Self-Employment Tax Treatment of Partners in a Partnership That Owns a Disregarded Entity, 31478-31480 [2019-14121]

Download as PDF 31478 Federal Register / Vol. 84, No. 127 / Tuesday, July 2, 2019 / Rules and Regulations Dated: June 20, 2019. Norman E. Sharpless, Acting Commissioner of Food and Drugs. Dated: June 25, 2019. Eric D. Hargan, Deputy Secretary, Department of Health and Human Services. [FR Doc. 2019–14096 Filed 7–1–19; 8:45 am] BILLING CODE 4164–01–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301 [TD 9869] RIN 1545–BM77 Self-Employment Tax Treatment of Partners in a Partnership That Owns a Disregarded Entity Internal Revenue Service (IRS), Treasury. ACTION: Final regulation. AGENCY: This document contains final regulations that clarify the employment tax treatment of partners in a partnership that owns a disregarded entity. These regulations affect partners in a partnership that owns a disregarded entity. DATES: Effective date: These regulations are effective on July 2, 2019. Applicability date: For dates of applicability, see § 301.7701–2(e)(8). FOR FURTHER INFORMATION CONTACT: Andrew K. Holubeck at (202) 317–4774 or Danchai Mekadenaumporn at (202) 317–6798 (not toll-free numbers). SUPPLEMENTARY INFORMATION: SUMMARY: khammond on DSKBBV9HB2PROD with RULES Background This document contains amendments to 26 CFR part 301. Section 301.7701– 2(c)(2)(i) of the regulations specifies that, except as otherwise provided, a business entity that has a single owner and is not a corporation under § 301.7701–2(b) is disregarded as an entity separate from its owner (a disregarded entity). However, § 301.7701–2(c)(2)(iv)(B) treats a disregarded entity as a corporation for purposes of employment taxes imposed under Subtitle C of the Internal Revenue Code (Code). This exception to the treatment of disregarded entities does not apply to taxes imposed under Subtitle A of the Code, including selfemployment taxes, and the regulations issued in TD 9670 on June 26, 2014 (79 FR 36204) explicitly provided that the owner of a disregarded entity who is VerDate Sep<11>2014 15:49 Jul 01, 2019 Jkt 247001 treated as a sole proprietor for income tax purposes is subject to selfemployment taxes. On May 4, 2016, temporary regulations (TD 9766) clarifying the employment tax treatment of partners in a partnership that owns a disregarded entity were published in the Federal Register (81 FR 26693, as corrected July 5, 2016, at 81 FR 43488). Prior to the publication of the temporary regulations, the regulations did not explicitly address situations in which the owner of a disregarded entity is a partnership, and the Department of the Treasury (Treasury Department) and the IRS had been informed that some taxpayers were reading the regulations to permit the treatment of the individual partners in a partnership that owned a disregarded entity (either directly or through tiered partnerships) as employees of the disregarded entity. The Treasury Department and the IRS issued the temporary regulations to clarify that the rule that a disregarded entity is treated as a corporation for employment tax purposes does not apply to the self-employment tax treatment of any individuals who are partners in a partnership that owns a disregarded entity. The temporary regulations, like the final regulations they replaced, continued to explicitly provide that the owner of a disregarded entity who is treated as a sole proprietor for income tax purposes is subject to self-employment taxes. A notice of proposed rulemaking (REG–114307–15) cross-referencing the temporary regulations was published in the Federal Register on the same day (81 FR 26763). No public hearing was requested or held. Comments responding to the notice of proposed rulemaking were received. All comments were considered and are available for public inspection and copying at http://www.regulations.gov or upon request. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision, and the corresponding temporary regulations are removed. The public comments are discussed in this preamble. Explanation and Summary of Comments The Treasury Department and the IRS received two comments in response to the proposed regulations. One commenter requested that the Treasury Department and the IRS consider addressing whether an eligible entity’s election to be classified as an association (and thus a corporation under § 301.7701–2(b)(2)) pursuant to the final entity classification regulations PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 under section 7701 of the Code (also known as the ‘‘Check-the-Box’’ regulations) would change the result such that a partner of the upper tier entity could be an employee at the