Federal Register / Vol. 77, No. 80 / Wednesday, April 25, 2012 / Proposed Rules 24657 

Order 13563. The proposed change is 

intended to expand the geographical 

boundaries of the Indianapolis, Indiana, 

port of entry and make the boundaries 

more easily identifiable to the public. 

There are no new costs to the public 

associated with this rule, and the rule 

does not otherwise implicate the factors 

set forth in section 3(f) of Executive 

Order 12866. Accordingly, this rule has 

not been submitted to the Office of 

Management and Budget for review. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires federal 

agencies to examine the impact a rule 

would have on small entities. A small 

entity may be a small business (defined 

as any independently owned and 

operated business not dominant in its 

field that qualifies as a small business 

per the Small Business Act); a small notfor-profit organization; or a small 

governmental jurisdiction (locality with 

fewer than 50,000 people). 

This proposed rule merely expands 

the limits of an existing port of entry 

and does not impose any new costs on 

the public. Accordingly, we certify that 

this rule would not have a significant 

economic impact on a substantial 

number of small entities. 

C. Signing Authority 

The signing authority for this 

document falls under 19 CFR 0.2(a) 

because the extension of port limits is 

not within the bounds of those 

regulations for which the Secretary of 

the Treasury has retained sole authority. 

Accordingly, this notice of proposed 

rulemaking may be signed by the 

Secretary of Homeland Security (or her 

delegate). 

V. Authority 

This change is proposed under the 

authority of 5 U.S.C. 301; 6 U.S.C. 203; 

19 U.S.C. 2 & note, 66, and 1624. 

VI. Proposed Amendment to the 

Regulations 

If the proposed port limits are 

adopted, CBP will amend the list of CBP 

ports of entry at 19 CFR 101.3(b)(1) to 

reflect the new description of the limits 

of the Indianapolis, Indiana, port of 

entry. 

Dated: April 10, 2012. 

Janet Napolitano, 

Secretary of Homeland Security. 

[FR Doc. 2012–9996 Filed 4–24–12; 8:45 am] 

BILLING CODE 9111–14–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–137589–07] 

RIN 1545–BH60 

Local Lodging Expenses 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations relating to the 

deductibility of expenses for lodging 

when not traveling away from home 

(local lodging). The regulations affect 

taxpayers who pay or incur expenses for 

local lodging. 

DATES: Comments or a request for a 

public hearing must be received by July 

24, 2012. 

ADDRESSES: Send submissions to 

CC:PA:LPD:PR (REG–137589–07), room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–137589– 

07), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC. Alternatively, 

taxpayers may submit comments 

electronically via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov (IRS REG–137589– 

07). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, R. 

Matthew Kelley, (202) 622–7900; 

concerning submission of comments or 

a request for a hearing, Funmi Taylor, 

(202) 622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to 26 CFR part 1 relating 

to the deduction of local lodging 

expenses. 

Section 1.262–1 of the Income Tax 

Regulations generally disallows a 

deduction for local lodging expenses. 

The proposed regulations allow 

taxpayers to deduct local lodging 

expenses as ordinary and necessary 

business expenses in appropriate 

circumstances. 

Business Expenses Generally 

Section 162(a) of the Internal Revenue 

Code (Code) allows a deduction for all 

of the ordinary and necessary expenses 

paid or incurred during the taxable year 

in carrying on any trade or business. 

Whether an expense is ordinary and 

necessary is a question of fact. In 

general, a trade or business expense is 

ordinary if it is normal, usual, or 

customary in the taxpayer’s type of 

business. An expense is necessary if it 

is appropriate and helpful for the 

development of the taxpayer’s business. 

See Commissioner v. Heininger, 320 

U.S. 467, 475 (1943). An expense that 

serves primarily to furnish the taxpayer 

with a social or personal benefit, and is 

only secondarily related to business, is 

not a necessary business expense under 

section 162(a). 

Employee Expenses 

An expense that an employee must 

bear as a condition of employment may 

be a deductible employee business 

expense. See Sibla v. Commissioner, 

611 F.2d 1260 (9th Cir. 1980), acq. 

(1985–2 CB viii) (contributions to 

firemen’s mess required as a condition 

of employment are deductible business 

expenses). However, expenses that 

primarily are for the employee’s 

personal benefit or convenience are not 

deductible employee business expenses. 

