3) excludes from compensation amounts realized from the sale, exchange, or other disposition of stock acquired under a statutory stock option (as defined in § 1.421–1(b)). Finally, § 1.415(c)–2(c)(4) excludes from compensation other amounts that receive special tax benefits, such as certain premiums for group-term life insurance. Section 1.415(c)–2(d) provides safe harbor definitions that a plan is permitted to use to define compensation in a manner that satisfies section 415(c)(3). Section 1.415(c)–2(d)(2) provides a safe harbor definition of compensation that includes only those items listed in § 1.415(c)–2(b)(1) or (b)(2) and excludes all the items listed in § 1.415(c)–2(c). Section 415(c)–2(d)(3) provides a separate safe harbor definition of compensation that includes wages within the meaning of section 3401(a), plus amounts that would be included in wages but for an election under section 125(a), 132(f)(4), 402(e)(3), 402(h)(1)(b), 402(k), or 457(b). VerDate Mar<15>2010 16:36 Nov 14, 2013 Jkt 232001 Explanation of Provisions Because fishing rights-related income is not subject to income tax, an issue has been raised as to whether such income is included as compensation for purposes of section 415(c)(3) and § 1.415(c)–2(b). The proposed regulations would clarify that certain fishing rights-related income is included in the definition of compensation. Specifically, these regulations would provide that amounts paid to a member of an Indian tribe as remuneration for services performed in a fishing rightsrelated activity (as defined in section 7873(b)(1)) do not fail to be treated as compensation under § 1.415(c)–2(b)(1) and (b)(2) (and are not excluded from the definition of compensation pursuant to § 1.415(c)–2(c)(4)) merely because those amounts are not subject to income tax as a result of section 7873(a)(1). Thus, the determination of whether an amount constitutes wages, salaries, or earned income for purposes of § 1.415(c)–2(b)(1) or (b)(2) is made without regard to the exemption from taxation under section 7873(b)(1) and (b)(2). In addition, by permitting fishing rights-related income to be treated as wages, salaries, or earned income under § 1.415(c)–2(b)(1) and (b)(2), plans that accept contributions of fishing rightsrelated income would not be precluded from utilizing the safe harbor definitions of compensation under § 1.415(c)– 2(d)(2) and (d)(3) of the regulations. Proposed Applicability Date These regulations are proposed to apply for taxable years ending on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Taxpayers, however, may rely on these proposed regulations for periods preceding the effective date, pending the issuance of final regulations. If, and to the extent, the final regulations are more restrictive than the rules in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It has also been determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because these regulations do not impose a collection of PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 68781 information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply and a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Office of Chief Counsel for Advocacy of the Small Business Administration for comments on its impact on small business. Comments and Requests for Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ‘‘ADDRESSES’’ heading. In addition to general comments on the proposed regulations, the IRS and the Treasury Department request comments on the taxation of qualified plan distributions that are attributable to fishing rights-related income, and the application of section 72(f)(2) (which treats certain amounts as basis for purposes of computing employee contributions if those amounts would have not been includible in income had they been paid directly to the employee). All comments are available at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place of the public hearing will be published in the Federal Register. Consultation and Coordination With Indian Tribal Governments These proposed regulations take into account comments provided through a number of general consultation sessions held with the Indian tribal community in recent years. Consistent with Executive Order 13175, the Treasury Department and the IRS expect to hold a telephone consultation on a date between November 15, 2013 and February 13, 2014. This telephone consultation session will focus principally on the contribution of section 7873 income to qualified retirement plans and the taxation of qualified plan distributions that are attributable to this income. Information relating to the consultation, including the date, time, registration requirements, and procedures for submitting written and oral comments, will be available on the IRS Web site relating to Indian tribal governments at: http://www.irs.gov/ Government-Entities/Indian-TribalGovernments. E:\FR\FM\15NOP1.SGM 15NOP1 68782 Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Proposed Rules Drafting Information DEPARTMENT OF LABOR The principal author of these regulations is Sarah R. Bolen, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations. Occupational Safety and Health Administration List of subjects in 26 CFR Part 1 Public Meeting on the Improve Tracking of Workplace Injuries and Illnesses Proposed Rule Income taxes, Reporting and recordkeeping requirements. 