[Federal Register Volume 62, Number 215 (Thursday, November 6, 1997)]
[Notices]
[Pages 60104-60108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29370]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employment and Training Administration


Federal-State Unemployment Compensation Program: Unemployment 
Insurance Program Letters Interpreting Federal Unemployment Insurance 
Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation (UC) as part of 
its role in the administration of the Federal-State UC program. These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Employment Security Agencies. The UIPLs described 
below are published in the Federal Register in order to inform the 
public.

UIPL 41-97

    UIPL 40-79, dated August 3, 1979, set forth the Department of 
Labor's position on whether Head Start agencies are ``educational 
institutions'' for purposes of the ``between and within terms denial'' 
provisions of Section 3304(a)(6)(A) of the Federal Unemployment Tax Act 
(FUTA). This section of FUTA has been amended since that time. As such, 
questions have been raised as to whether the treatment of Head Start 
services has changed as a result of the amendments. UIPL 41-97 
reiterates the Department's position regarding Head Start agencies and 
provides specific discussion of the application of the between and 
within terms denial to Head Start program personnel.

UIPL 44-97

    The Balanced Budget Act of 1997 (BBA) and the Taxpayer Relief Act 
of 1997 (TPRA), both enacted on August 6, 1997, made several changes 
affecting the UC program. UIPL 44-97 provides information on the 
amendments made by the BBA and the TPRA. This UIPL also discusses 
whether States are required to amend their UC laws regarding disclosure 
of UC information, Reed Act transfers, and levy on payments of UC as a 
result of the amendments to these Acts.

    Dated: October 31, 1997.
Raymond J. Uhalde,
Acting Assistant Secretary of Labor.
U.S. Department of Labor, Employment and Training Administration, 
Washington, D.C. 20210
Classification: UI
Correspondence Symbol: TEUL
Date: 09/30/97
Rescissions: None
Expiration Date: Continuing
Directive: Unemployment Insurance Program Letter No. 41-97
To: All State Employment Security Agencies
From: Grace A. Kilbane, Director, Unemployment Insurance Service
Subject: Application of Between and Within Terms Denial to Head 
Start Program Personnel

    1. Purpose. To clarify the application of the between and within 
terms denial provisions of Section 3304(a)(6)(A) of the Federal 
Unemployment Tax Act (FUTA) to Head Start program personnel.
    2. References. Section 3304(a)(6)(A), FUTA; P.L. 94-566; P.L. 
95-19, Draft Language and Commentary to Implement the Unemployment 
Compensation Amendments of 1976--P.L. 94-566 and Supplement 4, 1976 
Draft Legislation, dated August 26, 1977; Unemployment Insurance 
Program Letter (UIPL) No. 40-79, dated August 3, 1979; UIPL No. 41-
83, dated September 13, 1983; UIPL No. 30-85, dated July 12, 1985; 
UIPL No. 15-92, dated January 27, 1992; and UIPL No. 43-93, dated 
September 13, 1993.
    3. Background. UIPL No. 40-79 set forth the Department's 
position on whether Head Start agencies are ``educational 
institutions'' for purposes of the ``between and within terms 
denial'' provisions required and/or allowed by Section 
3304(a)(6)(A), FUTA. Subsequent amendments to the ``between and 
within terms denial'' provisions have raised questions about whether 
the treatment of Head Start services has changed. This UIPL 
reiterates the Department's position and provides specific 
discussion of the amendments made following the issuance of UIPL 40-
79.
    4. Discussion. Section 3304(a)(6)(A), FUTA, requires, as a 
condition for employers in a State to receive credit against the 
Federal unemployment tax, that the State law provide that 
unemployment compensation (UC) be payable based on services to which 
Section 3309(a)(1), FUTA, applies, in the same amount, on the same 
terms, and subject to the same conditions as UC payable on the basis 
of other service subject to State law. The major mandates of this 
Section are: (1) coverage of services performed for State and local 
governments and their instrumentalities and nonprofit organizations 
as defined under Section 3309(a)(1), FUTA; (2) equal treatment in 
the payment of UC to employees of such entities; and (3) denial of 
UC based on certain educational services performed for such entities 
between and within academic terms. These conditions are required for 
employers in a State to receive credit against the Federal 
unemployment tax. UIPL No. 43-93 describes the optional and required 
denial provisions in clauses (i) through (vi) of Section 
3304(a)(6)(A), FUTA. The six clauses are described below:
    <bullet> Clause (i) requires, unless the specified conditions 
are met, the denial between two successive academic years or terms 
based on instructional, research, and principal administrative 
services performed for an educational institution.
    <bullet> Clause (ii) permits, under specified conditions, the 
between years or terms denial based on all other (i.e., 
``nonprofessional'') services performed for an educational 
institution, and retroactive payment based on those services, if no 
work is available in the second term, and the individuals have 
otherwise met the eligibility requirements.
    <bullet> Clause (iii) requires the within terms denial of 
benefits during an established and customary vacation period or 
holiday recess based on all services performed for an educational 
institution.
    <bullet> Clause (iv) requires the between and within terms 
denial of benefits based on all services performed in an educational 
institution while in the employ of an educational service agency 
(ESA).
    <bullet> Clause (v) permits the State to implement the denial 
provisions of (i) through (iv) for services performed by 
governmental entities or nonprofit organizations if such services 
are provided to or on behalf of an educational institution.
    <bullet> Clause (vi) permits the State to make the between and 
within terms denial provisions of clauses (iii) and (iv) optional 
based on the ``nonprofessional'' services described in clause (ii).
    5. Interpretation and Application. The between and within terms 
denial provisions apply only to services performed (1) for an 
educational institution, (2) in an educational

