July 24, 1992
TO: TAX COMMITTEE NO. 28-92
PENSION COMMITTEE NO. 26-92
OPERATIONS COMMITTEE NO. 20-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 39-92
RE: INSTITUTE COMMENTS ON PROPOSED TAX DEPOSIT REGULATIONS
__________________________________________________________
As you may know, the Internal Revenue Service ("IRS")
recently issued proposed amendments to the regulations under
section 6302 of the Internal Revenue Code that provide rules for
depositing "employment taxes", including payroll taxes, pension
and annuity withholding amounts and backup withholding amounts.
(See Institute Memorandum to Tax Committee No. 21-92, Operations
Committee No. 17-92 and Transfer Agent Advisory Committee No.
30-92, dated June 9, 1992.) The attached comment letter reflects
the two principal comments received by the Institute from members
regarding these regulations.
First, the Institute applauds the proposed new semi-weekly
deposit rule which, by replacing the current system which divides
each month into eighths, would greatly simplify the depositing of
taxes, including backup withholding. Under the new rules, payors
who have withheld more than $12,000 in tax in any of the prior
four quarters would generally be required to deposit withheld
taxes (up to $100,000) only twice a week -- on or before each
Tuesday and Friday. The Institute letter recognizes that some
opposition to the Tuesday/Friday rule may exist in the payroll
community, which prefers an alternative deposit rule, and urges
only that the Tuesday/Friday rule be retained for non-payroll
taxes, such as backup withholding.
Second, the Institute supports the distinction made for
deposit purposes, such as for purposes of determining whether
$100,000 in tax has been collected which must be deposited by the
close of the next day, between backup withholding and other
withheld tax amounts. This distinction is appropriate because
the customer/product-withholding and payroll-withholding
functions typically take place in different parts of a financial
institution. The Institute letter further suggests that it may
also be appropriate to provide separate tax deposit rules for
pension and annuity withholding currently required by section
3405, at least to the extent that this withholding takes place as
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part of a financial service company’s retirement plan business,
rather than with respect to its former employees. The same
operational problems that would arise, if backup withholding
amounts were combined with payroll tax amounts, already exist in
the pension withholding/payroll tax deposit context.
We will keep you informed of developments.
Keith D. Lawson
Associate Counsel - Tax
Attachment