[Federal Register Volume 64, Number 19 (Friday, January 29, 1999)]
[Rules and Regulations]
[Pages 4540-4541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1664]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[TD 8815]
RIN 1545-AT99


Federal Unemployment Tax Act (FUTA) Taxation of Amounts Under 
Employee Benefit Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations under section 
3306(r)(2) of the Internal Revenue Code (Code), that provide guidance 
as to when amounts deferred under or paid from a nonqualified deferred 
compensation plan are taken into account as wages for purposes of the 
employment taxes imposed by the Federal Unemployment Tax Act (FUTA). 
Section 3306(r)(2), relating to treatment of certain nonqualified 
deferred compensation, was added to the Code by section 324 of the 
Social Security Amendments of 1983. These regulations provide guidance 
to employers who maintain nonqualified deferred compensation plans.

DATES: Effective Date: These regulations are effective January 29, 
1999.
    Applicability Date: These regulations are applicable on and after 
January 1, 2000. In addition, these regulations provide certain 
transition rules for amounts deferred and benefits paid before January 
1, 2000, including allowing employers to use a reasonable, good faith 
interpretation of section 3306(r)(2).

FOR FURTHER INFORMATION CONTACT: Janine Cook, Linda E. Alsalihi, or 
Margaret A. Owens, (202) 622-6040 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    These final regulations amend the Employment Tax Regulations (26 
CFR

[[Page 4541]]

part 31) under section 3306(r)(2). Section 3306(r)(2) was added to the 
Internal Revenue Code (Code) by section 324 of the Social Security 
Amendments of 1983 (1983 Amendments). Section 2662(f)(2) of the Deficit 
Reduction Act of 1984 (DEFRA) amended section 324 of the 1983 
Amendments.
    Notice 94-96 (1994-2 C.B. 564) provides that until final 
regulations are issued, the IRS will not challenge an employer's 
determination of FUTA tax liability with respect to a nonqualified 
deferred compensation plan for periods before the effective date of any 
final regulations if the determination is based on a reasonable, good 
faith interpretation of section 3306(r)(2). On January 25, 1996, a 
notice of proposed rulemaking (EE-55-95), under section 3306(r)(2) was 
published in the Federal Register (61 FR 2214), providing guidance 
related to the FUTA tax treatment of amounts deferred under or paid 
from certain nonqualified deferred compensation plans. On December 24, 
1997, a notice of proposed rulemaking (REG-209484-87 and REG-209807-
95), under section 3306(r)(2), extending the proposed general effective 
date of the regulations to January 1, 1998, was published in the 
Federal Register (62 FR 67304).
    Comments regarding the proposed regulations were received from the 
public, and on June 24, 1996, the IRS held a public hearing concerning 
the proposed amendments. After consideration of the public comments 
received and the statements made at the public hearing, the proposed 
regulations are adopted as revised by this Treasury decision.

Explanation of Provisions

    These final regulations provide guidance under section 3306(r)(2), 
relating to when amounts deferred under or paid from nonqualified 
deferred compensation plans are taken into account as wages for FUTA 
purposes. These rules are substantially similar to the rules applicable 
to the FICA (Federal Insurance Contributions Act) tax treatment of such 
amounts deferred under section 3121(v)(2). Thus, these final 
regulations cross-reference the final regulations under section 
3121(v)(2) (FICA tax treatment of nonqualified deferred compensation), 
published elsewhere in this issue of the Federal Register.

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 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 notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Drafting Information

    The principal authors of these regulations are Janine Cook, Linda 
E. Alsalihi, and Margaret A. Owens, 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 continues to read 
in part as follows:

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

    Par. 2. Section 31.3306(r)(2)-1 is added to read as follows:


Sec. 31.3306(r)(2)-1  Treatment of amounts deferred under certain 
nonqualified deferred compensation plans.

    (a) In general. Section 3306(r)(2) provides a special timing rule 
for the tax imposed by section 3301 with respect to any amount deferred 
under a nonqualified deferred compensation plan. Section 31.3121(v)(2)-
1 contains rules relating to when amounts deferred under certain 
nonqualified deferred compensation plans are wages for purposes of 
sections 3121(v)(2), 3101, and 3111. The rules in Sec. 31.3121(v)(2)-1 
also apply to the special timing rule of section 3306(r)(2). For 
purposes of applying the rules in Sec. 31.3121(v)(2)-1 to section 
3306(r)(2) and this paragraph (a), references to the Federal Insurance 
Contributions Act are considered references to the Federal Unemployment 
Tax Act (26 U.S.C. 3301 et seq.), references to FICA are considered 
references to FUTA, references to section 3101 or 3111 are considered 
references to section 3301, references to section 3121(v)(2) are 
considered references to section 3306(r)(2), references to section 
3121(a), (a)(5), and (a)(13) are considered references to section 
3306(b), (b)(5), and (b)(10), respectively, and references to 
Sec. 31.3121(a)-2(a) are considered references to Sec. 31.3301-4.
    (b) Effective dates and transition rules. Except as otherwise 
provided, section 3306(r)(2) applies to remuneration paid after 
December 31, 1984. Section 31.3121(v)(2)-2 contains effective date 
rules for certain remuneration paid after December 31, 1983, for 
purposes of section 3121(v)(2). The rules in Sec. 31.3121(v)(2)-2 also 
apply to section 3306(r)(2). For purposes of applying the rules in 
Sec. 31.3121(v)(2)-2 to section 3306(r)(2) and this paragraph (b), 
references to section 3121(v)(2) are considered references to section 
3306(r)(2), and references to section 3121(a)(2), (a)(3), or (a)(13) 
are considered references to section 3306(b)(2), (b)(3), or (b)(10), 
respectively. In addition, references to Sec. 31.3121(v)(2)-1 are 
considered references to paragraph (a) of this section. For purposes of 
applying the rules of Sec. 31.3121(v)(2)-2 to this paragraph (b)--
    (1) References to ``December 31, 1983'' are considered references 
to ``December 31, 1984'';
    (2) References to ``before 1984'' are considered references to 
``before 1985'';
    (3) References to ``Federal Insurance Contributions Act'' are 
considered references to ``Federal Unemployment Tax Act''; and
    (4) References to ``FICA'' are considered references to ``FUTA''.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.

    Approved: December 23, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 99-1664 Filed 1-28-99; 8:45 am]
BILLING CODE 4830-01-P