[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Proposed Rules]
[Pages 68780-68782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27331]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-120927-13]
RIN-1545-BL61
Treatment of Income From Indian Fishing Rights-Related Activity
as Compensation
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would clarify
that amounts paid to an Indian tribe member as remuneration for
services performed in a fishing rights-related activity may be treated
as compensation for purposes of applying the limits on qualified plan
benefits and contributions. These regulations would affect sponsors of,
and participants in, employee benefit plans of Indian tribal
governments.
DATES: Comments and requests for a public hearing must be received by
February 13, 2014.
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-120927-13), room 5205,
Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
120927-13), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC 20224, or sent electronically via the
Federal eRulemaking Portal at www.regulations.gov (IRS REG-120927-13).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Sarah Bolen or Pamela Kinard at (202) 622-6060 or (202) 317-6700;
concerning the submission of comments or to request a public hearing,
Oluwafunmilayo Taylor, (202) 622-7180 or (202) 317-6901 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
Indian tribal governments (ITGs) and individual tribe members
conduct fishing activities to generate revenue, protect critical
habitats, and preserve tribal customs and traditions. Various treaties,
federal statutes, and Presidential executive orders reserve to Indian
tribe members the right to fish for subsistence and commercial purposes
both on and off reservations. Because many of the treaties, statutes,
and executive orders were adopted before passage of the Federal income
tax, they often do not expressly address the question of whether income
derived by Indians and ITGs from protected fishing activities is exempt
from taxation. See H.R. Rep. 100-1104, at p. 77 (1988).
Congress added section 7873 to the Internal Revenue Code as part of
the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647).
Section 7873(a)(1) provides that no income tax shall be imposed on
income derived from a fishing rights-related activity of an Indian
tribe by (A) a member of the tribe directly or through a qualified
Indian entity, or (B) a qualified Indian entity. Section 7873(a)(2)
provides that no employment tax shall be imposed on remuneration paid
for services performed in a fishing rights-related activity of an
Indian tribe by a member of such tribe for another member of such tribe
or for a qualified Indian entity. Thus, section 7873(a) exempts income
derived from a fishing rights-related activity (``fishing rights-
related income'') from both income and employment taxes.
Section 7873(b)(1) defines fishing rights-related activity with
respect to an Indian tribe as any activity directly related to
harvesting, processing, or transporting fish harvested in the exercise
of a recognized fishing right of the tribe or to selling such fish but
only if substantially all of such harvesting was performed by members
of such tribe.
Section 415(a)(1) provides that a trust that is part of a pension,
profit-sharing, or stock bonus plan shall not constitute a qualified
trust under section 401(a) if (A) in the case of a defined benefit
plan, the plan provides for the payment of benefits with respect to a
participant which exceed the limitation of section 415(b), or (B) in
the case of a defined contribution plan, contributions and other
additions under the plan with respect to any participant for any
taxable year exceed the limitation of section 415(c).
Section 415(b)(1) provides that benefits with respect to a
participant exceed the annual limitation for defined benefit plans if,
when expressed as an annual benefit (within the meaning of section
415(b)(2)), the participant's annual benefit is greater than the lesser
of $160,000 (as adjusted in accordance with section 415(d)(1)) or 100
percent of the participant's average compensation for the participant's
high 3 years.
Section 415(b)(3) provides that, for purposes of section 415(b)(1),
a participant's high 3 years will be the period of consecutive calendar
years (not more than 3) during which the participant had the greatest
aggregate compensation from the employer. In the case of an employee
within the meaning of section 401(c)(1) (that is, a self-employed
individual treated as an employee), the preceding sentence is applied
by substituting for ``compensation from the employer'' the following:
``the participant's earned income (within the meaning of section
401(c)(2) but determined without regard to any exclusion under section
911).''
