ITG News 

Keeping First Nations Informed 

Publication 4267D 

Catalog Number 37831N Great Plains Edition July 2006 

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In This Issue 

Message From the Director 

Helpful Hints to Avoid Penalties 

A Primer on Published Guidance 

Changes to Electronic Filing 

Treatment of Payments to Officials and Certain Workers 

Trust Fund Recovery Penalty 

W-2 News 

Calendar of Tax Events 

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Message from the Director 

As I travel throughout Indian Country and meet with many tribal representatives, I 

am asked about the current focus on Bank Secrecy Act (BSA) compliance. Many 

of these concerns are arising from the recent significant fine assessed by the 

Financial Crimes Enforcement Network (FinCEN) against a tribal casino in 

Oklahoma along with publicity that was generated by several FBI cases that were 

connected to that action. In addition, the number of BSA civil examinations has 

increased as the federal government directs more resources to this area. 

While much of the impetus behind the creation of the Bank Secrecy Act was 

initially focused on combating the ability of organized crime to launder 

proceeds of illegal activities, the events of September 11, 2001 brought a 

renewed emphasis on this area by highlighting the need to track the 

movement of money that might be used to finance terrorism. The post 9/11 

world brought an entire series of new laws and regulations designed to tighten 

the reporting requirements and ensure that all levels of government have 

access to vital information to combat crime and terrorism. The Patriot Act is 

the best example of these changes, but the extension of Suspicious Activity 

Reporting to tribal casinos in March 2003 is another example. 

Hopefully, all governments share a common objective of minimizing the 

opportunity for individuals to launder funds and/or move money that might be 

used to harm ourselves, our children, and our neighbors. The recent tribal 

money laundering case in Oklahoma, as well as other reports filed by tribal 

entities, has shown that organized crime and terrorists have discovered tribal 
entities and are making attempts to use them for money laundering. 

We are grateful that many tribes have instituted strong Bank Secrecy Act 

Compliance Programs and are using various tools to alert law enforcement to 

suspected or potential illegal activities. The filing of FinCEN Forms 102 and 

103 by tribal casinos are one example, but we have also had numerous 

telephone calls from tribal officials to the Money Laundering Hotline. Many 

Tribes have shown that they want to be full partners in this area. Despite the 

burden and cost associated with the BSA Compliance Program, there is a keen 

recognition that we all need to work together to minimize the possibility of money 

laundering.

However, we are also aware that there are Tribes that lack fully effective BSA 

programs; ITG stands ready to assist them in making enhancements. ITG 

Specialists are available to provide training for your staff, copies of pertinent 

federal regulations, or to assist in reviewing your BSA Compliance Program for 

your entity. I encourage you to take advantage of our resources and partner 

with ITG to ensure that Indian Country is a leader in Bank Secrecy Act 

compliance.

Christie Jacobs 

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Helpful Hints to Avoid Penalties 

One of the areas that surfaced as a concern in Tribal responses to the 2005 

Customer Satisfaction Survey is the need for additional assistance in mitigating 

penalties. While your assigned ITG Specialist is always available to assist you, 

the best way to avoid penalties is to have an in-depth understanding of what 

can be done to reduce or eliminate them before they are ever assessed. 

In an effort to assist, ITG has created a “Helpful Hints to Avoid Penalties”

guide, which is now available on the ITG web site under the Employment Tax 

page. Hopefully, the suggestions outlined in that guide will reduce penalty 

assessments, but if a penalty is asserted, the guide also outlines the steps 

required to address it. 

Penalty notices arise from various situations such as failure to deposit payroll 

taxes timely and late filing or non-filing of various returns. The two most important 

things to do are: 

Determine, through a review of your records, if the notice is correct, AND 

Respond to the notice on or before the date required. 

Failure to respond timely can lead to the assessment of further penalties and 
interest. Failure to review records to ensure the correctness of the notice can 

lead to payment of unnecessary penalties. If the notice is determined to be 

correct and additional tax, penalties, and interest are due; payment should be 

made within the time frame shown in the notice. 