29 CFR Parts 1904 and 1952 [Docket No. OSHA–2013–0023] RIN 1218–AC49 Proposed Amendments to the Regulations Occupational Safety and Health Administration (OSHA), Labor. ACTION: Notice of public meeting. Accordingly, 26 CFR part 1 is proposed to be amended as follows: SUMMARY: AGENCY: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.415(c)–2 is amended by adding paragraphs (g)(9) and (h) to read as follows: ■ § 1.415(c)–2 Compensation. emcdonald on DSK67QTVN1PROD with PROPOSALS * * * * * (g) * * * (9) Income derived by Indians from exercise of fishing rights. Amounts paid to a member of an Indian tribe directly or through a qualified Indian entity (within the meaning of section 7873(b)(3)) as compensation for services performed in a fishing rights-related activity (as defined in section 7873(b)(1)) of the tribe do not fail to constitute compensation under paragraphs (b)(1) and (b)(2) of this section and are not excluded from the definition of compensation pursuant to paragraph (c)(4) of this section merely because those amounts are not subject to income or employment taxes as a result of section 7873(a)(1) and (2). Thus, the determination of whether an amount constitutes wages, salaries, or earned income for purposes of paragraph (b)(1) or (a)(2) of this section is made without regard to the exemption from taxation under section 7873(a)(1) and (2). (h) Effective/applicability date. Section 1.415(c)–2(g)(9) shall apply for plan years ending on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register. Heather C. Maloy, Acting Deputy Commissioner for Services and Enforcement. [FR Doc. 2013–27331 Filed 11–14–13; 8:45 am] BILLING CODE 4830–01–P VerDate Mar<15>2010 16:36 Nov 14, 2013 Jkt 232001 OSHA invites interested parties to attend an informal public meeting on the Improve Tracking of Workplace Injuries and Illnesses proposed rule. The purpose of the public meeting is to allow interested persons to provide oral remarks regarding the proposed rule. The proposed rule is a limited rulemaking to amend OSHA’s recordkeeping regulations to add requirements for the electronic submission of injury and illness information employers are already required to keep. DATES: The public meeting will be held on Thursday, January 9, 2014 from 9 a.m. to 4:30 p.m. at the U.S. Department of Labor in Washington, DC. The deadline to request to attend the meeting as a speaker or an observer is Friday, December 13, 2013. ADDRESSES: Requests to attend the public meeting: Requests to attend the public meeting, identified by docket number OSHA–2013–0023, or regulatory information number (RIN) 1218–AC49, as a speaker or observer, may be made by any of the methods below. a. Electronically: You may submit requests to attend the meeting electronically at http:// www.regulations.gov, which is the Federal eRulemaking Portal. Follow the instructions online for submitting a comment. b. Fax: If your request, including attachments, does not exceed more than 10 pages, you may fax them to the OSHA Docket Office at (202) 693–1648; or c. Mail, hand delivery, express mail, messenger or courier service: You may submit your request to attend the meeting, and any attachments, to the OSHA Docket Office, Docket Number OSHA–2013–0023, U.S. Department of Labor, Room N–2655, 200 Constitution Avenue NW., Washington, DC 20210; telephone (202) 693–2350 (OSHA’s TTY number is (877) 889–5627). Deliveries PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 (hand, express mail, messenger and courier service) are accepted during the Department of Labor’s and Docket Office’s normal business hours, 8:15 a.m. to 4:45 p.m., e.t. Public Meeting: The public meeting will be held in the auditorium of the U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Requests for special accommodations: Submit requests for special accommodations to attend the public meeting to Frank Meilinger, Director, OSHA Office of Communications, Room N–3647, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210; telephone: (202) 693–1999; email: meilinger.francis2@dol.gov. Instructions for submitting requests to attend the public meeting: All requests to attend the public meeting must include the docket number (Docket No. OSHA–2013–0023) or the RIN (1218– AC49) for this rulemaking. Because of security-related procedures, submissions by regular mail may result in significant delay. Please contact the OSHA Docket Office for information about security procedures for making submissions by hand delivery, express delivery, and messenger or courier service. All requests to attend the meeting, including any personal information you provide, are placed in the public docket without change and may be made available online at http:// www.regulations.gov. Therefore, OSHA cautions you about submitting personal information such as social security numbers and birthdates. For further information on submitting requests to attend, plus additional information on the rulemaking process, see Public Participation in the SUPPLEMENTARY INFORMATION section of this notice. FOR FURTHER INFORMATION CONTACT: Information regarding this notice is available from the following sources: a. Press inquiries: Contact Francis (Frank) Meilinger, Director, OSHA Office of Communications, Room N– 3647, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210; telephone: (202) 693–1999; email: meilinger.francis2@dol.gov. b. General and technical information: Contact Dave Schmidt, Director, Office of Statistical Analysis, OSHA Directorate of Evaluation and Analysis, U.S. Department of Labor, 200 Constitution Avenue NW., Room N– 3507, Washington, DC 20210; telephone: (202) 693–1886; email: schmidt.dave@ dol.gov. c. Copies of this Federal Register notice: Electronic copies are available at E:\FR\FM\15NOP1.SGM 15NOP1

