Disregarded Entities; Religious and Family Member FICA and FUTA Exceptions; Indoor Tanning Services Excise Tax, 36204-36207 [2014-14967]

Download as PDF 36204 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Rules and Regulations based tool for Form SSA–538. If adjudicators do not use the Web-based tool, we still require them to complete Form SSA–538 to explain our findings in childhood disability determinations. Public Comments On July 15, 2011, we published a final rule with request for comments in the Federal Register at 76 FR 41685 and provided a 60-day public comment period. We received one comment. We carefully considered the concerns expressed in this comment, but did not make any changes to the final rule. We have summarized the commenter’s view and have responded to the significant issue raised by the commenter. Comment: The commenter was concerned with the consistency between claims that are filed on paper and those filed electronically, and suggested that Form SSA–538 be available for electronic claims to ensure that all children’s claims receive the same considerations. Response: We did not adopt this comment. While we believe that consistency in adjudication is important, we do not agree that Form SSA–538 should be available on the Web-based tool that adjudicators currently use in evaluating childhood disability claims. As we noted in the preamble to our July 2011 final rule with request for comments (76 FR 41686), although the Web-based tool does not include an exact copy of Form SSA–538, the tool does include all of the major elements of the form for explaining our findings in these claims. That is, the consultant with overall responsibility must affirm that he or she considered the factors and evidence, as we require, in determining whether a child’s impairment(s) is severe, meets or medically equals a listing, or functionally equals the listings. Regulatory Procedures pmangrum on DSK3VPTVN1PROD with RULES Executive Order 12866, as Supplemented by Executive Order 13563 Regulatory Flexibility Act We certify that these rules would not have a significant economic impact on a substantial number of small entities because they affect individuals only. 14:44 Jun 25, 2014 Jkt 232001 Paperwork Reduction Act These rules do not create any new or affect any existing collections and, therefore, do not require OMB approval under the Paperwork Reduction Act. (Catalog of Federal Domestic Program No. 96.006, Supplemental Security Income) List of Subjects in 20 CFR Part 416 Administrative practice and procedure; Aged, Blind, Disability benefits; Public assistance programs; Reporting and recordkeeping requirements; Supplemental Security Income (SSI). Dated: June 19, 2014. Carolyn W. Colvin, Acting Commissioner of Social Security. Accordingly, the final rule with request for comments amending 20 CFR chapter III, part 416, subpart I that was published at 76 FR 41685 on July 15, 2011, is adopted as a final rule without change. [FR Doc. 2014–14914 Filed 6–25–14; 8:45 am] BILLING CODE 4191–02–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1, 31, and 301 [TD 9670] RINs 1545–BJ06; 1545–BK38 Disregarded Entities; Religious and Family Member FICA and FUTA Exceptions; Indoor Tanning Services Excise Tax Internal Revenue Service (IRS), Treasury. ACTION: Final regulations and removal of temporary regulations. AGENCY: This document contains final regulations relating to disregarded entities (including qualified subchapter S subsidiaries) and the indoor tanning services excise tax. These final regulations affect disregarded entities responsible for collecting the indoor tanning services excise tax and owners of those disregarded entities. The final regulations also relate to disregarded entities and certain exceptions from taxes under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act, as well as backup withholding rules and related information reporting requirements. These final regulations affect individual SUMMARY: We consulted with the Office of Management and Budget (OMB) and determined that this final rule does not meet the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563. Therefore, OMB did not reviewed it. VerDate Mar<15>2010 Therefore, a regulatory flexibility analysis is not required under the Regulatory Flexibility Act, as amended. PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 owners of disregarded entities. These regulations also affect the owners of disregarded entities subject to backup withholding rules. DATES: Effective Date: These regulations are effective on June 26, 2014. Applicability Dates: For dates of applicability, see §§ 1.1361–4(a)(8)(ii), 31.3121(b)(3)–1(e), 31.3127–1(c), 31.3306(c)(5)–1(e), 301.7701–2(e)(5), and 301.7701–2(e)(6)(iv). FOR FURTHER INFORMATION CONTACT: Regarding excise tax-related provisions, Michael H. Beker (202) 317–6855; regarding employment tax-related provisions, Andrew Holubeck (202) 317–4770 (not toll free calls). SUPPLEMENTARY INFORMATION: Background This document contains final regulations amending the Income Tax Regulations (26 CFR part 1) under section 1361 of the Internal Revenue Code (Code), the Employment Tax Regulations (26 CFR part 31) under sections 3121, 3127, and 3306 of the Code, and the Procedure and Administration Regulations (26 CFR part 301) under section 7701 of the Code. Indoor Tanning Services Excise TaxRelated Regulations On June 25, 2012, final and temporary regulations (TD 9596) were published in the Federal Register (77 FR 37806). The regulations treat disregarded entities (including qualified subchapter S subsidiaries) as separate entities for purposes of the indoor tanning services excise tax imposed by section 5000B. Also on June 25, 2012, a notice of proposed rulemaking (REG–125570–11) was published by cross-reference to the temporary regulations in the Federal Register (77 FR 37838). The preamble to TD 9596 includes background information and an explanation of provisions regarding the regulations. Employment Tax-Related Regulations On November 1, 2011, final and temporary regulations (TD 9554) were