3680 Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules

on the form prescribed for the

partnership return must be filed for the

partnership. The return must be signed

by—

(A) Each partner that is a partner in

the partnership at the time the election

is made; or

(B) Any partner of the partnership

who is authorized (under local law or

the partnership’s organizational

documents) to make the election and

who represents to having such

authorization under penalties of perjury.

(iii) Controlled foreign partnerships.

Certain United States persons who are

partners in a foreign partnership

controlled (within the meaning of

section 6038(e)(1)) by United States

persons may be required to provide

information with respect to the

partnership under section 6038.

(4) Exclusion for certain

organizations. The return requirement

of section 6031 and this section does not

apply to the International

Telecommunications Satellite

Organization, the International Maritime

Satellite Organization, or any

organization that is a successor of either.

(c) Partnerships excluded from the

application of subchapter K—(1) Wholly

excluded—(i) Year of election. An

eligible partnership as described in

§ 1.761–2(a) that elects to be excluded

from all the provisions of subchapter K

of chapter 1 of the Internal Revenue

Code in the manner specified by

§ 1.761–2(b)(2)(i) must timely file the

form prescribed for the partnership

return for the taxable year for which the

election is made. In lieu of the

information otherwise required, the

return must contain or be accompanied

by the information required by § 1.761–

2(b)(2)(i).

(ii) Subsequent years. Except as

otherwise provided in paragraph

(c)(1)(i) of this section, an eligible

partnership that elects to be wholly

excluded from the application of

subchapter K is not required to file a

partnership return.

(2) Deemed excluded. An eligible

partnership that is deemed to have

elected exclusion from the application

of subchapter K beginning with its first

taxable year, as specified in § 1.761–

2(b)(2)(ii), is not required to file a

partnership return.

(d) Definitions—(1) Partnership. For

the meaning of the term partnership, see

§ 1.761–1(a).

(2) United States person. In applying

this section, United States person means

a person described in section

7701(a)(30); the government of the

United States, a State, or the District of

Columbia (including an agency or

instrumentality thereof); or a

corporation created or organized in

Guam, the Commonwealth of the

Northern Mariana Islands, the U.S.

Virgin Islands, and American Samoa, if

the requirements of sections 881(b)(1)

(A), (B), and (C) are met for such

corporation. The term does not include

an alien individual who is a resident of

Puerto Rico, Guam, the Commonwealth

of the Northern Mariana Islands, the

U.S. Virgin Islands, or American Samoa,

as determined under § 301.7701(b)–1(d)

of this chapter.

(e) Procedural requirements—(1)

Place for filing—(i) Domestic

partnerships. The return of a domestic

partnership that is required to file under

paragraph (a) of this section must be

filed with the service center for the

internal revenue district in which the

partnership has its principal office or

principal place of business in the

United States.

(ii) Foreign partnerships with United

States business or income. The return of

a foreign partnership that is required to

file under paragraph (b)(1) of this

section must be filed—

(A) With the service center for the

internal revenue district in which the

partnership has its principal office or

principal place of business in the

United States; or

(B) With the Internal Revenue Service

Center, Philadelphia, PA 19255–0011 if

the partnership has no office or place of

business in the United States.

(iii) Foreign partnerships without

United States business or income. The

return of a foreign partnership filed

under paragraph (b)(3)(ii) of this section

(regarding partnerships for which an

election under section 703 is made)

must be filed with the Internal Revenue

Service Center, Philadelphia, PA 19255–

0011. A statement must be attached to

the partnership return indicating that

the return is being filed pursuant to

paragraph (b)(3)(ii) of this section solely

to make one or more elections under

section 703.

(2) Time for filing. The return of a

partnership must be filed on or before

the fifteenth day of the fourth month

following the close of the taxable year

of the partnership.

(3) Magnetic media filing. For

magnetic media filing requirements

with respect to partnerships, see section

6011(e)(2) and the regulations

thereunder.

(f) Effective date. This section applies

to taxable years of a partnership ending

on or after the 90th day after the date

final regulations on this subject are

published in the Federal Register.

However, in no event will paragraph

(b)(2) of this section apply to taxable

years of a partnership that begin before

January 1, 1999.

