[Federal Register Volume 63, Number 240 (Tuesday, December 15, 1998)]
[Rules and Regulations]
[Pages 68995-68998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32926]



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 Rules and Regulations
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  Federal Register / Vol. 63, No. 240 / Tuesday, December 15, 1998 / 
Rules and Regulations  

[[Page 68995]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 8793]
RIN 1545-AW38


Payment by Credit Card and Debit Card

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations that authorize 
the Secretary of the Treasury to accept payment of internal revenue 
taxes by credit card or debit card. The temporary regulations reflect 
changes to the law made by the Taxpayer Relief Act of 1997, and will 
affect all persons who pay their tax liabilities by credit card or 
debit card pursuant to guidance prescribed by the Secretary. The text 
of the temporary regulations also serves as the text of the proposed 
regulations set forth in the Proposed Rules section of this issue of 
the Federal Register.

DATES: Effective Date: These temporary regulations are effective 
January 1, 1999.
    Applicability Date: For dates of applicability, see Sec. 301.6311-
2T(h) of these regulations.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mitchel S. 
Hyman, (202) 622-3620 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains temporary regulations amending the Procedure 
and Administration Regulations (26 CFR part 301) under sections 6103 
and 6311 of the Internal Revenue Code. The regulations reflect the 
amendment of sections 6103 and 6311 by section 1205 of the Taxpayer 
Relief Act of 1997 (Public Law 105-34, 111 Stat. 788, 995) (1997 Act) 
and section 4003(k) of the Tax and Trade Relief Extension Act of 1998 
(Public Law 105-277, 112 Stat. 2681).
    As amended by the 1997 Act, section 6311(a) provides that it shall 
be lawful for the Secretary to receive payment for internal revenue 
taxes by any commercially acceptable means that the Secretary deems 
appropriate to the extent and under the conditions provided in 
regulations prescribed by the Secretary. The legislative history 
accompanying the Act explains that commercially acceptable means 
includes ``electronic funds transfers, including those arising from 
credit cards, debit cards, and charge cards.'' H. Conf. Rep. 220, 105th 
Cong., 1st Sess. 652 (1997). The current regulations under Treas. Reg. 
Sec. 301.6311-1 permit payment of taxes by checks, drafts drawn on 
financial institutions, or money orders. The temporary regulations add 
payments by credit cards (which includes charge cards) and debit cards 
to the acceptable methods of payment under section 6311.
    Methods of payment by electronic funds transfer other than by 
credit card or debit card are currently authorized by section 6302 of 
the Internal Revenue Code and its implementing regulations. For 
example, Treas. Reg. Sec. 1.6302-4 permits individuals to voluntarily 
remit payments of income taxes by electronic funds transfer. Thus, the 
temporary regulations only address payments by credit card and debit 
card. Section 6302 and its regulations will remain the authority for 
forms of payment by electronic funds transfer other than payments by 
credit card and debit card.
    Section 6103(a) of the Code prohibits disclosure of returns and 
return information except as expressly provided in the Code. Section 
1205(c)(1) of the 1997 Act (as amended by section 6012(b)(2) of the 
Internal Revenue Service Restructuring and Reform Act of 1998, Public 
Law 105-206) added section 6103(k)(9) to the Code. Section 6103(k)(9) 
authorizes the IRS to disclose returns and return information to 
financial institutions and others to the extent necessary for the 
administration of section 6311. Section 6103(k)(9) further provides 
that disclosures of information for purposes other than to accept 
payments by check or money order (for example, by credit card, or debit 
card) shall be made only to the extent authorized by written procedures 
promulgated by the Secretary. Section 6311(e) provides that no person 
shall use or disclose any information obtained pursuant to section 
6103(k)(9) related to credit card or debit card transactions except to 
the extent authorized by written procedures promulgated by the 
Secretary.
    Any person who uses or discloses information in violation of 
section 6311(e) is subject to civil liability for damages. See I.R.C. 
section 7431(h), added by section 1205(c)(2) of the 1997 Act (as 
amended by Public Law 105-206, section 6012(b)(3)).

