Proposed payroll tax deposit regulations.

On July 31, 1992, Tax Executives Institute filed the following comments on the Internal Revenue Service's proposed regulations relating to the deposit of employment taxes. The submission, which took the form of a letter to Assistant Treasury Secretary Fred T. Goldberg, Jr. and IRS Commissioner Shirley T. Peterson, was filed under the aegis of the Institute's Federal Tax Subcommittee on Payroll and Other Taxes, whose chair is Clifford H. Omo of Mobil Administrative Services Company, Inc.

On behalf of Tax Executives Institute, I am pleased to present the following comments on proposed regulations under section 6302(g) of the Internal Revenue Code, relating to the deposit of employment taxes.

Overview of Proposed

Regulations

The proposed regulations (IA-28-91) were issued by the Internal Revenue Service on May 12, published in the Federal Register on May 18 (57 Fed. Reg. 21045), and reprinted in the June 28 issue of the Internal Revenue Bulletin

(1992-26 I.R.B. 27).(1) A public hearing on the proposed regulations will be held on August 3.

The proposed regulations would substantially revamp the payroll tax deposit system. In lieu of the current eighth-monthly system, the proposed regulations would establish a semi-weekly, date-certain, Tuesday-Friday regime that would apply to employers whose accumulated employment taxes during any quarter of the applicable base period is more than $12,000; if an employer's accumulated employment taxes in all quarters of the applicable base period is $12,000 or less, accumulated amounts would be deposited on a monthly basis, by the fifteenth day of the following month. As under the current regulations, employers whose accumulated employment taxes equal or exceed $100,000 would have to deposit those taxes by the next business day.(2)

Statement of Interest

For the most part, the companies represented by TEI's membership would not benefit from the revised payment schedule in the proposed regulations. Indeed, they are not the intended beneficiaries of the proposal. This is because the next-day rule of section 6302(g), which is incorporated into both the current and proposed regulations, renders large companies ineligible for either the monthly or the semi-weekly rules.(3) TEI remains interested in the regulations, however, both because of our interest in sound tax administration and because all employers would be adversely affected by the rule in Prop. Reg. [section] 31.6302-1(f)(1), which would reduce the payroll tax safe harbor from five to two percent.

Given the limited application of the proposed scheme to most of the companies represented by TEI's membership - and the seeming "inevitability" of the ratcheting down of the safe-harbor percentage as the means of "paying for" the new system (if a funding mechanism is necessary) - the Institute has not previously commented on the proposed regulations. Because of our concern that the proposed regulations will not produce their intended result, however, we now feel compelled to submit these comments. In other words, whereas the Institute's members may have been willing to accept a reduced payroll tax safe harbor as the cost of truly reforming the deposit system for the core of small and medium-sized firms, we believe it is absolutely essential that the Treasury Department and IRS ensure that the regulations effect true reform. Regrettably, we now question whether the current...