[Federal Register Volume 60, Number 243 (Tuesday, December 19, 1995)]
[Rules and Regulations]
[Pages 65237-65238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30683]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 8634]
RIN 1545-AT12


Withholding on Distributions of Indian Gaming Profits to Tribal 
Members

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final 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. 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.

DATES: These regulations are effective December 19, 1995.
    For date of applicability, see Sec. 31.3402(r)-1(b).

FOR FURTHER INFORMATION CONTACT: Rebecca Wilson (202) 622-6040 (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.
    On December 22, 1994, temporary regulations (TD 8574) relating to 
withholding on distributions of Indian gaming profits to tribal members 
under section 3402(r) were published in the Federal Register (59 FR 
65939). A notice of proposed rulemaking (EE-60-94) cross-referencing 
the temporary regulations was published in the Federal Register for the 
same day (59 FR 65982). No public hearing was requested or held.
    Also on December 22, 1994, the IRS mailed a copy of Notice 1026, 
providing withholding tables for use in 1995, to Indian tribes and 
gaming establishments listed with the National Indian Gaming 
Commission. For 1996 and subsequent years, tables will be printed in a 
supplement to Circular E.
    The IRS received written comments responding to the notice of 
proposed rulemaking. After consideration of the comments, the 
regulations proposed by EE-60-94 are adopted as revised by this 
Treasury decision, and the corresponding temporary regulations are 
withdrawn. The regulations contain no substantive changes.

Explanation of Provisions

    1. Indian Gaming Regulatory Act. 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).

    2. Prior law. Prior to the addition of section 3402(r) in 1994, a 
tribe was not required to withhold on these distributions to tribal 
members except to the extent backup withholding rules applied under 
section 3406.

    3. Code section 3402(r). 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. Section 
3402(r) provides that the withholding amount be calculated assuming 
that the taxpayer is single and has one exemption.

    4. Legislative history. The legislative history of section 3402(r) 
indicates that the goal of the new withholding requirement was to make 
it easier for tribal members who receive gaming distributions to meet 
their tax responsibilities:

    Distributions of net revenues from gaming activity by an Indian 
tribe may result in significant tax liability to the tribe's 
members. Establishing withholding on such payments will more closely 
match estimated tax payments to ultimate tax liability. For some 
tribal members, this change may eliminate the need to make quarterly 


[[Page 65238]]
estimated tax payments. For others, it will reduce the likelihood that 
they will face penalties for underpayment of tax at the time of tax 
filing.


H.R. Rep. No. 826, 103d Cong., 2d Sess., pt.1, at 170-171 (1994).
    5. Proposed regulations. The proposed regulations implement the 
withholding method prescribed by section 3402(r). They also permit 
additional withholding by agreement between the tribal member and the 
tribe.
    6. Comments and final regulations. The IRS received only two 
written comments on the proposed regulations. After consideration of 
both comments, the proposed regulations are adopted with no substantive 
changes.
    No comments were received from the Chief Counsel for Advocacy of 
the Small Business Administration.

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, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Small Business Administration for comment on its 
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), IRS. 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 
removing the entry for section 31.3402(r)-1T and adding an entry in 
numerical order to read as follows:


    Authority: 26 U.S.C. 7805 * * *
    Section 31.3402(r)-1 also issued under 26 U.S.C. 3402(p) and 
(r), * * *

    Par. 2. Section 31.3402(r)-1 is added to read as follows:


Sec. 31.3402(r)-1   Withholding on distributions of Indian gaming 
profits to tribal members.

    (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 amount to be deducted and withheld 
under 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), 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.


Sec. 31.3402(r)-1T  [Removed]

    Par. 3. Section 31.3402(r)-1T is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: November 28, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30683 Filed 12-18-95; 8:45 am]
BILLING CODE 4830-01-U