lower tier entity that is treated as a corporation. While the temporary regulations did not address tiered entities, the use of an entity classified as a corporation under the Check-the-Box regulations presents different issues, such as whether, under the facts and circumstances, the partner is an employee of the corporation. However, these issues are outside the scope of these final regulations, and for this reason, these regulations do not address this comment. In the preamble of TD 9766, the Treasury Department and the IRS requested comments on the appropriate application of the principles of Rev. Rul. 69–184, 1969–1 C.B. 256, to tiered partnership situations, the circumstances in which it may be appropriate to permit partners to also be employees of the partnership, and the impact on employee benefit plans (including, but not limited to, qualified retirement plans, health and welfare plans, and fringe benefit plans) and on employment taxes if Rev. Rul. 69–184 were to be modified to permit partners to also be employees in certain circumstances. In response to this request, one commenter described the effects of the application of the principles of Rev. Rul. 69–184 in the context of publicly traded partnerships. This commenter noted that one particular concern in the publicly traded partnership context is that the publicly traded partnership may not know which service providers treated as employees (whether at the publicly traded partnership level or at any disregarded entity owned by the publicly traded partnership) hold units since individuals may purchase units on the open market without the knowledge of the publicly traded partnership. If an acquisition of units by the service provider occurs without the publicly traded partnership’s knowledge, then improper tax withholding and benefit plan participation may occur until the publicly traded partnership discovers the error. This commenter also noted a number of negative effects on service providers receiving equity-based compensation from a publicly traded partnership and the ensuing burden required in administering any equitybased compensation plan in the publicly traded partnership context. This commenter requested that the IRS consider an exception to the principles of Rev. Rul. 69–184 for publicly traded partnerships. E:\FR\FM\02JYR1.SGM 02JYR1 khammond on DSKBBV9HB2PROD with RULES Federal Register / Vol. 84, No. 127 / Tuesday, July 2, 2019 / Rules and Regulations As noted in the preamble to TD 9766, these regulations do not address the application of Rev. Rul. 69–184 in tiered partnership situations, but rather clarify that a disregarded entity owned by a partnership is not treated as a corporation for purposes of employing any partner of the partnership. Similarly, these regulations also do not address the application of Rev. Rul. 69– 184 to publicly traded partnerships. Accordingly, the final regulations do not provide an exception to the principles of Rev. Rul. 69–184 for publicly traded partnerships. However, the Treasury Department and the IRS will continue to consider the application of Rev. Rul. 69–184, including the specific issue noted by the commenter, and welcome further comments. The temporary regulations provided that their applicability date would be the later of August 1, 2016, or the first day of the latest-starting plan year following May 4, 2016 of an affected plan (based on the plans adopted before, and the plan years in effect as of, May 4, 2016) sponsored by an entity that is disregarded as an entity separate from its owner for any purpose under § 301.7701–2. It has come to the attention of the Treasury Department and the IRS that some taxpayers may have read the applicability date to begin on the first day of the last plan year prior to the termination of an affected plan (as defined in § 301.7701–2(e)(8)), which may have been a date after May 4, 2017 . This is not a proper reading of the applicability date. In the case of an entity with several affected plans that may have different plan years, the applicability date was the first day of the plan year of the affected plan that had the latest plan year beginning after May 4, 2016, and on or before May 4, 2017 (assuming that date is after August 1, 2016). For example, an entity may have had two affected plans, with one plan year that began on September 1, 2016, and another plan year that began on January 1, 2017. In this case, the applicability date for this entity would have been January 1, 2017. The applicability date for any entity affected by these regulations should not have been delayed beyond May 4, 2017 in any case. For this reason, the final regulations clarify in § 301.7701–2(e)(8) that the applicability date of § 301.7701–2(c)(2)(iv)(C)(2) is the later of August 1, 2016, or the first day of the latest-starting plan year beginning after May 4, 2016, and on or before May 4, 2017, of an affected plan (based on the plans adopted before, and the plan years in effect as of, May 4, 2016) sponsored by an entity that is disregarded as an VerDate Sep<11>2014 15:49 Jul 01, 2019 Jkt 247001 entity separate from its owner for any purpose under § 301.7701–2. Special Analysis This regulation is not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Department of the Treasury and the Office of Management and Budget regarding review of tax regulations. 