[[Page 60105]]

institution while employed by an ESA, or (3) to or on behalf of an 
educational institution by a governmental entity or nonprofit 
organization.
    Whether Head Start Agencies are Educational Institutions under 
Clauses (i) and (ii) of Section 3304(a)(6)(A), FUTA. Head Start 
programs are comprehensive developmental programs designed to meet 
children's needs in the health (medical, dental, mental, 
nutritional), social, and education areas. The goal is child 
adjustment and development at the emotional and social levels, 
rather than school-type training.
    Whether Head Start agencies are ``educational institutions'' was 
discussed in UIPL 40-79. That UIPL stated that Head Start programs 
operated by Community Action Groups do not meet the criteria of 
``educational institutions,'' and the between and within terms 
denial does not, therefore, apply to services performed for such 
groups. UIPL 40-79 stated, however, that when a local board of 
education operates a Head Start program as an integral part of the 
school system in facilities of an educational institution, with Head 
Start workers as employees of the board and the schools in every 
respect, subject to all employing policies, such as hiring, firing, 
working conditions, as other employees performing services for the 
educational institution, then such workers are considered to be 
employed by an educational institution. As such, these workers are 
subject to the denial provisions in the same manner as are all other 
educational institution employees. This remains the Department's 
position.
    Application of Clauses (iv) and (v), Section 3304(a)(6)(A), FUTA 
to Head Start Services. UIPL 40-79 did not address clauses (iv) and 
(v), as these provisions were not added until 1983. UIPL 41-83 
advised the States of the addition of these clauses to Federal law, 
but did not discuss Head Start agencies.
    Clause (iv) applies to services performed for an ESA. Clause 
(iv) defines an ESA as ``a governmental agency or governmental 
entity which is established and operated exclusively for the purpose 
of providing such services to one or more educational 
institutions.'' Since Head Start agencies do not exist exclusively 
for the purpose of providing services to educational institutions, 
they are not ESAs.
    Clause (v) permits States to apply the between and within terms 
denial to services ``provided to or on behalf of'' an educational 
institution by a governmental entity or nonprofit organization to 
which Section 3309(a)(1), FUTA, applies. UIPL 41-83 states that the 
words ``provided to'' require only that the services provided to the 
educational institution give some benefit or support to the 
institution. The words ``on behalf of'' are more restrictive. They 
apply--

to those employees of a governmental entity or nonprofit 
organization who perform services as an agent of or on the part of 
an educational institution. This situation could arise, therefore, 
only where an employee of a governmental entity or nonprofit 
organization performed services as an agent of or on the part of an 
educational institution in such a representative capacity.

