[Federal Register Volume 78, Number 239 (Thursday, December 12, 2013)]
[Rules and Regulations]
[Pages 75471-75475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-29664]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 9649]
RIN 1545-BI21
Section 3504 Agent Employment Tax Liability
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to agents
authorized by the Secretary under section 3504 of the Internal Revenue
Code to perform acts required of employers who are home care service
recipients. The final regulations affect employers and their designated
agents who pay wages for home care services, which are subject to taxes
under the Federal Unemployment Tax Act. The final regulations also
modify the existing regulations under section 3504 to be consistent
with the organizational structure of the Internal Revenue Service
(IRS), and to update the citation to the Internal Revenue Code of 1986.
[[Page 75472]]
DATES: Effective Date: These regulations are effective on December 12,
2013.
Applicability Date: For dates of applicability, see Sec. 31.3504-
1(c) of these regulations.
FOR FURTHER INFORMATION CONTACT: Michelle R. Weigelt at (202) 622-0047
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 31 under section
3504 of the Internal Revenue Code (Code). On January 13, 2010, the
Treasury Department and the IRS published a notice of proposed
rulemaking (REG-137036-08, 75 FR 1735, 2010-6 I.R.B. 398) (the proposed
regulations) in the Federal Register under section 3504 of the Code.
The Treasury Department and the IRS did not hold a public hearing
because there were no requests to speak at a hearing. The Treasury
Department and the IRS received written and electronic comments
responding to the proposed regulations. After consideration of all the
comments, the proposed regulations are adopted as amended by this
Treasury decision. The comments and revisions are discussed in the
preamble.
Explanation of Provisions
In case a fiduciary, agent, or other person has the control,
receipt, custody, or disposal of, or pays the wages of an employee or
group of employees, employed by one or more employers, section 3504 of
the Code authorizes the Secretary of the Treasury to promulgate
regulations to authorize the person (``agent'') to perform certain
specified acts required of employers. Under section 3504, all
provisions of law (including penalties) applicable with respect to
employers are applicable to the agent and remain applicable to the
employer. Accordingly, both the agent and employer are liable for the
employment taxes and penalties associated with the employer's
employment tax obligations which the agent is authorized to perform.
Prior to the amendments made by these final regulations, Sec. 31.3504-
1 of the Employment Tax Regulations provided that the IRS may authorize
an agent to undertake the employment tax obligations of an employer
with respect to income tax withholding and Federal Insurance
Contributions Act (FICA) taxes. However, the employer was required to
continue to meet its employment tax obligations with respect to Federal
Unemployment Tax Act (FUTA) tax. Like the proposed regulations, these
final regulations provide that the IRS may authorize an agent to
undertake the employment tax obligations of an employer with respect to
FUTA tax in certain circumstances.
Summary of Comments and Explanation of Revisions
A. Amendments to Sec. 31.3504-1(a)
Under Sec. 31.3504-1(a), an employer may request that the IRS
authorize an agent under section 3504 to report, file, and pay income
tax withholding, tax under the FICA, or tax under the Railroad
Retirement Tax Act (RRTA), with respect to wages or compensation. The
proposed regulations under Sec. 31.3504-1(a) proposed amendments to
the existing regulatory language designed to update citations and be
consistent with the current organizational structure of the IRS.
One commenter expressed concern that deletion of the limiting
language ``in respect of such acts'' from these regulations implied an
agent could be held liable for all of an employer's employment tax
liabilities, regardless of which acts the agent was authorized to
perform. Under section 3504, the agent is only liable for acts the IRS
has authorized the agent to perform on behalf of the employer. Thus,
language that limits the scope of the agent's liability has been
reincorporated into the final regulations.
Another commenter suggested that the final regulations include a
rule that the agent is only liable for employment taxes with respect to
wages or compensation paid by the agent on behalf of the employer.
Because section 3504 provides an agent may also be authorized under
section 3504 if the person has the control, receipt, custody, or
disposal of the wages of an employer's employees, a rule that the agent
can only be held liable for employment taxes with respect to those
wages paid by the agent would be more narrow than the statute.
Therefore, this rule was not adopted in the final regulations.
In addition to the change to proposed Sec. 31.3504-1(a) made in
response to comments, these final regulations adopt minor changes for
clarity and consistency.