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 NPRM preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Drafting Information The principal author of these regulations is Andrew Holubeck of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes). However, other personnel from the IRS and the Treasury Department participated in their development. Statement of Availability IRS Revenue Procedures, Revenue Rulings, Notices, and other guidance cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov. List of Subjects in 26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements. Amendments to the Regulations Accordingly, 26 CFR part 301 is amended as follows: PART 301—PROCEDURE AND ADMINISTRATION Paragraph 1. The authority citation for part 301 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.7701–2 is amended by: ■ 1. Revising paragraph (c)(2)(iv)(C)(2). ■ PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 31479 2. Removing the ‘‘(e)’’ from the ‘‘(e)(8)’’ paragraph designation and revising paragraph (e)(8). The revisions read as follows: ■ § 301.7701–2 definitions. * Business entities; * * * * (c) * * * (2) * * * (iv) * * * (C) * * * (2) Paragraph (c)(2)(i) of this section applies to taxes imposed under subtitle A of the Code, including Chapter 2— Tax on Self-Employment Income. Thus, an entity that is treated in the same manner as a sole proprietorship under paragraph (a) of this section is not treated as a corporation for purposes of employing its owner; instead, the entity is disregarded as an entity separate from its owner for this purpose and is not the employer of its owner. The owner will be subject to self-employment tax on self-employment income with respect to the entity’s activities. Also, if a partnership is the owner of an entity that is disregarded as an entity separate from its owner for any purpose under this section, the entity is not treated as a corporation for purposes of employing a partner of the partnership that owns the entity; instead, the entity is disregarded as an entity separate from the partnership for this purpose and is not the employer of any partner of the partnership that owns the entity. A partner of a partnership that owns an entity that is disregarded as an entity separate from its owner for any purpose under this section is subject to the same self-employment tax rules as a partner of a partnership that does not own an entity that is disregarded as an entity separate from its owner for any purpose under this section. * * * * * (e) * * * (8) Paragraph (c)(2)(iv)(C)(2) of this section applies on the later of— (i) August 1, 2016; or (ii) The first day of the latest-starting plan year beginning after May 4, 2016, and on or before May 4, 2017, of an affected plan (based on the plans adopted before, and the plan years in effect as of, May 4, 2016) sponsored by an entity that is disregarded as an entity separate from its owner for any purpose under this section. For rules that apply before the applicability date of paragraph (c)(2)(iv)(C)(2) of this section, see 26 CFR part 301 revised as of April 1, 2016. For the purposes of this paragraph (e)(8)— (A) An affected plan includes any qualified plan, health plan, or section 125 cafeteria plan if the plan benefits E:\FR\FM\02JYR1.SGM 02JYR1 31480 Federal Register / Vol. 84, No. 127 / Tuesday, July 2, 2019 / Rules and Regulations participants whose employment status is affected by paragraph (c)(2)(iv)(C)(2) of this section; (B) A qualified plan means a plan, contract, pension, or trust described in paragraph (A) or (B) of section 219(g)(5) (other than paragraph (A)(iii)); and (C) A health plan means an arrangement described under § 1.105–5 of this chapter. * * * * * § 301.7701–2T [Removed] Par. 3. Section 301.7701–2T is removed. ■ Kirsten Wielobob, Deputy Commissioner for Services and Enforcement. Approved: May 15, 2019. David J. Kautter, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2019–14121 Filed 6–28–19; 4:15 pm] BILLING CODE 4830–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [Docket