published in the Federal Register (76 FR 67363). The regulations extend the exceptions or exemptions from taxes under the Federal Insurance Contributions Act and the Federal Unemployment Tax Act 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) to services performed in the employ of certain E:\FR\FM\26JNR1.SGM 26JNR1 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Rules and Regulations entities that are generally disregarded as separate from their owners for federal tax purposes under § 301.7701–2(c). The regulations also clarify the existing rule that, in the case of an entity that is disregarded as an entity separate from its owner for any purpose under § 301.7701–2(c), the owner is subject to the withholding requirements imposed under section 3406 (backup withholding). Also on November 1, 2011, a notice of proposed rulemaking (REG–136565–09) was published by cross-reference to the temporary regulations in the Federal Register (76 FR 67384). The preamble to TD 9554 includes background information and an explanation of provisions regarding the regulations. pmangrum on DSK3VPTVN1PROD with RULES Combining the Employment Tax and Excise Tax Provisions Into This Final Regulation The IRS did not receive any written or electronic comments responding to either notice of proposed rulemaking and a public hearing was neither requested nor held. Accordingly, both sets of proposed regulations are adopted as amended by this Treasury decision without substantive change and both sets of corresponding temporary regulations are removed. The nonsubstantive revisions are discussed in the next section. Explanation of Revisions These final regulations reorganize and revise § 31.3121(b)(3)–1, § 31.3127–1, § 31.3306(c)(5)–1, and § 301.7701– 2(c)(2)(iv) for clarity, and no substantive changes are intended to these provisions. In § 31.3121(b)(3)–1, concerning family employment, the general rule that applies to corporations was moved from § 31.3121(b)(3)–1(c) to § 31.3121(b)(3)–1(d), so that the rules for disregarded entities (which are treated as corporations for purposes of Subtitle C under § 301.7701–2(c)(2)(iv)(B)) would follow after the general corporate rule. Similarly, in § 31.3306(c)(5)–1, with respect to the provisions concerning family employment, the general rule that applies to corporations was moved from § 31.3306(c)(5)–1(c) to § 31.3306(c)(5)–1(d), so that the rules for disregarded entities would follow after the general corporate rule. For clarity, § 31.3127–1(a) was reorganized into a list format and headings were added. In addition, §§ 31.3121(b)(3)–1(d), 31.3127–1(b), and 31.3306(c)(5)–1(d) were revised to provide that an entity that is treated as a corporation for purposes of Subtitle C under § 301.7701–2(c)(2)(iv)(B) is not treated as the employer for purposes of applying sections 3121(b)(3), 3127, and VerDate Mar<15>2010 14:44 Jun 25, 2014 Jkt 232001 3306(c)(5) and the regulations thereunder. Section 301.7701–2(c)(2)(iv)(A) continues to provide that § 301.7701– 2(c)(2)(i) (relating to certain wholly owned entities) does not apply to taxes imposed under Subtitle C. Section 301.7701–2(c)(2)(iv)(B) also continues to provide that an entity that is disregarded as an entity separate from its owner for any purpose under § 301.7701–2 is treated as a corporation for purposes of taxes imposed under Subtitle C. The cross references that were formerly in § 301.7701– 2(c)(2)(iv)(C) and were described as exceptions to § 301.7701–2(c)(2)(iv)(B) are now described as special rules and are added to § 301.7701–2(c)(2)(iv)(B). In addition, the language formerly of § 301.7701–2(c)(2)(iv)(A) regarding backup withholding has been moved to new § 301.7701–2(c)(2)(iv)(C)(1) to clarify that it is an exception to the general provisions of § 301.7701– 2(c)(2)(iv)(A) and (B). Finally, the last two sentences that were formerly in § 301.7701–2(c)(2)(iv)(A) regarding taxes imposed under Subtitle A, including Chapter 2, Tax on Self Employment Income, have been moved to new § 301.7701–2(c)(2)(iv)(C)(2) to put all the special clarifying rules and exceptions in one paragraph. Special Analyses It has been determined that this Treasury decision 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 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, the proposed regulations that preceded these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business and no comments were received. Drafting Information The principal authors of these regulations are Michael H. Beker, Office of the Associate Chief Counsel (Passthroughs and Special Industries), and Andrew Holubeck, Office of the Associate Chief Counsel (Tax Exempt & Government Entities). However, other personnel from the IRS and the Treasury PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 36205 Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 31 Employment taxes, Income Taxes, Penalties, Pensions, Railroad retirement, Reporting and recordkeeping requirements, Social security, Unemployment compensation. 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR parts 1, 31, and 301 are amended as follows: PART 1—INCOME TAX Paragraph 1. The authority citation for part 1 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1361–4 is amended as follows: ■ 1. In paragraph (a)(8)(i)(A) the language ‘‘and 38’’ is removed and ‘‘38, and 49’’ is added in its place. ■ 2. In paragraph (a)(8)(i)(B) the language ‘‘Chapter 33’’ is removed and ‘‘Chapters 33 and 49’’ is added in its place. ■ 3. Paragraph (a)(8)(ii) is revised. ■ 4. Paragraph (a)(8)(iii) is removed. The revision reads as follows: ■ § 1.1361–4 Effect of QSub election. (a) * * * (8) * * * (ii) Effective/applicability date. (A) Except as provided in this paragraph (a)(8)(ii), paragraph (a)(8) of this section applies to liabilities imposed and actions first required or permitted in periods beginning on or after January 1, 2008. (B) References to Chapter 49 in paragraph (a)(8) of this section apply to taxes imposed on amounts paid on or after July 1, 2012. (C) Paragraph (a)(8)(i)(E) of this section applies for periods after