Update of Regulations Regarding Payment of Tax by Commercially Acceptable Means

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 301</CFR> <DEPDOC>[REG-120137-19]</DEPDOC> <RIN>RIN 1545-BP66</RIN> <SUBJECT>Update of Regulations Regarding Payment of Tax by Commercially Acceptable Means</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains proposed amendments to regulations regarding the payment of tax by commercially acceptable means. The proposed amendments would reflect changes to the law made by the Taxpayer First Act that would allow the IRS to directly accept payments of tax by credit or debit card, without having to connect taxpayers to third-party payment processors. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Electronic or written comments and requests for a public hearing must be received by September 3, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> (indicate IRS and REG-120137-19) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for any comments submitted electronically or on paper to the public docket. Send paper submissions to: CC:PA:01:PR (REG-120137-19), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, Crystal Jackson-Kaloz of the Office of the Associate Chief Counsel (Procedure and Administration), (202) 317-5191 (not a toll-free number); concerning the submission of comments and requests for a public hearing, Publications and Regulations Section at (202) 317-6901 (not a toll-free number), or by sending an email at <E T="03">publichearings@irs.gov</E> (preferred). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> This document contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) under section 6311 of the Internal Revenue Code (Code). These proposed regulations would amend provisions of § 301.6311-2 of the existing regulations (existing § 301.6311-2) to implement the changes made to section 6311 of the Code by section 2303 of the Taxpayer First Act (TFA), Public Law 116-25, 133 Stat. 981, 1013 (2019). Section 6311(a) provides that it is lawful for the Secretary of the Treasury or her delegate (Secretary) to receive payment for Internal Revenue taxes by any commercially acceptable means that the Secretary deems appropriate to the extent and under the conditions provided in regulations prescribed by the Secretary. Existing § 301.6311-2, which was adopted by the publication of TD 8969 in the <E T="04">Federal Register</E> (66 FR 64740-01) on December 14, 2001, authorizes payment of Internal Revenue taxes by credit or debit card so long as such payments are made in the manner and in accordance with the forms, instructions, and procedures prescribed by the Commissioner of Internal Revenue (Commissioner). Prior to passage of the TFA, section 6311(d)(2) authorized the Secretary to enter into contracts to obtain services related to receiving payment of taxes by credit card or debit card, or charge card, but prohibited the Secretary from paying any fee or other consideration under any such contract. Existing § 301.6311-2(f) implements this rule. Existing § 301.6311-2(e) prohibits the IRS from imposing any fee or charge on persons making payment of taxes by credit card or debit card. Currently, the IRS utilizes third-party processors to process payment of taxes by credit cards, which includes charge cards, and debit cards for which taxpayers pay a processing fee directly to the third-party processor. Third-party processors charge a variable percentage fee for payment by credit card and a flat fee for payment by debit card. Section 2303 of the TFA amended section 6311(d)(2) by adding a discretionary exception whereby the Secretary is no longer prohibited from paying a fee under a contract related to receiving payment of taxes by credit or debit card to the extent that the Secretary ensures that any such fee is fully recouped from the persons paying taxes by credit or debit card pursuant to such contract. This provision enables the IRS to receive similar benefits as other entities that accept credit or debit cards, including guaranteed receipt of funds and reduction of paper check processing costs. This provision also enables taxpayers to make a payment more easily by credit or debit card directly to the IRS, such as over the telephone, without having to separately wait for the IRS to connect them to third-party processors. <E T="03">See</E> H.R. Rep. 116-39(I), 116th Cong., 1st Sess. at 90 (2019). <SU>1</SU> <FTREF/> Section 2303 of the TFA now gives the IRS flexibility to enter into a contract that would allow taxpayers to pay taxes by credit or debit card directly