See Commissioner v. Flowers, 326 U.S. 

465 (1946) (a taxpayer’s expenses for 

lodging near his principal work 

location, to avoid a long commute to 

and from his primary residence, were 

nondeductible personal expenses 

incurred solely because of the taxpayer’s 

decision to maintain his primary 

residence far from his work location). 

Deductible Employee Expenses 

The tax consequences to an employee 

who is reimbursed by an employer for 

an expense, or who receives property or 

services resulting from an employer’s 

payment of an expense, depend on 

whether the expense is one that would 

have been deductible if paid directly by 

the employee. 

For example, if an employee pays an 

expense and an employer reimburses 

the employee under a reimbursement or 

other expense allowance arrangement, 

the reimbursement is not includible in 

the employee’s income if it is made 

under an accountable plan. A 

reimbursement is treated as made under 

an accountable plan only if it is made 

for an expense that would be deductible 

by the employee under sections 161 

through 199. See sections 62(a)(2)(A) 

and 62(c). 

Similarly, if an employer provides 

property or services to an employee in 

the course of business, the value of the 

benefit to the employee is excludable 

from the employee’s income if the 

benefit constitutes a working condition 

fringe under section 132(a)(3). A 

working condition fringe is defined as 


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property or services provided to an 

employee to the extent that, if the 

employee paid for the property or 

services, the payment would be 

allowable as a deduction to the 

employee under section 162 or 167. 

Nondeductible Personal Expenses 

Section 262(a) provides that, except as 

otherwise provided in Chapter 1 of the 

Code, no deduction is allowed for 

personal, living, or family expenses. 

Section 1.262–1(b)(5) provides, as 

examples of personal, living, and family 

expenses, that the costs of a taxpayer’s 

meals incurred when not traveling away 

from home (local meals) are generally 

nondeductible personal expenses. Local 

meal expenses may be deducted, 

however, if they otherwise qualify as 

ordinary and necessary business 

expenses under section 162 or as 

expenses for the production of income 

under section 212. In contrast, lodging 

expenses incurred when not traveling 

away from home (local lodging) are 

nondeductible personal expenses. Thus, 

local lodging expenses that would 

otherwise qualify as trade or business 

expenses under section 162 or as 

production of income expenses under 

section 212 are not deductible under the 

current general rule. 

Local Lodging Expenses 

The cost of local lodging that a 

taxpayer pays or incurs primarily for the 

taxpayer’s convenience or personal 

benefit is not an ordinary and necessary 

expense of a business or incomeproducing activity. Similarly, the cost of 

local lodging provided to an employee 

by an employer for the employee’s 

convenience or personal benefit would 

not be deductible by the employee if the 

employee paid the cost directly. 

Therefore, the value of the lodging 

under those circumstances is not 

excludible from the gross income of an 

employee as a working condition fringe 

under section 132(a)(3), and 

reimbursement for the cost of the 

lodging under those circumstances is 

not a payment under an accountable 

plan under § 1.62–2(c). Consequently, 

unless excludible on another basis, the 

value of the lodging or the amount of 

reimbursement under those 

circumstances is includible in the 

employee’s income under section 61 as 

compensation for services. See §§ 1.61– 

21(a)(3), 1.62–2, and 1.132–1. 

The cost of local lodging is for the 

convenience or personal benefit of an 

employee (or other recipient) if, for 

example, the lodging is provided to the 

employee (1) as additional 

compensation, such as to provide a 

weekend at a luxury hotel or resort; (2) 

to enable the employee to avoid a longdistance commute (Commissioner v. 

Flowers); (3) because the employee is 

required to work overtime (Coombs v. 

Commissioner, 608 F.2d 1269, 1273 (9th 

Cir. 1979)); (4) as housing for a recently 

relocated employee while the employee 

searches for permanent housing; or (5) 

for the employee’s indefinite personal 

use (International Artists, Ltd, v. 

