[Federal Register Volume 59, Number 55 (Tuesday, March 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6582]
[[Page Unknown]]
[Federal Register: March 22, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
26 CFR Part 35a
[TD 8523]
RIN 1545-AR68
Taxpayer Identification Number (TIN) Matching Program
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document amends the Temporary Employment Tax Regulations
under the Interest and Dividend Tax Compliance Act of 1983 under
section 3406 of the Internal Revenue Code of 1986. The new regulations
relate to the establishment of a Taxpayer Identification Number (TIN)
matching program. These regulations affect payors, brokers, and payees
of certain reportable payments and provide guidance necessary to comply
with the law. The text of these temporary regulations also serves as
the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
EFFECTIVE DATE: March 22, 1994.
FOR FURTHER INFORMATION CONTACT: Renay France, (202) 622-4910 (not a
toll-free call).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 35a. The
amendments prescribe regulations under section 3406(i) of the Internal
Revenue Code (Code), relating to backup withholding. This provision was
added to the Code by section 104 of the Interest and Dividend Tax
Compliance Act of 1983 (97 Stat. 369).
Explanation of Provisions
Generally, under the backup withholding provisions of section
3406(a)(1)(A) of the Code and its underlying regulations, a payee is
required to furnish a correct TIN at the time a payee establishes a new
account with a payor. In general, the term account means any account,
instrument, or other relationship with a payor. Backup withholding
applies when a reportable payment is made to the account if the payor
has not received the TIN by that time. Further, if the TIN that the
payee furnishes to a payor is incorrect and the IRS or a broker
notifies a payor that the payee's name/TIN combination is incorrect,
the payor must send a copy of the notice to the payee pursuant to
section 3406(a)(1)(B). If the payee does not provide a certified TIN to
the payor within 30 days, the payor must impose backup withholding on
all reportable payments thereafter made to the payee's account.
In addition, if a payor receives 2 notices from the IRS or a broker
within 3 calendar years that a payee furnished an incorrect name/TIN
combination, the payor must disregard any future TIN certification
furnished by the payee, send a notice to the payee, and impose backup
withholding on all reportable payments made to the payee's account,
until the payor receives the notification from the Social Security
Administration (or the IRS) validating a name/TIN combination for the
account.
The purpose of section 3406 is to encourage payees to furnish
payors with a correct name/TIN combination to increase the accuracy of
TINs on information documents (Forms 1099) filed with the IRS. To
further the purpose of section 3406, the IRS is issuing these
regulations relating to the implementation of a TIN matching program.
Overview
These temporary regulations provide for the establishment of a TIN
matching program (the matching program) by the Commissioner. Under the
matching program, prior to filing an information return, a payor may
contact the IRS concerning the TIN furnished by a payee. Upon receiving
the inquiry, the IRS will advise the payor if the name/TIN combination
furnished does not match a name/TIN combination maintained by the IRS
on a stand-alone dedicated data base. If the name/TIN combination does
not match, the payor has the opportunity to contact the payee for
correction before filing the information return, thus reducing the
likelihood of a notice to start backup withholding and a penalty for
filing an incorrect information return. (The data base used for the
matching program constitutes a system of records under the Privacy Act
of 1974, 5 U.S.C. 552a; notice of the system will be published in the
Federal Register.)
The IRS will initially implement the matching program using a
prototype the details of which are set forth in Revenue Procedure 94-
24, appearing in the Internal Revenue Bulletin (I.R.B.) dated April 4,
1994. Two hundred payors randomly selected by the IRS may participate
in the prototype. The prototype will involve security and audit
controls to help ensure that the matching program will be used only for
the purpose for which it is intended. For example, each payor using the
prototype must submit a written request for authorization of two
designated individuals who will have access to the data base. Each
payor must agree to safeguard against unauthorized access or use. Upon
the IRS's authorization of those designated individual users, the IRS
will issue each user a unique identification number and a unique
password to access the data base.