Agencies

[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Proposed Rules]
[Pages 68780-68782]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27331]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-120927-13]
RIN-1545-BL61


Treatment of Income From Indian Fishing Rights-Related Activity 
as Compensation

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: This document contains proposed regulations that would clarify 
that amounts paid to an Indian tribe member as remuneration for 
services performed in a fishing rights-related activity may be treated 
as compensation for purposes of applying the limits on qualified plan 
benefits and contributions. These regulations would affect sponsors of, 
and participants in, employee benefit plans of Indian tribal 
governments.

DATES: Comments and requests for a public hearing must be received by 
February 13, 2014.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-120927-13), room 5205, 
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-
120927-13), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at www.regulations.gov (IRS REG-120927-13).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Sarah Bolen or Pamela Kinard at (202) 622-6060 or (202) 317-6700; 
concerning the submission of comments or to request a public hearing, 
Oluwafunmilayo Taylor, (202) 622-7180 or (202) 317-6901 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    Indian tribal governments (ITGs) and individual tribe members 
conduct fishing activities to generate revenue, protect critical 
habitats, and preserve tribal customs and traditions. Various treaties, 
federal statutes, and Presidential executive orders reserve to Indian 
tribe members the right to fish for subsistence and commercial purposes 
both on and off reservations. Because many of the treaties, statutes, 
and executive orders were adopted before passage of the Federal income 
tax, they often do not expressly address the question of whether income 
derived by Indians and ITGs from protected fishing activities is exempt 
from taxation. See H.R. Rep. 100-1104, at p. 77 (1988).
    Congress added section 7873 to the Internal Revenue Code as part of 
the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647). 
Section 7873(a)(1) provides that no income tax shall be imposed on 
income derived from a fishing rights-related activity of an Indian 
tribe by (A) a member of the tribe directly or through a qualified 
Indian entity, or (B) a qualified Indian entity. Section 7873(a)(2) 
provides that no employment tax shall be imposed on remuneration paid 
for services performed in a fishing rights-related activity of an 
Indian tribe by a member of such tribe for another member of such tribe 
or for a qualified Indian entity. Thus, section 7873(a) exempts income 
derived from a fishing rights-related activity (``fishing rights-
related income'') from both income and employment taxes.
    Section 7873(b)(1) defines fishing rights-related activity with 
respect to an Indian tribe as any activity directly related to 
harvesting, processing, or transporting fish harvested in the exercise 
of a recognized fishing right of the tribe or to selling such fish but 
only if substantially all of such harvesting was performed by members 
of such tribe.
    Section 415(a)(1) provides that a trust that is part of a pension, 
profit-sharing, or stock bonus plan shall not constitute a qualified 
trust under section 401(a) if (A) in the case of a defined benefit 
plan, the plan provides for the payment of benefits with respect to a 
participant which exceed the limitation of section 415(b), or (B) in 
the case of a defined contribution plan, contributions and other 
additions under the plan with respect to any participant for any 
taxable year exceed the limitation of section 415(c).
    Section 415(b)(1) provides that benefits with respect to a 
participant exceed the annual limitation for defined benefit plans if, 
when expressed as an annual benefit (within the meaning of section 
415(b)(2)), the participant's annual benefit is greater than the lesser 
of $160,000 (as adjusted in accordance with section 415(d)(1)) or 100 
percent of the participant's average compensation for the participant's 
high 3 years.
    Section 415(b)(3) provides that, for purposes of section 415(b)(1), 
a participant's high 3 years will be the period of consecutive calendar 
years (not more than 3) during which the participant had the greatest 
aggregate compensation from the employer. In the case of an employee 
within the meaning of section 401(c)(1) (that is, a self-employed 
individual treated as an employee), the preceding sentence is applied 
by substituting for ``compensation from the employer'' the following: 
``the participant's earned income (within the meaning of section 
401(c)(2) but determined without regard to any exclusion under section 
911).''
    Section 415(c)(1) provides that contributions and other additions 
with respect to a participant exceed the annual limitation for defined 
contribution plans if, when expressed as an annual addition (within the 
meaning of section 415(c)(2)) to the participant's account, the 
participant's annual addition is greater than the lesser of $40,000 (as 
adjusted in accordance with section 415(d)(1)) or 100 percent of the 
participant's compensation. Section 415(c)(3) provides that the term 
``participant's compensation'' means the compensation of the 
participant from the employer for the year. Section 1.415(c)-2(a) of 
the Income Tax Regulations generally provides that compensation from 
the employer within the meaning of section 415(c)(3) includes all items 
of remuneration described in Sec.  1.415(c)-2(b), but excludes the 
items of remuneration described in Sec.  1.415(c)-2(c).
    Section 1.415(c)-2(b) generally provides that, for purposes of 
applying the limitations of section 415, the term compensation means 
remuneration for services. Specifically, under Sec.  1.415(c)-2(b)(1), 
compensation includes