B. Amendments Under Sec. 31.3504-1(b)
The proposed regulations under Sec. 31.3504-1(b) provide a special
rule that allows an employer who is a home care service recipient to
request that the IRS authorize an agent to act with respect to FUTA
taxes imposed on wages paid for home care services, provided that the
agent is authorized to act for the home care service recipient for
income tax withholding and FICA tax purposes. The proposed regulations
under Sec. 31.3504-1(b) do not apply to an agent that is authorized to
report, file, and pay income tax withholding or FICA tax for an
employer who is not a home care service recipient, or for wages paid
for services other than home care services.
Several commenters sought legal or procedural explanations which
were beyond the scope of the proposed regulations. Thus, those comments
are not addressed in these final regulations. For example, these
regulations do not address comments seeking clarification on the
identity of the common law employer if the home care service recipient
has a representative acting on his or her behalf, the ability of an
agent to delegate its responsibility to a third-party, the application
of certain exceptions to FICA and FUTA taxes, the proper use of
employer identification numbers (EIN) in filing employment tax returns,
and the deposit requirements of agents. However, Revenue Procedure
2013-39, which is being released simultaneously with these final
regulations updates the procedures for requesting that the IRS
authorize a person to act as agent under section 3504, and addresses
filing, reporting, and deposit rules for agents.
1. Certification of State Unemployment Contributions
Section 3504 provides that all provisions of law applicable to an
employer apply to the agent. Thus, an agent authorized under the
proposed regulations for FUTA tax purposes reports the state
unemployment contributions paid into a state unemployment fund on
behalf of a home care service recipient as a credit under section 3302
against the FUTA tax reported on the agent's aggregate FUTA tax return.
The IRS has designated Form 940, Employer's Annual Federal Unemployment
Tax (FUTA) Return, as the return to file to report FUTA tax. The credit
can be reported by the agent regardless of whether the state
unemployment contributions are made under the name and state
identifying number of the home care service recipient or of the agent.
Several commenters expressed concern that the IRS will be unable to
verify the state unemployment contributions made on behalf of a home
care service recipient if such contributions are reported on an
aggregate Form 940 FUTA tax return using the agent's name and EIN. The
commenters suggested that each home care service recipient's name and
EIN be
[[Page 75473]]
included on the aggregate return for purposes of the annual
certification process.
Following the publication of the proposed regulations, the IRS
issued Schedule R (Form 940), Allocation Schedule for Aggregate Form
940 Filers, for use beginning in tax year 2010. Agents of home care
service recipients are required to use Schedule R (Form 940) to
allocate the information reported on the aggregate FUTA tax return, and
must separately list each home care service recipient's name and EIN on
Schedule R (Form 940). Because the issuance of Schedule R (Form 940)
resolves the concerns raised by these commenters, no changes were made
to the final regulations.
2. Domestic Service Employment Tax Rules and Home Care Services
The proposed regulations define home care services to include
health care and personal attendant care services rendered in the home
care service recipient's home or local community. Several commenters
requested clarification of whether home care services constitute
domestic services for employment tax purposes, particularly when the
services involve travel outside the home.
The Code has special rules for domestic services. These special
rules include provisions in section 3401(a)(3) regarding the
requirement to withhold income tax; sections 3121(a)(7)(B), 3306(a)(3),
and 3306(c)(2) regarding minimum dollar thresholds for imposition of
FICA and FUTA taxes; section 3121(b)(3)(B) regarding exemption from
FICA tax for certain family employment relationships; and section
3121(b)(21) regarding exemption from FICA tax depending on the age of
the service provider. Whether any of these rules apply in a given
situation depends on whether the services are ``domestic services'' and
whether the services are provided in the ``private home'' of the
employer. These terms are explained in Sec. Sec. 31.3121(a)(7)-
1(a)(2), 31.3306(c)(2)-1, and 31.3401(a)-3 of the regulations.
Generally, Sec. 31.3121(a)(7)-1(a)(2) provides that domestic
services are services of a household nature performed by an employee in
or about a private home of the person by whom the employee is employed.
A private home is a fixed place of abode of an individual or family.
Sections 31.3306(c)(2)-1 and 31.3401(a)-3 contain similar descriptions
for FUTA tax and income tax withholding purposes, respectively.
The preamble to the proposed regulations stated that services
provided outside the home care service recipient's private home may
qualify as home care services for purposes of these regulations even if
the services do not qualify as domestic service in a private home of
the employer for purposes of sections 3121(a)(7), 3306(c)(2), and
3401(a)(3).