Number USCG–2019–0323] RIN 1625–AA00 Safety Zone; Columbia River, Fireworks Kennewick, WA Coast Guard, DHS. Temporary final rule. AGENCY: ACTION: The Coast Guard is establishing a temporary safety zone for certain waters of the Columbia River near Kennewick, WA. This action is necessary to provide for the safety of life on these navigable waters during a fireworks display on July 4, 2019. This regulation will prohibit persons and vessels from being in the safety zone unless authorized by the Captain of the Port Columbia River or a designated representative. SUMMARY: This rule is effective from 9 p.m. to 11:30 p.m. on July 4, 2019. ADDRESSES: To view documents mentioned in this preamble as being available in the docket, go to https:// www.regulations.gov, type USCG–2019– 0323 in the ‘‘SEARCH’’ box and click ‘‘SEARCH.’’ Click on Open Docket Folder on the line associated with this rule. FOR FURTHER INFORMATION CONTACT: If you have questions on this rule, call or email LCDR Dixon Whitley, Waterways khammond on DSKBBV9HB2PROD with RULES DATES: VerDate Sep<11>2014 15:49 Jul 01, 2019 Jkt 247001 Management Division, Marine Safety Unit Portland, U.S. Coast Guard; telephone 503–240–9319, email msupdxwwm@uscg.mil. SUPPLEMENTARY INFORMATION: I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking § Section U.S.C. United States Code II. Background Information and Regulatory History Western Display notified the Coast Guard that it will be conducting a fireworks display from 10 p.m. to 10:30 p.m. on July 4, 2019, to commemorate Independence Day. The fireworks will launch from a site over the Columbia River in Kennewick, WA. In response, on May 24, 2019, the Coast Guard published a notice of proposed rulemaking (NPRM) titled Safety Zone; Columbia River, Fireworks Kennewick, WA (84 FR 24059). There we stated why we issued the NPRM, and invited comments on our proposed regulatory action related to this fireworks display. During the comment period that ended June 10, 2019, we received no comments. Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Delaying the effective date of this rule would be impracticable because the Coast Guard needs to have a safety zone regulation in place by July 4, 2019, to respond to the potential safety hazards associated with the fireworks display on that date. III. Legal Authority and Need for Rule The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231). Captain of the Port Columbia River (COTP) has determined that potential hazards associated with the fireworks to be used in this July 4, 2019 display will be a safety concern for anyone within a 450yard radius of the barge. The purpose of this rule is to ensure safety of vessels and the navigable waters in the safety zone before, during, and after the scheduled event. IV. Discussion of Comments, Changes, and the Rule As noted above, we received no comments on our NPRM published May 24, 2019. There are no changes in the regulatory text of this rule from the proposed rule in the NPRM. This rule establishes a safety zone from 9 p.m. to 11:30 p.m. on July 4, PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 2019. The safety zone would cover all navigable waters of the Columbia River within 450-yards of the discharge site located at 46°13′22″ N, 119° 9′17″ W, in vicinity of Kennewick, WA. The duration of the zone is intended to ensure the safety of vessels and these navigable waters before, during, and after the scheduled 10 p.m. to 10:30 p.m. fireworks display. No vessel or person would be permitted to enter the safety zone without obtaining permission from the COTP or a designated representative. V. Regulatory Analyses We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors. A. Regulatory Planning and Review Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a ‘‘significant regulatory action,’’ under Executive Order 12866. Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771. This regulatory action determination is based on Vessel traffic would be able to safely transit around this safety zone which would impact a small designated area of the Columbia River for approximately 2.5 hours during the evening when vessel traffic is normally low. Moreover, the Coast Guard would issue a Broadcast Notice to Mariners via VHF–FM marine channel 16 about the zone, and the rule would allow vessels to seek permission to enter the zone. B. Impact on Small Entities The Regulatory Flexibility Act of 1980, 5 U.S.C. 601–612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term ‘‘small entities’’ comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard received no comments from the Small Business Administration E:\FR\FM\02JYR1.SGM 02JYR1

