[Federal Register Volume 62, Number 117 (Wednesday, June 18, 1997)]
[Rules and Regulations]
[Pages 33008-33009]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15914]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 31 and 35a

[TD 8721]
RIN 1545-AU54


Taxpayer Identification Number (TIN) Matching Program

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final regulations on the establishment 
of Taxpayer Identification Number (TIN) matching programs and removes 
the temporary regulations on the establishment of a TIN matching 
program. These regulations reflect changes to the law made by the 
Interest and Dividend Tax Compliance Act of 1983. They affect payors, 
brokers, and payees of certain reportable payments and provide guidance 
necessary to comply with the law.

DATES: These regulations are effective June 18, 1997.

FOR FURTHER INFORMATION CONTACT: Renay France, (202) 622-6232 (not a 
toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    On March 22, 1994, the Internal Revenue Service (IRS) published 
proposed (IA-8-92) and temporary regulations (TD 8523) in the Federal 
Register (59 FR 13470 and 13455, respectively) for the establishment of 
a TIN matching program (the matching program) by the Commissioner. The 
proposed regulations would allow payors to check the accuracy of a 
name/TIN combination before filing the related information return. The 
proposed regulations solicited written comments and set a date for a 
public hearing on the regulations. No one requested to speak at the 
hearing; therefore, none was held.
    The proposed regulations provide that 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 reasonable cause under section 6724(a) that will 
avoid a penalty under section 6721(a) for the failure to file a correct 
information return or under section 6722 for the failure to furnish a 
correct payee statement. Several commentators suggested that if a payor 
submits a name/TIN combination under the matching program and is not 
informed by the IRS that the TIN is incorrect, the payor will have 
established reasonable cause under section 6724(a) should the IRS later 
determine that the same TIN filed on a subsequent information return is 
incorrect. In response to the comment, the final regulations provide 
that neither a payor's nonparticipation in a matching program nor the 
results obtained from participating in a matching program will 
adversely affect the payor's reasonable cause defense and that the 
extent to which a payor may establish reasonable cause by participating 
in a TIN matching program will be set forth in the guidance 
establishing the program.
    Additional comments suggested modification of IRS information 
returns (Forms 1099). A modified form would allow a payor to indicate 
that it contacted the IRS for matching of the name/TIN combination on 
the information return and was not informed that the name/TIN 
combination was incorrect. The IRS will consider the feasibility of 
adopting this suggestion when a TIN matching program is established.

The Prototype

    On May 9, 1994, the IRS instituted a two-year prototype of an 
online TIN matching program to test its operational feasibility on a 
nationwide basis. The prototype permitted a maximum of 200 payors of 
reportable payments, as defined in section 3406(b)(1), to volunteer to 
participate in the prototype and have their payees' name/TIN 
combinations matched with records of the IRS prior to filing the 
related information return. The prototype operated for only eleven 
months; a fire destroyed the computer system dedicated to this project. 
During the operation of the prototype approximately 120 payors made 
55,795 name/TIN inquiries.
    Due to fiscal constraints, the IRS has no current plans to 
implement a TIN matching program that will be available to all payors 
of reportable payments and has no current plans to replace the 
destroyed computer system needed to implement an online TIN matching 
program.

Explanation of Provisions

    The final regulations permit the IRS to establish varied matching 
programs by published guidance as circumstances warrant. In general, 
under a matching program, a participating payor of a reportable payment 
(as defined in section 3406(b)(1) of the Internal Revenue Code) may, 
prior to filing an information return, contact the IRS

