Section 3504 Agent Employment Tax Liability, 75471-75475 [2013-29664]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Rules and Regulations]
[Pages 75471-75475]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29664]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 9649]
RIN 1545-BI21


Section 3504 Agent Employment Tax Liability

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to agents 
authorized by the Secretary under section 3504 of the Internal Revenue 
Code to perform acts required of employers who are home care service 
recipients. The final regulations affect employers and their designated 
agents who pay wages for home care services, which are subject to taxes 
under the Federal Unemployment Tax Act. The final regulations also 
modify the existing regulations under section 3504 to be consistent 
with the organizational structure of the Internal Revenue Service 
(IRS), and to update the citation to the Internal Revenue Code of 1986.

[[Page 75472]]


DATES: Effective Date: These regulations are effective on December 12, 
2013.
    Applicability Date: For dates of applicability, see Sec.  31.3504-
1(c) of these regulations.

FOR FURTHER INFORMATION CONTACT: Michelle R. Weigelt at (202) 622-0047 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 31 under section 
3504 of the Internal Revenue Code (Code). On January 13, 2010, the 
Treasury Department and the IRS published a notice of proposed 
rulemaking (REG-137036-08, 75 FR 1735, 2010-6 I.R.B. 398) (the proposed 
regulations) in the Federal Register under section 3504 of the Code. 
The Treasury Department and the IRS did not hold a public hearing 
because there were no requests to speak at a hearing. The Treasury 
Department and the IRS received written and electronic comments 
responding to the proposed regulations. After consideration of all the 
comments, the proposed regulations are adopted as amended by this 
Treasury decision. The comments and revisions are discussed in the 
preamble.

Explanation of Provisions

    In case a fiduciary, agent, or other person has the control, 
receipt, custody, or disposal of, or pays the wages of an employee or 
group of employees, employed by one or more employers, section 3504 of 
the Code authorizes the Secretary of the Treasury to promulgate 
regulations to authorize the person (``agent'') to perform certain 
specified acts required of employers. Under section 3504, all 
provisions of law (including penalties) applicable with respect to 
employers are applicable to the agent and remain applicable to the 
employer. Accordingly, both the agent and employer are liable for the 
employment taxes and penalties associated with the employer's 
employment tax obligations which the agent is authorized to perform. 
Prior to the amendments made by these final regulations, Sec.  31.3504-
1 of the Employment Tax Regulations provided that the IRS may authorize 
an agent to undertake the employment tax obligations of an employer 
with respect to income tax withholding and Federal Insurance 
Contributions Act (FICA) taxes. However, the employer was required to 
continue to meet its employment tax obligations with respect to Federal 
Unemployment Tax Act (FUTA) tax. Like the proposed regulations, these 
final regulations provide that the IRS may authorize an agent to 
undertake the employment tax obligations of an employer with respect to 
FUTA tax in certain circumstances.

Summary of Comments and Explanation of Revisions

A. Amendments to Sec.  31.3504-1(a)

    Under Sec.  31.3504-1(a), an employer may request that the IRS 
authorize an agent under section 3504 to report, file, and pay income 
tax withholding, tax under the FICA, or tax under the Railroad 
Retirement Tax Act (RRTA), with respect to wages or compensation. The 
proposed regulations under Sec.  31.3504-1(a) proposed amendments to 
the existing regulatory language designed to update citations and be 
consistent with the current organizational structure of the IRS.
    One commenter expressed concern that deletion of the limiting 
language ``in respect of such acts'' from these regulations implied an 
agent could be held liable for all of an employer's employment tax 
liabilities, regardless of which acts the agent was authorized to 
perform. Under section 3504, the agent is only liable for acts the IRS 
has authorized the agent to perform on behalf of the employer. Thus, 
language that limits the scope of the agent's liability has been 
reincorporated into the final regulations.
    Another commenter suggested that the final regulations include a 
rule that the agent is only liable for employment taxes with respect to 
wages or compensation paid by the agent on behalf of the employer. 
Because section 3504 provides an agent may also be authorized under 
section 3504 if the person has the control, receipt, custody, or 
disposal of the wages of an employer's employees, a rule that the agent 
can only be held liable for employment taxes with respect to those 
wages paid by the agent would be more narrow than the statute. 
Therefore, this rule was not adopted in the final regulations.
    In addition to the change to proposed Sec.  31.3504-1(a) made in 
response to comments, these final regulations adopt minor changes for 
clarity and consistency.