Par. 3. Section 1.6063–1 is amended

by adding paragraph (c) to read as

follows:

§ 1.6063–1 Signing of returns, statements,

and other documents made by

partnerships.

* * * * *

(c) Certain partnership elections—(1)

In general. For rules regarding the

authority of a partner to sign a

partnership return filed solely for the

purpose of making certain partnershiplevel elections, see § 1.6031(a)–

1(b)(3)(ii).

(2) Effective date. The provisions of

paragraph (c) of this section apply to

taxable years of a partnership ending on

or after the 90th day after the date final

regulations on this subject are published

in the Federal Register.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98–1529 Filed 1–23–98; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG–104691–97]

RIN 1545–AV28

Electronic Tip Reports

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document proposes to

amend the regulations dealing with the

requirement that tipped employees

report their tips to their employer. The

proposed regulations permit employers

to establish electronic systems for use

by their tipped employees in reporting

tips to the employer. The proposed

regulations also address substantiation

requirements for employees using the

electronic system.

DATES: Written comments and requests

for a public hearing must be received by

April 27, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–104691–97),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions

may be hand delivered between the

hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG–104691–97),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue,

NW., Washington, DC. Alternatively,
Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules 3681

taxpayers may submit comments

electronically via the Internet by

selecting the ‘‘Tax Regs’’ option on the

IRS Home Page, or by submitting

comments directly to the IRS Internet

site at http://www.irs.ustreas.gov/prod/

taxlregs/comments.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Karin

Loverud, 202–622–6060; concerning

submissions, Evangelista Lee, 202–622–

8452 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in this notice of proposed

rulemaking has been submitted to the

Office of Management and Budget for

review in accordance with the

Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)). Comments on the

collection of information should be sent

to the Office of Management and

Budget, Attn: Desk Officer for the

Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, DC 20503, with copies to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer, T:FP,

Washington, DC 20224. Comments on

the collection of information should be

received by March 27, 1998. Comments

are specifically requested concerning:

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

Internal Revenue Service, including

whether the information will have

practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information (see below);

How the quality, utility, and clarity of

the information to be collected may be

enhanced;

How the burden of complying with

the proposed collection of information

may be minimized, including through

the application of automated collection

techniques or other forms of information

technology; and

Estimates of capital or start-up costs

and costs of operation, maintenance,

and purchase of service to provide

information.

The collections of information in this

proposed regulation are in § 31.6053–1

and § 31.6053–4. This information is

required to conform with the statute and

to assist employers and employees in

fulfilling their responsibilities. This

information will be used by employers

to establish the amount of income and

FICA (or RRTA) taxes to withhold from

the employee reporting the tips. This

information will be used by employees

in meeting the substantiation

requirements. The collections of

information are mandatory. The likely

respondents are individuals.

Estimated total annual reporting

burden: 600,000 hours.

Estimated average annual burden

hours per respondent: 2 hours.

Estimated number of respondents:

300,000.

Estimated annual frequency of

responses: varies.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a valid control

number assigned by the Office of

Management and Budget.

Books or records relating to a

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

This document contains proposed

amendments to the Employment Tax

Regulations (26 CFR part 31) under

section 6053(a) of the Internal Revenue

Code (Code). The proposed regulations

provide rules permitting employers to

establish electronic systems for use by

their tipped employees in reporting tips

to the employer.

In general, under section 6053(a) of

the Code, every employee who receives

tips must report the tips to the

employer. The tips that must be

reported are those that are wages for

purposes of federal income tax

withholding and the Federal Insurance

Contributions Act (FICA) and

compensation for purposes of the

Railroad Retirement Tax Act (RRTA).

The tips must be reported in a written

statement or statements furnished to the

employer on or before the 10th day

following the month in which the tips

are received. The Secretary is

authorized to prescribe rules necessary

to implement this provision, including

the form and manner of furnishing the

statements.

Generally, all cash tips (which

include tips that are charged) are wages

(or compensation), with one exception.

If the amount of cash tips received in a

calendar month by an employee in the

course of any one employment is less

than $20, the cash tips received in that

employment during that month are not

wages subject to income tax

withholding, FICA taxes, or RRTA taxes.

