SERVICE FINALIZES RAILROAD UNEMPLOYMENT REPAYMENT TAX REGULATIONS.

The final regulations contain rules relating to the requirement that rail employers make annual returns of the railroad unemployment repayment tax on Form CT-1. They also provide guidance on the time for filing Forms CT-1 and CT-2 and explain the computation and quarterly payment of the tax by rail employers.

According to the Service, the regulations are effective October 11, 1988 and apply to remuneration paid after June 30, 1986. For further information, contact Joel S. Rutstein of the Legislation and Regulations Division, Office of Chief Counsel, IRS, at (202) 566- 3297.

ACTION: Final regulations.

SUMMARY: This document provides final regulations relating to the time and manner of making quarterly payments of the railroad unemployment repayment tax. The final regulations reflect amendments to the Internal Revenue Code of 1954 with respect to quarterly payments of the railroad unemployment repayment tax made by section 231(b) of the Railroad Retirement Solvency Act of 1983, and provide guidance with respect to the time and manner of making those payments. (Amendments to the railroad unemployment repayment tax made by section 13301 of the Consolidated Omnibus Budget Reconciliation Act of 1985 do not affect the rules in this document.)

DATES: The regulations contained in this document are effective October 11, 1988 and apply to remuneration paid after June 30, 1986.

FOR FURTHER INFORMATION CONTACT: Joel S. Rutstein of the Legislation and Regulations Division, Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Ave., N.W., Washington, D.C. 20224 (Attention: CC:LR:T) (202-566-3297, not a toll-free call).

SUPPLEMENTARY INFORMATION

PAPERWORK REDUCTION ACT

The collections of information contained in this final regulation have been reviewed and approved by the Office of Management and Budget in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3504(h)) under control number 1545-0955. The estimated average burden associated with the collections of information in this final rule is .07 hours per respondent.

This estimate is an approximation of the average time expected to be necessary for a collection of information. It is based on such information as is available to the Internal Revenue Service. Individual respondents may require greater or less time, depending on their particular circumstances.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Internal Revenue Service, Attn: IRS Reports Clearance Officer TR:FP, Washington, D.C. 20224, and to the Office of Management and Budget, Paperwork Reduction Project, Washington, D.C. 20503.

BACKGROUND

Railroad workers, unlike most other occupational groups within the United States, are not covered by the Federal Unemployment Tax Act (FUTA). Instead, such workers receive unemployment benefits under the Railroad Unemployment Insurance Act (RUIA), a separate program administered by the Railroad Retirement Board.

Railroad employers pay over to the Railroad Unemployment Insurance Trust Fund contributions on the wages of their employees. When contributions are insufficient to pay railroad unemployment benefits, the program can borrow from the Railroad Retirement Account and repay when the Railroad Unemployment Insurance Trust Fund has more cash than is needed to pay benefits. Prior to the enactment of the Railroad Retirement Solvency Act of 1983 (the Act) (Pub. L. 98- 76, 97 Stat. 426) the unemployment fund had to borrow extensively from the retirement system, and such borrowing was coupled with non- repayment of the borrowed funds. The Act was intended to improve the financial status of both the railroad retirement and unemployment systems and to increase the likelihood that both systems would be able to meet their continuing benefit obligations.

In addition to provisions with respect to the retirement system and administration of the railroad unemployment system, the Act sought to provide for the repayment of funds borrowed by the railroad unemployment system which had not been repaid. Chapter 23A, added to the Internal Revenue Code of 1954 by section 231 of the Act, provides for the imposition of the railroad unemployment repayment tax. This tax is an excise tax on railroad employers which is effective for remuneration paid after June 30, 1986.

Section 6157(d) provides that the payment of the railroad unemployment repayment tax will be on a quarterly basis in such manner and at such time as regulations prescribed by the Secretary may provide.

The final regulations found in this document provide the time and manner of making quarterly payments of the railroad unemployment repayment tax.

TEMPORARY REGULATIONS AND CROSS-REFERENCING NOTICE OF PROPOSED RULEMAKING

On November 5, 1986, the Federal Register published Temporary Employment Tax Regulations (26 CFR Part 31) (51 FR 40167) and a cross-referencing notice of proposed rulemaking (51 FR 40232) under section 6157(d) of the Internal Revenue Code of 1954. No comments were received in response to the proposed regulations. Because no public hearing was requested, none was held. The final regulations adopt, without change, the proposed regulations, and withdraw the temporary regulations.

EXPLANATION OF PROVISIONS

The final regulations reflect amendments to the Employment Tax Regulations under sections 6011, 6071, 6157, and 6302 of the Internal Revenue Code with respect to the requirement that there be quarterly payments of the railroad unemployment repayment tax.

Section 31.6011(a)-3A(a) provides that rail employers shall make an annual return of the railroad unemployment repayment tax imposed by section 3321 on Form CT-1. Previously used for returns of railroad retirement tax, the Form CT-1 now provides for both the return of railroad retirement tax and the return of railroad unemployment repayment tax. The return must be made for each taxable period (as defined in section 3322) in which the tax is imposed beginning with the period which commenced on July 1, 1986. Section 31.6011(a)-3A(b) provides that employee representatives (as generally defined in section 3323(d)) shall make a quarterly return of the railroad unemployment repayment tax on Form CT-2. Previously used only for returns of railroad retirement tax, the Form CT-2 now provides for both the return of railroad retirement tax and the return of railroad unemployment repayment tax. The report must be made for each calendar quarter of a taxable period in which the tax is imposed beginning with the period which commenced on July 1, 1986.