December 31, 2014. * * * * * § 1.1361–4T ■ [Removed] Par. 3. Section 1.1361–4T is removed. E:\FR\FM\26JNR1.SGM 26JNR1 36206 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Rules and Regulations PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE Par. 4. The authority citation for part 31 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Par. 5. Section 31.3121(b)(3)–1 is amended by revising paragraphs (c), (d), and (e) to read as follows: ■ § 31.3121(b)(3)–1 Family employment. * * * * * (c) Services performed in the employ of a partnership are within the exception described in paragraph (a) of this section only if the requisite family relationship exists between the employee and each of the partners comprising the partnership. (d) Services performed in the employ of a corporation are not within the exception described in paragraph (a) of this section, except that services performed in the employ of an entity that is treated as a corporation under § 301.7701–2(c)(2)(iv)(B) of this chapter may qualify for the exception if the requirements of the exception are otherwise met. An entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is not treated as the employer for purposes of applying section 3121(b)(3) and this section. For purposes of applying section 3121(b)(3) and this section, the owner of an entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is treated as the employer. (e) Paragraphs (c) and (d) of this section apply 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. § 31.3121(b)(3)–1T [Removed] Par. 6. Section 31.3121(b)(3)–1T is removed. ■ Par. 7. Section 31.3127–1 is added to read as follows: ■ pmangrum on DSK3VPTVN1PROD with RULES § 31.3127–1 Exemption for employers and their employees if both are members of religious faiths opposed to participation in Social Security Act programs. (a) Exemption—(1) Employer. Except as provided in paragraph (b) of this section, an employer is exempt from the taxes imposed by section 3111 on wages paid to an employee if— (i) The employer (or if the employer is a partnership, each partner therein) and its employee are members of a recognized religious sect or division described in section 1402(g)(1); VerDate Mar<15>2010 14:44 Jun 25, 2014 Jkt 232001 (ii) Both the employer (or if the employer is a partnership, each partner therein) and the employee adhere to the tenets and teachings of that sect; and (iii) Both the employer and the employee have filed and had approved applications under section 3127(b) for exemption from the taxes imposed by sections 3111 and 3101. (2) Employee. If an employer is exempt from the taxes imposed by section 3111 under paragraph (a)(1) of this section, then each employee described in paragraph (a)(1) of this section is exempt from the taxes imposed by section 3101 on the wages received with respect to employment with that employer. (b) Corporation. Services performed in the employ of a corporation are not within the exemption described in paragraph (a) of this section, except that services performed in the employ of an entity that is treated as a corporation under § 301.7701–2(c)(2)(iv)(B) of this chapter may qualify for the exemption if the requirements of the exemption are otherwise met. An entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is not treated as the employer for purposes of applying section 3127 and this section. For purposes of applying section 3127 and paragraph (a) of this section, the owner of an entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is treated as the employer. (c) Effective/applicability date. This section applies to wages paid on or after November 1, 2011. However, taxpayers may apply this section to wages paid on or after January 1, 2009. § 31.3127–1T [Removed] Par. 8. Section 31.3127–1T is removed. ■ Par. 9. Section 31.3306(c)(5)–1 is amended by revising paragraphs (c), (d), and (e) to read as follows: ■ § 31.3306(c)(5)–1 Family employment. * * * * * (c) Services performed in the employ of a partnership are within the exception described in paragraph (a) of this section only if the requisite family relationship exists between the employee and each of the partners comprising the partnership. (d) Services performed in the employ of a corporation are not within the exception described in paragraph (a) of this section, except that services performed in the employ of an entity that is treated as a corporation under § 301.7701–2(c)(2)(iv)(B) of this chapter PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 may qualify for the exception if the requirements of the exception are otherwise met. An entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is not treated as the employer for purposes of applying section 3306(c)(5) and this section. For purposes of applying section 3306(c)(5) and this section, the owner of an entity that is treated as a corporation under § 301.7701– 2(c)(2)(iv)(B) of this chapter is treated as the employer. (e) Paragraphs (c) and (d) of this section apply 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. § 31.3306(c)(5)–1T [Removed] Par. 10. Section 3306(c)(5)–1T is removed. ■ PART 301—PROCEDURE AND ADMINISTRATION Par. 11. The authority citation for part 301 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Par. 12. Section 301.7701–2 is amended as follows: ■ 1. Paragraphs (c)(2)(iv)(A), (B), and (C) are revised. ■ 2. Paragraph (c)(2)(v)(A)(1) is amended by removing the language ‘‘and 38’’ and adding ‘‘38, and 49’’ in its place. ■ 3. Paragraph (c)(2)(v)(A)(2) is amended by removing the language ‘‘Chapter 33’’ and adding ‘‘Chapters 33 and 49’’ in its place. ■ 4. Paragraph (c)(2)(vi) is removed. ■ 5. Paragraph (e)(5) is revised. ■ 6. Paragraph (e)(6)(iv) is added. ■ 7. Paragraphs (e)(8) and (e)(9) are removed. The revisions and addition read as follows: ■ § 301.7701–2 definitions. * Business entities; * * * * (c) * * * (2) * * * (iv) * * * (A) In general. Except as provided in paragraph (c)(2)(iv)(C) of this section, paragraph (c)(2)(i) of this section (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). E:\FR\FM\26JNR1.SGM 26JNR1 