[[Page 68781]]

employee wages, salaries, fees for professional services, and other 
amounts received (without regard to whether or not an amount is paid in 
cash) for personal services actually rendered in the course of 
employment with the employer maintaining the plan, to the extent that 
the amounts are includible in gross income. In addition, Sec.  
1.415(c)-2(b)(2) provides that in the case of an employee within the 
meaning of section 401(c)(1) (a self-employed employee), compensation 
includes the employee's earned income (as described in section 
401(c)(2)) plus amounts deferred at the election of the employee that 
would be includible in gross income but for the rules of section 
402(e)(3), 402(h)(1)(B), 402(k), or 457(b).
    Section 1.415(c)-2(c) excludes certain items from the definition of 
compensation under section 415(c)(3). Specifically, Sec.  1.415(c)-
2(c)(1) excludes contributions (other than certain elective 
contributions) made by the employer to a plan of deferred compensation 
to the extent that the contributions are not includible in the gross 
income of the employee for the taxable year in which contributed. 
Likewise, distributions from plans (whether qualified or not) are 
generally not considered to be compensation for section 415 purposes. 
Section 1.415(c)-2(c)(2) excludes from compensation amounts realized 
from the exercise of nonstatutory options and amounts realized when 
restricted stock or other property held by an employee becomes freely 
transferable or is no longer subject to a substantial risk of 
forfeiture. Section 1.415(c)-2(c)(3) excludes from compensation amounts 
realized from the sale, exchange, or other disposition of stock 
acquired under a statutory stock option (as defined in Sec.  1.421-
1(b)). Finally, Sec.  1.415(c)-2(c)(4) excludes from compensation other 
amounts that receive special tax benefits, such as certain premiums for 
group-term life insurance.
    Section 1.415(c)-2(d) provides safe harbor definitions that a plan 
is permitted to use to define compensation in a manner that satisfies 
section 415(c)(3). Section 1.415(c)-2(d)(2) provides a safe harbor 
definition of compensation that includes only those items listed in 
Sec.  1.415(c)-2(b)(1) or (b)(2) and excludes all the items listed in 
Sec.  1.415(c)-2(c). Section 415(c)-2(d)(3) provides a separate safe 
harbor definition of compensation that includes wages within the 
meaning of section 3401(a), plus amounts that would be included in 
wages but for an election under section 125(a), 132(f)(4), 402(e)(3), 
402(h)(1)(b), 402(k), or 457(b).