Section 31.6071(a)-1A provides rules regarding the time for filing Forms CT-1 and CT-2. Section 31.6071(a)-1A(a) provides that Forms CT-1 and CT-2 are to be filed on or before the last day of the second calendar month following the period for which the return is made (the same due date applicable to such returns filed in connection with railroad retirement taxes).

Section 31.6302(c)-2A sets forth the rules governing the computation and payment by rail employers of the railroad unemployment repayment tax on a quarterly basis and provides for the deposit of the tax so computed with a Federal Reserve Bank or an authorized financial institution. The deposits are to be made by the last day of the first calendar month following the close of each of the first three calendar quarters of a taxable period. However, no deposit is required with respect to any of the first three calendar quarters if the tax computed for the quarter plus unpaid amounts for prior quarters during the taxable period is $100 or less. No deposit of the railroad unemployment repayment tax is required for the last calendar quarter in any taxable period. However, if the amount of such tax reportable on Form CT-1 for the calendar year exceeds by more than $100 the sum of the amounts deposited in the preceding three calendar quarters, section 31.6302(c)-2A(b)(3) requires that the balance due be deposited with a Federal Reserve bank or with an authorized financial institution by the last day of the first calendar month following the taxable period for which the return is being filed. Where the railroad unemployment repayment tax reportable on Form CT-1 does not exceed by more than $100 the sum of the amounts deposited in the preceding three calendar quarters, that amount is to be remitted with Form CT-1. The preprinted Federal Tax Deposit coupon (Form 8109) is the form prescribed for making the deposits of the railroad unemployment repayment tax.

Section 31.6302(c)-2A(b)(1)(ii) requires that certain rail employers make their quarterly deposits of the railroad unemployment repayment tax by wire transfer to the Treasury. The wire payments will be credited to the rail employers' CT-1 account in the same manner as railroad retirement wire transfers. The wire deposit of the railroad unemployment repayment tax may not be made in the same wire deposit as any other tax.

SPECIAL ANALYSES

The amendment to the regulations proposed by notice of proposed rulemaking on November 5, 1986, and adopted by this Treasury decision is interpretative. Moreover, the Internal Revenue Service concluded that the proposed amendment to the regulations would not have a significant impact on a substantial number of small entities. Accordingly, the Regulatory Flexibility Act did not apply to the notice of proposed rulemaking and no Regulatory Flexibility Analysis was required. The Commissioner of Internal Revenue has determined that this rule is not a major rule as defined in Executive order 12291 and that a Regulatory Impact Analysis is therefore not required.

DRAFTING INFORMATION

The principal author of these final regulations is Gail H. Morse of the Legislation and Regulations Division of the Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and the Treasury Department participated in developing the regulations both on matters of substance and style.

LIST OF SUBJECTS IN 26 CFR 31

Employment taxes, income taxes, lotteries, railroad retirement, social security, unemployment tax, withholding.

LIST OF SUBJECTS IN 26 CFR 602

Reporting and recordkeeping requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS.

Accordingly, 26 CFR Part 31 and Part 602 are amended as follows:

PART 31 EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

Paragraph 1. The authority for Part 31 is amended by adding the following citation:

Authority: 26 U.S.C. 7805. * * * Section 31.6011(a)-3A is also issued under the authority of 26 U.S.C. 6011; section 31.6071(a)-1A is also issued under the authority of 26 U.S.C. 6071; and section 31.6302(c)-2A is also issued under 26 U.S.C. 6302 and 6157(d).

Par. 2. The authority for Part 31 is amended by removing the following language: "Section 31.6011(a)-3AT is also issued under the authority of 26 U.S.C. 6011; section 31.6071(a)-1T is also issued under the authority of 26 U.S.C. 6071; section 31.6157-1T is also issued under 26 U.S.C. 6157(d); and section 31.6302(c)-2AT is also issued under 26 U.S.C. 6302."

Par. 3. Sections 31.6011(a)-3AT, 31.6071(a)-1T, and 31.6302(c)- 2AT are redesignated as sections 31.6011(a)-3A, 31.6071(a)-1A, and 31.6302(c)-2A, respectively, and are amended by removing from their headings the language, "(temporary)".

Par. 4. Paragraph (b) of redesignated section 31.6011(a)-3A is revised by deleting "section 31.6071(a)-1T" and inserting "section 31.6071(a)-1A" in lieu thereof.

Par. 5. Paragraph (a) of redesignated section 31.6071(a)-1A is revised by deleting "section 31.6011(a)-3AT" and inserting "section 31.6011(a)-3A" in lieu thereof.

Par. 6. Paragraph (c) of redesignated section 31.6302(c)-2A is revised by deleting "section 31.6302(c)-2AT" and inserting "section 31.6302(c)-2A" in lieu thereof.

Par. 7. Section 31.6157-1T is removed.

Par. 8. Section 31.6157-1 is amended by adding a sentence at the end of that section to read as follows:

SECTION 31.6157-1 CROSS REFERENCE.

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For provisions relating to the time and manner of depositing the railroad unemployment repayment tax imposed by section 3321(a), see section 31.6302(c)-2A.

PART 602 OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 9. The authority for Part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 10. Section 602.101(c) is amended by deleting, "section 31.6011(a)-3AT," "section 31.6071(a)-1T," "31.6157-1T," and "section 31.6302(c)-2AT," and inserting in lieu thereof "section 31.6011(a)- 3A," "section 31.6071(a)-1A," "section 31.6157-1," and "section 31.6302(c)-2A," respectively.

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Lawrence B. Gibbs