Your Indian Tribal Government Specialist and other IRS personnel are ready to 

assist you in understanding the notices and determining their accuracy. Our 

Customer Account Services staff can be contacted toll-free at 1-877-829-5500. 

This call center is open from 8:00 am to 4:30 pm eastern time. 

Your ITG Specialist is also available to assist when a timely response to an 

incorrect notice does not achieve a satisfactory resolution to the situation. The 

ITG Specialist can review your response and help you file the proper forms to 

resolve the issue or ensure the case is routed to the proper office for resolution. 

We hope that the guide, coupled with Publication 4268, our on-line 

Employment Tax Guide for Indian Tribal Governments, will help Tribes to meet 

federal tax administration requirements with a minimum risk of penalties. 

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To add your name or e-mail address to our mailing list, please contact us via email at Carole.M.Oller@irs.gov or call Carole Oller at (605) 787-5650. 

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Employee Tip Income Program Questions 

ITG has a full-time Tip Coordinator to assist you with any questions about tip 

reporting agreements. If you are interested in securing a Tip Agreement, have 

questions concerning your existing agreement, or have received a notice about 

tip reporting responsibilities that is unclear, please contact Julie Reese at 

(303) 231-5250, ext. 236. 

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Publication 4268—Employment Tax Guide for Tribes 

Our on-line Employment Tax Guide continues to receive a very positive 

response from tribal payroll and finance employees. You can download this 

comprehensive guide from a link on our landing page at www.irs.gov/tribes. 

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A Primer on Published Guidance 

For anyone not familiar with the inner workings of tax administration, the array of 

IRS guidance may seem, well, a little puzzling at first glance. To take a little of 
the mystery away, here's a brief look at seven of the most common forms of 

guidance. In its role in administering the tax laws enacted by the Congress, the 

IRS must take the specifics of these laws and translate them into detailed 

regulations, rules and procedures. The Office of Chief Counsel fills this crucial 

role by producing several different kinds of documents and publications that 

provide guidance to taxpayers, firms and charitable groups. As we begin to 

upload substantial content to the “Published Guidance” section of the ITG web 

site, we thought it might be useful to explain the various types of issuances that 

can be located there. 

Regulation. A regulation is issued by the Internal Revenue Service and 

Treasury Department to provide guidance for new legislation or to address 

issues that arise with respect to existing Internal Revenue Code sections. 

Regulations interpret and give directions on complying with the law. 

Regulations are published in the Federal Register. Generally, regulations are 

first published in proposed form in a Notice of Proposed Rulemaking (NPRM). 

After public input is fully considered through written comments and even a 

public hearing, a final regulation or a temporary regulation is published as a 

Treasury Decision (TD), again, in the Federal Register. 

Revenue Ruling. A revenue ruling is an official interpretation by the IRS of the 

Internal Revenue Code, related statutes, tax treaties and regulations. It is the 

conclusion of the IRS on how the law is applied to a specific set of facts. 

Revenue rulings are published in the Internal Revenue Bulletin for the 

information of and guidance to taxpayers, IRS personnel and tax professionals. 

For example, a revenue ruling may hold that taxpayers can deduct certain 

automobile expenses.

Revenue Procedure. A revenue procedure is an official statement of a 

procedure that affects the rights or duties of taxpayers or other members of 

the public under the Internal Revenue Code, related statutes, tax treaties and 

regulations and that should be a matter of public knowledge. It is 

also published in the Internal Revenue Bulletin. While a revenue ruling 

generally states an IRS position, a revenue procedure provides return filing or 

other instructions concerning an IRS position. For example, a revenue 

procedure might specify how those entitled to deduct certain automobile 

expenses should compute them by applying a certain mileage rate in lieu of 

calculating actual operating expenses.

Private Letter Ruling. A private letter ruling, or PLR, is a written statement 

issued to a taxpayer that interprets and applies tax laws to the taxpayer's 

specific set of facts. A PLR is issued to establish with certainty the federal 

tax consequences of a particular transaction before the transaction is 

consummated or before the taxpayer's return is filed. A PLR is issued in 

response to a written request submitted by a taxpayer and is binding on the 

IRS if the taxpayer fully and accurately described the proposed transaction in 

the request and carries out the transaction as described. A PLR may not be 
relied on as precedent by other taxpayers or IRS personnel. PLRs are 

generally made public after all information has been removed that could 

identify the taxpayer to whom it was issued. 