Explanation of Provisions

    The temporary regulations provide that internal revenue taxes may 
be paid by credit card or debit card. Payment of taxes by credit card 
or debit card is voluntary on the part of the taxpayer. However, only 
credit cards or debit cards approved by the Secretary may be used for 
this purpose, only the types of tax liabilities specified by the 
Secretary may be paid by credit card or debit card, and all such 
payments must be made in the manner and in accordance with the forms, 
instructions, and procedures prescribed by the Secretary. Thus, 
payments by credit card or debit card may be limited to certain 
designated cards, to payments made through certain service providers, 
or to payments of specific types of taxes. It is anticipated that the 
Secretary will be entering into contracts with specific card issuers or 
other persons such as third parties who will process the credit and 
debit card transactions, to facilitate payments by credit cards and 
debit cards, subject to the requirement that the Secretary may not pay 
any fee or provide any other monetary consideration under such 
contracts.
    Under the temporary regulations, a payment by credit card or debit 
card received by the Secretary will be deemed made when the credit card 
or debit card transaction is authorized by the card issuer, provided 
the payment is actually received by the Secretary in the ordinary 
course of business and is not returned due to correction of errors 
relating to the credit card or debit card account.
    The temporary regulations provide, as required by section 
6311(d)(3), that payments of taxes by credit card or debit card are 
subject to the error resolution

[[Page 68996]]

procedures of section 161 of the Truth in Lending Act, 15 U.S.C. 1666, 
section 908 of the Electronic Fund Transfer Act, 15 U.S.C. 1693f, or 
any similar provisions of state law, only for the purpose of resolving 
errors relating to the credit card or debit card account, but not for 
the purpose of resolving any errors, disputes, or adjustments relating 
to the underlying tax liability. These provisions ensure that any 
disputes concerning the merits of the tax liability will be resolved in 
the traditional administrative and judicial forums (e.g., filing a 
petition in Tax Court, paying the disputed tax and filing a claim for 
refund), and will not be raised in any dispute with the card issuer, 
financial institution, or other person participating in the credit card 
or debit card transaction.
    As authorized by section 6311(d)(3)(E), the temporary regulations 
permit the Secretary to return funds erroneously received due to errors 
relating to the credit card or debit card account by arranging for a 
credit to the taxpayer's account with the issuer of the credit card or 
debit card or other appropriate financial institution or person. 
Returns of funds through credit card or debit card credits, however, 
are only available to correct errors relating to the credit card and 
debit card account, and not to refund overpayments of taxes.
    The temporary regulations also provide that the Internal Revenue 
Service may not impose any fee or charge on persons making payment of 
taxes by credit card or debit card. The regulations provide that the 
imposition of fees or charges by issuers of credit cards or debit cards 
or by any other financial institution or person participating in the 
credit card or debit card transaction are not prohibited. The Internal 
Revenue Service may not receive any part of any fees that may be 
charged.
    The temporary regulations also provide the procedures required 
under sections 6103(k)(9) and 6311(e) with respect to use and 
disclosure of information relating to payment of taxes by credit card 
and debit card. IRS personnel are authorized to disclose to card 
issuers, financial institutions, and other persons information 
necessary to process the tax payment or to bill or collect the amount 
charged or debited (for example, to resolve billing errors). Pursuant 
to section 6311(e), information received by any person in connection 
with payment of tax by credit card or debit card shall be treated as 
confidential by all persons who receive such information, whether such 
information is received from the Secretary or from any other person 
including the taxpayer.
    The temporary regulations set forth the limited purposes and 
activities for which such information may be used or disclosed by card 
issuers, financial institutions, and other persons. The permitted 
purposes and activities principally involve credit card and debit card 
processing, billing, collection, account servicing, account transfers, 
internal business records, legal compliance, and legal proceedings. The 
temporary regulations expressly prohibit selling the information, 
sharing it with credit bureaus, or using it for any marketing purpose, 
for example, marketing tax-related products or any marketing that 
targets those who have used a credit card or debit card to pay taxes.

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 
these regulations must be effective by January 1, 1999, to permit 
taxpayers the opportunity to pay taxes by credit card for the 1999 
filing season, and, therefore, it has been determined that sections 553 
(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) do 
not apply to these regulations. It has also been determined that 
because the regulations do not impose a collection of information on 
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply. Pursuant to section 7805(f) of the Internal Revenue 
Code, this temporary regulation will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these regulations is Mitchel S. Hyman of 
the Office of Assistant Chief Counsel (General Litigation) CC:EL:GL, 
IRS. However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

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

    Par. 2. Section 301.6103(k)(9)-1T is added to read as follows:


Sec. 301.6103(k)(9)-1T  Disclosure of returns and return information 
relating to payment of tax by credit card and debit card (temporary).