Explanation of Provisions

    Because fishing rights-related income is not subject to income tax, 
an issue has been raised as to whether such income is included as 
compensation for purposes of section 415(c)(3) and Sec.  1.415(c)-2(b). 
The proposed regulations would clarify that certain fishing rights-
related income is included in the definition of compensation. 
Specifically, these regulations would provide that amounts paid to a 
member of an Indian tribe as remuneration for services performed in a 
fishing rights-related activity (as defined in section 7873(b)(1)) do 
not fail to be treated as compensation under Sec.  1.415(c)-2(b)(1) and 
(b)(2) (and are not excluded from the definition of compensation 
pursuant to Sec.  1.415(c)-2(c)(4)) merely because those amounts are 
not subject to income tax as a result of section 7873(a)(1). Thus, the 
determination of whether an amount constitutes wages, salaries, or 
earned income for purposes of Sec.  1.415(c)-2(b)(1) or (b)(2) is made 
without regard to the exemption from taxation under section 7873(b)(1) 
and (b)(2). In addition, by permitting fishing rights-related income to 
be treated as wages, salaries, or earned income under Sec.  1.415(c)-
2(b)(1) and (b)(2), plans that accept contributions of fishing rights-
related income would not be precluded from utilizing the safe harbor 
definitions of compensation under Sec.  1.415(c)-2(d)(2) and (d)(3) of 
the regulations.

Proposed Applicability Date

    These regulations are proposed to apply for taxable years ending on 
or after the date of publication of the Treasury decision adopting 
these rules as final regulations in the Federal Register. Taxpayers, 
however, may rely on these proposed regulations for periods preceding 
the effective date, pending the issuance of final regulations. If, and 
to the extent, the final regulations are more restrictive than the 
rules in these proposed regulations, those provisions of the final 
regulations will be applied without retroactive effect.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It has also been determined that 
5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter 
5) does not apply to these regulations. 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 and a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, these 
regulations have been submitted to the Office of Chief Counsel for 
Advocacy of the Small Business Administration for comments on its 
impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ``ADDRESSES'' 
heading. In addition to general comments on the proposed regulations, 
the IRS and the Treasury Department request comments on the taxation of 
qualified plan distributions that are attributable to fishing rights-
related income, and the application of section 72(f)(2) (which treats 
certain amounts as basis for purposes of computing employee 
contributions if those amounts would have not been includible in income 
had they been paid directly to the employee). All comments are 
available at www.regulations.gov or upon request. A public hearing will 
be scheduled if requested in writing by any person who timely submits 
written comments. If a public hearing is scheduled, notice of the date, 
time, and place of the public hearing will be published in the Federal 
Register.

Consultation and Coordination With Indian Tribal Governments

    These proposed regulations take into account comments provided 
through a number of general consultation sessions held with the Indian 
tribal community in recent years. Consistent with Executive Order 
13175, the Treasury Department and the IRS expect to hold a telephone 
consultation on a date between November 15, 2013 and February 13, 2014. 
This telephone consultation session will focus principally on the 
contribution of section 7873 income to qualified retirement plans and 
the taxation of qualified plan distributions that are attributable to 
this income. Information relating to the consultation, including the 
date, time, registration requirements, and procedures for submitting 
written and oral comments, will be available on the IRS Web site 
relating to Indian tribal governments at: http://www.irs.gov/Government-Entities/Indian-Tribal-Governments.

[[Page 68782]]

Drafting Information

    The principal author of these regulations is Sarah R. Bolen, Office 
of Division Counsel/Associate Chief Counsel (Tax Exempt and Government 
Entities). However, other personnel from the IRS and the Treasury 
Department participated in the development of these regulations.

List of subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.415(c)-2 is amended by adding paragraphs (g)(9) and 
(h) to read as follows:


Sec.  1.415(c)-2  Compensation.

* * * * *
    (g) * * *
    (9) Income derived by Indians from exercise of fishing rights. 
Amounts paid to a member of an Indian tribe directly or through a 
qualified Indian entity (within the meaning of section 7873(b)(3)) as 
compensation for services performed in a fishing rights-related 
activity (as defined in section 7873(b)(1)) of the tribe do not fail to 
constitute compensation under paragraphs (b)(1) and (b)(2) of this 
section and are not excluded from the definition of compensation 
pursuant to paragraph (c)(4) of this section merely because those 
amounts are not subject to income or employment taxes as a result of 
section 7873(a)(1) and (2). Thus, the determination of whether an 
amount constitutes wages, salaries, or earned income for purposes of 
paragraph (b)(1) or (a)(2) of this section is made without regard to 
the exemption from taxation under section 7873(a)(1) and (2).
    (h) Effective/applicability date. Section 1.415(c)-2(g)(9) shall 
apply for plan years ending on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register.

Heather C. Maloy,
 Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-27331 Filed 11-14-13; 8:45 am]
BILLING CODE 4830-01-P