pmangrum on DSK3VPTVN1PROD with RULES Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Rules and Regulations (B) Treatment of entity. Except as provided in paragraph (c)(2)(iv)(C) of this section, an entity that is disregarded as an entity separate from its owner for any purpose under this section is treated as a corporation with respect 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). For special rules regarding the application of certain employment tax exceptions, see §§ 31.3121(b)(3)–1(d), 31.3127–1(b), and 31.3306(c)(5)–1(d) of this chapter. (C) Special rules. (1) Paragraphs (c)(2)(iv)(A) and (B) of this section do not apply to withholding requirements imposed by section 3406 (backup withholding). Thus, in the case of an entity that is disregarded as an entity separate from its owner for any purpose under this section, the owner is subject to the withholding requirements imposed by section 3406 (backup withholding). (2) Paragraph (c)(2)(i) of this section applies to taxes imposed under Subtitle A, including Chapter 2—Tax on Self Employment Income. Thus, the owner of an entity that is treated in the same manner as a sole proprietorship under paragraph (a) of this section is subject to tax on self-employment income. * * * * * (e) * * * (5)(i) Except as provided in this paragraph (e)(5), paragraph (c)(2)(iv) of this section applies with respect to wages paid on or after January 1, 2009. (ii) Paragraph (c)(2)(iv)(B) applies with respect to wages paid on or after September 14, 2009. For rules that apply before September 14, 2009, see 26 CFR part 301 revised as of April 1, 2009. (iii) Paragraph (c)(2)(iv)(C)(1) of this section applies with respect to wages paid on or after November 1, 2011. For rules that apply before November 1, 2011, see 26 CFR part 301, revised as of April 1, 2011. However, taxpayers may apply paragraph (c)(2)(iv)(C)(1) of this section with respect to wages paid on or after January 1, 2009. (6) * * * (iv) References to Chapter 49 in paragraph (c)(2)(v) of this section apply to taxes imposed on amounts paid on or after July 1, 2012. * * * * * VerDate Mar<15>2010 14:44 Jun 25, 2014 Jkt 232001 § 301.7701–2T [Removed] 36207 Editorial Note: This document was received for publication by the Office of the Federal Register on June 23, 2014. between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call or email CWO Christopher Ruleman, Sector Charleston Office of Waterways Management, Coast Guard; telephone 843–740–3184, email christopher.l.ruleman@uscg.mil. If you have questions on viewing the docket, call Cheryl Collins, Program Manager, Docket Operations, telephone 202–366– 9826. SUPPLEMENTARY INFORMATION: [FR Doc. 2014–14967 Filed 6–25–14; 8:45 am] Table of Acronyms Par. 13. Section 301.7701–2T is removed. ■ John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: February 7, 2014. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). BILLING CODE 4830–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 100 [Docket Number USCG–2014–0005] RIN 1625–AA08 Special Local Regulations; Beaufort Water Festival, Beaufort, SC Coast Guard, DHS. ACTION: Temporary final rule. AGENCY: The Coast Guard is establishing a special local regulation pertaining to the Beaufort Water Festival from 11:30 a.m. through 4:30 p.m. on July 19, 2014. This action is necessary to ensure safety of life on navigable waters of the United States during the Beaufort Water Festival Air Show. During the enforcement period, the special local regulation establishes a regulated area which all people and vessels will be prohibited from entering, transiting through, anchoring, or remaining within. Vessels may enter, transit through, anchor in, or remain within the area if authorized by the Captain of the Port Charleston or a designated representative. DATES: This rule is effective and will be enforced from 11:00 a.m. until 5:00 p.m. on July 19, 2014. ADDRESSES: Documents indicated in this preamble as being available in the docket are part of docket USCG–2014– 0005 and are available online by going to http://www.regulations.gov, inserting USCG–2014–0005 in the ‘‘Keyword’’ box, and then clicking ‘‘Search.’’ They are also available for inspection or copying at the Docket Management Facility (M–30), U.S. Department of Transportation, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590, SUMMARY: PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 DHS Department of Homeland Security FR Federal Register NPRM Notice of Proposed Rulemaking A. Regulatory History and Information On April 19, 2014, we published a notice of proposed rulemaking (NPRM) entitled Special Local Regulations; Beaufort Water Festival, Beaufort, SC in the Federal Register (79 FR 21661). We received no comments on the proposed rule. No public meeting was requested, and none was held. B. Basis and Purpose The legal basis for the rule is the Coast Guard’s authority to establish special local regulations: 33 U.S.C. 1233. The purpose of the rule is to insure safety of life on navigable waters of the United States during the Beaufort Water Festival. C. Discussion of Comments, Changes and the Final Rule This temporary rule creates a regulated area that will encompass a portion of the waterway that is 700 ft wide by 2600 ft in length, whose approximate corner coordinates are as follows: 32°25′47″ N/080°40′44″ W, 32°25′41″ N/080°40′14″ W, 32°25′35″ N/ 080°40′16″ W, 32°25′40″ N/080°40′46″ W, Spectator vessels may safely transit outside the regulated area, but are prohibited from entering, transiting through, anchoring, or remaining within the regulated area. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation. Persons and vessels may not enter, transit through, anchor in, or remain within the safety zone unless authorized by the Captain of the Port Charleston or a designated representative. Persons and vessels desiring to enter, transit through, anchor in, or remain within the regulated area may contact the Captain of the Port Charleston by telephone at (843) 740–7050, or a designated representative via VHF radio E:\FR\FM\26JNR1.SGM 26JNR1