    Whether services are ``provided to or performed on behalf'' of 
an educational institution depends on the facts present in each 
individual case. Thus, if State law contains a provision 
implementing optional clause (v), a case-by-case determination must 
be made to determine if Head Start services are ``provided to or on 
behalf of an educational institution,'' assuming that the Head Start 
agency is a governmental entity or nonprofit organization to which 
Section 3309(a)(1), FUTA, applies.
    If a State law implements optional clause (v), the application 
to Head Start programs may be limited as to scope and/or time by a 
State, but, as discussed in UIPL 43-93, the limitation must be 
uniformly applied throughout the State. A State may not treat Head 
Start services ``provided to or on behalf of'' one school district 
differently from Head Start services ``provided to or on behalf of'' 
those performed for another school district. Also, a State may not 
treat the services performed for a governmental entity differently 
from services performed for a nonprofit organization.
    6. Action Required. Administrators are to provide this 
information to appropriate staff.
    7. Inquiries. Inquiries should be directed to the appropriate 
Regional Office.
U.S. Department of Labor, Employment and Training Administration, 
Washington, D.C. 20210
Classification: UI
Correspondence School: TEUL
Date: October 9, 1997
Rescissions: None
Expiration Date: Continuing
Directive: Unemployment Insurance Program Letter No. 44-97
To: All State Employment Security Agencies
From: Grace A. Kilbane, Director, Unemployment Insurance Service
Subject: The Balanced Budget Act of 1997 and the Taxpayer Relief Act 
of 1997

    1. Purpose. To advise the States of amendments made to Federal 
law by the Balanced Budget Act of 1997 and the Taxpayer Relief Act 
of 1997 affecting the Federal-State Unemployment Compensation (UC) 
program.
    2. References. The Balanced Budget Act of 1997 (BBA), P.L. 105-
33; the Taxpayer Relief Act of 1997 (TPRA), P.L. 105-34; the 
Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (PRWORA), P.L. 104-193; the Internal Revenue Code of 1986 
(IRC), including the Federal Unemployment Tax Act (FUTA); the Social 
Security Act (SSA); and Unemployment Insurance Program Letters 
(UIPLs) Nos. 28-87, 45-89, 12-91, 11-92 and 37-96.
    3. Background. The BBA and the TPRA, both enacted on August 6, 
1997, made several changes affecting the UC program. This UIPL 
provides information on eleven amendments made by the BBA and four 
amendments made by the TPRA. The amendment discussed in item 4.a., 
related to disclosure of UC information, may require States to amend 
their laws to meet Federal UC law requirements. In addition, States 
will need to amend their laws to implement the special Reed Act 
transfers discussed in item 6.b. Finally, States will need to 
determine whether they need to amend their laws to permit the 
continuous levy discussed in item 12.
    4. Sections 5201 and 5533, BBA: National Directory of New Hires 
(``National Directory'').
    a. Section 5201, BBA, Disclosure to National Directory. Section 
303(h)(1), SSA, as amended by the PRWORA, requires States, as a 
condition of receiving UC administrative grants, to disclose wage 
and claim information to the Secretary of Health and Human Services 
for purposes of the National Directory. Section 303(h)(1)(C), as 
amended by the PRWORA, also required States to establish such 
safeguards as the Secretary of Labor determines are necessary to 
insure that such information is used ``only for purposes of section 
453(i)(1) [SSA] in carrying out the child support enforcement 
program under title IV'' of the SSA. (Emphasis added.) The BBA 
deleted the underscored language and substituted ``subsections 
(i)(1), (i)(3) and (j) of section 453.'' This amendment makes clear 
that States must authorize the disclosure of UC information to the 
National Director for:
    <bullet> Use by programs funded under the Transitional 
Assistance to Needy Families program, the child support enforcement 
program, and any ``other purposes'' specified in Section 453. 
(Section 453(i)(1), SSA.) The ``other purposes'' are specified in 
Section 453(i)(3) and (j), SSA, described below.
    <bullet> Use in the administration of the earned income tax 
credit by the Internal Revenue Service (IRS). (Section 453(i)(3), 
SSA.)
    <bullet> Verification of information in the National Directory 
by the Social Security Administration; comparisons with the Federal 
Case Registry of Child Support Orders and other child support 
enforcement purposes; use by the Social Security Administration; and 
research related to Transitional Assistance to Needy Families or 
child support enforcement. In the case of research, personal 
identifiers may not be used. (Section 453(j), SSA.)
    As no effective date is provided, this amendment is effective as 
of the date of enactment of the BBA. However, as discussed in UIPL 
37-96, pages 6 and 7, the effective date of the disclosure 
requirements in Section 303(h), SSA, for UC conformity purposes is 
either October 1, 1997, or, if the State qualifies for a grace 
period, January 1, 1998.
    States will need to review their UC laws and regulations to 
determine if their laws permit disclosure in view of the above 
requirement concerning redisclosures of information provided to the 
National Directory. Each State must take all actions necessary to 
ensure that it will make such disclosures by the effective date 
discussed in the previous paragraph.
    b. Section 5533, BBA: Technical Amendment. Section 453A, SSA, 
requires each State to establish a Directory of New Hires. Section 
453A(g)(2)(B), SSA, as added by PRWORA, specifically cited a 
provision of Federal UC law:
    Wage and Unemployment Compensation Information.--The State 
Directory of New Hires shall, on a quarterly basis, furnish to the 
National Directory of New Hires extracts of the reports required 
under section 303(a)(6) [SSA] to be made to the Secretary of Labor 
concerning the wages and unemployment compensation paid to