For example, A is a full-time tipped

employee of X and a part-time tipped

employee of Y. During the month, A

received $1,000 in tips in A’s

employment with X and $10 in tips in

A’s employment with Y. The $1,000 in

tips received in the course of

employment with X are wages for

income tax withholding and FICA (or

RRTA) tax purposes. A must report the

$1,000 in tips to X no later than the 10th

day of the following month. The $10 in

tips received in the course of

employment with Y are not wages for

those purposes. The $10 are, however,

subject to federal income tax and must

be reported as wages by the employee

on Form 4137, Social Security and

Medicare Tax on Unreported Tip

Income, which the employee must file

with Form 1040, U.S. Individual Income

Tax Return.

Section 31.6053–1(b)(1) prescribes

rules for tip statements. The statement

furnished by the employee to the

employer must be in writing and must

be signed by the employee. The

statement must disclose (1) the

employee’s name, address, and social

security number; (2) the employer’s

name and address; (3) the period for

which and the date on which the

statement is furnished; and (4) the total

amount of tips received by the employee

during the period that are required to be

reported to the employer.

Under § 31.6053–1(b)(2), no particular

form is prescribed for use in furnishing

the tip statement. If the employer does

not provide a form for use by the

employee in reporting tips received by

the employee, the employee may use

Form 4070, Employee’s Report of Tips

to Employer. Twelve blank Forms 4070

and 12 blank Forms 4070A, Employee’s

Daily Record of Tips are reproduced in

Publication 1244, Employee’s Daily

Record of Tips and Report to Employer.

(Daily completion of Form 4070A

constitutes sufficient evidence of tip

income under the substantiation

requirements of § 31.6053–4.) Pub. 1244

is a convenient pocket-sized document

that also includes the basic rules for

reporting tips. Copies of Pub. 1244 are

available from the IRS by calling 1–800–

829–3676.

The regulations specifically permit

employers to design their own forms for

use by employees in reporting tips. A

form used solely to report tips must

include (1) The employee’s name,

address, and social security number; (2)

the employer’s name and address; (3)

the period for which and the date on

which the statement is furnished; and

(4) the total amount of tips received by

the employee during the period that are

required to be reported to the employer.

In lieu of a special tip reporting form

that is used solely for the purpose of

reporting tips, employers may provide

for reporting of tips on regularly used
3682 Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules

forms, such as time cards. The regularly

used forms need not include the

employer information, but they must

accurately identify the employee,

identify the reporting period, and

specify the amount of tips received. If a

regularly used form is used to report

tips, the employer must furnish the

employee a statement showing the

amount of tips reported by the employee

for the period. This statement must be

furnished no later than shortly after the

first wage payment following the

employee’s tip report. A payroll check

stub or other similar payroll document

may be used for this purpose.

The period covered by a tip statement

may not exceed one calendar month. An

employer may require tip statements

more frequently, such as daily, weekly

or every pay period, but not less

frequently than monthly. In no event,

however, may an employer permit tips

received in one month to be reported

after the 10th of the following month.

See section 6053(a). For example, X has

a weekly payroll period, beginning on

Sunday and ending on Saturday. X

requires that all tip statements be

submitted to X no later than the Monday

following each payroll period. For the

payroll period beginning on Sunday,

March 30, and ending on Saturday,

April 5, the statements must be

furnished on or before Monday, April 7.

If this occurs, the 10th-of-the-month

requirement for March is met. If X’s

payroll period were biweekly and began

on March 30 and ended on April 16 and

if X required that all tip statements be

submitted to X no later than the Monday

following each payroll period, the 10thof-the-month requirement for March

would not be met.

A tip statement furnished after this

deadline does not meet the

requirements of section 6053(a). The

employer is not required to withhold

income, FICA, or RRTA taxes on tips

reported after the 10th of the following

month and is not responsible for

reporting those tips to the IRS. The

responsibility for reporting and paying

the employee portion of the FICA tax

shifts to the employee. The employee

must complete and attach Form 4137,

Social Security and Medicare Tax on

Unreported Tip Income, to the

employee’s federal income tax return.

Moreover, an employee who fails to

report tips as required by section

6053(a) is subject to an addition to the

FICA tax or the RRTA tax, whichever is

applicable, equal to 50 percent of the

employee portion of the FICA or RRTA

tax on those tips.