Agencies

[Federal Register Volume 79, Number 123 (Thursday, June 26, 2014)]
[Rules and Regulations]
[Pages 36204-36207]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14967]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 31, and 301

[TD 9670]
RINs 1545-BJ06; 1545-BK38


Disregarded Entities; Religious and Family Member FICA and FUTA 
Exceptions; Indoor Tanning Services Excise Tax

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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

SUMMARY: This document contains final regulations relating to 
disregarded entities (including qualified subchapter S subsidiaries) 
and the indoor tanning services excise tax. These final regulations 
affect disregarded entities responsible for collecting the indoor 
tanning services excise tax and owners of those disregarded entities. 
The final regulations also relate to disregarded entities and certain 
exceptions from taxes under the Federal Insurance Contributions Act and 
the Federal Unemployment Tax Act, as well as backup withholding rules 
and related information reporting requirements. These final regulations 
affect individual owners of disregarded entities. These regulations 
also affect the owners of disregarded entities subject to backup 
withholding rules.

DATES: Effective Date: These regulations are effective on June 26, 
2014.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.1361-4(a)(8)(ii), 31.3121(b)(3)-1(e), 31.3127-1(c), 31.3306(c)(5)-
1(e), 301.7701-2(e)(5), and 301.7701-2(e)(6)(iv).

FOR FURTHER INFORMATION CONTACT: Regarding excise tax-related 
provisions, Michael H. Beker (202) 317-6855; regarding employment tax-
related provisions, Andrew Holubeck (202) 317-4770 (not toll free 
calls).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations amending the Income Tax 
Regulations (26 CFR part 1) under section 1361 of the Internal Revenue 
Code (Code), the Employment Tax Regulations (26 CFR part 31) under 
sections 3121, 3127, and 3306 of the Code, and the Procedure and 
Administration Regulations (26 CFR part 301) under section 7701 of the 
Code.

Indoor Tanning Services Excise Tax-Related Regulations

    On June 25, 2012, final and temporary regulations (TD 9596) were 
published in the Federal Register (77 FR 37806). The regulations treat 
disregarded entities (including qualified subchapter S subsidiaries) as 
separate entities for purposes of the indoor tanning services excise 
tax imposed by section 5000B.
    Also on June 25, 2012, a notice of proposed rulemaking (REG-125570-
11) was published by cross-reference to the temporary regulations in 
the Federal Register (77 FR 37838). The preamble to TD 9596 includes 
background information and an explanation of provisions regarding the 
regulations.