[[Page 60106]]

individuals, by such dates, in such format, and containing such 
information as the Secretary of Health and Human Services shall 
specify in regulations. [Emphasis added.]
    Since the Secretary of Labor does not require the submittal of 
data on individuals under Section 303(a)(6), SSA, this provision 
created a technical problem. The BBA deleted the underscored 
language and substituted ``information.'' This amendment does not 
affect what information must be provided to the Secretary of Health 
and Human Services. Nor does it change the fact that both the FUTA 
and the SSA continue to require UC agencies to provide wage and 
claim information to the State directory. See UIPL 37-96.
    5. Section 5401, BBA: Base Periods and the Pennington Case. In 
1994 and 1997, the U.S. Court of Appeals for the Seventh Circuit 
issued two opinions in litigation commonly known as Pennington. 22 
F.3d 1376 (7th Cir. 1994), 110 F.3d. 502 (7th Cir. 1997). In its 
1994 decision, the Court decided that a State's base period was not 
an eligibility requirement, but instead was a ``method of 
administration'' under Section 303(a)(1), SSA, and, therefore, 
subject to Federal jurisdiction. In its 1997 decision, the Court 
ruled that Illinois' base period, consisting of the first four of 
the last five completed calendar quarters, was not consistent with 
the ``methods of administration'' requirement. This was because the 
existence of the lag period between the base period and benefit year 
meant some claimants had to wait for their recent wages to fall 
within the based period to qualify for UC. As a result of these 
decisions, States anticipated that they might be required to provide 
for alternative base periods to reduce the lag.
    The BBA clarifies that the base period is not subject to the 
``methods of administration'' requirement. Therefore, in the 
Department's view, this legislation frees States to determine their 
base periods without regard to the ``methods of administration'' 
requirement. Section 5401, BBA, provides as follows:
    (a) In General. No provision of a State law under which the base 
period for such State is defined or otherwise determined shall, for 
purposes of section 303(a)(1) of the Social Security Act (42 U.S.C. 
503(a)(1)), be considered a provision for a method of 
administration.
    (b) Definitions. For purposes of this section, the terms ``State 
law'', ``base period'', and ``State'' shall have the meanings given 
them under section 205 of the Federal-State Extended Unemployment 
Compensation Act of 1970 [EUCA] (26 U.S.C. 3304 note.)
    (c) Effective Date. This section shall apply for purposes of any 
period beginning before, on, or after the date of the enactment of 
this Act.
    ``State law,'' as defined in Section 205(10), EUCA, ``means the 
unemployment compensation law of the State, approved by the 
Secretary under section 3304'' of the FUTA. ``Base period,'' as 
defined in Section 205(6), EUCA, ``means the base period as 
determined under applicable State law for the benefit year.'' 
``State,'' as defined in Section 205(8), EUCA, includes the 50 
States, the District of Columbia, Puerto Rico, and the U.S. Virgin 
Islands.
    This amendment does not require States to amend their laws.
    6. Sections 5402 and 5403, BBA: Increase in Federal Unemployment 
Account (FUA) Ceiling and Special Distribution to States from the 
Unemployment Trust Fund. Section 903, SSA, provides that when, among 
other things, three accounts in the Unemployment Trust Fund reach 
their statutory limits, the excess amounts will be transferred to 
the States. These are called ``Reed Act'' distributions. The three 
accounts are the Employment Security Administration Account (ESAA), 
which pays for the administration of the UC and employment service 
programs; the Extended Unemployment Compensation Account, which pays 
for the Federal share of extended benefits; and the FUA, which 
provides for advances to States for the payment of UC.
    a. Section 5402, BBA: Increase in FUC Ceiling. Prior to 
amendment, the balance in the FUA as of the end of any Federal 
fiscal year (September 30) could not exceed 0.25 percent of the 
total wages subject to contributions under all State UC laws. The 
BBA changes this maximum balance to 0.5 percent effective October 1, 
2001.
    b. Sections 5403, BBA: Special Distribution to States from the 
Unemployment Trust Fund. The BBA amended Section 903 of the SSA to 
cap the amount of Reed Act transfers made with respect to the 
Federal fiscal years ending in 1999, 2000 and 2001 at $100,000,000 
per year. Each State's share of these transfers will be based on the 