One commenter requested a rule deeming the special statutory rules
for domestic services as applying to all home care services. The
determination of whether the statutory rules for domestic services
apply depends on whether the services are domestic services provided in
the private home of the employer as explained in the regulations. Thus,
a bright line rule that home care services are domestic services in all
cases is beyond the scope of these regulations, and the proposal was
not adopted.
However, we anticipate that there will only be limited
circumstances when home care services would not be subject to the
domestic service rules and note that the regulations on domestic
service described in this section, and other public guidance currently
available address these comments. For example, Revenue Ruling 56-109,
1956-1 CB 467, provides that services performed by an employee as a
companion to a convalescent employer, including accompanying the
convalescent on trips, constitute domestic service in a private home of
the employer for purposes of employment taxes.
Several commenters interpreted the use of the phrase ``home or
local community'' in the definition of home care services to impose
geographical restrictions. The phrase was intended to indicate that
despite the home-based nature of health care and personal attendant
care services, home care services may be provided outside of a home,
and was not intended to exclude services qualifying for funds under the
government program based on the location at which the services were
provided. Thus, home care services under the regulations include any
services for which an individual enrolled in a government program
described in the regulations would be eligible to receive funds.
Similar to how Rev. Rul. 56-109 describes a situation where services
that are provided outside the employer's house nevertheless constitute
``domestic services in the private home of the employer,'' services
provided outside the home or local community may constitute home care
services. Nevertheless, to avoid the implication of a geographical
limitation on what services may qualify as home care services, the
phrase was removed from the definition of home care services in the
final regulations.
Finally, one commenter interpreted the definition of home care
services to include only services provided to elderly individuals and
individuals with physical disabilities, and not to include services
provided to individuals with intellectual and developmental
disabilities. The definition of home care services in the proposed
regulations are not limited by the type of disability. Rather, the
definition of home care services includes any services for which an
individual enrolled in a government program described in the
regulations would be eligible to receive funds. Therefore, no changes
were made to the final regulations with regard to the definition of
home care services to address this comment.
3. Clarification Regarding Home Care Service Recipients
The proposed regulations define home care service recipient as any
individual who receives home care services while enrolled, and for the
remainder of the calendar year after ceasing to be enrolled, in a
program administered by a Federal, state, or local government agency
that provides Federal, state, or local government funds, to pay, in
whole or in part, for the home care services for that individual.
Several commenters submitted questions regarding this definition that
did not require changes to the regulations, but with respect to which
clarification is provided in this preamble.
With regard to the Federal, state, or local government programs
which provide funds for home care services, the preamble to the
proposed regulations provides, ``In all such programs, intermediaries
who are engaged to assist beneficiaries to receive and distribute funds
on the beneficiaries' behalf are reviewed and approved by a state or
local government agency.'' Several commenters interpreted this
statement as inferring coordination between the IRS and the Centers for
Medicare and Medicaid Services (CMS) regarding qualifications and
contracting requirements for agents. The statement was intended to
highlight the currently existing oversight of the intermediaries that
serve as agents in these programs by CMS or other Federal, state, and
local government agencies. There is no anticipated IRS involvement in
the way these agencies administer these programs, including selection
and monitoring of the intermediaries.
Application of the proposed regulations requires that a home care
[[Page 75474]]
service recipient be enrolled in a program that provides Federal,
state, or local government funds to pay for home care services, in
whole or in part. One commenter asked whether an individual who pays
for home care services from his or her personal bank account or with
other non-government funds can be a home care service recipient within
the meaning of the regulations. An individual is not a home care
service recipient within the meaning of these regulations if no
government funds are used to pay for any part of the home care services
performed for the individual. However, an individual may be a home care
service recipient if the cost of the home care services are initially
paid for with non-government funds and such cost is reimbursed in whole
or in part with government funds provided under the government program.
Other commenters asked about procedures an agent should follow when
an individual ceases to be a home care service recipient. Under Sec.
31.3504-1(b)(3), a participant qualifies as a home care service
recipient until the end of the calendar year in which the participant
ceases to be enrolled in the government program; accordingly, the agent
may act as an agent with respect to the home care service recipient's
FUTA tax obligations for the entire calendar year in which the
participant ceases to qualify as a home care service recipient.