Employment Tax-Related Regulations

    On November 1, 2011, final and temporary regulations (TD 9554) were 
published in the Federal Register (76 FR 67363). The regulations extend 
the exceptions or exemptions from taxes under the Federal Insurance 
Contributions Act and the Federal Unemployment Tax Act 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) to services performed in the employ of 
certain

[[Page 36205]]

entities that are generally disregarded as separate from their owners 
for federal tax purposes under Sec.  301.7701-2(c). The regulations 
also clarify the existing rule that, in the case of an entity that is 
disregarded as an entity separate from its owner for any purpose under 
Sec.  301.7701-2(c), the owner is subject to the withholding 
requirements imposed under section 3406 (backup withholding).
    Also on November 1, 2011, a notice of proposed rulemaking (REG-
136565-09) was published by cross-reference to the temporary 
regulations in the Federal Register (76 FR 67384). The preamble to TD 
9554 includes background information and an explanation of provisions 
regarding the regulations.

Combining the Employment Tax and Excise Tax Provisions Into This Final 
Regulation

    The IRS did not receive any written or electronic comments 
responding to either notice of proposed rulemaking and a public hearing 
was neither requested nor held. Accordingly, both sets of proposed 
regulations are adopted as amended by this Treasury decision without 
substantive change and both sets of corresponding temporary regulations 
are removed. The nonsubstantive revisions are discussed in the next 
section.

Explanation of Revisions

    These final regulations reorganize and revise Sec.  31.3121(b)(3)-
1, Sec.  31.3127-1, Sec.  31.3306(c)(5)-1, and Sec.  301.7701-
2(c)(2)(iv) for clarity, and no substantive changes are intended to 
these provisions. In Sec.  31.3121(b)(3)-1, concerning family 
employment, the general rule that applies to corporations was moved 
from Sec.  31.3121(b)(3)-1(c) to Sec.  31.3121(b)(3)-1(d), so that the 
rules for disregarded entities (which are treated as corporations for 
purposes of Subtitle C under Sec.  301.7701-2(c)(2)(iv)(B)) would 
follow after the general corporate rule. Similarly, in Sec.  
31.3306(c)(5)-1, with respect to the provisions concerning family 
employment, the general rule that applies to corporations was moved 
from Sec.  31.3306(c)(5)-1(c) to Sec.  31.3306(c)(5)-1(d), so that the 
rules for disregarded entities would follow after the general corporate 
rule. For clarity, Sec.  31.3127-1(a) was reorganized into a list 
format and headings were added. In addition, Sec. Sec.  31.3121(b)(3)-
1(d), 31.3127-1(b), and 31.3306(c)(5)-1(d) were revised to provide that 
an entity that is treated as a corporation for purposes of Subtitle C 
under Sec.  301.7701-2(c)(2)(iv)(B) is not treated as the employer for 
purposes of applying sections 3121(b)(3), 3127, and 3306(c)(5) and the 
regulations thereunder.
    Section 301.7701-2(c)(2)(iv)(A) continues to provide that Sec.  
301.7701-2(c)(2)(i) (relating to certain wholly owned entities) does 
not apply to taxes imposed under Subtitle C. Section 301.7701-
2(c)(2)(iv)(B) also continues to provide that an entity that is 
disregarded as an entity separate from its owner for any purpose under 
Sec.  301.7701-2 is treated as a corporation for purposes of taxes 
imposed under Subtitle C. The cross references that were formerly in 
Sec.  301.7701-2(c)(2)(iv)(C) and were described as exceptions to Sec.  
301.7701-2(c)(2)(iv)(B) are now described as special rules and are 
added to Sec.  301.7701-2(c)(2)(iv)(B). In addition, the language 
formerly of Sec.  301.7701-2(c)(2)(iv)(A) regarding backup withholding 
has been moved to new Sec.  301.7701-2(c)(2)(iv)(C)(1) to clarify that 
it is an exception to the general provisions of Sec.  301.7701-
2(c)(2)(iv)(A) and (B). Finally, the last two sentences that were 
formerly in Sec.  301.7701-2(c)(2)(iv)(A) regarding taxes imposed under 
Subtitle A, including Chapter 2, Tax on Self Employment Income, have 
been moved to new Sec.  301.7701-2(c)(2)(iv)(C)(2) to put all the 
special clarifying rules and exceptions in one paragraph.

Special Analyses

    It has been determined that this Treasury decision 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 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, the proposed regulations that preceded 
these regulations were submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on their impact on small 
business and no comments were received.