B. Amendments Under Sec.  31.3504-1(b)

    The proposed regulations under Sec.  31.3504-1(b) provide a special 
rule that allows an employer who is a home care service recipient to 
request that the IRS authorize an agent to act with respect to FUTA 
taxes imposed on wages paid for home care services, provided that the 
agent is authorized to act for the home care service recipient for 
income tax withholding and FICA tax purposes. The proposed regulations 
under Sec.  31.3504-1(b) do not apply to an agent that is authorized to 
report, file, and pay income tax withholding or FICA tax for an 
employer who is not a home care service recipient, or for wages paid 
for services other than home care services.
    Several commenters sought legal or procedural explanations which 
were beyond the scope of the proposed regulations. Thus, those comments 
are not addressed in these final regulations. For example, these 
regulations do not address comments seeking clarification on the 
identity of the common law employer if the home care service recipient 
has a representative acting on his or her behalf, the ability of an 
agent to delegate its responsibility to a third-party, the application 
of certain exceptions to FICA and FUTA taxes, the proper use of 
employer identification numbers (EIN) in filing employment tax returns, 
and the deposit requirements of agents. However, Revenue Procedure 
2013-39, which is being released simultaneously with these final 
regulations updates the procedures for requesting that the IRS 
authorize a person to act as agent under section 3504, and addresses 
filing, reporting, and deposit rules for agents.
1. Certification of State Unemployment Contributions
    Section 3504 provides that all provisions of law applicable to an 
employer apply to the agent. Thus, an agent authorized under the 
proposed regulations for FUTA tax purposes reports the state 
unemployment contributions paid into a state unemployment fund on 
behalf of a home care service recipient as a credit under section 3302 
against the FUTA tax reported on the agent's aggregate FUTA tax return. 
The IRS has designated Form 940, Employer's Annual Federal Unemployment 
Tax (FUTA) Return, as the return to file to report FUTA tax. The credit 
can be reported by the agent regardless of whether the state 
unemployment contributions are made under the name and state 
identifying number of the home care service recipient or of the agent.
    Several commenters expressed concern that the IRS will be unable to 
verify the state unemployment contributions made on behalf of a home 
care service recipient if such contributions are reported on an 
aggregate Form 940 FUTA tax return using the agent's name and EIN. The 
commenters suggested that each home care service recipient's name and 
EIN be

[[Page 75473]]