Technical Advice Memorandum. A technical advice memorandum, or TAM, is 

guidance furnished by the Office of Chief Counsel upon the request of an IRS 

director or an area director, appeals, in response to technical or procedural 

questions that develop during a proceeding. A request for a TAM generally 

stems from an examination of a taxpayer's return, a consideration of a 

taxpayer's claim for a refund or credit, or any other matter involving a specific 

taxpayer under the jurisdiction of the territory manager or the area director, 

appeals. Technical Advice Memoranda are issued only on closed transactions 

and provide the interpretation of proper application of tax laws, tax treaties, 

regulations, revenue rulings or other precedents. The advice rendered 

represents a final determination of the position of the IRS, but only with respect 

to the specific issue in the specific case in which the advice is issued. 

Technical Advice Memoranda are generally made public after all information 

has been removed that could identify the taxpayer whose circumstances 

triggered a specific memorandum.

Notice. A notice is a public pronouncement that may contain guidance that 

involves substantive interpretations of the Internal Revenue Code or other 

provisions of the law. For example, notices can be used to relate what 

regulations will say in situations where the regulations may not be published in 

the immediate future. 

Announcement. An announcement is a public pronouncement that has only 

immediate or short-term value. For example, announcements can be used to 

summarize the law or regulations without making any substantive interpretation; 

to state what regulations will say when they are certain to be published in the 

immediate future; or to notify taxpayers of the existence of an approaching 

deadline. 

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IRS and SSA Announce Changes to Electronic Filing 

from SSA/IRS Reporter, Summer 2006 

Social Security Requires Electronic Filing Beginning with Tax Year 2006 W-2s 

If your company now files W-2s with Social Security on diskette, you will be 

required to file electronically starting in tax year 2006 (W-2s due in calendar year 

2007), as Social Security will no longer accept diskettes. Similarly, as of tax year 

2005, Social Security no longer accepts W-2s filed on magnetic tape and 

cartridge. 
Companies that file on magnetic tape, cartridge or diskette format their reports 

according to Social Security’s Magnetic Media Reporting and Electronic Filing 

format (MMREF). Filing electronically uses the same MMREF format, so reprogramming is not necessary. All you need to do is follow your same year-end 

process, up to the point where you would copy the W-2 report onto a tape, 

cartridge or diskette and mail it to Social Security. 

Instead, you will log onto our Web site and upload the file. It’s that simple. For 

security purposes, you will need to register first for a PIN and password, which 

you may already have since the PIN is required in the RA—Submitter Record in 

your wage report. 

Each year Social Security receives more than 235 million W-2s. Sixty-seven 

percent of them are now transmitted electronically. Find out why so many 

businesses choose e-filing. Visit http://socialsecurity.gov/bso/bsowelcome.htm

and register today. 

Electronic Data Exchange (EDI) and Proprietary Formats for Electronically Filed 

Forms 940 and 941 to be Discontinued 

The Internal Revenue Service (IRS) recently announced plans to discontinue the 

acceptance of electronically filed Form 940, Employer’s Annual Federal

Unemployment (FUTA) Tax Return, and Form 941, Employer’s Quarterly Federal

Tax Return, that are transmitted in the EDI and Proprietary formats. Participants 

currently using the EDI and Proprietary formats can transmit Form 941 for the 3rd 

Quarter until November 13, 2006. After that time, the IRS will no longer accept 

e-file transmissions in these formats. 

Decline in the use of these formats, combined with increasing costs to maintain 

these formats, prompted this decision. This decision is also necessary as part of 

the IRS’ efforts to provide a more modernized and efficient method of receiving 

Form 940/941 returns. 

IRS will continue to support the Employment Tax e-file System which utilizes the 

Extensible Markup Language (XML) standard for the transmission of Forms 

940/941. The Employment Tax e-file System provides greater flexibility for filing 

Forms 940/941 electronically. See 

http://www.irs.gov/efile/article/0,,id=118519,00.html for more information on the 

Employment Tax e-file System (XML) and how it can improve your filing process. 