Commissioner, 55 T.C. 94 (1970)). An 

employer may deduct the costs the 

employer incurs in providing the 

lodging in each of these cases under 

section 162(a) as compensation for 

services. See §§ 1.162–7(a) and 1.162– 

25T. However, because the primary 

purpose of the lodging is to provide the 

employee with a personal benefit, if the 

employee pays the cost of the lodging 

directly, the employee may not deduct 

the expense as an ordinary and 

necessary business expense under 

section 162(a). Therefore, a cash 

reimbursement of the cost is not 

excludible from the employee’s gross 

income under section 62(c) and the 

value of the lodging is not excludible 

from the employee’s gross income under 

section 132(d) as a working condition 

fringe. 

Expenditures for local lodging may 

qualify as deductible ordinary and 

necessary expenses under appropriate 

circumstances if all other requirements 

of section 162 are met. For example, an 

employer may require its employees to 

stay at a local hotel for the bona fide 

purpose of facilitating training or team 

building directly connected with the 

employer’s trade or business. Similarly, 

a professional sports team may require 

its employees (players and coaches) to 

stay at a local hotel the night before a 

home game to ensure physical 

preparedness and allow for last minute 

training. Under these circumstances, the 

cost of the lodging is primarily for the 

business purposes of the employer and 

not to provide a personal benefit to the 

employees. The cost of the lodging 

would be deductible by an employee 

under section 162 if the employee paid 

the cost directly, and thus the value of 

the lodging may be excluded from the 

employee’s gross income as a working 

condition fringe if other requirements 

are satisfied. Similarly, a payment from 

the employer reimbursing the employee 

for the cost of the lodging may be 

excluded from the employee’s gross 

income as a payment under an 

accountable plan if all the requirements 

of an accountable plan are met. 

Notice 2007–47 (2007–1 CB 1393) (see 

§ 601.601(d)(2) of this chapter) advises 

taxpayers that the IRS and the Treasury 

Department intend to amend the 

treatment of the costs of a taxpayer’s 

local lodging under § 1.262–1(b)(5). The 

notice provides that, pending issuance 

of additional published guidance, the 

IRS will not apply § 1.262–1(b)(5) to 

expenses for local lodging of an 

employee that an employer provides to 

the employee or requires the employee 

to obtain, if: (1) The lodging is provided 

on a temporary basis; (2) the lodging is 

necessary for the employee to 

participate in or be available for a bona 

fide business meeting or function of the 

employer; and (3) the expenses are 

otherwise deductible by the employee, 

or would be deductible if paid by the 

employee, under section 162(a). 

Explanation of Provisions 

These regulations propose to amend 

the regulations under sections 162 and 

262. The proposed regulations under 

section 162 provide that expenses paid 

or incurred for local lodging may be 

deductible as ordinary and necessary 

expenses of a taxpayer’s trade or 

business, including the trade or 

business of being an employee. The 

proposed regulations provide a safe 

harbor for certain local lodging at a 

business meeting, conference, or other 

activity or function. Other local lodging 

expenses may be deductible as business 

expenses depending on the facts and 

circumstances. 

The proposed regulations under 

section 262 provide that a taxpayer’s 

costs incurred for local lodging are 

personal expenses unless the expenses 

are deductible under section 162. 

Comments are specifically requested on 

whether the section 262 regulations 

should be amended to provide that local 

lodging expenses are not personal 

expenses if they are deductible under 

section 212. 

The proposed regulations also amend 

the regulations under section 262 to 

remove references to section 217 that 

are obsolete. Section 217 was amended 

by the Revenue Reconciliation Act of 

1993, Public Law 103–66 (107 Stat. 

417). Under the amendments, lodging 

when not traveling away from home and 

meals are not deductible as moving 

expenses. 

Effective/Applicability Date 

The regulations are proposed to apply 

to expenses paid or incurred on or after 

the date these regulations are published 

as final regulations in the Federal 

Register. However, until these 

regulations are published as final 

regulations in the Federal Register, 

taxpayers may apply the proposed 

regulations to expenses paid or incurred 

in taxable years for which the period of 

limitation on credit or refund under 

section 6511 has not expired. 


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Federal Register / Vol. 77, No. 80 / Wednesday, April 25, 2012 / Proposed Rules 24659 

Effect on Other Documents 

Notice 2007–47 is obsoleted as of 

April 25, 2012. 

