95-30683. Withholding on Distributions of Indian Gaming Profits to Tribal Members  

  • [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]
    BILLING CODE 4830-01-U
    
    

Document Information

Effective Date:
12/19/1995
Published:
12/19/1995
Department:
Internal Revenue Service
Entry Type:
Rule
Action:
Final regulations.
Document Number:
95-30683
Dates:
These regulations are effective December 19, 1995.
Pages:
65237-65238 (2 pages)
Docket Numbers:
TD 8634
RINs:
1545-AT12
PDF File:
95-30683.pdf
CFR: (2)
26 CFR 31.3402(r)-1
26 CFR 31.3402(r)-1T