IRS to Eliminate 3 1/2-inch Diskettes 

Effective January 1, 2007, the Internal Revenue Service (IRS) Enterprise 

Computing Center in Martinsburg, WVA (IRS/ECC-MTB) will no longer accept 

information returns filed on 3 1/2-inch diskettes. 
IRS/ECC-MTB encourages filers to file electronically on the Internet using the 

FIRE (Filing Information Returns Electronically) system at http://fire.irs.gov. 

Note: If you already have a Transmitter Control Code (TCC) for diskette filing, 

you do not need to reapply. 

Some advantages of filing electronically are: 

Paperless Form 4804 not required; 

Secure Socket Layer (SSL) 128-bit encryption; 

More attempts than magnetic medical filing to replace bad files within a specific 

time frame before imposing penalties; 

Better customer service due to on-line availability of transmitter’s files for 

research purposes; 

Extendable due dates for electronically filed Forms 1098, 1099, and W-2G; 

Longer period to test electronic files: November 1st through February 15th; and 

Available results available within 1-2 workdays regarding the acceptability of the 

data transmitted. 

Additional information on the electronic filing of information returns can be found 

in Publication 1220, Specifications for Filing Forms 1098, 1099, 5498 and W-2G

Electronically or Magnetically; Rev. Proc. 2005-49 

(http://www.irs.gov/app/scripts/retriever.jsp) reprinted from IR Bulletin-dated 

August 1, 2005, or Publication 3609, Filing Information Returns Electronically 

(http://www.irs.gov/app/scripts/retriever.jsp). Please call toll free at 866-455-

7438 between 8:30 a.m.-4:30 p.m. EST if you have any questions. 

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Treatment of Payments to Officials and Certain Workers 

There appears to be some confusion out there regarding elected, appointed and 

public officials, as well as tribal council members and election workers. The 

Indian Tri bal Governments division of the Internal Revenue Service has revised 

and updated the Employment Tax Desk Guide for tribal employee’s. All of these 

types of employees are discussed in this guide, if you have a question, please 

refer to this guide or contact your local ITG Specialist. You can download a copy 

of the desk guide from the IRS Web Site from 

http://www.irs.gov/pub/irs-pdf/p4268.pdf. 

Whether elected or appointed, all officials are public officials. Generally, public

officials are employees for Federal Insurance Contributions Act (FICA) and 

federal withholding tax purposes. Treasury Regulation Section 31.3401(c)-1(a) 

provides the definition of an employee to include any public official whether 

elected or appointed. Examples of public officials include but are not limited to 

members of the tribal council, school board, housing authority, and tribal judges. 

Although all these workers are public officials, they are not all subject to Revenue 
Ruling 59-354. This revenue ruling applies only to members of the Tribal Council 

in their capacity as a council member. Since Rev. Rul. 59-354 does not apply to 

most public officials, payments to public officials, both elected and appointed, 

constitute wages and are subject to FICA and federal withholding taxes. 

Since Revenue Ruling 59-354 applies only to members of the Tribal Council in 

their capacity as a council member, their earnings are includible in the council 

member’s gross income, however the earnings do not constitute wages for 

purposes of FICA, Federal Unemployment Taxes (FUTA), and Federal income 

tax withholding. Tribal officials are liable for federal income tax on these wages, 

and some may voluntarily have these taxes withheld to avoid personal year end 

deficiencies. 

Tribal Council members’ salaries will be shown in box 1; Wages, Tips, Other

Compensation of Form W-2. Additionally, in box 14; Other, you should indicate 

Revenue Ruling 59-354. This will show why there are no amounts listed in the 

boxes for federal income tax withheld (box 2) or FICA (boxes 3, 4, and 7). Note: 

If the tribal council member requests to have federal taxes withheld, box 2 will 

reflect these voluntarily withheld amounts. See Exhibit 3-1 in the Employment 

Tax Desk Guide for an example of a Tribal Council members’ W-2. 

