[Federal Register Volume 60, Number 243 (Tuesday, December 19, 1995)]
[Rules and Regulations]
[Pages 65237-65238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30683]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 8634]
RIN 1545-AT12
Withholding on Distributions of Indian Gaming Profits to Tribal
Members
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the
income tax withholding requirement on distributions of profits from
certain gaming activities made to members of Indian tribes under
section 3402(r) of the Internal Revenue Code of 1986. Those affected by
the regulations are persons, including Indian tribes, making payments
to members of Indian tribes from net revenues of certain gaming
activities conducted or licensed by the tribes. Also affected are
members of Indian tribes who receive the payments.
DATES: These regulations are effective December 19, 1995.
For date of applicability, see Sec. 31.3402(r)-1(b).
FOR FURTHER INFORMATION CONTACT: Rebecca Wilson (202) 622-6040 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Employment Tax Regulations
(26 CFR part 31) under section 3402(r). Section 3402(r) was added by
section 701 of the Uruguay Round Agreements Act, which approved the
trade agreements resulting from the Uruguay Round of multilateral trade
negotiations under the auspices of the General Agreement on Tariffs and
Trade (GATT) and the Statement of Administrative Action to implement
the Agreements.
On December 22, 1994, temporary regulations (TD 8574) relating to
withholding on distributions of Indian gaming profits to tribal members
under section 3402(r) were published in the Federal Register (59 FR
65939). A notice of proposed rulemaking (EE-60-94) cross-referencing
the temporary regulations was published in the Federal Register for the
same day (59 FR 65982). No public hearing was requested or held.
Also on December 22, 1994, the IRS mailed a copy of Notice 1026,
providing withholding tables for use in 1995, to Indian tribes and
gaming establishments listed with the National Indian Gaming
Commission. For 1996 and subsequent years, tables will be printed in a
supplement to Circular E.
The IRS received written comments responding to the notice of
proposed rulemaking. After consideration of the comments, the
regulations proposed by EE-60-94 are adopted as revised by this
Treasury decision, and the corresponding temporary regulations are
withdrawn. The regulations contain no substantive changes.
Explanation of Provisions
1. Indian Gaming Regulatory Act. Net revenue from certain gaming
activities conducted or licensed by an Indian tribe may be used to make
taxable distributions to members of the Indian tribe. The tribe must
notify its members of the tax liability at the time the payments are
made. 25 U.S.C. 2710 (b)(3) and (d)(1).
2. Prior law. Prior to the addition of section 3402(r) in 1994, a
tribe was not required to withhold on these distributions to tribal
members except to the extent backup withholding rules applied under
section 3406.
3. Code section 3402(r). Section 3402(r) generally requires that,
for payments made after December 31, 1994, persons, including Indian
tribes, making payments to members of Indian tribes from the net
revenues of certain gaming activities conducted or licensed by the
tribes deduct and withhold income taxes from those payments. Section
3402(r) provides that the withholding amount be calculated assuming
that the taxpayer is single and has one exemption.
4. Legislative history. The legislative history of section 3402(r)
indicates that the goal of the new withholding requirement was to make
it easier for tribal members who receive gaming distributions to meet
their tax responsibilities:
Distributions of net revenues from gaming activity by an Indian
tribe may result in significant tax liability to the tribe's
members. Establishing withholding on such payments will more closely
match estimated tax payments to ultimate tax liability. For some
tribal members, this change may eliminate the need to make quarterly
[[Page 65238]]
estimated tax payments. For others, it will reduce the likelihood that
they will face penalties for underpayment of tax at the time of tax
filing.
H.R. Rep. No. 826, 103d Cong., 2d Sess., pt.1, at 170-171 (1994).
5. Proposed regulations. The proposed regulations implement the
withholding method prescribed by section 3402(r). They also permit
additional withholding by agreement between the tribal member and the
tribe.
6. Comments and final regulations. The IRS received only two
written comments on the proposed regulations. After consideration of
both comments, the proposed regulations are adopted with no substantive
changes.
No comments were received from the Chief Counsel for Advocacy of
the Small Business Administration.
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)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information. The principal author of the regulations is
Rebecca Wilson, Office of the Associate Chief Counsel (Employee
Benefits and Exempt Organizations), IRS. 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 is amended by
removing the entry for section 31.3402(r)-1T and adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 31.3402(r)-1 also issued under 26 U.S.C. 3402(p) and
(r), * * *
Par. 2. Section 31.3402(r)-1 is added to read as follows:
Sec. 31.3402(r)-1 Withholding on distributions of Indian gaming
profits to tribal members.
(a) (1) General rule. Section 3402(r)(1) requires every person,
including an Indian tribe, making a payment to a member of an Indian
tribe from the net revenues of any class II or class III gaming
activity, as defined in 25 U.S.C. 2703, conducted or licensed by such
tribe to deduct and withhold from such payment a tax in an amount equal
to such payment's proportionate share of the annualized tax, as that
term is defined in section 3402(r)(3).
(2) Withholding tables. Except as provided in paragraph (a)(4) of
this section, the amount of a payment's proportionate share of the
annualized tax shall be determined under the applicable table provided
by the Commissioner.
(3) Annualized amount of payment. Section 3402(r)(5) provides that
payments shall be placed on an annualized basis under regulations
prescribed by the Secretary. A payment may be placed on an annualized
basis by multiplying the amount of the payment by the total number of
payments to be made in a calendar year. For example, a monthly payment
may be annualized by multiplying the amount of the payment by 12.
Similarly, a quarterly payment may be annualized by multiplying the
amount of the payment by 4.
(4) Alternate withholding procedures--(i) In general. Any procedure
for determining the amount to be deducted and withheld under section
3402(r) may be used, provided that the amount of tax deducted and
withheld is substantially the same as it would be using the tables
provided by the Commissioner under paragraph (a)(2) of this section. At
the election of an Indian tribe, the amount to be deducted and withheld
under section 3402(r) shall be determined in accordance with this
alternate procedure.
(ii) Method of election. It is sufficient for purposes of making an
election under this paragraph (a)(4) that an Indian tribe evidence the
election in any reasonable way, including use of a particular method.
Thus, no written election is required.
(5) Additional withholding permitted. Consistent with the
provisions of section 3402(p), a tribal member and a tribe may enter
into an agreement to provide for the deduction and withholding of
additional amounts from payments in order to satisfy the anticipated
tax liability of the tribal member. The agreement may be made in a
manner similar to that described in Sec. 31.3402(p)-1 (with respect to
voluntary withholding agreements between employees and employers).
(b) Effective date. This section applies to payments made after
December 31, 1994.
Sec. 31.3402(r)-1T [Removed]
Par. 3. Section 31.3402(r)-1T is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 28, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-30683 Filed 12-18-95; 8:45 am]
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