Employer’s Annual Federal Tax Return and Modifications to the Deposit Rules

SUMMARY: This document contains final regulations relating to the Employers' Annual Federal Tax Program (the Form 944 Program) and the requirements for depositing social security, Medicare, and withheld Federal income taxes (collectively "employment taxes"). These final regulations allow certain employers to file a Form 944, "Employer's ANNUAL Federal Tax Return," rather than Forms 941, "Employer's QUARTERLY Federal Tax Return." Additionally, these final regulations provide guidance related to the lookback periods and deposit requirements for employers required to file Forms 941 and Form 944. These final regulations affect taxpayers that file Forms 941, Form 944, and any related Spanish-language returns or returns for U.S. possessions.

EFFECTIVE DATE: Effective Date: These regulations are effective on December 14, 2011.

Applicability Date: For dates of applicability, see SUBSEC 31.6011(a)-1(g), 31.6011(a)-4(d), and 31.6302-1(n).

FOR FURTHER INFORMATION CONTACT: Jennifer Records, (202) 622-4910 (not a toll-free number).

SUPPLEMENTARY INFORMATION: These final regulations amend the Regulations on Employment Taxes and Collection of Income Tax at Source (26 CFR part 31) under section 6011 relating to the employment tax return filing requirements and section 6302 relating to the employment tax deposit requirements. These final regulations are part of the IRS' continued effort to reduce taxpayer burden by permitting certain employers to file one employment tax return annually instead of four quarterly employment tax returns.

The Treasury Department and the IRS are considering changes to the annual filing program in light of the program's performance as measured against the program's original goals, administrative and operational considerations, and overall program effectiveness. Any changes to the program will be set forth in future guidance.

On January 3, 2006, temporary regulations (TD 9239) relating to Form 944 (the 2006 temporary regulations) were published in the Federal Register (71 FR 11). A notice of proposed rulemaking (REG-148568-04) cross-referencing the 2006 temporary regulations was published in the Federal Register on the same day (71 FR 46) (the 2006 proposed regulations). A correction to the 2006 temporary regulations was published in the Federal Register on March 17, 2006 (71 FR 13766). On December 29, 2008, temporary regulations (TD 9440), which revised the 2006 temporary regulations, relating to Form 944 (the 2008 temporary regulations) were published in the Federal Register (73 FR 79354). A notice of proposed rulemaking (REG-148568-04) cross-referencing the 2008 temporary regulations was published in the Federal Register on the same day (73 FR 79423) (the 2008 proposed regulations). No requests for a public hearing were received; therefore, no public hearing was held. As noted in the 2008 temporary regulations, comments were received responding to the 2006 notice of proposed rulemaking. Those comments requested that use of Form 944 be changed from mandatory to voluntary and that the amount of the employment tax liability used to determine whether employers are eligible to file Form 944 (the "eligibility threshold") be increased. The Treasury Department and the IRS agreed to make Form 944 voluntary and to continue to consider whether to increase the eligibility threshold. No comments responding to the 2008 notice of proposed rulemaking were received. This Treasury decision adopts the rules of the 2008 proposed regulations with minor clarifying changes and removes the temporary regulations. That is, participation in the Form 944 Program will remain voluntary and the eligibility threshold for participation will remain at $1,000.

Explanation of Revisions

Although this Treasury decision adopts the rules of the proposed regulations with no substantive change, some of the language included in the proposed regulations and the existing final regulations is clarified and updated to reflect current law and practice. The revisions are discussed in this preamble.

Employers that request to participate in the Form 944 Program must receive written notice to file Form 944 before they are permitted to file the form. Once employers receive this notice, they must file Form 944 for each year and cannot file Forms 941 until they are notified that their filing requirement has changed to Forms 941 because (1) They contacted the IRS to request that their filing requirement be changed to Forms 941, or (2) they no longer qualify for the Form 944 Program. The IRS issued guidance published in the Internal Revenue Bulletin (Rev. Proc. 2009-13 (2009-1 CB 323) and Rev. Proc. 2009-51 (2009-45 IRB 625)) that provides procedures for employers to follow to request to file Form 944 instead of Forms 941 ("opt in"). Additionally, Rev. Proc. 2009-13 and Rev. Proc. 2009-51 provide procedures for employers to follow to request to file Forms 941 instead of Form 944 when the IRS previously notified them they should file Form 944 ("opt out"). Under Rev. Proc. 2009-13, for tax year 2009, employers who were notified they should file Form 944 could only opt out if they anticipated that their employment tax liability would exceed the $1,000 threshold or if they wanted to e-file Forms 941 quarterly instead. Beginning in 2010, employers were able to opt out of filing Form 944 for any reason if they followed the procedures set forth in Rev. Proc. 2009-51 or its successor. These final regulations clarify that employers should follow the procedures contained in Rev. Proc 2009-51 or its successor to opt in or to opt out of the Form 944 Program.

The revisions contained in these final regulations also impact employers that file Spanish-language returns or returns for U.S. possessions. For tax year 2012 and later, Form 944-SS, Employer's ANNUAL Federal Tax Return (American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands) and Form 944-PR, Planilla para la Declaracion Federal ANUAL del Patrono, will be eliminated due to the low volume of employers filing these forms. Employers who would otherwise file a Form 944-SS or Form 944-PR will file a Form 944. The Treasury Department and the IRS plan to retain Form 944(SP), Declaracion Federal ANUAL de Impuestos del Patrono o Empleador, which is the Spanish equivalent of Form 944. Employers in the United States in the Form 944 Program may file Form 944(SP) as an alternative to filing Form 944. Additionally, employers in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, and Puerto Rico may file a Form 944(SP) as an alternative to filing Form 944, for tax year 2012 and later. These final regulations remove references to the eliminated forms and update the language included in the proposed regulations and the existing final regulations to provide guidance to former Form 944-SS and Form 944-PR filers who are required to file Form 944 instead.

Employers in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands who are required to file Form 944 for tax year 2012 and later can request to file Forms 941-SS instead of Form 944. Employers in Puerto Rico who are required to file Form 944 for tax year 2012 and later can request to file Forms 941-PR instead of Form 944. Employers required to file Form 944 should follow the procedures contained in Rev. Proc. 2009-51 or its successor to request to file Form 941-SS or Form 941-PR. See SEC 601.601(d)(2)(ii)( b).

Special Analyses

It has been determined that this Treasury decision 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 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. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act (5 U.S.C. Chapter 6). The regulations under sections 6011 and 6302 affect only a small number of taxpayers that file employment tax returns, and participation in the Form 944 Program is voluntary. Therefore, the Treasury Department and the IRS have determined that the regulations will not affect a substantial number of small entities. 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 their impact on small entities. No comments from the Small Business Administration were received.

Drafting Information

The principal authors of these regulations are Blaise Dusenberry and Jennifer Records of the Office of the Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 31

Employment taxes, Fishing vessels, Gambling, Income taxes, Penalties, Pensions, Railroad retirement, Reporting and recordkeeping requirements, Social Security, Unemployment compensation.

Adoption 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 SEC 31.6302-1T to read in part as follows:

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

Par. 2. Section 31.6011(a)-1 is amended by revising paragraphs (a)(1), (a)(4), (a)(5) and (g) to read as follows:

SEC 31.6011(a)-1 Returns under Federal Insurance Contributions Act.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final regulations and removal of temporary regulations.

CFR Part: "26 CFR Part 31"

RIN Number: "RIN 1545-BK82"

Citation: "76 FR 77672"

Document Number: "TD 9566"

Federal Register Page Number: "77672"

"Rules and Regulations"