Election workers are employees and must be issued a Form W-2. Unlike an 

employee, there are separate rules for the reporting of income for election 

workers, which are found in Revenue Ruling 2000-6. 

 

If an election worker earning income from working election booths earn less than 

$600 in one year, there is no requirement to file Form W-2. The election worker 

must report the income as wages on their individual income tax return. 

If an election worker earns between $600 and $1,199, a Form W-2 is required, 

however FICA and federal income tax withholding are NOT required to be 

withheld. The election worker must report the income as wages on their 

individual income tax return. 

If an election worker earns $1,200 or more, a Form W-2 is required. The wages 

ARE subject to FICA, but not federal income tax withholding. The election 

worker must report the income as wages on their individual income tax return. 

If an election worker is also employed by the tribal government in another 

capacity, the FICA and federal income tax withholding rules apply as stated 

above, however all income will be added to their other wages and will be 

reported on Form W-2. 

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Reporting Abuses/Schemes 

We continue to work with tribes and tribal officials to address financial abuses 

and schemes being promoted in Indian country. Working together can help 

ensure the integrity of tribal finances, and eliminate the threats posed by 

individuals with schemes that appear “too good to be true” and often are. 

 

If you are aware of financial impropriety or of a promoter advocating a 

scheme that appears highly suspect, you can contact the ITG Abuse 

Detection and Prevention Team at (716) 686-4860 or via e-mail at 

tege.itg.schemes@irs.gov. 

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The Trust Fund Recovery Penalty 

Tribes who employ individuals must withhold federal income, social security, and 

Medicare taxes from employee’s wages or salaries. These taxes are called trust 

fund taxes and must be paid to the Internal Revenue Service through tax 

deposits or as payments made with the applicable returns. 

If the trust fund taxes are willfully not collected, are not truthfully accounted for 

and paid, or are evaded or defeated in any way, we may charge a trust fund 

recovery penalty. This penalty is equal to the amount of the trust fund taxes 

evaded, not collected, not accounted for, or not paid to the IRS. We also charge 

interest on the penalty. (This is also referred to as the 100% Penalty—Section 

6672 of the Internal Revenue Code.) 

The trust fund recovery penalty may apply to a person or persons the IRS 

decides is responsible for collecting, accounting for and paying the trust fund 

taxes and who acted willfully in not doing so. If the IRS can’t immediately collect 

the taxes from the employer or business, we will decide who the responsible 

person or persons are and who acted willfully. 

A responsible person acts “willfully” if this person knows that the required actions 

are not taking place for any reason. “Willfully” means voluntarily, consciously, 

and intentionally. Paying other business expenses instead of trust fund taxes is 

considered willful behavior, and would subject tribal officials to be personally 

liable for the penalty. 

Any person who had responsibility for certain aspects of the business and 

financial affairs of the employer (or business) may be a responsible person. A 

responsible person may be an officer or employee of a corporation, or a partner 

or employee of a partnership. This may include accountants, trustees in 

bankruptcy, members of a board, banks, insurance companies, or sureties. The 
responsible person can even be another corporation, a volunteer director/trustee, 

tribal chairman or tribal council members. Responsible persons may include 

those who direct or have authority to direct the spending of business funds. The 

obvious Tribal scenario would be if the Tribal Chairman, Comptroller, Treasurer, 

or Tribal Council were to direct the Payroll Clerk not to file or pay Federal Tax 

Deposits when due. 

You can avoid the trust fund recovery penalty by making sure that all taxes are 

collected, accounted for, and paid to the IRS when required. Make your tax 

deposits and payments on time. 

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W-2 News—Subscribe Today! 

Do you submit Form W-2, Wage and Tax Statement, to Social Security for your 

business? If you do, you will want to sign up for W-2 News—a free electronic 

newsletter. 

Because your time is valuable, we will issue this newsletter only when important 

wage reporting information becomes available, such as when: 

Changes occur in W-2 reporting requirements; 

Changes occur in Paper and Electronic Filing Instructions; 

The new MMREF and AccuWage become available; or 

The Business Services Online Web site opens for business. 

To sign up, just go to: http://www.socialsecurity.gov/employer/w2news, provide 

your email address and select Submit. 

