Comment on FR Doc # E9-05951

March 25, 2009 Submitted over the Internet via Regulations.gov Richard A. Hurst, IRS Counsel Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20044 Re: CC:PA:LPD: PR (REG-158747-06) Subject: Request to make an oral presentation at the IRS public hearing on Reg. 158747-06 (3% withholding tax regulations) on Thursday April 16, 2009 at 10 am at IRS, 1111 Constitution Ave., NW, Washington, DC Please consider this request on behalf of the Mechanical Contractors Association of America (MCAA), the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), the International Council of Employers of Bricklayers and Allied Craftworkers (ICE-BAC), The Association of Union Constructors (TAUC), and the Finishing Contractors Association (FCA) to participate in the public hearing on the IRS proposed regulations on the 3% withholding tax as captioned above. Our five allied specialty construction employer associations represent some 24,000 members companies in the high-skill specialty sector of the construction industry, which comprises some 64% of overall industry employment. Our member companies perform all types of public construction contracts, direct Federal projects, federally assisted projects, and public works by state and local government agencies. Our member firms perform work variously as either prime contractors or subcontractors on covered projects, and may even at times work as suppliers on covered projects. We would be represented at the hearing by Mr. Adam Snavely, President and CEO of The Poole & Kent Corporation, a large national construction firm based in Baltimore, Maryland. Our groups also are members of the broader Government Withholding Relief Coalition, and are actively engaged in ongoing efforts to gain repeal of the 3% withholding law by Congress before it takes effect in 2012. We join in the overall assessment that the measure represents profoundly counterproductive procurement and fiscal policy. Our comments at the hearing, however, will focus on the complex regulatory issues presented for construction contract administration that need to be considered soon in the unfortunate event that the measure would go into effect as currently planned for 2012. Federal, state, and local agencies will have to put in place complex contract administration policy and administrative changes to ensure that payment administration rules on covered projects fully adhere to the IRS’s policy announced in the proposed rules that the 3% withholding must be confined to amounts payable only to the prime contractor that is in privity of contract with the covered agency, and that none of that withholding is assessed against amounts payable to subcontractors on those projects. In our previous comments to IRS we have asserted that any such flow down of withholding to subcontractors would violate Federal policy enacted in two Prompt Payment laws for federal agencies, would also likely violate any similar state and local laws or regulations, and would in any event be practically infeasible. The Office of Management and Budget (OMB), the Federal Acquisition Regulatory Council (FAR), and state and local procurement authorities must be directed to ensure that private subcontract retained payment flow-down provisions are not misapplied and result in a violation of the IRS proscription against flow-down of this added and exceptional 3% retainage. Following is an outline of our planned remarks to raise these points: Direct Federal construction contracts (4 minutes): When and how will the Federal Acquisition Regulation policy and construction contract payment clauses be changed to ensure that the IRS proscription against pass-through of the 3% withholding to subcontractors is explicitly forbidden? How will the payment application forms be changed to make sure that amounts payable to the prime contractor only are subject to the 3% assessment, and that subcontract amounts are segregated from that that levy? How will the standard schedule of values in payment requests have to be changed to facilitate that policy, and reflect that the invoice amount threshold of $10,000 is based only on amounts payable to the prime contractor and does not include subcontract amounts in the threshold assessment? How will the FAR regulations be changed to ensure that the assessment will be limited to only contract solicitations and contracts entered into on or after January 1, 2012, and not to contracts or change orders on those contracts entered into before the effective date? Federally assisted construction contracts (4 minutes): How and when will the Office of Management and Budget common rules for Federal grant administration be changed to ensure that only prime contract payment amounts are subject to the threshold assessments and 3% withholding levy, and that any assessment of amounts payable to subcontractors are exempt from both? How and when will OMB grant rules be changed to effectively ensure that any prompt payment-type state and local rules and regulations are respected in line with IRS policy, and that private subcontract forms are not allowed to operate in violation of that policy? We submit that in the absence of a Congressional reassessment of the 3% withholding in light of a more dynamic and comprehensive evaluation of its detrimental fiscal and procurement effects, IRS must seek ways to administer the measure in a timely and efficient way to minimize the potential harm to public agency procurement and program functions, large and small construction businesses alike, and the taxpayers generally, who will suffer the detriments of impaired public agency efficiency and fiscal waste. For the record, our construction alliance continues to support more cost-effective public contracting alternatives to address tax avoidance by public contractors. We were instrumental in gaining enactment last year of the Contractor and Federal Spending Accountability Act (with regulations still pending at the FAR council), which will require much greater vigilance by awarding agencies in assessing the tax and legal compliance of contracting firms in the preaward public contracting responsibility determination process – a much more fair and cost- effective way to ensure that only tax compliant forms gain public contract awards in the first place. We look forward to participating in the hearing. Respectfully submitted, John McNerney, MCAA General Counsel