Section 415(c)(1) provides that contributions and other additions
with respect to a participant exceed the annual limitation for defined
contribution plans if, when expressed as an annual addition (within the
meaning of section 415(c)(2)) to the participant's account, the
participant's annual addition is greater than the lesser of $40,000 (as
adjusted in accordance with section 415(d)(1)) or 100 percent of the
participant's compensation. Section 415(c)(3) provides that the term
``participant's compensation'' means the compensation of the
participant from the employer for the year. Section 1.415(c)-2(a) of
the Income Tax Regulations generally provides that compensation from
the employer within the meaning of section 415(c)(3) includes all items
of remuneration described in Sec. 1.415(c)-2(b), but excludes the
items of remuneration described in Sec. 1.415(c)-2(c).
Section 1.415(c)-2(b) generally provides that, for purposes of
applying the limitations of section 415, the term compensation means
remuneration for services. Specifically, under Sec. 1.415(c)-2(b)(1),
compensation includes
[[Page 68781]]
employee wages, salaries, fees for professional services, and other
amounts received (without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the course of
employment with the employer maintaining the plan, to the extent that
the amounts are includible in gross income. In addition, Sec.
1.415(c)-2(b)(2) provides that in the case of an employee within the
meaning of section 401(c)(1) (a self-employed employee), compensation
includes the employee's earned income (as described in section
401(c)(2)) plus amounts deferred at the election of the employee that
would be includible in gross income but for the rules of section
402(e)(3), 402(h)(1)(B), 402(k), or 457(b).
Section 1.415(c)-2(c) excludes certain items from the definition of
compensation under section 415(c)(3). Specifically, Sec. 1.415(c)-
2(c)(1) excludes contributions (other than certain elective
contributions) made by the employer to a plan of deferred compensation
to the extent that the contributions are not includible in the gross
income of the employee for the taxable year in which contributed.
Likewise, distributions from plans (whether qualified or not) are
generally not considered to be compensation for section 415 purposes.
Section 1.415(c)-2(c)(2) excludes from compensation amounts realized
from the exercise of nonstatutory options and amounts realized when
restricted stock or other property held by an employee becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture. Section 1.415(c)-2(c)(3) excludes from compensation amounts
realized from the sale, exchange, or other disposition of stock
acquired under a statutory stock option (as defined in Sec. 1.421-
1(b)). Finally, Sec. 1.415(c)-2(c)(4) excludes from compensation other
amounts that receive special tax benefits, such as certain premiums for
group-term life insurance.
Section 1.415(c)-2(d) provides safe harbor definitions that a plan
is permitted to use to define compensation in a manner that satisfies
section 415(c)(3). Section 1.415(c)-2(d)(2) provides a safe harbor
definition of compensation that includes only those items listed in
Sec. 1.415(c)-2(b)(1) or (b)(2) and excludes all the items listed in
Sec. 1.415(c)-2(c). Section 415(c)-2(d)(3) provides a separate safe
harbor definition of compensation that includes wages within the
meaning of section 3401(a), plus amounts that would be included in
wages but for an election under section 125(a), 132(f)(4), 402(e)(3),
402(h)(1)(b), 402(k), or 457(b).
Explanation of Provisions
Because fishing rights-related income is not subject to income tax,
an issue has been raised as to whether such income is included as
compensation for purposes of section 415(c)(3) and Sec. 1.415(c)-2(b).
The proposed regulations would clarify that certain fishing rights-
related income is included in the definition of compensation.
Specifically, these regulations would provide that amounts paid to a
member of an Indian tribe as remuneration for services performed in a
fishing rights-related activity (as defined in section 7873(b)(1)) do
not fail to be treated as compensation under Sec. 1.415(c)-2(b)(1) and
(b)(2) (and are not excluded from the definition of compensation
pursuant to Sec. 1.415(c)-2(c)(4)) merely because those amounts are
not subject to income tax as a result of section 7873(a)(1). Thus, the
determination of whether an amount constitutes wages, salaries, or
earned income for purposes of Sec. 1.415(c)-2(b)(1) or (b)(2) is made
without regard to the exemption from taxation under section 7873(b)(1)
and (b)(2). In addition, by permitting fishing rights-related income to
be treated as wages, salaries, or earned income under Sec. 1.415(c)-
2(b)(1) and (b)(2), plans that accept contributions of fishing rights-
related income would not be precluded from utilizing the safe harbor
definitions of compensation under Sec. 1.415(c)-2(d)(2) and (d)(3) of
the regulations.