Section 31.6053–4(a)(1) provides that

an employee must maintain sufficient

evidence to establish the amount of tip

income received during a taxable year.

Sufficient evidence consists of either a

daily record or, if the employee does not

maintain a daily record, other evidence

(such as documentary evidence) that is

as credible and as reliable as a daily

record. Nevertheless, if the facts or

circumstances indicate that the

employee received a larger amount of

tip income, a daily record or other

evidence may not be sufficient

evidence.

Section 31.6053–4(a)(2) describes the

requirements for a daily record. In

general, the daily record must show the

amount of cash and charge tips received

directly from customers or other

employees and the amount of tips, if

any, that the employee paid out to other

employees through tip sharing, tip

pooling, or other arrangements and the

names of the employees. The daily

record must show the date on which

each entry is made. Each entry must be

made on or near the date the tip income

is received. An entry made when the

employee has full present knowledge of

those receipts and payments satisfies

this requirement.

Section 31.6053–4(a)(3) describes

documentary evidence. Documentary

evidence consists of copies of any

documents that contain amounts added

as a tip to a check by a customer or

amounts paid by a customer for food or

beverages with respect to which tips

generally would be received. Examples

of documentary evidence are copies of

restaurant bills, credit card charges, or

charges under any other arrangement

containing amounts added by the

customer as a tip.

Explanation of Provisions

Electronic Tip Statements

No provision currently exists for

employees to furnish tip statements to

employers in a form other than on

paper. The proposed regulations would

permit an employer to adopt a system

under which some or all of the tipped

employees of the employer would

furnish their tip statements

electronically. Therefore, the employer

could include in its electronic system

any tipped employee or employees

working in any location or locations.

The proposed regulations set forth

requirements for employers who wish to

establish electronic systems for

employees to use to furnish tip

statements to their employers. The

proposed regulations apply only to tip

statements required by section 6053(a)

and not with respect to any other Code

sections.

An employer that chooses to establish

an electronic tip reporting system may

select the type or types of electronic

systems (such as telephone or computer)

to be used by its employees. The system

must, however, ensure that the

information received is the information

transmitted by the employee and must

document all occasions of access that

result in the transmission of a tip

statement. The design and operation of

the electronic system, including access

procedures, must make it reasonably

certain that the person accessing the

system and transmitting the tip

statement is the employee identified in

the transmission. In the event of an

examination, the employer must supply

a hard copy of the electronic statement

to the IRS upon request.

The electronic tip statement must

contain exactly the same information

that is required to be reported on a

paper tip statement and must contain

the employee’s electronic signature. The

electronic signature must identify the

employee furnishing the electronic tip

statement and authenticate and verify

the transmission. An electronic

signature can be in any form that

satisfies the foregoing requirements. An

electronic signature has the same effect

as a signature written on a paper tip

statement. See sections 6061, 6064, and

6065 of the Code.

Pursuant to Rev. Rul. 71–20 (1971–1

C.B. 392), all machine-sensible data

media used for recording, consolidating,

and summarizing accounting

transactions and records within a

taxpayer’s ADP system are records

within the meaning of section 6001 and

§ 1.6001–1. The record retention

requirements contained in Rev. Proc.

91–59 (1991–2 C.B. 841) (or any revenue

procedure updating Rev. Proc. 91–59),

dealing with automatic data processing

systems, apply to electronic tip

reporting systems.

The proposed regulations provide that

an employee maintains sufficient

evidence to establish the amount of tip

income received by the employee

during a calendar month through a daily

record (as described in § 31.6053–

4(a)(2)) if the employee both reports tips

on a daily basis through an electronic

system that otherwise meets the

substantiation requirements of the

regulations and receives from the

employer a hard copy of a daily record

based on those entries for the period.

Employee Substantiation Requirements

Because the proposed regulations

expand the permissible array of

employer-designed reporting systems to

include electronic methods, employers

will be providing a statement to

employees of the tips reported

consistent with the existing

requirements of § 31.6053–1(b). The
Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules 3683

Treasury and the IRS recognize that

many of these systems may capture tip

reporting on a very current basis (e.g.,

point-of-sale or end-of-shift). Thus, the

information in these systems offers a

reasonable substitute for a daily record

maintained by the employee if the

employer’s system provides the

employee with a printout that would

satisfy the current substantiation

requirements of § 31.6053–4.

