[Federal Register Volume 59, Number 245 (Thursday, December 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31283]


[[Page Unknown]]

[Federal Register: December 22, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 8574]
RIN 1545-AT12

 

Withholding on Distributions of Indian Gaming Profits to Tribal 
Members

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
income tax withholding requirement on distributions of profits from 
certain gaming activities made to members of Indian tribes under 
section 3402(r) of the Internal Revenue Code of 1986. The regulations 
reflect changes to the law made by section 701 of the Uruguay Round 
Agreements Act. Those affected by the regulations are persons, 
including Indian tribes, making payments to members of Indian tribes 
from net revenues of certain gaming activities conducted or licensed by 
the tribes. Also affected are members of Indian tribes who receive the 
payments. 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: January 1, 1995.

FOR FURTHER INFORMATION CONTACT: Rebecca Wilson (202) 622-4606 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Employment Tax Regulations 
(26 CFR part 31) under section 3402(r). Section 3402(r) was added by 
section 701 of the Uruguay Round Agreements Act, which approved the 
trade agreements resulting from the Uruguay Round of multilateral trade 
negotiations under the auspices of the General Agreement on Tariffs and 
Trade (GATT) and the Statement of Administrative Action to implement 
the Agreements.
    Section 3402(r) requires that persons, including Indian tribes, 
making payments to members of Indian tribes from the net revenues of 
certain gaming activities conducted or licensed by the tribes deduct 
and withhold income taxes from those payments. These regulations 
provide guidance on how to comply with the new withholding requirement.

Explanation of Provisions

    Net revenue from certain gaming activities conducted or licensed by 
an Indian tribe may be used to make taxable distributions to members of 
the Indian tribe. The tribe must notify its members of the tax 
liability at the time the payments are made. 25 U.S.C. 2710(b)(3) and 
(d)(1). Under prior law, the tribe was not required to withhold on such 
payments except to the extent backup withholding rules applied under 
section 3406.
    Distributions of net revenues from gaming activity by an Indian 
tribe may result in significant tax liability to the tribe's members. 
Withholding on such payments is intended to approximate ultimate tax 
liability. For some tribal members, this withholding may eliminate the 
need to make quarterly estimated tax payments. For others, it will 
reduce the likelihood that they will face penalties for underpayment of 
tax.
    Section 3402(r) generally requires that, for payments made after 
December 31, 1994, persons, including Indian tribes, making payments to 
members of Indian tribes from the net revenues of certain gaming 
activities conducted or licensed by the tribes deduct and withhold 
income taxes from those payments.
    This regulation provides for the amounts to be withheld to be 
determined under the applicable table. Upon publication of this 
regulation, the IRS will make available tables for withholding on 
distributions to tribal members in 1995.
    Section 3402(r)(5) requires that payments be placed on an 
annualized basis under regulations prescribed by the Secretary. While 
these regulations provide a method for placing payments on an 
annualized basis, it will ordinarily not be necessary to annualize the 
payments, because the tables provided by the IRS reflect the annualized 
payment in prescribing the amount to be withheld.
    Section 3402(r)(6) provides that, at the election of an Indian 
tribe, the tax imposed by section 3402(r) on any payment made by such 
tribe shall be determined in accordance with such tables or 
computational procedures as may be specified in regulations. This 
regulation allows withholding under section 3402(r) pursuant to any 
tables or procedures, provided that the amount of tax withheld is 
substantially the same as it would be using the tables provided by the 
IRS pursuant to section 3402(r). No written election is required.
    Section 3402(p)(2) authorizes the Secretary to provide in 
regulations for withholding from payments other than wages if the 
person making the payment and the person receiving the payment agree to 
the withholding. This regulation provides that additional withholding 
is permitted where a tribal member and a tribe enter into a voluntary 
withholding agreement.

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 the regulations is Rebecca Wilson, Office 
of the Associate Chief Counsel (Employee Benefits and Exempt 
Organizations). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 31

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

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 31 is amended as follows:

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

    Paragraph 1. The authority citation for part 31 is amended by 
adding an entry in numerical order to read as follows:

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

    Section 31.3402(r)-1T also issued under 26 U.S.C. 3402 (p)(2) and 
(r). * * *
    Par. 2. Section 31.3402(r)-1T is added to read as follows: 
Sec. 31.3402(r)-1T Withholding on distributions of Indian gaming 
profits to tribal members (temporary).
    (a)(1) General rule. Section 3402(r)(1) requires every person, 
including an Indian tribe, making a payment to a member of an Indian 
tribe from the net revenues of any class II or class III gaming 
activity, as defined in 25 U.S.C. 2703, conducted or licensed by such 
tribe to deduct and withhold from such payment a tax in an amount equal 
to such payment's proportionate share of the annualized tax, as that 
term is defined in section 3402(r)(3).
    (2) Withholding tables. Except as provided in paragraph (a)(4) of 
this section, the amount of a payment's proportionate share of the 
annualized tax shall be determined under the applicable table provided 
by the Commissioner.
    (3) Annualized amount of payment. Section 3402(r)(5) provides that 
payments shall be placed on an annualized basis under regulations 
prescribed by the Secretary. A payment may be placed on an annualized 
basis by multiplying the amount of the payment by the total number of 
payments to be made in a calendar year. For example, a monthly payment 
may be annualized by multiplying the amount of the payment by 12. 
Similarly, a quarterly payment may be annualized by multiplying the 
amount of the payment by 4.
    (4) Alternate withholding procedures--(i) In general. Any procedure 
for determining the amount to be deducted and withheld under section 
3402(r) may be used, provided that the amount of tax deducted and 
withheld is substantially the same as it would be using the tables 
provided by the Commissioner under paragraph (a)(2) of this section. At 
the election of an Indian tribe, the tax imposed by section 3402(r) 
shall be determined in accordance with this alternate procedure.
    (ii) Method of election. It is sufficient for purposes of making an 
election under this paragraph (a)(4) that an Indian tribe evidence the 
election in any reasonable way, including use of a particular method. 
Thus, no written election is required.
    (5) Additional withholding permitted. Consistent with the 
provisions of section 3402(p)(2), a tribal member and a tribe may enter 
into an agreement to provide for the deduction and withholding of 
additional amounts from payments in order to satisfy the anticipated 
tax liability of the tribal member. The agreement may be made in a 
manner similar to that described in Sec. 31.3402(p)-1 (with respect to 
voluntary withholding agreements between employees and employers).
    (b) Effective date. This section applies to payments made after 
December 31, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved:
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-31283 Filed 12-21-94; 8:45 am]
BILLING CODE 4830-01-P