included on the aggregate return for purposes of the annual 
certification process.
    Following the publication of the proposed regulations, the IRS 
issued Schedule R (Form 940), Allocation Schedule for Aggregate Form 
940 Filers, for use beginning in tax year 2010. Agents of home care 
service recipients are required to use Schedule R (Form 940) to 
allocate the information reported on the aggregate FUTA tax return, and 
must separately list each home care service recipient's name and EIN on 
Schedule R (Form 940). Because the issuance of Schedule R (Form 940) 
resolves the concerns raised by these commenters, no changes were made 
to the final regulations.
2. Domestic Service Employment Tax Rules and Home Care Services
    The proposed regulations define home care services to include 
health care and personal attendant care services rendered in the home 
care service recipient's home or local community. Several commenters 
requested clarification of whether home care services constitute 
domestic services for employment tax purposes, particularly when the 
services involve travel outside the home.
    The Code has special rules for domestic services. These special 
rules include provisions in section 3401(a)(3) regarding the 
requirement to withhold income tax; sections 3121(a)(7)(B), 3306(a)(3), 
and 3306(c)(2) regarding minimum dollar thresholds for imposition of 
FICA and FUTA taxes; section 3121(b)(3)(B) regarding exemption from 
FICA tax for certain family employment relationships; and section 
3121(b)(21) regarding exemption from FICA tax depending on the age of 
the service provider. Whether any of these rules apply in a given 
situation depends on whether the services are ``domestic services'' and 
whether the services are provided in the ``private home'' of the 
employer. These terms are explained in Sec. Sec.  31.3121(a)(7)-
1(a)(2), 31.3306(c)(2)-1, and 31.3401(a)-3 of the regulations.
    Generally, Sec.  31.3121(a)(7)-1(a)(2) provides that domestic 
services are services of a household nature performed by an employee in 
or about a private home of the person by whom the employee is employed. 
A private home is a fixed place of abode of an individual or family. 
Sections 31.3306(c)(2)-1 and 31.3401(a)-3 contain similar descriptions 
for FUTA tax and income tax withholding purposes, respectively.
    The preamble to the proposed regulations stated that services 
provided outside the home care service recipient's private home may 
qualify as home care services for purposes of these regulations even if 
the services do not qualify as domestic service in a private home of 
the employer for purposes of sections 3121(a)(7), 3306(c)(2), and 
3401(a)(3).
    One commenter requested a rule deeming the special statutory rules 
for domestic services as applying to all home care services. The 
determination of whether the statutory rules for domestic services 
apply depends on whether the services are domestic services provided in 
the private home of the employer as explained in the regulations. Thus, 
a bright line rule that home care services are domestic services in all 
cases is beyond the scope of these regulations, and the proposal was 
not adopted.
    However, we anticipate that there will only be limited 
circumstances when home care services would not be subject to the 
domestic service rules and note that the regulations on domestic 
service described in this section, and other public guidance currently 
available address these comments. For example, Revenue Ruling 56-109, 
1956-1 CB 467, provides that services performed by an employee as a 
companion to a convalescent employer, including accompanying the 
convalescent on trips, constitute domestic service in a private home of 
the employer for purposes of employment taxes.
    Several commenters interpreted the use of the phrase ``home or 
local community'' in the definition of home care services to impose 
geographical restrictions. The phrase was intended to indicate that 
despite the home-based nature of health care and personal attendant 
care services, home care services may be provided outside of a home, 
and was not intended to exclude services qualifying for funds under the 
government program based on the location at which the services were 
provided. Thus, home care services under the regulations include any 
services for which an individual enrolled in a government program 
described in the regulations would be eligible to receive funds. 
Similar to how Rev. Rul. 56-109 describes a situation where services 
that are provided outside the employer's house nevertheless constitute 
``domestic services in the private home of the employer,'' services 
provided outside the home or local community may constitute home care 
services. Nevertheless, to avoid the implication of a geographical 
limitation on what services may qualify as home care services, the 
phrase was removed from the definition of home care services in the 
final regulations.
    Finally, one commenter interpreted the definition of home care 
services to include only services provided to elderly individuals and 
individuals with physical disabilities, and not to include services 
provided to individuals with intellectual and developmental 
disabilities. The definition of home care services in the proposed 
regulations are not limited by the type of disability. Rather, the 
definition of home care services includes any services for which an 
individual enrolled in a government program described in the 
regulations would be eligible to receive funds. Therefore, no changes 
were made to the final regulations with regard to the definition of 
home care services to address this comment.
3. Clarification Regarding Home Care Service Recipients
    The proposed regulations define home care service recipient as any 
individual who receives home care services while enrolled, and for the 
remainder of the calendar year after ceasing to be enrolled, in a 
program administered by a Federal, state, or local government agency 
that provides Federal, state, or local government funds, to pay, in 
whole or in part, for the home care services for that individual. 
Several commenters submitted questions regarding this definition that 
did not require changes to the regulations, but with respect to which 
clarification is provided in this preamble.
    With regard to the Federal, state, or local government programs 
which provide funds for home care services, the preamble to the 
proposed regulations provides, ``In all such programs, intermediaries 
who are engaged to assist beneficiaries to receive and distribute funds 
on the beneficiaries' behalf are reviewed and approved by a state or 
local government agency.'' Several commenters interpreted this 
statement as inferring coordination between the IRS and the Centers for 
Medicare and Medicaid Services (CMS) regarding qualifications and 
contracting requirements for agents. The statement was intended to 
highlight the currently existing oversight of the intermediaries that 
serve as agents in these programs by CMS or other Federal, state, and 
local government agencies. There is no anticipated IRS involvement in 
the way these agencies administer these programs, including selection 
and monitoring of the intermediaries.
    Application of the proposed regulations requires that a home care

[[Page 75474]]

service recipient be enrolled in a program that provides Federal, 
state, or local government funds to pay for home care services, in 
whole or in part. One commenter asked whether an individual who pays 
for home care services from his or her personal bank account or with 
other non-government funds can be a home care service recipient within 
the meaning of the regulations. An individual is not a home care 
service recipient within the meaning of these regulations if no 
government funds are used to pay for any part of the home care services 
performed for the individual. However, an individual may be a home care 
service recipient if the cost of the home care services are initially 
paid for with non-government funds and such cost is reimbursed in whole 
or in part with government funds provided under the government program.
    Other commenters asked about procedures an agent should follow when 
an individual ceases to be a home care service recipient. Under Sec.  
31.3504-1(b)(3), a participant qualifies as a home care service 
recipient until the end of the calendar year in which the participant 
ceases to be enrolled in the government program; accordingly, the agent 
may act as an agent with respect to the home care service recipient's 
FUTA tax obligations for the entire calendar year in which the 
participant ceases to qualify as a home care service recipient. 
Furthermore, the agent may continue to act as an agent with respect to 
the home care service recipient's FICA tax and income tax withholding 
obligations pursuant to Sec.  31.3504-1(a) after a participant ceases 
to qualify as a home care service recipient. Treasury and the IRS do 
not believe a description of any specific procedures is needed in these 
regulations with regard to the cessation of home care service recipient 
status for FUTA tax purposes. However, Revenue Procedure 2013-39, which 
is being released simultaneously with these final regulations updates 
the procedures to request the IRS authorize a person to act as agent 
under section 3504 and clarifies the rules for revoking authorization.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in E.O. 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 this regulation. Pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. The collection of information 
contained in these regulations is a voluntary written application from 
an employer, signed by the employer and the agent, requesting the IRS 
approve the appointment of an agent to perform the acts required of the 
employer. The application contains information generally available to 
taxpayers, such as the name, address, and EIN of the employer, and 
ultimately serves to lessen taxpayer burden by allowing the employer to 
have an agent fulfill certain employment tax obligations. Accordingly, 
a regulatory flexibility analysis is not required. Pursuant to section 
7805(f) of the Internal Revenue Code, the proposed regulations 
preceding these regulations were submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business, and no comments were received.