    Officers and employees of the Internal Revenue Service may disclose 
to card issuers, financial institutions or other persons such return 
information as the Secretary deems necessary in connection with 
processing credit card and debit card transactions to effectuate 
payment of tax as authorized by Sec. 301.6311-2T. Officers and 
employees of the Service may disclose such return information to such 
persons as the Secretary deems necessary in connection with billing or 
collection of the amounts charged or debited, including resolution of 
errors relating to the credit card or debit card account as described 
in Sec. 301.6311-2T(d).
    Par. 3. Section 301.6311-2T is added to read as follows:


Sec. 301.6311-2T  Payment by credit card and debit card (temporary).

    (a) Authority to receive--(1) Payments by credit card and debit 
card. Internal revenue taxes may be paid by credit card or debit card 
as authorized by this section. Payment of taxes by credit card or debit 
card is voluntary on the part of the taxpayer. However, only credit 
cards or debit cards approved by the Secretary may be used for this 
purpose, only the types of tax liabilities specified by the Secretary 
may be paid by credit card or debit card, and all such payments must be 
made in the manner and in accordance with the forms, instructions and 
procedures prescribed by the Secretary. All references in this section 
to ``tax'' also include interest, penalties and additions to tax.
    (2) Payments by electronic funds transfer other than payments by 
credit card and debit card. Provisions relating to payments by 
electronic funds transfer other than payments by credit card and debit 
card are contained in section 6302 and the Treasury Regulations 
promulgated pursuant to section 6302.
    (3) Definitions--(i) Credit card means any credit card as defined 
in section 103(k) of the Truth in Lending Act, 15 U.S.C. 1602(k), 
including any credit card, charge card or other credit device issued 
for the purpose of obtaining

[[Page 68997]]

