Section 6302.—Mode or Time of Collection

26 CFR 31.6302(c)–3: Use of government deposi- taries in connection with tax under the Federal Un- employment Tax Act.

T.D. 9162

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 31

Federal Unemployment Tax Deposits — De Minimis Threshold

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the deposit of Federal Unemployment Tax Act (FUTA) taxes. The regulations change the accumulated amount of tax liability above which taxpayers must begin depositing Federal unemployment taxes. The regulations affect employers that have an accumulated FUTA tax liability of $500 or less.

DATES: Effective Date : These regulations are effective December 1, 2004.

conducts as one of its substantial exempt purposes a trade show to promote public interest in A ’s industry. A ’s semi-annual trade shows include conferences, seminars and a wide variety of exhibits sponsored by members and suppliers with information useful to those in A ’s industry and take place during a limited time, at one physical location, where A ’s members, suppliers and potential customers meet together in person, and interact face to face. Thus, each of A ’s semi-annual trade shows is a “show” within the meaning of § 513(d)(3).

The activities conducted on the premises of each of A ’s semi-annual trade shows and on the special supplementary section of A ’s Internet website during the 16-day period that coincides with each semi-annual trade show are of a kind traditionally conducted at trade shows, as required by § 513(d)(3)(A), because the activities are designed to attract to the show persons in A ’s industry and members of the public to view industry products, to stimulate interest in, and demand for such products, and to educate persons in the industry about new products and services. Therefore, these activities are “convention and trade show activity.”

Although not conducted on the premises of A ’s semi-annual trade shows, the activities conducted by A on the supplementary section of its Internet website during the 16-day period that coincides with each semi-annual trade show are carried out in conjunction with A ’s semi-annual trade shows, as required by § 513(d)(3)(B). The supplementary section is no more than ancillary to the trade show. The content of the supplementary section serves to augment and enhance each semi-annual trade show by making available in an alternative medium the same information available at the show. The supplementary section of A ’s Internet website is available to A ’s members and the interested public during essentially the same limited time period that each semi-annual trade show is in operation. Although the supplementary section is available for a slightly longer period than the trade show itself, the additional time is reasonably brief and serves to allow for previewing the show before attending, or following up on information gathered at the show. Thus, the supplementary section

is merely an extension of each semi-annual trade show.

Accordingly, both the activities conducted on the premises at A ’s semi-annual trade show and the activities conducted on the supplementary section of A ’s Internet website during the 16-day period that coincides with A ’s semi-annual trade show meet the requirements to be a “qualified convention and trade show activity” under § 513(d)(3)(B). These activities, therefore, are not unrelated trade or business under § 513(a) because they meet the requirements for the limited exception under § 513(d)(3).

In Situation 2, B ’s operation of a website for a two-week period under the circumstances described is not “qualified convention and trade show activity” as defined in § 513(d)(3)(B), because, unlike the activities conducted on the supplementary section of A ’s Internet website, B ’s Internet activities are not carried out in conjunction with any international, national, regional, State, or local convention, annual meeting, or show conducted by B . B ’s website is not itself a “convention, annual meeting, or trade show” within the meaning of § 513(d)(3) because the website is not a specific event at which B ’s members, suppliers and potential customers gather in person at one physical location during a certain period of time and interact face to face. Moreover, B ’s Internet activities do not coincide with, nor do they augment and enhance, any such specific event conducted by B for one of the purposes described in § 513(d)(3)(B). Therefore, because B ’s website is not qualified convention and trade show activity, the operation of the website, even for a relatively short period of time, is not excepted from the definition of an unrelated trade or business under § 513(d)(1).

As B does not meet the specific exception under § 513(d)(3), whether its Internet activities constitute an unrelated trade or business must be determined under the requirements of § 513.

HOLDINGS

In Situation 1, under the circumstances described, the Internet activities conducted by a trade association described in § 501(c)(6) on the special supplementary section of its Internet website do not constitute unrelated trade or business

2004–51 I.R.B. 987 December 20, 2004

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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 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. In §31.6302(c)–3, paragraphs (a)(2) and (a)(3) are revised to read as follows:

§31.6302(c)–3 Use of Government depositaries in connection with tax under the Federal Unemployment Tax Act.