Agencies

[Federal Register Volume 84, Number 127 (Tuesday, July 2, 2019)]
[Rules and Regulations]
[Pages 31478-31480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-14121]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9869]
RIN 1545-BM77


Self-Employment Tax Treatment of Partners in a Partnership That 
Owns a Disregarded Entity

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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

SUMMARY: This document contains final regulations that clarify the 
employment tax treatment of partners in a partnership that owns a 
disregarded entity. These regulations affect partners in a partnership 
that owns a disregarded entity.

DATES: 
    Effective date: These regulations are effective on July 2, 2019.
    Applicability date: For dates of applicability, see Sec.  301.7701-
2(e)(8).

FOR FURTHER INFORMATION CONTACT: Andrew K. Holubeck at (202) 317-4774 
or Danchai Mekadenaumporn at (202) 317-6798 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 301. Section 
301.7701-2(c)(2)(i) of the regulations specifies that, except as 
otherwise provided, a business entity that has a single owner and is 
not a corporation under Sec.  301.7701-2(b) is disregarded as an entity 
separate from its owner (a disregarded entity). However, Sec.  
301.7701-2(c)(2)(iv)(B) treats a disregarded entity as a corporation 
for purposes of employment taxes imposed under Subtitle C of the 
Internal Revenue Code (Code). This exception to the treatment of 
disregarded entities does not apply to taxes imposed under Subtitle A 
of the Code, including self-employment taxes, and the regulations 
issued in TD 9670 on June 26, 2014 (79 FR 36204) explicitly provided 
that the owner of a disregarded entity who is treated as a sole 
proprietor for income tax purposes is subject to self-employment taxes.
    On May 4, 2016, temporary regulations (TD 9766) clarifying the 
employment tax treatment of partners in a partnership that owns a 
disregarded entity were published in the Federal Register (81 FR 26693, 
as corrected July 5, 2016, at 81 FR 43488). Prior to the publication of 
the temporary regulations, the regulations did not explicitly address 
situations in which the owner of a disregarded entity is a partnership, 
and the Department of the Treasury (Treasury Department) and the IRS 
had been informed that some taxpayers were reading the regulations to 
permit the treatment of the individual partners in a partnership that 
owned a disregarded entity (either directly or through tiered 
partnerships) as employees of the disregarded entity. The Treasury 
Department and the IRS issued the temporary regulations to clarify that 
the rule that a disregarded entity is treated as a corporation for 
employment tax purposes does not apply to the self-employment tax 
treatment of any individuals who are partners in a partnership that 
owns a disregarded entity. The temporary regulations, like the final 
regulations they replaced, continued to explicitly provide that the 
owner of a disregarded entity who is treated as a sole proprietor for 
income tax purposes is subject to self-employment taxes. A notice of 
proposed rulemaking (REG-114307-15) cross-referencing the temporary 
regulations was published in the Federal Register on the same day (81 
FR 26763). No public hearing was requested or held. Comments responding 
to the notice of proposed rulemaking were received. All comments were 
considered and are available for public inspection and copying at 
http://www.regulations.gov or upon request. After consideration of all 
the comments, the proposed regulations are adopted as amended by this 
Treasury decision, and the corresponding temporary regulations are 
removed. The public comments are discussed in this preamble.