Thus, these proposed regulations

provide that, if the employer, at its

option, provides employees with a copy

of the daily record based on entries

made by the employee in the system

and otherwise satisfying the

substantiation requirement of

§ 31.6053–4, the entry in the electronic

system on a daily (or more frequent)

basis by the employee, together with the

daily record based on these entries

provided by the employer, will satisfy

the substantiation requirements of

§ 31.6053–4. For example, assume an

employee enters tips in the employer’s

electronic system at the end of each

shift, but does not provide the employer

with a signed paper record of these tips.

After the end of each weekly payroll

period, the employer provides the

employee with a paper record that

includes all the information specified in

§ 31.6053–4(a)(2) and that shows the

total amount of tips reported for each

day during the period based on the

employee’s entries. If the employee

maintains this employer generated

paper record, the substantiation

requirements of § 31.6053–4 are

satisfied.

The Treasury and the IRS particularly

invite comment on whether the

proposed regulations should be

modified to reflect ways in which these

systems may permit further reduction in

paper reporting for either the employer

or employee while retaining provisions

for appropriate and timely

substantiation of income.

Railroad Retirement Tax Act Provisions

The tip reporting provisions of section

6053(a) apply to tips that are either

wages for income tax withholding and

Federal Insurance Contributions Act

(FICA) purposes or compensation for

Railroad Retirement Tax Act (RRTA)

purposes. The proposed regulations

would clarify that the regulations under

section 6053(a) apply to tips that are

compensation as well as to tips that are

wages.

Proposed Effective Date

The revisions and additions in the

proposed regulations apply to tips

required to be reported to the employer

after these regulations are published as

final regulations in the Federal Register.

However, taxpayers may rely on the

guidance in these proposed regulations

for prior periods.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. 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.

It is hereby certified that the

collections of information in these

regulations will not have a significant

economic impact on a substantial

number of small entities. The collection

of information in § 31.6053–1 is

imposed solely on individuals, not on

any small entities, and the regulations

provide flexibility to employees who

must provide the information required

by statute, thereby reducing burden.

With respect to the collection of

information in § 31.6053–4, the

certification is based on the expectation

of the IRS that most businesses that

choose to implement the electronic tip

reporting provisions will be larger

businesses with many employees and

sophisticated computer systems.

Moreover, because the provision is

wholly elective, any small business that

would be adversely impacted may

choose not to use electronic tip

reporting. Finally, the Service expects

that for those small entities that choose

to implement the provision, the use of

electronic tip reporting will reduce

overall burden by reducing paper

collections. Therefore, a Regulatory

Flexibility Analysis under the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) is not required.

Pursuant to section 7805(f) of the

Code, this notice of proposed

rulemaking will be 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

written comments (a signed original and

eight copies) that are submitted timely

(in the manner described in the

ADDRESSES portion of this preamble) to

the IRS. All comments will be available

for public inspection and copying.

A public hearing may be scheduled if

requested in writing by any person that

timely submits written comments. The

IRS will also consider requests for

remote teleconference sites as part of the

public hearing. If a public hearing is

scheduled, notice of the date, time, and

place (including teleconference, if any)

for the hearing will be published in the

Federal Register.

Drafting Information

The principal author of these

proposed regulations is Karin Loverud,

Office of the Associate Chief Counsel

(Employee Benefits and Exempt

Organizations), IRS. However, other

personnel from the IRS and the Treasury

Department participated in their

development.

List of Subjects in 26 CFR Part 31

Employment taxes, Income taxes,

Penalties, Pensions, Railroad retirement,

Reporting and recordkeeping

requirements, Social security,

Unemployment compensation.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 31 is

proposed to be amended as follows:

PART 31—EMPLOYMENT TAXES AND

COLLECTION OF INCOME TAX AT

SOURCE

Paragraph 1. The authority citation

for part 31 continues to read in part as

follows:

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

Par. 2. Section 31.6053–1 is amended

as follows:

1. Paragraph (a) is revised.

2. The introductory text of paragraph

(b)(1) is revised.

3. The last sentence of paragraph

(b)(1)(iii) is revised.