ratio of the amount of ``funds to be allocated to such State for 
such fiscal year pursuant to the base allocation formula under title 
III'', SSA, to ``the total amount of funds to be allocated to all 
States for such fiscal year pursuant to the base allocation formula 
under title III.'' Any amounts in excess of the $100,000,000 which, 
but for the BBA amendments, would have been transferred to the 
States ``shall, as of the beginning of the succeeding fiscal year, 
accrue to the Federal unemployment account, without regard'' to its 
statutory limit.
    Reed Act moneys transferred with respect to these fiscal years 
may be used ``only to pay expenses incurred by [the State] for the 
administration of its'' UC law. Unlike previous Reed Act transfers, 
States are prohibited from using the amounts transferred with 
respect to these three years for the payment of UC or the 
administration of State public employment offices. However, among 
other uses, States may, as in the past, use these Reed Act moneys 
for purchasing real property for UC purposes. These purchases could 
be amortized against UC grant funds consistent with the UC grant 
agreement.
    Finally, the restrictions applicable to Reed Act transfers in 
Section 903(c)(2), SSA, are not applicable to the transfers made 
with respect to fiscal years 1999, 2000 and 2001. This means the 
amounts transferred to the States may be used without obtaining an 
appropriation from the State's legislative body.
    State UC laws usually contain provisions addressing the use of 
Reed Act moneys transferred under Section 903, SSA. These laws 
usually mirror the requirements of Section 903(c)2), SSA, including 
a requirement that the moneys be used for the payment of UC unless 
appropriated by the legislative body. States must amend these 
provisions to prohibit the use of transfers made with respect to 
fiscal years 1999, 2000, and 2001 for the payment of UC. States may 
further amend these provisions to authorize use for administrative 
purposes without a specific appropriation from the State 
legislature. Nothing prohibits a State legislature from 
appropriating such money or from attaching conditions to the use of 
such money, provided the money is used for UC administration.
    Draft language for State Reed Act provisions was provided in 
UIPL 12-91. We recommend that, using that language as a basis, 
States insert the following language in State law:
    (4) Notwithstanding paragraph (1), money credited with respect 
to Federal fiscal years 1999, 2000 and 2001, shall be used solely 
for the administration of the UC program and are not subject to 
appropriation by the legislature. [Emphasis added.]
    The underscored language is necessary only if the State chooses 
to avoid the appropriation process. As an alternative, a State could 
appropriate the moneys without subjecting them to the various 
restrictions found in Section 901(c)(3), SSA. (For example, under 
Section 901(c)(2), SSA, Reed Act moneys may be used only for 
expenses incurred after the date of enactment of the State 
appropriation.) In this case, the following language is recommended:
    (4) Notwithstanding paragraph (1), money credited with respect 
to Federal fiscal years 1999, 2000 and 2001, shall be used solely 
for the administration of the UC program, and such money shall not 
otherwise be subject to the requirements of paragraph (1) when 
appropriated by the legislature.
    c. Reasons for Change. The House Report describes the reason for 
increasing the FUA ceiling and providing for the special transfers:
    The provision has two main effects: (1) raising the ceiling in 
the Federal Unemployment Account whole [sic] limiting Reed Act 
transfers allows for further buildup of funds pending a future 
recession requiring increased administrative resources; and (2) 
allowing $100 million in Reed Act transfers will assist States in 
the administration of their UI programs. (H. Rep. No. 105-149, 104th 
Cong. 1st Sess. 106 (1997).)
    7. Section 5404, BBA: Interest-Free Advances from the 
Unemployment Trust Fund. Under Section 1202(b)(2), SSA, advances 
made from the FUA during a calendar year are interest free if the 
following conditions are met:
    <bullet> The advance is repaid in full before the close of 
September 30 of the calendar year in which the advances were made, 
and
    <bullet> Following this repayment, no other advance was made to 
the State during the calendar year.
    The BBA adds a third condition to Section 1202(b)(2). States 
must now meet ``funding goals, established under regulations issued 
by the Secretary of Labor, relating to the

