Update of Regulations Regarding Payment of Tax by Commercially Acceptable Means, 54746-54748 [2024-14002]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 127 (Tuesday, July 2, 2024)]
[Proposed Rules]
[Pages 54746-54748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14002]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-120137-19]
RIN 1545-BP66


Update of Regulations Regarding Payment of Tax by Commercially 
Acceptable Means

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to regulations 
regarding the payment of tax by commercially acceptable means. The 
proposed amendments would reflect changes to the law made by the 
Taxpayer First Act that would allow the IRS to directly accept payments 
of tax by credit or debit card, without having to connect taxpayers to 
third-party payment processors.

DATES: Electronic or written comments and requests for a public hearing 
must be received by September 3, 2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-120137-19) by following the online instructions for submitting 
comments. Requests for a public hearing must be submitted as prescribed 
in the ``Comments and Requests for a Public Hearing'' section. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish for any comments submitted electronically or on 
paper to the public docket. Send paper submissions to: CC:PA:01:PR 
(REG-120137-19), Room 5203, Internal Revenue Service, P.O. Box 7604, 
Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Crystal Jackson-Kaloz of the Office of the Associate Chief Counsel 
(Procedure and Administration), (202) 317-5191 (not a toll-free 
number); concerning the submission of comments and requests for a 
public hearing, Publications and Regulations Section at (202) 317-6901 
(not a toll-free number), or by sending an email at 
[email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under section 6311 of the 
Internal Revenue Code (Code). These proposed regulations would amend 
provisions of Sec.  301.6311-2 of the existing regulations (existing 
Sec.  301.6311-2) to implement the changes made to section 6311 of the 
Code by section 2303 of the Taxpayer First Act (TFA), Public Law 116-
25, 133 Stat. 981, 1013 (2019).
    Section 6311(a) provides that it is lawful for the Secretary of the 
Treasury or her delegate (Secretary) to receive payment for Internal 
Revenue taxes by any commercially acceptable means that the Secretary 
deems appropriate to the extent and under the conditions provided in 
regulations prescribed by the Secretary. Existing Sec.  301.6311-2, 
which was adopted by the publication of TD 8969 in the Federal Register 
(66 FR 64740-01) on December 14, 2001, authorizes payment of Internal 
Revenue taxes by credit or debit card so long as such payments are made 
in the manner and in accordance with the forms, instructions, and 
procedures prescribed by the Commissioner of Internal Revenue 
(Commissioner).
    Prior to passage of the TFA, section 6311(d)(2) authorized the 
Secretary to enter into contracts to obtain services related to 
receiving payment of taxes by credit card or debit card, or charge 
card, but prohibited the Secretary from paying any fee or other 
consideration under any such contract. Existing Sec.  301.6311-2(f) 
implements this rule. Existing Sec.  301.6311-2(e) prohibits the IRS 
from imposing any fee or charge on persons making payment of taxes by 
credit card or debit card. Currently, the IRS utilizes third-party 
processors to process payment of taxes by credit cards, which includes 
charge cards, and debit cards for which taxpayers pay a processing fee 
directly to the third-party processor. Third-party processors charge a 
variable percentage fee for payment by credit card and a flat fee for 
payment by debit card.
    Section 2303 of the TFA amended section 6311(d)(2) by adding a 
discretionary exception whereby the Secretary is no longer prohibited 
from paying a fee under a contract related to receiving payment of 
taxes by credit or debit card to the extent that the Secretary ensures 
that any such fee is fully recouped from the persons paying taxes by 
credit or debit card pursuant to such contract. This provision enables 
the IRS to receive similar benefits as other entities that accept 
credit or debit cards, including guaranteed receipt of funds and 
reduction of paper check processing costs. This provision also enables 
taxpayers to make a payment more easily by credit or debit card 
directly to the IRS, such as over the telephone, without having to 
separately wait for the IRS to connect them to third-party processors. 
See H.R. Rep. 116-39(I), 116th Cong., 1st Sess. at 90 (2019).\1\ 
Section 2303 of the TFA now gives the IRS flexibility to enter into a