Explanation and Summary of Comments

    The Treasury Department and the IRS received two comments in 
response to the proposed regulations. One commenter requested that the 
Treasury Department and the IRS consider addressing whether an eligible 
entity's election to be classified as an association (and thus a 
corporation under Sec.  301.7701-2(b)(2)) pursuant to the final entity 
classification regulations under section 7701 of the Code (also known 
as the ``Check-the-Box'' regulations) would change the result such that 
a partner of the upper tier entity could be an employee at the lower 
tier entity that is treated as a corporation. While the temporary 
regulations did not address tiered entities, the use of an entity 
classified as a corporation under the Check-the-Box regulations 
presents different issues, such as whether, under the facts and 
circumstances, the partner is an employee of the corporation. However, 
these issues are outside the scope of these final regulations, and for 
this reason, these regulations do not address this comment.
    In the preamble of TD 9766, the Treasury Department and the IRS 
requested comments on the appropriate application of the principles of 
Rev. Rul. 69-184, 1969-1 C.B. 256, to tiered partnership situations, 
the circumstances in which it may be appropriate to permit partners to 
also be employees of the partnership, and the impact on employee 
benefit plans (including, but not limited to, qualified retirement 
plans, health and welfare plans, and fringe benefit plans) and on 
employment taxes if Rev. Rul. 69-184 were to be modified to permit 
partners to also be employees in certain circumstances.
    In response to this request, one commenter described the effects of 
the application of the principles of Rev. Rul. 69-184 in the context of 
publicly traded partnerships. This commenter noted that one particular 
concern in the publicly traded partnership context is that the publicly 
traded partnership may not know which service providers treated as 
employees (whether at the publicly traded partnership level or at any 
disregarded entity owned by the publicly traded partnership) hold units 
since individuals may purchase units on the open market without the 
knowledge of the publicly traded partnership. If an acquisition of 
units by the service provider occurs without the publicly traded 
partnership's knowledge, then improper tax withholding and benefit plan 
participation may occur until the publicly traded partnership discovers 
the error. This commenter also noted a number of negative effects on 
service providers receiving equity-based compensation from a publicly 
traded partnership and the ensuing burden required in administering any 
equity-based compensation plan in the publicly traded partnership 
context. This commenter requested that the IRS consider an exception to 
the principles of Rev. Rul. 69-184 for publicly traded partnerships.

[[Page 31479]]

    As noted in the preamble to TD 9766, these regulations do not 
address the application of Rev. Rul. 69-184 in tiered partnership 
situations, but rather clarify that a disregarded entity owned by a 
partnership is not treated as a corporation for purposes of employing 
any partner of the partnership. Similarly, these regulations also do 
not address the application of Rev. Rul. 69-184 to publicly traded 
partnerships. Accordingly, the final regulations do not provide an 
exception to the principles of Rev. Rul. 69-184 for publicly traded 
partnerships. However, the Treasury Department and the IRS will 
continue to consider the application of Rev. Rul. 69-184, including the 
specific issue noted by the commenter, and welcome further comments.
    The temporary regulations provided that their applicability date 
would be the later of August 1, 2016, or the first day of the latest-
starting plan year following May 4, 2016 of an affected plan (based on 
the plans adopted before, and the plan years in effect as of, May 4, 
2016) sponsored by an entity that is disregarded as an entity separate 
from its owner for any purpose under Sec.  301.7701-2. It has come to 
the attention of the Treasury Department and the IRS that some 
taxpayers may have read the applicability date to begin on the first 
day of the last plan year prior to the termination of an affected plan 
(as defined in Sec.  301.7701-2(e)(8)), which may have been a date 
after May 4, 2017 . This is not a proper reading of the applicability 
date.
    In the case of an entity with several affected plans that may have 
different plan years, the applicability date was the first day of the 
plan year of the affected plan that had the latest plan year beginning 
after May 4, 2016, and on or before May 4, 2017 (assuming that date is 
after August 1, 2016). For example, an entity may have had two affected 
plans, with one plan year that began on September 1, 2016, and another 
plan year that began on January 1, 2017. In this case, the 
applicability date for this entity would have been January 1, 2017. The 
applicability date for any entity affected by these regulations should 
not have been delayed beyond May 4, 2017 in any case. For this reason, 
the final regulations clarify in Sec.  301.7701-2(e)(8) that the 
applicability date of Sec.  301.7701-2(c)(2)(iv)(C)(2) is the later of 
August 1, 2016, or the first day of the latest-starting plan year 
beginning after May 4, 2016, and on or before May 4, 2017, of an 
affected plan (based on the plans adopted before, and the plan years in 
effect as of, May 4, 2016) sponsored by an entity that is disregarded 
as an entity separate from its owner for any purpose under Sec.  
301.7701-2.