money, property, labor or services on credit.
    (ii) Debit card means any accepted card or other means of access as 
defined in section 903(1) of the Electronic Funds Transfer Act, 15 
U.S.C. 1693a(1), including any debit card or similar device or means of 
access to an account issued for the purpose of initiating electronic 
fund transfers to obtain money, property, labor or services.
    (b) When payment is deemed made. A payment of tax by credit card or 
debit card shall be deemed made when the issuer of the credit card or 
debit card properly authorizes the transaction, provided the payment is 
actually received by the Secretary in the ordinary course of business 
and is not returned pursuant to paragraph (d)(3) of this section.
    (c) Payment not made--(1) Continuing liability of taxpayer. A 
taxpayer who tenders payment of taxes by credit card or debit card is 
not relieved of liability for such taxes until the payment is actually 
received by the Secretary and is not required to be returned pursuant 
to paragraph (d)(3) of this section. This continuing liability of the 
taxpayer is in addition to, and not in lieu of, any liability of the 
issuer of the credit card or debit card or financial institution 
pursuant to paragraph (c)(2) of this section.
    (2) Liability of financial institutions. If a taxpayer has tendered 
a payment of internal revenue taxes by credit card or been guaranteed 
expressly by a financial institution, and the United States is not duly 
paid, the United States shall have a lien for the guaranteed amount of 
the transaction upon all the assets of the institution making such 
guarantee. The unpaid amount shall be paid out of such assets in 
preference to any other claims whatsoever against such guaranteeing 
institution, except the necessary costs and expenses of administration 
and the reimbursement of the United States for the amount expended in 
the redemption of the circulating notes of such institution.
    (d) Resolution of errors relating to the credit card or debit card 
account--(1) In general. Payments of taxes by credit card or debit card 
shall be subject to the applicable error resolution procedures of 
section 161 of the Truth in Lending Act, 15 U.S.C. 1666, or section 908 
of the Electronic Fund Transfer Act, 15 U.S.C. 1693f, or any similar 
provisions of state law, for the purpose of resolving errors relating 
to the credit card or debit card account, but not for the purpose of 
resolving any errors, disputes or adjustments relating to the 
underlying tax liability.
    (2) Matters covered by error resolution procedures. (i) The error 
resolution procedures of paragraph (d)(1) of this section apply to the 
following types of errors:
    (A) An incorrect amount posted to the taxpayer's account as a 
result of a computational error, numerical transposition, or similar 
mistake.
    (B) An amount posted to the wrong taxpayer's account.
    (C) A transaction posted to the taxpayer's account without the 
taxpayer's authorization.
    (D) Similar types of errors that would be subject to resolution 
under these procedures in ordinary commercial transactions.
    (ii) An error described in paragraphs (d)(2)(i) (A) through (D) of 
this section may only be resolved through the procedures referred to in 
paragraph (d)(1) of this section and cannot be a basis for any claim or 
defense in any administrative or court proceeding involving the 
Secretary.
    (3) Return of funds pursuant to error resolution procedures. 
Notwithstanding section 6402 of the Internal Revenue Code, if a 
taxpayer is entitled to a return of funds pursuant to the error 
resolution procedures of paragraph (d)(1) of this section, the 
Secretary may, in the Secretary's sole discretion, effect such return 
by arranging for a credit to the taxpayer's account with the issuer of 
the credit card or debit card or any other financial institution or 
person that participated in the transaction in which the error 
occurred.
    (4) Matters not subject to error resolution procedures. The error 
resolution procedures of paragraph (d)(1) of this section do not apply 
to any error, question or dispute concerning the amount of tax owed by 
any person for any year. For example, these error resolution procedures 
do not apply to determine a taxpayer's entitlement to a refund of tax 
for any year for any reason, nor may they be used to pay a refund. All 
such matters shall be resolved through administrative and judicial 
procedures established pursuant to the Internal Revenue Code and the 
rules and regulations thereunder.
    (5) Payments of taxes by credit card or debit card are not subject 
to section 170 of the Truth in Lending Act, 15 U.S.C. 1666i, or to any 
similar provision of state law.
    (e) Fees or charges. The Internal Revenue Service may not impose 
any fee or charge on persons making payment of taxes by credit card or 
debit card. This section does not prohibit the imposition of fees or 
charges by issuers of credit cards or debit cards or by any other 
financial institution or person participating in the credit card or 
debit card transaction. The Internal Revenue Service may not receive 
any part of any fees that may be charged.
    (f) Authority to enter into contracts. The Secretary may enter into 
contracts related to receiving payments of tax by credit card or debit 
card if such contracts are cost beneficial to the Government. The 
determination of whether the contract is cost beneficial shall be based 
on an analysis appropriate for the contract at issue and at a level of 
detail appropriate to the size of the Government's investment or 
interest. The Secretary may not pay any fee or charge or provide any 
other monetary consideration under such contracts for such payments.
    (g) Use and disclosure of information relating to payment of taxes 
by credit card and debit card. Information obtained by any person other 
than the taxpayer in connection with payment of taxes by a credit card 
or debit card shall be treated as confidential, whether such 
information is received from the Secretary or from any other person 
(including the taxpayer). No person other than the taxpayer shall use 
or disclose such information except as follows:
    (1) Card issuers, financial institutions, or other persons 
participating in the credit card or debit card transaction may use or 
disclose such information for the purpose and in direct furtherance of 
servicing cardholder accounts, including the resolution of errors in 
accordance with paragraph (d) of this section. This authority includes 
the following:
    (i) Processing of the credit card or debit card transaction, in all 
of its stages through and including the crediting of the amount charged 
on account of tax to the United States Treasury.
    (ii) Billing the taxpayer for the amount charged or debited with 
respect to payment of the tax liability.
    (iii) Collection of the amount charged or debited with respect to 
payment of the tax liability.
    (iv) Returning funds to the taxpayer in accordance with paragraph 
(d)(3) of this section.
    (2) Card issuers, financial institutions or other persons 
participating in the credit card or debit card transaction may use and 
disclose such information for the purpose and in direct furtherance of 
any of the following activities:
    (i) Assessment of statistical risk and profitability.
    (ii) Transfer of receivables or accounts or any interest therein.
    (iii) Audit of account information.

[[Page 68998]]

    (iv) Compliance with Federal, State, or local law.
    (v) Cooperation in properly authorized civil, criminal, or 
regulatory investigations by Federal, State, or local authorities.
    (3) Notwithstanding the foregoing, use or disclosure of information 
relating to credit card and debit card transactions for purposes 
related to any of the following is not authorized:
    (i) Sale or exchange of such information separate from the 
underlying receivable or account.
    (ii) Marketing for any purpose, for example, marketing tax-related 
products or services, or marketing any product or service that targets 
those who have used a credit card or debit card to pay taxes.
    (iii) Furnishing such information to any credit reporting agency or 
credit bureau, except with respect to the aggregate amount of a 
cardholder's account, with the amount attributable to payment of taxes 
not separately identified.
    (4) Use and disclosure of information other than as authorized by 
this paragraph (g) may result in civil liability under section 7431(h) 
of the Internal Revenue Code.
    (h) Effective date. This section applies to payments of taxes made 
on and after January 1, 1999, and through December 14, 2001.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: December 1, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-32926 Filed 12-14-98; 8:45 am]
BILLING CODE 4830-01-U