Special Analyses 

This notice of proposed rulemaking is 

not a significant regulatory action as 

defined in Executive Order 12866, as 

supplemented by Executive Order 

13563. 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 the 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 Code, this notice 

of proposed rulemaking has been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

Comments and Requests for a Public 

Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

comments that are submitted timely to 

the IRS as prescribed in this preamble 

under the ‘‘Addresses’’ heading. The 

Treasury Department and the IRS invite 

comments on all aspects of the proposed 

rules. All comments will be available for 

public inspection and copying. A public 

hearing may be scheduled if requested 

in writing by any person who timely 

submits comments. If a public hearing is 

scheduled, notice of the date, time, and 

place for the public hearing will be 

published in the Federal Register. 

Drafting Information 

The principal author of these 

regulations is R. Matthew Kelley of the 

Office of Associate Chief Counsel 

(Income Tax and Accounting). However, 

other personnel from the IRS and 

Treasury Department participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

proposed to be amended as follows: 

PART 1—INCOME TAXES 

Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

Par. 2. Section 1.162–31 is added to 

read as follows: 

§ 1.162–31 Expenses paid or incurred for 

lodging when not traveling away from 

home. 

(a) In general. Expenses paid or 

incurred for lodging when not traveling 

away from home (local lodging) 

generally are personal, living, or family 

expenses that are nondeductible under 

section 262(a). Under certain 

circumstances, however, expenses for 

local lodging may be deductible under 

section 162(a) as ordinary and necessary 

expenses paid or incurred in connection 

with carrying on a taxpayer’s trade or 

business, including a trade or business 

as an employee. Whether local lodging 

expenses are paid or incurred in 

carrying on a taxpayer’s trade or 

business is determined under all the 

facts and circumstances. One factor is 

whether the taxpayer incurs the expense 

because of a bona fide condition or 

requirement of employment imposed by 

the taxpayer’s employer. Expenses paid 

or incurred for local lodging that is 

lavish or extravagant under the 

circumstances or that primarily 

provides an individual with a social or 

personal benefit are not incurred in 

carrying on a taxpayer’s trade or 

business. 

(b) Safe harbor for local lodging at 

business meetings and conferences. An 

individual’s expenses for local lodging 

will be treated as ordinary and 

necessary business expenses if— 

(1) The lodging is necessary for the 

individual to participate fully in or be 

available for a bona fide business 

meeting, conference, training activity, or 

other business function; 

(2) The lodging is for a period that 

does not exceed five calendar days and 

does not recur more frequently than 

once per calendar quarter; 

(3) If the individual is an employee, 

the employee’s employer requires the 

employee to remain at the activity or 

function overnight; and 

(4) The lodging is not lavish or 

extravagant under the circumstances 

and does not provide any significant 

element of personal pleasure, recreation, 

or benefit. 

(c) Examples. The provisions of this 

section are illustrated by the following 

examples. In each example the 

employer and the employees meet all 

other requirements (such as 

substantiation) for deductibility of the 

expense and for exclusion from income 

as a working condition fringe or 

payment under an accountable plan. 

Example 1. (i) Employer conducts training 

for its employees at a hotel near Employer’s 

main office. The training is directly 

connected with Employer’s trade or business. 

Some employees attending the training are 

traveling away from home and some 

employees are not traveling away from home. 

Employer requires all employees attending 

the training to remain at the hotel overnight 

for the bona fide purpose of facilitating the 

training. Employer pays the costs of the 

lodging at the hotel directly to the hotel and 

does not treat the value as compensation to 

the employees. 

(ii) Employer has a noncompensatory 

business purpose for paying the lodging 

expenses. Employer is not paying the 

expenses primarily to provide a social or 

personal benefit to the employees. If the 

employees who are not traveling away from 

home had paid for their own lodging, the 

expenses would have been deductible under 

section 162(a) as ordinary and necessary 

business expenses of the employees. 

Therefore, the value of the lodging is 

excluded from the employees’ income as a 

working condition fringe under section 

132(a) and (d). 