Special Analysis

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations. 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 NPRM preceding this 
regulation was submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Andrew Holubeck of the 
Office of the Associate Chief Counsel (Employee Benefits, Exempt 
Organizations and Employment Taxes). However, other personnel from the 
IRS and the Treasury Department participated in their development.

Statement of Availability

    IRS Revenue Procedures, Revenue Rulings, Notices, and other 
guidance cited in this document are published in the Internal Revenue 
Bulletin (or Cumulative Bulletin) and are available from the 
Superintendent of Documents, U.S. Government Publishing Office, 
Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

List of Subjects in 26 CFR Part 301

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

Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read in 
part as follows:

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


0
Par. 2. Section 301.7701-2 is amended by:
0
1. Revising paragraph (c)(2)(iv)(C)(2).
0
2. Removing the ``(e)'' from the ``(e)(8)'' paragraph designation and 
revising paragraph (e)(8).
    The revisions read as follows:


Sec.  301.7701-2  Business entities; definitions.

* * * * *
    (c) * * *
    (2) * * *
    (iv) * * *
    (C) * * *
    (2) Paragraph (c)(2)(i) of this section applies to taxes imposed 
under subtitle A of the Code, including Chapter 2--Tax on Self-
Employment Income. Thus, an entity that is treated in the same manner 
as a sole proprietorship under paragraph (a) of this section is not 
treated as a corporation for purposes of employing its owner; instead, 
the entity is disregarded as an entity separate from its owner for this 
purpose and is not the employer of its owner. The owner will be subject 
to self-employment tax on self-employment income with respect to the 
entity's activities. Also, if a partnership is the owner of an entity 
that is disregarded as an entity separate from its owner for any 
purpose under this section, the entity is not treated as a corporation 
for purposes of employing a partner of the partnership that owns the 
entity; instead, the entity is disregarded as an entity separate from 
the partnership for this purpose and is not the employer of any partner 
of the partnership that owns the entity. A partner of a partnership 
that owns an entity that is disregarded as an entity separate from its 
owner for any purpose under this section is subject to the same self-
employment tax rules as a partner of a partnership that does not own an 
entity that is disregarded as an entity separate from its owner for any 
purpose under this section.
* * * * *
    (e) * * *
    (8) Paragraph (c)(2)(iv)(C)(2) of this section applies on the later 
of--
    (i) August 1, 2016; or
    (ii) The first day of the latest-starting plan year beginning after 
May 4, 2016, and on or before May 4, 2017, of an affected plan (based 
on the plans adopted before, and the plan years in effect as of, May 4, 
2016) sponsored by an entity that is disregarded as an entity separate 
from its owner for any purpose under this section. For rules that apply 
before the applicability date of paragraph (c)(2)(iv)(C)(2) of this 
section, see 26 CFR part 301 revised as of April 1, 2016. For the 
purposes of this paragraph (e)(8)--
    (A) An affected plan includes any qualified plan, health plan, or 
section 125 cafeteria plan if the plan benefits

[[Page 31480]]

participants whose employment status is affected by paragraph 
(c)(2)(iv)(C)(2) of this section;
    (B) A qualified plan means a plan, contract, pension, or trust 
described in paragraph (A) or (B) of section 219(g)(5) (other than 
paragraph (A)(iii)); and
    (C) A health plan means an arrangement described under Sec.  1.105-
5 of this chapter.
* * * * *


Sec.  301.7701-2T  [Removed]

0
Par. 3. Section 301.7701-2T is removed.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: May 15, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2019-14121 Filed 6-28-19; 4:15 pm]
BILLING CODE 4830-01-P