[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