Drafting Information

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

List of Subjects in 26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Reporting and 
recordkeeping requirements, Railroad retirement, Social security, 
Unemployment compensation.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 31 is 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 31.3504-1 is revised to read as follows:


Sec.  31.3504-1  Designation of agent by application.

    (a) In general. In the event wages as defined in chapter 21 or 24 
of the Internal Revenue Code (Code), or compensation as defined in 
chapter 22 of the Code, of an employee or group of employees, employed 
by one or more employers, is paid by a fiduciary, agent, or other 
person (``agent''), or if that agent has the control, receipt, custody, 
or disposal of (collectively ``pays'') wages or compensation, the 
Internal Revenue Service may, subject to the terms and conditions as it 
deems proper, authorize that agent to perform the acts required of the 
employer or employers under those provisions of the Code and the 
regulations that apply, for purposes of the taxes imposed by the 
chapter or chapters, with respect to wages or compensation paid by the 
agent. If the agent is authorized by the Internal Revenue Service to 
perform such acts, all provisions of law (including penalties) and of 
the regulations applicable to an employer with respect to such acts 
shall be applicable to the agent. However, each employer for whom the 
agent acts shall remain subject to all provisions of law (including 
penalties) and of the regulations applicable to an employer with 
respect to such acts. Any application to authorize an agent to perform 
such acts, signed by the agent and the employer, shall be made on the 
form prescribed by the Internal Revenue Service and shall be filed with 
the Internal Revenue Service as prescribed in the instructions to the 
form and other applicable guidance.
    (b) Special rule for home care service recipients. (1) In general. 
In the event an agent is authorized pursuant to paragraph (a) of this 
section to perform the acts required of an employer under chapters 21 
or 24 on behalf of one or more home care service recipients, as defined 
in paragraph (b)(3) of this section, the Internal Revenue Service may 
authorize that agent to perform the acts as are required of employers 
for purposes of the tax imposed by chapter 23 of the Code with respect 
to wages paid by the agent for home care services, as defined in 
paragraph (b)(2) of this section, rendered to the home care service 
recipient. If the agent is authorized by the Internal Revenue Service 
to perform such acts, all provisions of law (including penalties) and 
of the regulations applicable to an employer in respect of such acts 
shall be applicable to the agent. However, each employer for whom the 
agent acts shall remain subject to all provisions of law (including 
penalties) and of the regulations applicable to an employer with 
respect to such acts.
    (2) Home care services. For purposes of this section, the term home 
care services includes health care and personal attendant care services 
rendered to the home care service recipient.
    (3) Home care service recipient. For purposes of this section, the 
term home

[[Page 75475]]

care service recipient means any individual who receives home care 
services, as defined in paragraph (b)(2) of this section, while 
enrolled, and for the remainder of the calendar year after ceasing to 
be enrolled, in a program administered by a Federal, state, or local 
government agency that provides Federal, state, or local government 
funds, to pay, in whole or in part, for home care services for that 
individual.
    (c) Effective/applicability dates. An authorization under paragraph 
(a) in effect prior to December 12, 2013 continues to be in effect 
after that date. Paragraph (b) of this section applies to wages paid on 
or after January 1, 2014. However, pursuant to section 7805(b), 
taxpayers may rely on paragraph (b) of this section for all taxable 
years for which a valid designation is in effect under paragraph (a) of 
this section.

Beth Tucker,
 Deputy Commissioner for Services and Enforcement.
    Approved: September 27, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-29664 Filed 12-11-13; 8:45 am]
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