Drafting Information

    The principal authors of these regulations are Michael H. Beker, 
Office of the Associate Chief Counsel (Passthroughs and Special 
Industries), and Andrew Holubeck, Office of the Associate Chief Counsel 
(Tax Exempt & Government Entities). However, other personnel from the 
IRS and the Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

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

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 31, and 301 are amended as follows:

PART 1--INCOME TAX

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 1.1361-4 is amended as follows:
0
1. In paragraph (a)(8)(i)(A) the language ``and 38'' is removed and 
``38, and 49'' is added in its place.
0
2. In paragraph (a)(8)(i)(B) the language ``Chapter 33'' is removed and 
``Chapters 33 and 49'' is added in its place.
0
3. Paragraph (a)(8)(ii) is revised.
0
4. Paragraph (a)(8)(iii) is removed.
    The revision reads as follows:


Sec.  1.1361-4  Effect of QSub election.

    (a) * * *
    (8) * * *
    (ii) Effective/applicability date. (A) Except as provided in this 
paragraph (a)(8)(ii), paragraph (a)(8) of this section applies to 
liabilities imposed and actions first required or permitted in periods 
beginning on or after January 1, 2008.
    (B) References to Chapter 49 in paragraph (a)(8) of this section 
apply to taxes imposed on amounts paid on or after July 1, 2012.
    (C) Paragraph (a)(8)(i)(E) of this section applies for periods 
after December 31, 2014.
* * * * *


Sec.  1.1361-4T  [Removed]

0
Par. 3. Section 1.1361-4T is removed.

[[Page 36206]]

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

0
Par. 4. The authority citation for part 31 continues to read in part as 
follows:

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


0
Par. 5. Section 31.3121(b)(3)-1 is amended by revising paragraphs (c), 
(d), and (e) to read as follows:


Sec.  31.3121(b)(3)-1  Family employment.

* * * * *
    (c) Services performed in the employ of a partnership are within 
the exception described in paragraph (a) of this section only if the 
requisite family relationship exists between the employee and each of 
the partners comprising the partnership.
    (d) Services performed in the employ of a corporation are not 
within the exception described in paragraph (a) of this section, except 
that services performed in the employ of an entity that is treated as a 
corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter may 
qualify for the exception if the requirements of the exception are 
otherwise met. An entity that is treated as a corporation under Sec.  
301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer 
for purposes of applying section 3121(b)(3) and this section. For 
purposes of applying section 3121(b)(3) and this section, the owner of 
an entity that is treated as a corporation under Sec.  301.7701-
2(c)(2)(iv)(B) of this chapter is treated as the employer.
    (e) Paragraphs (c) and (d) of this section apply 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.


Sec.  31.3121(b)(3)-1T  [Removed]

0
Par. 6. Section 31.3121(b)(3)-1T is removed.
0
Par. 7. Section 31.3127-1 is added to read as follows:


Sec.  31.3127-1  Exemption for employers and their employees if both 
are members of religious faiths opposed to participation in Social 
Security Act programs.

    (a) Exemption--(1) Employer. Except as provided in paragraph (b) of 
this section, an employer is exempt from the taxes imposed by section 
3111 on wages paid to an employee if--
    (i) The employer (or if the employer is a partnership, each partner 
therein) and its employee are members of a recognized religious sect or 
division described in section 1402(g)(1);
    (ii) Both the employer (or if the employer is a partnership, each 
partner therein) and the employee adhere to the tenets and teachings of 
that sect; and
    (iii) Both the employer and the employee have filed and had 
approved applications under section 3127(b) for exemption from the 
taxes imposed by sections 3111 and 3101.
    (2) Employee. If an employer is exempt from the taxes imposed by 
section 3111 under paragraph (a)(1) of this section, then each employee 
described in paragraph (a)(1) of this section is exempt from the taxes 
imposed by section 3101 on the wages received with respect to 
employment with that employer.
    (b) Corporation. Services performed in the employ of a corporation 
are not within the exemption described in paragraph (a) of this 
section, except that services performed in the employ of an entity that 
is treated as a corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this 
chapter may qualify for the exemption if the requirements of the 
exemption are otherwise met. An entity that is treated as a corporation 
under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter is not treated as 
the employer for purposes of applying section 3127 and this section. 
For purposes of applying section 3127 and paragraph (a) of this 
section, the owner of an entity that is treated as a corporation under 
Sec.  301.7701-2(c)(2)(iv)(B) of this chapter is treated as the 
employer.
    (c) Effective/applicability date. This section applies to wages 
paid on or after November 1, 2011. However, taxpayers may apply this 
section to wages paid on or after January 1, 2009.

Sec.  31.3127-1T  [Removed]

0
Par. 8. Section 31.3127-1T is removed.
0
Par. 9. Section 31.3306(c)(5)-1 is amended by revising paragraphs (c), 
(d), and (e) to read as follows:


Sec.  31.3306(c)(5)-1  Family employment.