Furthermore, the agent may continue to act as an agent with respect to
the home care service recipient's FICA tax and income tax withholding
obligations pursuant to Sec. 31.3504-1(a) after a participant ceases
to qualify as a home care service recipient. Treasury and the IRS do
not believe a description of any specific procedures is needed in these
regulations with regard to the cessation of home care service recipient
status for FUTA tax purposes. However, Revenue Procedure 2013-39, which
is being released simultaneously with these final regulations updates
the procedures to request the IRS authorize a person to act as agent
under section 3504 and clarifies the rules for revoking authorization.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in E.O. 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 this regulation. Pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these
regulations will not have a significant economic impact on a
substantial number of small entities. The collection of information
contained in these regulations is a voluntary written application from
an employer, signed by the employer and the agent, requesting the IRS
approve the appointment of an agent to perform the acts required of the
employer. The application contains information generally available to
taxpayers, such as the name, address, and EIN of the employer, and
ultimately serves to lessen taxpayer burden by allowing the employer to
have an agent fulfill certain employment tax obligations. Accordingly,
a regulatory flexibility analysis is not required. Pursuant to section
7805(f) of the Internal Revenue Code, the proposed regulations
preceding these regulations were submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business, and no comments were received.
Drafting Information
The principal author of these final regulations is Michelle R.
Weigelt, Office of Division Counsel/Associate Chief Counsel (Tax Exempt
and Government Entities). However, personnel from other offices of the
IRS and the Treasury Department participated in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Reporting and
recordkeeping requirements, Railroad retirement, 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
0
Paragraph 1. The authority citation for part 31 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 31.3504-1 is revised to read as follows:
Sec. 31.3504-1 Designation of agent by application.
(a) In general. In the event wages as defined in chapter 21 or 24
of the Internal Revenue Code (Code), or compensation as defined in
chapter 22 of the Code, of an employee or group of employees, employed
by one or more employers, is paid by a fiduciary, agent, or other
person (``agent''), or if that agent has the control, receipt, custody,
or disposal of (collectively ``pays'') wages or compensation, the
Internal Revenue Service may, subject to the terms and conditions as it
deems proper, authorize that agent to perform the acts required of the
employer or employers under those provisions of the Code and the
regulations that apply, for purposes of the taxes imposed by the
chapter or chapters, with respect to wages or compensation paid by the
agent. If the agent is authorized by the Internal Revenue Service to
perform such acts, all provisions of law (including penalties) and of
the regulations applicable to an employer with respect to such acts
shall be applicable to the agent. However, each employer for whom the
agent acts shall remain subject to all provisions of law (including
penalties) and of the regulations applicable to an employer with
respect to such acts. Any application to authorize an agent to perform
such acts, signed by the agent and the employer, shall be made on the
form prescribed by the Internal Revenue Service and shall be filed with
the Internal Revenue Service as prescribed in the instructions to the
form and other applicable guidance.
(b) Special rule for home care service recipients. (1) In general.
In the event an agent is authorized pursuant to paragraph (a) of this
section to perform the acts required of an employer under chapters 21
or 24 on behalf of one or more home care service recipients, as defined
in paragraph (b)(3) of this section, the Internal Revenue Service may
authorize that agent to perform the acts as are required of employers
for purposes of the tax imposed by chapter 23 of the Code with respect
to wages paid by the agent for home care services, as defined in
paragraph (b)(2) of this section, rendered to the home care service
recipient. If the agent is authorized by the Internal Revenue Service
to perform such acts, all provisions of law (including penalties) and
of the regulations applicable to an employer in respect of such acts
shall be applicable to the agent. However, each employer for whom the
agent acts shall remain subject to all provisions of law (including
penalties) and of the regulations applicable to an employer with
respect to such acts.
(2) Home care services. For purposes of this section, the term home
care services includes health care and personal attendant care services
rendered to the home care service recipient.
(3) Home care service recipient. For purposes of this section, the
term home
[[Page 75475]]
care service recipient means any individual who receives home care
services, as defined in paragraph (b)(2) of this section, while
enrolled, and for the remainder of the calendar year after ceasing to
be enrolled, in a program administered by a Federal, state, or local
government agency that provides Federal, state, or local government
funds, to pay, in whole or in part, for home care services for that
individual.
(c) Effective/applicability dates. An authorization under paragraph
(a) in effect prior to December 12, 2013 continues to be in effect
after that date. Paragraph (b) of this section applies to wages paid on
or after January 1, 2014. However, pursuant to section 7805(b),
taxpayers may rely on paragraph (b) of this section for all taxable
years for which a valid designation is in effect under paragraph (a) of
this section.
Beth Tucker,
Deputy Commissioner for Services and Enforcement.
Approved: September 27, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-29664 Filed 12-11-13; 8:45 am]
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