(a) * - (2) Special rule where accumulated amount does not exceed $500 . The provisions of paragraph (a)(1) of this section shall not apply with respect to any period described therein if the amount of the tax imposed by section 3301 for such period (as computed under section 6157) plus amounts not deposited for prior periods does not exceed $500 ($100 in the case of periods ending on or before December 31, 2004). Thus, an employer shall not be required to make a deposit for a period unless his tax for such period plus tax not deposited for prior periods exceeds $500.

(3) Requirement for deposit in lieu of payment with return . If the amount of tax reportable on a return on Form 940 exceeds by more than $500 ($100 in the case of calendar years before 2005) the sum of the amounts deposited by the employer pursuant to paragraph (a)(1) of this section for such calendar year, the employer shall, on or before the last day of the first calendar month following the calendar year for which the return is required to be filed, deposit the balance of the tax due with an authorized financial institution.

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Mark E. Matthews, Deputy Commissioner for Services and Enforcement .

Approved November 23, 2004.

Applicability Date : For dates of applicability, see §31.6302(c)–3(a)(2) and (3).

FOR FURTHER INFORMATION CONTACT: Heather L. Dostaler, (202) 622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Regulations on Employment Taxes and Collection of Income Tax at Source (26 CFR part 31) under section 6302 relating to mode or time of collection. The current rules relating to the deposit of FUTA taxes generally require employers to deposit taxes on a quarterly basis. An exception provides that an employer is not required to make a deposit until accumulated FUTA tax liability exceeds $100.

A notice of proposed rulemaking (REG–144908–02, 2003–2 C.B. 593) providing an additional exception to the FUTA tax deposit requirements was published in the Federal Register (68 FR 42329) on July 17, 2003. Under the proposed exception, an employer would not be required to deposit FUTA taxes if the employer’s liability for other employment taxes (FICA taxes and withheld income taxes) was below the threshold at which deposits were required for those other taxes.

Three written comments were received in response to the notice of proposed rulemaking, but there was no request for a public hearing and a public hearing was not held. All comments were considered and are available for public inspection upon request. After consideration of the written comments, the proposed regulations under section 6302 are adopted as revised by this Treasury decision. The public comments and the revisions are discussed below.

Summary of Comments

Two commentators expressed concern that the creation of an additional exception linked to the deposit rules for other employment taxes will create complexity and that a single exception based on FUTA tax liability is sufficient. One commentator expressed concern regarding the low threshold amounts under both exceptions, and also expressed concern that the proposed exception could be misinterpreted

by those accustomed to referring only to the amount of accumulated FUTA taxes.

One commentator suggested that the regulations should exempt household employers who file Schedule H, “ Household Employment Taxes,” with Form 1040. This comment is outside the scope of these regulations, which are limited to the deposit rules issued under section 6302. Household employment taxes reported on Schedule H are paid with the employer’s income taxes.

Explanation of Provisions

After considering the public comments, the IRS and Treasury Department agree that a single exception based on a higher FUTA tax liability threshold is preferable to the exception in the proposed regulations. Accordingly, the final regulations do not include an exception linked to the deposit rules for other employment taxes. Instead, they increase the FUTA tax liability threshold from $100 to $500. Thus, an employer will not be required to make a deposit of FUTA taxes until FUTA tax liability exceeds $500. This change is a simple and straightforward step to reduce the burden on small businesses.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 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) does not apply to these regulations, and, because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Heather L. Dostaler of the Office of Associate Chief Counsel, Procedure and Administration (Administrative Provisions and Judicial Practice Division).

December 20, 2004 988 2004–51 I.R.B.

Gregory Jenner, Acting Assistant Secretary of the Treasury .

(Filed by the Office of the Federal Register on November 30, 2004, 8:45 a.m., and published in the issue of the Federal Register for December 1, 2004, 69 F.R. 69819)