[[Page 60107]]

accounts of the States in the Unemployment Trust Fund.'' The 
amendment applies to calendar years beginning after the date of 
enactment of the BBA. The Department is commencing work on the 
required regulations.
    According to the House Committee report, this amendment is 
intended to encourage solvency of State unemployment funds:
    Should a State account become insolvent during an economic 
downturn, adverse conditions can result for the State and its 
employers. Borrowing Federal funds imposes a cost on the State at a 
time when it may face other financial difficulties. The State may 
react by raising taxes on its employers, thereby discouraging 
economic activity during a period when its economy is already in 
decline * * *. The provision would encourage States to maintain 
sufficient unemployment trust fund balances to cover the needs of 
unemployed workers in the event of a recession. (H. Rep. No. 105-
149, 104th Cong. 1st Sess. 108 (1997).)
    8. Sections 5405 and 5407, BBA: Election Workers and Employees 
of Schools Operated Primarily for Religious Purposes. Section 
3304(a)(6)(A), FUTA, requires, as a condition for employers in a 
State to receive credit against the Federal unemployment tax, that 
UC be payable based on services performed for State and local 
governmental entities, their instrumentalities, and certain 
nonprofit organizations. The BBA amended FUTA to provide for two new 
exceptions to this required coverage.
    Section 5405 of the BBA added new subparagraph (F) to Section 
3309(b)(3), FUTA, to permit States to exclude services performed:

as an election official or election worker if the amount of 
remuneration received by the individual during the calendar year for 
services as an election official or election worker is less than 
$1,000.