[[Page 54747]]

contract that would allow taxpayers to pay taxes by credit or debit 
card directly to the IRS.
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    \1\ In 2019, different versions of the TFA were introduced in 
the House and Senate and both bills contained provisions to amend 
section 6311 of the Code. H.R. 1957 was introduced in the House on 
March 28, 2019, and passed the House on April 9, 2019, but did not 
pass the Senate. Section 2303 of H.R. 1957 contained proposed 
statutory language amending section 6311(d) that was identical to 
the statutory language that was enacted a short time later on July 
1, 2019, in section 2303 of H.R. 3151. Due to the procedural way in 
which H.R. 3151 became a vehicle for enacting the TFA, there are no 
separate House, Senate, or Conference Reports regarding H.R. 3151, 
which became the TFA, Public Law 116-25. Therefore, it is 
appropriate for the Treasury Department and the IRS to look to the 
House Ways and Means Committee Report for H.R. 1957, the immediate 
predecessor to H.R. 3151, to understand the intended scope of 
section 2303 of the TFA.
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Explanation of Provisions

    The proposed regulations would amend existing Sec.  301.6311-2 to 
conform to the TFA's amendment to section 6311(d)(2). The proposed 
regulations would remove both the prohibition in existing Sec.  
301.6311-2(f) on the payment of any fee by the IRS under any contracts 
related to payment of taxes by credit, debit, or charge card, and the 
prohibition in existing Sec.  301.6311-2(e) on the IRS imposing any fee 
or charge on persons making payment of taxes by credit or debit card. 
Under existing Sec.  301.6311-2(e), when a taxpayer pays any Internal 
Revenue tax by credit or debit card under contracts with third-party 
processors, the IRS does not charge the taxpayer a fee, and the IRS 
does not receive any portion of the fee charged by the third-party 
processor. Because the exception added to section 6311(d)(2) by the TFA 
is discretionary, proposed Sec.  301.6311-2(e)(1) would continue to 
authorize the IRS to enter into those contracts with third-party 
processors in which it does not pay a fee for services relating to 
receiving payments of tax by credit or debit card.
    Proposed Sec.  301.6311-2(e)(2) would also authorize the IRS to 
enter into contracts in which it pays a fee to a third party to process 
a payment made by a taxpayer. Under section 6311(d)(2), the IRS must 
seek to minimize any fee the IRS is required to pay under such a 
contract. If the IRS pays a fee under such a contract, under proposed 
Sec.  301.6311-2(e)(2), the IRS would fully recoup the amount of the 
fee paid to the third-party from the persons paying taxes by credit or 
debit card pursuant to the contract as a reimbursement fee.
    Proposed Sec.  301.6311-2(e)(2) would require that the 
reimbursement fee be paid by the taxpayer at the time of the credit or 
debit card tax payment. Section 6402 of the Code allows the Secretary 
to credit or refund any overpayment ``in respect of an internal revenue 
tax.'' Because the reimbursement fee paid by the taxpayer is not a tax, 
the Code's credit and refund procedures would not apply. Insofar as a 
taxpayer is to receive a refund of taxes paid by credit or debit card 
under section 6402, the taxpayer cannot receive a refund of the 
reimbursement fee paid to the IRS at the time of the tax payment. If 
the IRS pays a fee to a third-party under a contract providing for the 
payment of taxes by credit or debit cards, section 6311(d)(2), as 
amended by the TFA, requires that the fee be fully recouped by the 
Secretary. The proper regime for adjusting credit or debit card payment 
errors, including reimbursement fee errors, is found in section 
6311(d)(3) and existing Sec.  301.6311-2(d)(1). The TFA does not change 
those procedures, although the proposed regulations amend existing 
Sec.  301.6311-2(d)(1) to include payments of reimbursement fees under 
proposed Sec.  301.6311-2(e)(2).
    Finally, proposed Sec.  301.6311-2(e) would authorize the IRS to 
enter into contracts with third parties, regardless of whether the IRS 
pays a fee, but only if the contract provides a cost benefit to the 
government. The cost benefit to the government is derived from a 
reduction of check processing costs. In addition, expanding taxpayers' 
payment options generally encourages tax compliance, so it is 
beneficial for both the government and taxpayers.

Proposed Applicability Date

    The regulations are proposed to apply to payments of taxes and 
reimbursement fees made on or after the date the regulations are 
published as final regulations in the Federal Register.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Regulatory Flexibility Act

    It is hereby certified that this proposed regulation will not have 
a significant economic impact on a substantial number of small entities 
pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This 
certification is based on the fact that the regulation would apply only 
to the IRS's ability to (1) pay a fee under a contract related to 
receiving payment of taxes by credit or debit card, and (2) recoup 
processing fees from the person paying taxes by credit or debit card. 
Under current regulations, the IRS may not do either of those things. 
The regulation would also implement a requirement under the TFA that 
the IRS must seek to minimize any fee the IRS is required to pay under 
such a contract. Because persons choosing to pay taxes by credit or 
debit card are ordinarily required to pay processing fees to a third-
party processor, the proposed regulation, if finalized, would not have 
a significant economic impact on such persons.
    Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for the Office of 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

III. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This rule does not include any Federal mandate that may 
result in expenditures by State, local, or Tribal governments, or by 
the private sector in excess of that threshold.