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Self-Assess Your Federal Tax Compliance Risks 

Tribal entities can now self-assess their federal tax compliance and work with 

ITG to address any problems they uncover. Entities electing to participate 

receive a fillable template from ITG and are provided with the name of a local 

ITG Specialist who will serve as their resource during the process. 

Information on the program, as well as an on–line request form, is available 

through the “Enhancing Federal Tax Compliance” link on the right-hand of the 

ITG web site landing page at www.irs.gov/tribes. You can also make an 

inquiry about the program via e-mail to tege.itg.tefac@irs.gov. 

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Federal Tax Calendar for Third Quarter 2006 

July 2006 

Monday, July 3rd - Pull Tabs Annual Form 11-C due for tribe and all agents 

Thursday, July 6th - Make a deposit for 6/28-6/30* 

Friday, July 7th - Make a deposit for 7/1-7/4* 

Monday, July 10th - Employees report June tip income to employers if 

$20 or more 

Wednesday, July 12th - Make a deposit for 7/5-7/7* 

Friday, July 14th - Make a deposit for 7/8-7/11* 

Monday, July 17th – Make a deposit for June if under the monthly deposit rule** 

Wednesday, July 19th – Make a deposit for 7/12-7/14* 

Friday, July 21st – Make a deposit for 7/15-7/18* 

Wednesday, July 26th – Make a deposit for 7/19-7/21* 

Friday, July 28th – Make a deposit for 7/22-7/25* 

August 2006 

Wednesday, August 2nd – Make a deposit for 7/26-7/28* 

Friday, August 4th – Make a deposit for 7/29-8/1* 

Wednesday, August 9th – Make a deposit for 8/2-8/4* 

Thursday, August 10th – Employees report July tip income to employers if $20 or 

more 

Friday, August 11th – Make a deposit for 8/5-8/8* 

Tuesday, August 15th – Make a deposit for July if under the monthly deposit 

rule** 

Wednesday, August 16th – Make a deposit for 8/9-8/11* 

Friday, August 18th - Make a deposit for 8/12-8/15* 

Wednesday, August 23rd – Make a deposit for 8/16-8/18* 

Friday, August 25th – Make a deposit for 8/19-8/22* 

Wednesday, August 30th – Make a deposit for 8/23-8/25* 

September 2006 

Friday, September 1st – Make a deposit for 8/26-8/29* 

Thursday, September 7th – Make a deposit for 8/30-9/1* 

Friday, September 8th – Make a deposit for 9/2-9/5* 

Monday, September 11th – Employees report August tip income to employers if 

$20 or more 

Wednesday, September 13th – Make a deposit for 9/6-9/8* 

Friday, September 15th – Make a deposit for 9/9-9/12* 

 Make a deposit for August if under the monthly deposit 

 rule** 

Wednesday, September 20th – Make a deposit for 9/13-9/15* 

Friday, September 22nd – Make a deposit for 9/16-9/19* 

Wednesday, September 27th – Make a deposit for 9/20-9/22* 
Friday, September 29th – Make a deposit for 9/23-9/26* 

*= Make a Payroll Deposit if you are under the semiweekly deposit rule. 

**= Make a Payroll Deposit if you qualify under that rule. 

NOTE: Deposits made through EFTPS must be initiated at least one day prior to 

the due dates listed above in order to be timely. 

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Return Filing Dates 

July 3rd 

 File Form 11-C (Occupational Tax) to register and pay the annual tax if you are 

in the business of taking wagers. 

July 31st 

File Form 941 for the 2nd quarter of 2006. If all deposits paid on time and in full, 

file by August 10th. 

File Form 730 (Monthly Tax Return for Wagers) and pay the tax on applicable 

wagers accepted during June. 

August 31st 

File Form 730 and pay the tax on applicable wagers accepted during July. 

October 2nd 

File Form 730 and pay the tax on applicable wagers accepted during August. 

Remember, if your tribe sells pull tabs, you must file Forms 11-C for the tribe and 

any agent(s) who sells pull tabs for the tribe by July 3rd. 

Form 730 must also be filed each month. 

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