    Section 5407 of the BBA added new subparagraph (C) to Section 
3309(b)(1) to permit States to exclude services performed for:
    (C) an elementary or secondary school which is operated 
primarily for religious purposes, which is described in section 
501(c)(3), and which is exempt from tax under section 501(a).
    States were not previously permitted to exclude services 
performed for a religiously-oriented school from coverage where the 
school was not operated, supervised, controlled, or principally 
supported by a church or convention or association of churches. See 
UIPL 28-87. Since the new exclusion is limited to elementary and 
secondary schools, services performed by employees of other 
nonaffiliated religiously-oriented entities are still required to be 
covered. (For example, day-care centers, post-secondary schools or 
cemetery associations.) Both exclusions ``apply with respect to 
service performed after the date of the enactment of'' the BBA. With 
respect to election workers, this means that, if the individual 
earned less than $1,000 in calendar year 1997, the services are not 
required to be covered after August 6, 1997.
    States are not required to exclude these services. The 
Department recommends that States choosing to do so follow the 
language in Federal law verbatim. However, the language following 
``religious purposes'' in subparagraph (C) of Section 3309(b)(1) may 
be omitted if, as is commonly the case, State law provisions 
relating to coverage of nonprofit organizations are already limited 
to those organizations described in Section 501(c)(3), IRC, which 
are exempt from tax under Section 501(a), IRC.
    9. Section 5406, BBA: Coverage of Services Performed by Inmates. 
The BBA added an exclusion to the definition of employment in 
Section 3306(c), FUTA, for:
    (21) service performed by a person committed to a penal 
institution.
    This exclusion applies only for purposes of the FUTA tax. 
However, as a result of this new exclusion, States may elect to 
amend their laws to exclude these services without the employers for 
whom the services are performed losing credit against the FUTA tax.
    The effective date of this amendment applies ``with respect to 
service performed after January 1, 1994.'' Should State law be 
amended retroactively, amounts previously paid into the State's 
unemployment fund with respect to these services under the State law 
in effect at that time may not be refunded to employers. This 
prohibition is explained in UIPL 11-92.
    10. Section 5608, BBA: State Program Integrity Activities for 
Unemployment Compensation. Section 901(c)(1)(A), SSA, authorizes 
appropriations from the ESAA for assisting States in the 
administration of their UC laws. (Henceforth, these amounts will be 
called the ``regular'' grant.) The BBA amended this section to 
create a special authorization for State program integrity 
activities. Specifically, a new paragraph was added to Section 
901(c):
    (5)(A) There are authorized to be appropriated out of the 
employment security administration account to carry out program 
integrity activities, in addition to any amounts available under 
paragraph (1)(A)(i)--
    (i) $89,000,000 for fiscal year 1998;
    (ii) $91,000,000 for fiscal year 1999;
    (iii) $93,000,000 for fiscal year 2000;
    (iv) $96,000,000 for fiscal year 2001; and
    (v) $98,000,000 for fiscal year 2002.
    (B) In any fiscal year in which a State receives funds 
appropriated pursuant to this paragraph, the State shall expend a 
proportion of the funds appropriated pursuant to paragraph (1)(A)(i) 
to carry out program integrity activities that is not less than the 
proportion of the funds appropriated under such paragraph that was 
expended by the State to carry out program integrity activities in 
fiscal year 1997.
    (C) For purposes of this paragraph, the term ``program integrity 
activities'' means initial claims review activities, eligibility 
review activities, benefit payments control activities, and employer 
liability auditing activities.
    This amendment merely authorizes amounts for appropriation for 
integrity purposes; Congress must still appropriate the amounts. If 
and when ``integrity'' moneys are received by the States, their use 
is limited to the integrity activities described in 901 (c)(5)(C), 
SSA.
    Since Section 901(c)(5)(B), SSA, provides that the State must 
expend the same proportion of ``regular'' granted funds on integrity 
activities as was expended in fiscal year 1997, States may not use 
these integrity moneys to reduce integrity costs to the ``regular'' 
grant as determined by fiscal year 1997 expenditures.
    11. Section 221, TPRA: Employer-Provided Educational Assistance. 
Section 3306(b)(13), FUTA, excludes from the definition of wages 
``any payment made, or benefit furnished, to or for the benefit of 
an employee if at the time of such payment or such furnishing it is 
reasonable to believe that the employee will be able to exclude such 
payment or benefit from income under section 127 * * *'' of the IRC. 
Section 127, IRC, excludes from gross income of the employee certain 
amounts paid, or expenses incurred, up to $5,250 in a calendar year, 
by the employer for educational assistance to the employee. Section 
127 did not apply to taxable years beginning after May 31, 1997. In 
the case of tax year 1997, only expenses paid with respect to 
courses beginning before July 1, 1997, could be taken into account.
    The TPRA extends this exclusion. It now applies to expenses paid 
with respect to courses beginning through May 31, 2000. The 
amendment applies to taxable years beginning after December 31, 
1996. The IRS is responsible for administering this provision.
    12. Section 921, TPRA: Securities Brokers. For purposes of 
determining whether an individual is an ``employee,'' Section 
3306(i), FUTA, references Section 3121(d), IRC. That section 
provides that, among other things, an ``employee'' is ``any 
individual who, under the usual common law rules applicable in 
determining the employer-employee relationship, has the status of 
employee.''
    The TPRA provides a clarification concerning the employment tax 
status of registered representatives of a securities broker-dealer. 
It provides that ``no weight shall be given to instructions from the 
service recipient which are imposed only in compliance with investor 
protection standards imposed by the Federal Government, any State 
government, or a governing body pursuant to a delegation by a 
Federal or State agency.'' The IRS is responsible for administering 
this provision.
    The provision is effective for ``services performed after 
December 31, 1997.''
    13. Section 1024, TPRA: Continuous Levy on Payments of UC. 
Federal UC law provides that payments of UC may not be subjected to 
levy. See UIPL 45-89. (A levy is the seizure of a person's property 
or rights to property to pay a debt.) Although the TPRA did not 
amend these UC provisions, it authorized the IRS to impose a 
continuous levy on certain payments, including UC, until the levy is 
released. This continuous levy may be imposed on any individual who 
is liable for an internal revenue tax and who does not pay such tax 
within 10 days of notice and demand by the IRS. Specifically, the 
TPRA added new subsection (h) to Section 6331, IRC--
    (1) In General.--The effect of a levy on specified payments to 
or received by a taxpayer shall be continuous from the date