IV. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations do not 
have federalism implications and do not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Requests for Public Hearing

    Before these proposed amendments to the final regulations are 
adopted as final regulations, consideration will be given to comments 
that are submitted timely to the Treasury Department and the IRS as 
prescribed in this preamble under the ADDRESSES heading. The Treasury 
Department and the IRS request comments on all aspects of the proposed 
regulations. Any electronic and paper comments submitted will be made 
available at https://www.regulations.gov or upon request.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing are also encouraged to be made electronically. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

[[Page 54748]]

    Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides 
that public hearings will be conducted in person, although the IRS will 
continue to provide a telephonic option for individuals who wish to 
attend or testify at a hearing by telephone. Any telephonic hearing 
will be made accessible to people with disabilities.

Drafting Information

    The principal author of these regulations is Crystal Jackson-Kaloz 
of the Office of the Associate Chief Counsel (Procedure and 
Administration). However, other personnel from the Treasury Department 
and the IRS participated in their development.

List of Subjects in 26 CFR Part 301

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

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and IRS propose to amend 26 
CFR part 301 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 301.6311-2 is amended by:
0
1. Revising paragraph (d)(1).
0
2. Removing paragraph (e).
0
3. Redesignating paragraphs (f), (g), and (h) as paragraphs (e), (f), 
and (g).
0
4. Revising newly redesignated paragraph (e).
0
5. In new paragraph (f), removing the text ``Internal Revenue Service'' 
and adding the text ``IRS'' in its place.
0
6. Revising newly redesignated paragraph (g).
    The revisions read as follows:


Sec.  301.6311-2  Payment by credit card and debit card.

* * * * *
    (d) * * * (1) In general. Payments of taxes by credit card or debit 
card, and payments of reimbursement fees referred to in paragraph 
(e)(2) of this section, are subject to the applicable error resolution 
procedures of section 161 of the Truth in Lending Act (15 U.S.C. 1666), 
section 908 of the Electronic Fund Transfer Act (15 U.S.C. 1693f), or 
any similar provisions of State or local law, for the purpose of 
resolving errors relating to the credit card or debit card account, but 
not for the purpose of resolving any errors, disputes or adjustments 
relating to the underlying tax liability.
* * * * *
    (e) Authority to enter into contracts.
    (1) In general. The Commissioner may enter into contracts related 
to receiving payments of tax by credit card or debit card if such 
contracts are cost beneficial to the government. The determination of 
whether the contract is cost beneficial will be based on an analysis 
appropriate for the contract at issue and at a level of detail 
appropriate to the size of the government's investment or interest.
    (2) Contracts under which fees are prohibited. The Commissioner may 
enter into contracts that provide that the Internal Revenue Service 
(IRS) will not pay a fee, charge, or other monetary consideration under 
such contracts related to payments of tax by credit card or debit card. 
For payments of tax under such contracts, this section does not 
prohibit the imposition of fees or charges by issuers of credit cards 
or debit cards or by any other financial institutions or persons 
participating in the credit card or debit card transaction. The IRS may 
not receive any part of any such fees that may be charged.
    (3) Contracts under which fees are permitted and must be recouped. 
The Commissioner may enter into contracts that provide that the IRS 
will pay a fee, charge, or other monetary consideration under such 
contracts related to payments of tax by credit card or debit card. If 
the IRS pays a fee under such contracts, it must recoup the full amount 
paid under such contracts as a reimbursement fee from the persons 
paying tax by credit card or debit card. The reimbursement fees will be 
limited to the amount of the fees that IRS pays under any such contract 
and will be paid at the time of, and in addition to, the tax payment. 
The reimbursement fee is not a tax imposed by the Code, and no portion 
of the reimbursement fee is eligible for refund or credit under section 
6402 of the Code. The error resolution procedures described in 
paragraph (d)(1) of this section will apply to any errors concerning 
the reimbursement fee. In negotiating contracts under paragraph (e)(3) 
of this section, the Commissioner will seek to minimize the amount of 
the fees paid.
* * * * *
    (g) Applicability date. The rules of this section apply to payments 
of taxes and reimbursement fees made on or after [date of publication 
of final regulations in the Federal Register].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-14002 Filed 7-1-24; 8:45 am]
BILLING CODE 4830-01-P