4. Paragraph (b)(2) is revised.

5. Paragraph (c) is revised.

6. Paragraph (d) is added.

The revisions and additions read as

follows:

§ 31.6053–1 Report of tips by employee to

employer.

(a) Requirement that tips be

reported—(1) In general. An employee

who receives, in the course of

employment by an employer, tips that

constitute wages as defined in section

3121(a) or section 3401, or

compensation as defined in section

3231(e), must furnish to the employer a

statement, or statements, disclosing the

total amount of the tips received by the

employee in the course of employment

by the employer. Tips received by an

employee in a calendar month in the

course of employment by an employer

that are required to be reported to the

employer must be reported on or before

the 10th day of the following month.
3684 Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules

Thus, for example, tips received by an

employee in January 1998 are required

to be reported by the employee to the

employer on or before February 10,

1998.

(2) Cross references. For provisions

relating to the treatment of tips as wages

for purposes of the Federal Insurance

Contributions Act (FICA) tax under

sections 3101 and 3111, see sections

3102(c), 3121(a)(12), and 3121(q) and

§§ 31.3102–3 and 31.3121(a)(12)–1. For

provisions relating to the treatment of

tips as wages for purposes of the tax

under section 3402 (income tax

withholding), see sections 3401(a)(16),

3401(f), and 3402(k) and

§§ 31.3401(a)(16)–1, 31.3401(f)–1, and

31.3402(k)–1. For provisions relating to

the treatment of tips as compensation

for purposes of the Railroad Retirement

Tax Act (RRTA) tax under sections 3201

and 3221, see section 3231(e) and

§ 31.3231(e)–1(a).

(b) * * * (1) In general. The

statement described in paragraph (a) of

this section can be provided on paper or

transmitted electronically. The

statement must be signed by the

employee and must disclose:

* * * * *

(iii) * * * If the statement is for a

period of less than 1 calendar month,

the beginning and ending dates of the

period must be included (for example,

January 1 through January 8, 1998).

* * * * *

(2) Form of statement—(i) In general.

No particular form is prescribed for use

in furnishing the statement required by

this section. The statement may be

furnished on paper or transmitted

electronically. An electronic system and

all tip statements generated by that

system must meet the requirements of

paragraph (d) of this section. If the

employer does not provide any other

means for the employee to report tips,

the employee may use Form 4070,

Employee’s Report of Tips to Employer.

(ii) Single-purpose forms. A statement

may be furnished on an employerprovided form. The form may be on

paper or in electronic form. An

employer that provides a paper form

must make blank copies of the form

readily available to all tipped

employees. Any form, whether paper or

electronic, provided by an employer for

use by its tipped employees solely to

report tips must meet all the

requirements of paragraph (b)(1) of this

section.

(iii) Regularly used forms. Instead of

requiring that tips be reported as

described in paragraph (b)(2)(ii) of this

section on a special form used solely for

tip reporting, an employer may

prescribe regularly used forms for use

by employees in reporting tips. A

regularly used form may be on paper

(such as a time card or report) or in

electronic form, must meet the

requirements of paragraph (b)(1)(iii) and

(iv) of this section, must contain

identifying information that will ensure

accurate identification of the employee

by the employer, and is permitted to be

used only if the employer furnishes the

employee a statement suitable for

retention showing the amount of tips

reported by the employee for the period.

The employer statement may be

furnished when the employee reports

the tips, when wages are first paid

following the reporting of tips by the

employee, or within a short time after

the wages are paid. The employer may

meet this requirement, for example,

through the use of a payroll check stub

or other payroll document regularly

furnished by the employer to the

employee showing gross pay and

deductions. In the case of electronic tip

reports, the employer statement may be

furnished on a daily, weekly, monthly

or on a regular payroll basis (if not less

frequent than monthly).

(c) Period covered by, and due date of,

tip statement—(1) In general. A tip

statement furnished by an employee to

an employer may not cover a period

greater than 1 calendar month. An

employer may, however, require the

submission of a statement in respect of

a specified period of time, for example,

on a weekly or biweekly basis, regular

payroll period, etc. An employer may

specify, subject to the limitation in

paragraph (a) of this section, the time

within which, or the date on which, the

statement for a specified period of time

should be submitted by the employee.