to the IRS. <FTNT> <SU>1</SU>  In 2019, different versions of the TFA were introduced in the House and Senate and both bills contained provisions to amend section 6311 of the Code. H.R. 1957 was introduced in the House on March 28, 2019, and passed the House on April 9, 2019, but did not pass the Senate. Section 2303 of H.R. 1957 contained proposed statutory language amending section 6311(d) that was identical to the statutory language that was enacted a short time later on July 1, 2019, in section 2303 of H.R. 3151. Due to the procedural way in which H.R. 3151 became a vehicle for enacting the TFA, there are no separate House, Senate, or Conference Reports regarding H.R. 3151, which became the TFA, Public Law 116-25. Therefore, it is appropriate for the Treasury Department and the IRS to look to the House Ways and Means Committee Report for H.R. 1957, the immediate predecessor to H.R. 3151, to understand the intended scope of section 2303 of the TFA. </FTNT> <HD SOURCE="HD1">Explanation of Provisions</HD> The proposed regulations would amend existing § 301.6311-2 to conform to the TFA's amendment to section 6311(d)(2). The proposed regulations would remove both the prohibition in existing § 301.6311-2(f) on the payment of any fee by the IRS under any contracts related to payment of taxes by credit, debit, or charge card, and the prohibition in existing § 301.6311-2(e) on the IRS imposing any fee or charge on persons making payment of taxes by credit or debit card. Under existing § 301.6311-2(e), when a taxpayer pays any Internal Revenue tax by credit or debit card under contracts with third-party processors, the IRS does not charge the taxpayer a fee, and the IRS does not receive any portion of the fee charged by the third-party processor. Because the exception added to section 6311(d)(2) by the TFA is discretionary, proposed § 301.6311-2(e)(1) would continue to authorize the IRS to enter into those contracts with third-party processors in which it does not pay a fee for services relating to receiving payments of tax by credit or debit card. Proposed § 301.6311-2(e)(2) would also authorize the IRS to enter into contracts in which it pays a fee to a third party to process a payment made by a taxpayer. Under section 6311(d)(2), the IRS must seek to minimize any fee the IRS is required to pay under such a contract. If the IRS pays a fee under such a contract, under proposed § 301.6311-2(e)(2), the IRS would fully recoup the amount of the fee paid to the third-party from the persons paying taxes by credit or debit card pursuant to the contract as a reimbursement fee. Proposed § 301.6311-2(e)(2) would require that the reimbursement fee be paid by the taxpayer at the time of the credit or debit card tax payment. Section 6402 of the Code allows the Secretary to credit or refund any overpayment “in respect of an internal revenue tax.” Because the reimbursement fee paid by the taxpayer is not a tax, the Code's credit and refund procedures would not apply. Insofar as a taxpayer is to receive a refund of taxes paid by credit or debit card under section 6402, the taxpayer cannot receive a refund of the reimbursement fee paid to the IRS at the time of the tax payment. If the IRS pays a fee to a third-party under a contract providing for the payment of taxes by credit or debit cards, section 6311(d)(2), as amended by the TFA, requires that the fee be fully recouped by the Secretary. The proper regime for adjusting credit or debit card payment errors, including reimbursement fee errors, is found in section 6311(d)(3) and existing § 301.6311-2(d)(1). The TFA does not change those procedures, although the proposed regulations amend existing § 301.6311-2(d)(1) to include payments of reimbursement fees under proposed § 301.6311-2(e)(2). Finally, proposed § 301.6311-2(e) would authorize the IRS to enter into contracts with third parties, regardless of whether the IRS pays a fee, but only if the contract provides a cost benefit to the government. The cost benefit to the government is derived from a reduction of check processing costs. In addition, expanding taxpayers' payment options generally encourages tax compliance, so it is beneficial for both the government and taxpayers. <HD SOURCE="HD1">Proposed Applicability Date</HD> The regulations are proposed to apply to payments of taxes and reimbursement fees made on or after the date the regulations are published as final regulations in the <E T="04">Federal Register</E> . <HD ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 19k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━