[[Page 33009]]

concerning the TIN furnished by a payee. Upon receiving the inquiry, 
the IRS will inform the payor whether or not the name/TIN combination 
furnished matches any name/TIN combination maintained by the IRS. 
(Informing a payor of a nonmatch will not constitute a notice to 
commence backup withholding under section 3406(a)(1)(B) due to an 
incorrect name/TIN combination.) If the name/TIN combination does not 
match, the payor has the opportunity to contact the payee for 
correction before filing an information return, thus reducing the 
likelihood that the payor will be notified to start backup withholding 
under section 3406(a)(1)(B). In order to assist a payor to obtain 
correct name/TIN combinations, a particular matching program may 
categorize nonmatching name/TIN combinations. For example, the matching 
program may indicate that the TIN is assigned to another name in the 
data base being used or that the TIN is not assigned in the data base 
being used.
    Pursuant to the authority contained in the final regulations, the 
IRS will implement a TIN matching program for federal agencies. This 
program will allow federal agencies to request that the IRS match the 
name/TIN combinations of vendors to whom the agencies make payments 
reportable under section 6041. The operational details of this matching 
program are set forth in Revenue Procedure 97-31, appearing in Internal 
Revenue Bulletin 1997-26, dated June 30, 1997.

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) 
does not apply to these regulations, and because the notice of proposed 
rulemaking preceding the regulations was issued prior to March 29, 
1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the 
IRS submitted the notice of proposed rulemaking preceding these 
regulations 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

26 CFR Part 31

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

26 CFR Part 35a

    Employment taxes, Income taxes, Reporting and recordkeeping 
requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 31 and 35a are 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 the following entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * * Section 31.3406(j)-1 also issued 
under 26 U.S.C. 3406(i). * * *

    Par. 2. Section 31.3406(j)-1 is added to subpart E to read as 
follows:


Sec. 31.3406(j)-1  Taxpayer Identification Number (TIN) matching 
program.

    (a) The matching program. Under section 3406(i), the Commissioner 
has the authority to establish Taxpayer Identification Number (TIN) 
matching programs. The Commissioner may prescribe in a revenue 
procedure (see Sec. 601.601(d)(2) of this chapter) or other appropriate 
guidance the scope of and the terms and conditions of participating in 
any TIN matching program. In general, under a matching program, prior 
to filing information returns with respect to reportable payments as 
defined under section 3406(b)(1), a payor of those reportable payments 
who is entitled to participate in the matching program may contact the 
Internal Revenue Service (IRS) with respect to the TIN furnished by a 
payee who has received or is likely to receive a reportable payment. 
The IRS will inform the payor whether or not a name/TIN combination 
furnished by the payee matches a name/TIN combination maintained in the 
data base utilized for the particular matching program.
    (b) Notice of incorrect TIN. No matching details received by a 
payor through a matching program will constitute a notice regarding an 
incorrect name/TIN combination under Sec. 31.3406(d)-5(c) 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. The IRS will not use either a payor's 
decision not to participate in an available TIN matching program or the 
results received by a payor from participation in a TIN matching 
program implemented under the authority of this section as a basis to 
assert that the payor lacks reasonable cause under section 6724(a) for 
the failure to file an information return under section 6721 or to 
furnish a correct payee statement under section 6722. If the 
establishment of reasonable cause may be relevant to a substantial 
number of the participants in a TIN matching program implemented under 
the authority of this section, the extent to which, if any, a payor may 
establish reasonable cause by participating in the TIN matching program 
will be set forth in the guidance establishing the program.
    (e) Definition of account. Account means any account, instrument, 
or other relationship with a payor and with respect to which a payor 
has made or is likely to make a reportable payment as defined in 
section 3406(b)(1).
    (f) Effective date. The provisions of this section are effective on 
and after June 18, 1997.

PART 35a--TEMPORARY EMPLOYMENT TAX REGULATIONS UNDER THE INTEREST 
AND DIVIDEND TAX COMPLIANCE ACT OF 1983

    Par. 3. The authority citation for part 35a is amended by removing 
the entry for Sec. 35a.3406-3 to read in part as follows:

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


Sec. 35a.3406-3  [Removed]

    Par. 4. Section 35a.3406-3 is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: May 1, 1997.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 97-15914 Filed 6-17-97; 8:45 am]
BILLING CODE 4830-01-U