For example, a statement covering a

payroll period may be required to be

submitted on the first (or second) day

following the close of the payroll

period. A statement submitted by an

employee after the date specified by the

employer for its submission

nevertheless will be considered as a

statement furnished pursuant to section

6053(a) and this section if it is

submitted to the employer on or before

the 10th day following the month in

which the tips were received.

(2) Termination of employment. If an

employee’s employment is terminating,

the employee must furnish a tip

statement to the employer when the

employee ceases to perform services for

the employer. A statement submitted by

an employee after the date on which the

employee ceases to perform services for

the employer will be considered as a

statement furnished pursuant to section

6053(a) and this section if the statement

is submitted to the employer on or

before the earlier of the day on which

the final wage payment is made by the

employer to the employee or the 10th

day following the month in which the

tips were received.

(d) Requirements for electronic

systems—(1) In general. The electronic

system must ensure that the information

received is the information transmitted

by the employee and must document all

occasions of access that result in the

transmission of a tip statement. In

addition, the design and operation of

the electronic system, including access

procedures, must make it reasonably

certain that the person accessing the

system and transmitting the statement is

the employee identified in the statement

transmitted.

(2) Same information as on paper

statement. The electronic tip statement

must provide the employer with all the

information required by paragraph (b)(1)

of this section.

(3) Signature. The electronic tip

statement must be signed by the

employee. The electronic signature must

identify the employee transmitting the

electronic tip statement and must

authenticate and verify the

transmission. For this purpose, the

terms ‘‘authenticate’’ and ‘‘verify’’ have

the same meanings as they do when

applied to a written signature on a paper

tip statement. An electronic signature

can be in any form that satisfies the

foregoing requirements.

(4) Copies of electronic tip statements.

Upon request by the Internal Revenue

Service (IRS), the employer must supply

the IRS with a hard copy of the

electronic tip statement and a statement

that, to the best of the employer’s

knowledge, the electronic tip statement

was filed by the named employee. The

hard copy of the electronic tip statement

must provide the information required

by paragraph (b)(1) of this section, but

need not be a facsimile of Form 4070 or

any employer-designed form.

(5) Record retention. The record

retention requirements dealing with

automatic data processing systems

apply to electronic tip reporting

systems.

Par. 3. Section 31.6053–4 is amended

as follows:

1. A sentence is added to paragraph

(a)(1) after the third sentence.

2. A sentence is added to paragraph

(a)(2) after the fourth sentence. The

additions read as follows:

§ 31.6053–4 Substantiation requirements

for tipped employees.

(a) * * *

(1) * * * The Commissioner may by

revenue ruling, procedure or other
Federal Register / Vol. 63, No. 16 / Monday, January 26, 1998 / Proposed Rules 3685

1The Librarian did adopt a zero rate for

retransmission of network signals to unserved

households located within the local markets of

network stations. Id.

guidance of general applicability

provide for other methods of

demonstrating evidence of tip income.

* * *

(2) * * * In addition, an electronic

system maintained by the employer that

collects substantially similar

information as Form 4070A may be used

to maintain such daily record, provided

the employee receives and maintains a

paper copy of the daily record. * * *

* * * * *

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98–1548 Filed 1–23–98; 8:45 am]

BILLING CODE 4830–01–U

LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 98–1]

Satellite Carrier Compulsory License;

Definition of Unserved Household

AGENCY: Copyright Office, Library of

Congress.

ACTION: Notice of inquiry.

SUMMARY: The Copyright Office of the

Library of Congress is opening a

rulemaking proceeding to determine the

permissibility, under the satellite

compulsory license, of satellite carriers

retransmitting over-the-air broadcast

network stations to subscribers who

reside within the local markets of those

stations.

DATES: Initial comments should be

received no later than February 25,

1998. Reply comments are due March

27, 1998.

ADDRESSES: If sent by mail, an original

and ten copies of comments and reply

comments should be addressed to:

David O. Carson, General Counsel,

Copyright Arbitration Royalty Panel

(CARP), P.O. Box 70977, Southwest

Station, Washington, DC 20024. If hand

delivered, an original and ten copies of

comments and reply comments should

be brought to: Office of the Copyright

General Counsel, James Madison

Memorial Building, Room LM–403, First

and Independence Avenue, SE.,

Washington, DC 20559–6000.