[[Page 60108]]

such levy is first made until such levy is released. Notwithstanding 
section 6334, such continuous levy shall attach to up to 15 percent 
of any specified payment due to the taxpayer.
    (2) Specified Payment.--For the purposes of paragraph (1), the 
term ``specified payment'' means--
    (A) any Federal payment other than a payment for which 
eligibility is based on the income or assets (or both) of a payee,
    (B) any payment described in paragraph (4) [pertaining to 
unemployment benefits], (7) [workers compensation], (9) [wages, 
salary and other income], or (11) [certain public assistance] of 
section 6334(a), and
    (C) any annuity or pension payment under the Railroad Retirement 
Act or benefit under the Railroad Unemployment Insurance Act.
    Under new Section 6331(h)(2)(C), any payment described in 
paragraph (4) of Section 6334(a), IRC, may be continuously levied up 
to 15 percent. Paragraph (4) applies to any ``amount payable to an 
individual with respect to his unemployment (including any portion 
thereof payable with respect to dependents) under an unemployment 
compensation law of the United States, or any State, or of the 
District of Columbia or of the Commonwealth of Puerto Rico.'' Under 
this authority, the IRS may levy any payment under State or Federal 
UC law, including payments under the UC for Federal employees 
(UCFE), UC for Ex-servicemembers (UCX) and the Disaster Unemployment 
Assistance (DUA) programs as well as trade readjustment allowances 
(TRA) under the Trade Adjustment Assistance and NAFTA-Transitional 
Adjustment Assistance programs.
    The IRS may continuously levy up to 15 percent of ``any 
specified payment.'' The amendment applies to levies issued after 
the August 6, 1997, date of the enactment of the TPRA.
    The continuous levy is administered by the IRS. The IRS may 
implement the continuous levy through computer crossmatches with 
State UC agencies. The UC agencies will be responsible for deducting 
amounts levied from UC, UCFE, UCX, DUA, and TRA and for forwarding 
such amounts to the IRS. As the IRS does not pay for costs of 
levies, the Department is examining the funding implications for the 
UC system.
    Since, in accordance with Federal UC law, all State laws 
currently prohibit the levy of UC, the Department recommends that 
States amend their laws to specifically authorize continuous levy in 
accordance with Section 6331, IRC. Alternatively, States may view 
Section 6331, IRC, as superseding State law.
    14. Section 1035, TPRA: Extension of Temporary Tax. Section 
3301, FUTA, imposes a tax of 6.2 percent on wages paid in employment 
by employers. This tax was to have dropped to 6.0 percent beginning 
in calendar year 1999.
    Under the TPRA amendments, the 6.2 percent tax will remain in 
effect through calendar year 2007. The tax is now scheduled to drop 
to 6.0 percent beginning with calendar year 2008.
    15 Action. Appropriate staff should be advised of these 
amendments.
    16. Inquiries. Please direct inquiries to the appropriate 
Regional Office.

[FR Doc. 97-29370 Filed 11-5-97; 8:45 am]
BILLING CODE 4510-30-M