(iii) Employer may deduct the lodging 

expenses, including lodging for employees 

who are not traveling away from home, as 

ordinary and necessary business expenses 

under section 162(a). 

Example 2. (i) The facts are the same as 

in Example 1, except that the employees pay 

the cost of their lodging at the hotel directly 

to the hotel, Employer reimburses the 

employees for the cost of the lodging, and 

Employer does not treat the reimbursement 

as compensation to the employees. 

(ii) Employer is reimbursing the lodging 

expenses for a noncompensatory business 

purpose and not primarily to provide a social 

or personal benefit to the employees. The 

employees incur the expenses in performing 

services for the employer. If Employer had 

not reimbursed the employees who are not 

traveling away from home for the cost of the 

lodging, the expenses would have been 

deductible under section 162(a) as ordinary 

and necessary business expenses of the 

employees. Therefore, the reimbursements to 

the employees are made under an 

accountable plan and are excluded from the 

employees’ gross income. 

(iii) Employer may deduct the lodging 

expense reimbursements, including 

reimbursements for employees who are not 

traveling away from home, as ordinary and 

necessary business expenses under section 

162(a). 

Example 3. (i) Employer is a professional 

sports team. Employer requires its employees 

(players and coaches) to stay at a local hotel 

the night before a home game to conduct last 

minute training and ensure the physical 

preparedness of the players. Employer pays 

the lodging expenses directly to the hotel and 

does not treat the value as compensation to 

the employees. 

(ii) Employer has a noncompensatory 

business purpose for paying the lodging 

expenses. Employer is not paying the lodging 

expenses primarily to provide a social or 

personal benefit to the employees. If the 

employees had paid for their own lodging, 

the expenses would have been deductible by 

the employees under section 162(a) as 

ordinary and necessary business expenses. 


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Therefore, the value of the lodging is 

excluded from the employees’ income as a 

working condition fringe. 

(iii) Employer may deduct the expenses for 

lodging the players and coaches at the hotel 

as ordinary and necessary business expenses 

under section 162(a). 

Example 4. (i) Employer hires Employee, 

who currently resides 500 miles from 

Employer’s business premises. Employer 

pays for temporary lodging for Employee 

near Employer’s business premises while 

Employee searches for a residence. 

(ii) Employer is paying the temporary 

lodging expense primarily to provide a 

personal benefit to Employee by providing 

housing while Employee searches for a 

residence. Employer incurs the expense only 

as additional compensation and not for a 

noncompensatory business purpose. If 

Employee paid the temporary lodging 

expense, the expense would not be an 

ordinary and necessary employee business 

expense under section 162(a) because the 

lodging primarily provides a personal benefit 

to Employee. Therefore, the value of the 

lodging is includible in Employee’s gross 

income as additional compensation. 

(iii) Employer may deduct the lodging 

expenses as ordinary and necessary business 

expenses under section 162(a) and § 1.162– 

25T. 

Example 5. (i) Employee normally travels 

two hours each way between her home and 

her office. Employee is working on a project 

that requires Employee to work late hours. In 

order to maximize Employee’s availability to 

work on the project, Employer provides 

Employee with lodging at a hotel near the 

office. 

(ii) Employer is paying the temporary 

lodging expense primarily to provide a 

personal benefit to Employee by relieving her 

of the daily commute to her residence. 

Employer incurs the expense only as 

additional compensation and not for a 

noncompensatory business purpose. If 

Employee paid the temporary lodging 

expense, the expense would not be an 

ordinary and necessary business expense 

under section 162(a) because the lodging 

primarily provides a personal benefit to 

Employee. Therefore, the value of the lodging 

is includible in Employee’s gross income as 

additional compensation. 

(iii) Employer may deduct the lodging 

expenses as ordinary and necessary business 

expenses under section 162(a) and § 1.162– 

25T. 

Example 6. (i) Employer requires an 

employee to be ‘‘on duty’’ each night to 

respond quickly to emergencies that may 

occur outside of normal working hours. 

Employees who work daytime hours each 

serve a ‘‘duty shift’’ once each month in 

addition to their normal work schedule. 

Emergencies that require the duty shift 

employee to respond occur regularly. 

Employer has no sleeping facilities on its 

business premises and pays for a hotel room 

nearby where the duty shift employee stays 

until called to respond to an emergency. 