When a payee opens a new account that is likely to give rise to a
reportable payment described under section 3406(b)(1) of the Code, a
payor participating in the prototype may, but is not required to,
contact the IRS by telephone and input the name/TIN combination of the
payee. If that name/TIN combination does not match a name/TIN
combination maintained by the IRS's prototype data base, the IRS will
inform the payor. The payor may then attempt to obtain the correct
name/TIN combination from the payee before it files its information
return. By doing so, the payor may avoid the potential imposition of
backup withholding on the account of the payee, the requirement to send
a notice to the payee about the incorrect TIN, and the potential
imposition of a penalty under sections 6721 and 6722.
The purposes of the prototype of the matching program are to (a)
measure costs and benefits of the undertaking to the IRS and to payors,
and (b) identify and study any problems that might arise during its
operation. After collecting and reviewing these facts, the IRS will
decide whether to design and implement a permanent TIN matching
program.
Sections 3406 (a)(1)(B) and (f) and 6724(a) of the Code
The temporary regulations provide that any TIN matching details
received by a payor through the matching program will not constitute a
notice of an incorrect name/TIN combination (B notice) for purposes of
imposing backup withholding. Further, the temporary regulations provide
that the decision whether to participate in the matching program and
any TIN matching details received through the matching program will not
be taken into account in determining whether a payor has exercised
reasonable cause under section 6724(a) of the Code with respect to a
failure to file a correct information return under section 6721 or to
furnish a correct payee statement under section 6722. Thus, a payor
need not have contacted the IRS regarding the TIN furnished by a payee
to establish a reasonable cause defense to a penalty for filing an
information return containing an incorrect TIN. Conversely, a payor who
has contacted the IRS regarding the TIN furnished by a payee does not
thereby establish a reasonable cause defense to the penalty.
Under the temporary regulations, the provisions of section 3406(f),
relating to confidentiality of information, apply to any matching
details received through the matching program. A payor may not take
into account any such matching details in determining whether to open
or close an account with a payee.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regulations is Renay France, Office
of the Assistant Chief Counsel (Income Tax and Accounting), IRS.
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 35a
Employment taxes, Income taxes, Reporting and recordkeeping
requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 35a is amended as follows:
PART 35a--TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE INTEREST
AND DIVIDEND TAX COMPLIANCE ACT OF 1983
Paragraph 1. The authority citation for part 35a is amended by
adding the following entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * * Sec. 35a.3406-3 also issued
under 26 U.S.C. 3406(i). * * *
Par. 2. Section 35a.3406-3 is added to read as follows:
Sec. 35a.3406-3 Taxpayer Identification Number (TIN) matching program
(temporary).
(a) The matching program. Under section 3406(i), the Commissioner
has the authority to establish a Taxpayer Identification Number (TIN)
matching program (the matching program). The provisions of this section
apply to the matching program. In general, under the matching program,
prior to filing an information return with respect to a reportable
payment as defined under section 3406(b)(1)(A), a payor of that
reportable payment who participates in the matching program may contact
the Internal Revenue Service with respect to the TIN furnished by a
payee under section 3406(a)(1)(A). Upon receiving the inquiry, the
Service advises the payor if the name/TIN combination furnished by the
payee does not match a name/TIN combination maintained by the Service's
dedicated data base.
(b) Notice of incorrect TIN. Any matching details received by a
payor through the matching program do not constitute a notice regarding
an incorrect name/TIN combination under Sec. 31.3406(d)-5(c) of this
chapter for purposes of imposing backup withholding under section
3406(a)(1)(B).
(c) Application of section 3406(f). The provisions of section
3406(f), relating to confidentiality of information, apply to any
matching details received by a payor through the matching program. A
payor may not take into account any such matching details in
determining whether to open or close an account with a payee.
(d) Reasonable cause. A payor's decision whether to participate in
the matching program and any matching details received through the
matching program are not taken into account in determining whether a
payor has exercised reasonable cause under section 6724(a) with respect
to a failure to file a correct information return under section 6721 or
to furnish a correct payee statement under section 6722.
(e) Definition of account. Account means any account, instrument,
or other relationship with a payor and with respect to which a payor is
likely to pay a reportable payment as defined in section 3406(b)(1).
(f) Effective date. The provisions of this section are effective on
and after March 22, 1994.
Dated: January 31, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-6582 Filed 3-21-94; 8:45 am]
BILLING CODE 4830-01-U