* * * * *
    (c) Services performed in the employ of a partnership are within 
the exception described in paragraph (a) of this section only if the 
requisite family relationship exists between the employee and each of 
the partners comprising the partnership.
    (d) Services performed in the employ of a corporation are not 
within the exception described in paragraph (a) of this section, except 
that services performed in the employ of an entity that is treated as a 
corporation under Sec.  301.7701-2(c)(2)(iv)(B) of this chapter may 
qualify for the exception if the requirements of the exception are 
otherwise met. An entity that is treated as a corporation under Sec.  
301.7701-2(c)(2)(iv)(B) of this chapter is not treated as the employer 
for purposes of applying section 3306(c)(5) and this section. For 
purposes of applying section 3306(c)(5) and this section, the owner of 
an entity that is treated as a corporation under Sec.  301.7701-
2(c)(2)(iv)(B) of this chapter is treated as the employer.
    (e) Paragraphs (c) and (d) of this section apply 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.


Sec.  31.3306(c)(5)-1T  [Removed]

0
Par. 10. Section 3306(c)(5)-1T is removed.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 11. The authority citation for part 301 continues to read in part 
as follows:

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


0
Par. 12. Section 301.7701-2 is amended as follows:
0
1. Paragraphs (c)(2)(iv)(A), (B), and (C) are revised.
0
2. Paragraph (c)(2)(v)(A)(1) is amended by removing the language ``and 
38'' and adding ``38, and 49'' in its place.
0
3. Paragraph (c)(2)(v)(A)(2) is amended by removing the language 
``Chapter 33'' and adding ``Chapters 33 and 49'' in its place.
0
4. Paragraph (c)(2)(vi) is removed.
0
5. Paragraph (e)(5) is revised.
0
6. Paragraph (e)(6)(iv) is added.
0
7. Paragraphs (e)(8) and (e)(9) are removed.
    The revisions and addition read as follows:


Sec.  301.7701-2  Business entities; definitions.

* * * * *
    (c) * * *
    (2) * * *
    (iv) * * *
    (A) In general. Except as provided in paragraph (c)(2)(iv)(C) of 
this section, paragraph (c)(2)(i) of this section (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).

[[Page 36207]]

    (B) Treatment of entity. Except as provided in paragraph 
(c)(2)(iv)(C) of this section, an entity that is disregarded as an 
entity separate from its owner for any purpose under this section is 
treated as a corporation with respect 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). For special rules 
regarding the application of certain employment tax exceptions, see 
Sec. Sec.  31.3121(b)(3)-1(d), 31.3127-1(b), and 31.3306(c)(5)-1(d) of 
this chapter.
    (C) Special rules. (1) Paragraphs (c)(2)(iv)(A) and (B) of this 
section do not apply to withholding requirements imposed by section 
3406 (backup withholding). Thus, in the case of an entity that is 
disregarded as an entity separate from its owner for any purpose under 
this section, the owner is subject to the withholding requirements 
imposed by section 3406 (backup withholding).
    (2) Paragraph (c)(2)(i) of this section applies to taxes imposed 
under Subtitle A, including Chapter 2--Tax on Self Employment Income. 
Thus, the owner of an entity that is treated in the same manner as a 
sole proprietorship under paragraph (a) of this section is subject to 
tax on self-employment income.
* * * * *
    (e) * * *
    (5)(i) Except as provided in this paragraph (e)(5), paragraph 
(c)(2)(iv) of this section applies with respect to wages paid on or 
after January 1, 2009.
    (ii) Paragraph (c)(2)(iv)(B) applies with respect to wages paid on 
or after September 14, 2009. For rules that apply before September 14, 
2009, see 26 CFR part 301 revised as of April 1, 2009.
    (iii) Paragraph (c)(2)(iv)(C)(1) of this section applies with 
respect to wages paid on or after November 1, 2011. For rules that 
apply before November 1, 2011, see 26 CFR part 301, revised as of April 
1, 2011. However, taxpayers may apply paragraph (c)(2)(iv)(C)(1) of 
this section with respect to wages paid on or after January 1, 2009.
    (6) * * *
    (iv) References to Chapter 49 in paragraph (c)(2)(v) of this 
section apply to taxes imposed on amounts paid on or after July 1, 
2012.
* * * * *


Sec.  301.7701-2T  [Removed]

0
Par. 13. Section 301.7701-2T is removed.

 John Dalrymple,
Deputy Commissioner for Services and Enforcement.

    Approved: February 7, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).

    Editorial Note: This document was received for publication by 
the Office of the Federal Register on June 23, 2014.

[FR Doc. 2014-14967 Filed 6-25-14; 8:45 am]
BILLING CODE 4830-01-P