(ii) Employer has a noncompensatory 

business purpose for paying the lodging 

expenses. Employer is not providing the 

lodging to duty shift employees primarily to 

provide a social or personal benefit to the 

employees. If the employees had paid for 

their lodging, the expenses would have been 

deductible by the employees under section 

162(a) as ordinary and necessary business 

expenses. Therefore, the value of the lodging 

is excluded from the employees’ income as 

a working condition fringe. 

(iii) Employer may deduct the lodging 

expenses as ordinary and necessary business 

expenses under section 162(a). 

(d) Effective/applicability date. This 

section applies to expenses paid or incurred 

on or after the date these regulations are 

published as final regulations in the Federal 

Register. However, until these proposed 

regulations are published as final regulations 

in the Federal Register, taxpayers may apply 

the proposed regulations to local lodging 

expenses that are paid or incurred in taxable 

years for which the period of limitation on 

credit or refund under section 6511 has not 

expired. 

Par. 3. In § 1.262–1, paragraph (b)(5) 

is amended to read as follows: 

§ 1.262–1 Personal, living, and family 

expenses. 

* * * * * 

(b) * * * 

(5) Expenses incurred in traveling 

away from home (which include 

transportation expenses, meals, and 

lodging) and any other transportation 

expenses are not deductible unless they 

qualify as expenses deductible under 

section 162 (relating to trade or business 

expenses), section 170 (relating to 

charitable contributions), section 212 

(relating to expenses for production of 

income), section 213 (relating to 

medical expenses), or section 217 

(relating to moving expenses), and the 

regulations under those sections. The 

taxpayer’s costs of commuting to his 

place of business or employment are 

personal expenses and do not qualify as 

deductible expenses. For expenses paid 

or incurred before the date these 

regulations are published as final 

regulations in the Federal Register, a 

taxpayer’s expenses for lodging when 

not traveling away from home (local 

lodging) are nondeductible personal 

expenses. For expenses paid or incurred 

on or after the date these regulations are 

published as final regulations in the 

Federal Register, a taxpayer’s expenses 

for local lodging are personal expenses 

and are not deductible unless they 

qualify as deductible expenses under 

section 162. However, until these 

regulations are published as final 

regulations in the Federal Register, 

taxpayers may deduct local lodging 

expenses that qualify under section 162 

and are paid or incurred in taxable years 

for which the period of limitation on 

credit or refund under section 6511 has 

not expired. Except as permitted under 

section 162 or 212, the costs of a 

taxpayer’s meals not incurred in 

traveling away from home are 

nondeductible personal expenses. 

* * * * * 

Steven T. Miller, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2012–9885 Filed 4–24–12; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 31 

[REG–151687–10] 

RIN 1545–BJ98 

Withholding on Payments by 

Government Entities to Persons 

Providing Property or Services 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Withdrawal of notice of 

proposed rulemaking. 

SUMMARY: This document withdraws a 

notice of proposed rulemaking relating 

to withholding by government entities 

on payments to persons providing 

property or services. The proposed 

regulations are withdrawn because 

Public Law 112–56, ‘‘The 3% 

Withholding Repeal and Job Creation 

Act,’’ repealed the provision of the 

Internal Revenue Code underlying the 

proposed rules. The guidance affects 

government entities that would have 

been required to withhold and report 

tax from payments to persons providing 

property or services and also affects the 

persons receiving payments for property 

or services from these government 

entities. 

FOR FURTHER INFORMATION CONTACT: 

A.G. Kelley, (202) 622–6040 (not a tollfree number). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 3402(t) of the Internal 

Revenue Code (Code) was added by 

section 511 of the Tax Increase 

Prevention and Reconciliation Act of 

2005, Public Law 109–222 (TIPRA), 120 

Stat. 345, which was enacted on May 

17, 2006. 

Section 102 of the 3% Withholding 

Repeal and Job Creation Act (Pub. L. 

112–56, 125 Stat. 711), which was 

enacted on November 21, 2011, repealed 

section 3402(t) of the Code. 

The Treasury Department and the IRS 

issued proposed regulations under 

section 3402(t), published in the 


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