Proposed Applicability Date
These regulations are proposed to apply for taxable years ending on
or after the date of publication of the Treasury decision adopting
these rules as final regulations in the Federal Register. Taxpayers,
however, may rely on these proposed regulations for periods preceding
the effective date, pending the issuance of final regulations. If, and
to the extent, the final regulations are more restrictive than the
rules in these proposed regulations, those provisions of the final
regulations will be applied without retroactive effect.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866, as supplemented by Executive Order 13563. Therefore, a
regulatory assessment is not required. It has also been determined that
5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. Because these regulations do
not impose a collection of information on small entities, the
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply and a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, these
regulations have been submitted to the Office of Chief Counsel for
Advocacy of the Small Business Administration for comments on its
impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ``ADDRESSES''
heading. In addition to general comments on the proposed regulations,
the IRS and the Treasury Department request comments on the taxation of
qualified plan distributions that are attributable to fishing rights-
related income, and the application of section 72(f)(2) (which treats
certain amounts as basis for purposes of computing employee
contributions if those amounts would have not been includible in income
had they been paid directly to the employee). All comments are
available at www.regulations.gov or upon request. A public hearing will
be scheduled if requested in writing by any person who timely submits
written comments. If a public hearing is scheduled, notice of the date,
time, and place of the public hearing will be published in the Federal
Register.
Consultation and Coordination With Indian Tribal Governments
These proposed regulations take into account comments provided
through a number of general consultation sessions held with the Indian
tribal community in recent years. Consistent with Executive Order
13175, the Treasury Department and the IRS expect to hold a telephone
consultation on a date between November 15, 2013 and February 13, 2014.
This telephone consultation session will focus principally on the
contribution of section 7873 income to qualified retirement plans and
the taxation of qualified plan distributions that are attributable to
this income. Information relating to the consultation, including the
date, time, registration requirements, and procedures for submitting
written and oral comments, will be available on the IRS Web site
relating to Indian tribal governments at: http://www.irs.gov/Government-Entities/Indian-Tribal-Governments.
[[Page 68782]]
Drafting Information
The principal author of these regulations is Sarah R. Bolen, Office
of Division Counsel/Associate Chief Counsel (Tax Exempt and Government
Entities). However, other personnel from the IRS and the Treasury
Department participated in the development of these regulations.
List of subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.415(c)-2 is amended by adding paragraphs (g)(9) and
(h) to read as follows:
Sec. 1.415(c)-2 Compensation.
* * * * *
(g) * * *
(9) Income derived by Indians from exercise of fishing rights.
Amounts paid to a member of an Indian tribe directly or through a
qualified Indian entity (within the meaning of section 7873(b)(3)) as
compensation for services performed in a fishing rights-related
activity (as defined in section 7873(b)(1)) of the tribe do not fail to
constitute compensation under paragraphs (b)(1) and (b)(2) of this
section and are not excluded from the definition of compensation
pursuant to paragraph (c)(4) of this section merely because those
amounts are not subject to income or employment taxes as a result of
section 7873(a)(1) and (2). Thus, the determination of whether an
amount constitutes wages, salaries, or earned income for purposes of
paragraph (b)(1) or (a)(2) of this section is made without regard to
the exemption from taxation under section 7873(a)(1) and (2).
(h) Effective/applicability date. Section 1.415(c)-2(g)(9) shall
apply for plan years ending on or after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register.
Heather C. Maloy,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-27331 Filed 11-14-13; 8:45 am]
BILLING CODE 4830-01-P