FOR FURTHER INFORMATION CONTACT:

David O. Carson, General Counsel, or

William Roberts, Senior Attorney,

Copyright Arbitration Royalty Panel

(CARP), P.O. Box 70977, Southwest

Station, Washington, DC 20024.

Telephone: (202) 707–8380. Fax: (202)

707–8366.

SUPPLEMENTARY INFORMATION: On

December 23, 1997, the Copyright Office

received a petition for rulemaking from

EchoStar Communications Corporation

(‘‘EchoStar’’) requesting that the Office

confirm that a satellite carrier’s local

retransmission of network stations to

subscribers who reside in those station’s

local markets is permissible under the

compulsory license granted by 17 U.S.C.

119. Three organizations, the

Association of Local Television Stations

(‘‘ALTV’’), Network Affiliated Stations

Alliance (‘‘NASA’’), and the National

Association of Broadcasters (‘‘NAB’’),

filed oppositions to EchoStar’s request

for a rulemaking. The petition and

oppositions are available for inspection

and copying at the Copyright Office in

Room LM 458, James Madison Memorial

Building, 101 Independence Avenue,

SE., Washington, DC.

Opening of This Proceeding

EchoStar’s petition is not the first

time that the Copyright Office has been

called upon to decide whether it is

permissible under section 119 for

satellite carriers to retransmit network

stations to subscribers who reside

within the local markets of those

stations. In the summer of 1996, the

Office received a letter from American

Sky Broadcasting (‘‘ASkyB’’) requesting

the Office issue a declaratory ruling that

such local-into-local retransmissions

were permissible under section 119. By

letter dated August 15, 1996, the Office

informed ASkyB that it would not issue

a declaratory ruling or formally resolve

the matter. The Office did state that if

ASkyB filed a Statement of Account and

royalty fee for local-into-local

retransmissions of network signals, the

Office would not question the

sufficiency of the filing or return it. See

Letter of the Acting General Counsel to

William Reyner, August 15, 1996.

ASkyB did not petition the Office for a

rulemaking proceeding.

One year later, the issue of local-intolocal retransmissions of network signals

arose again in the context of the

adjustment of the section 119 royalty

rates. In Docket No. 96–3 CARP SRA,

ASkyB argued to the Copyright

Arbitration Royalty Panel (CARP)

charged with the task of adjusting the

section 119 rates that local-into-local

retransmissions were permissible under

the terms of the statute, and that the

royalty rate for such retransmissions

should be zero. The CARP declined to

adopt ASkyB’s zero royalty request

because it determined that it lacked

subject matter jurisdiction to do so.

Report of the CARP at 48 (August 29,

1997). The CARP considered section

119(a)(2)(B), which provides that the

satellite compulsory license is ‘‘limited

to secondary transmissions to persons

who reside in unserved households,’’

and examined the section 119(d)(10)

definition of an ‘‘unserved household.’’

The CARP concluded that:

[N]etwork signals generally may not be

retransmitted to the local coverage area of

local network signals. The separate rate

request of ASkyB is explicitly intended to

apply to retransmission of network signals to

served households. Section 119 does not

provide a compulsory license for those

retransmissions. Hence, we lack subject

matter jurisdiction to set a rate for local

retransmissions of local network signals.

CARP Report at 48. The CARP did

acknowledge, however, that there could

be subscribers who resided within a

network station’s local market that fell

within the CARP’s interpretation of an

‘‘unserved household,’’ but the CARP

identified these as being ‘‘rare

instances.’’ Id.

The Librarian of Congress, reviewing

the CARP’s decision under an arbitrary

or contrary to the Copyright Act

standard, accepted the CARP’s

determination stating that he could not

‘‘unequivocally say that the Panel’s

decision is arbitrary or contrary to law.’’

62 FR 55742, 55753 (October 28, 1997).

The Librarian reached this decision

because he found the statute to be silent

on the issue of local-into-local

retransmissions. Id. The Librarian did

state, however, that although the statute

was silent, the Copyright Office

‘‘retain[ed] the authority to conduct a

rulemaking proceeding to determine the

permissibility of local retransmission of

network signals to served households,

regardless of the Panel’s determination

in this proceeding.’’ Id.1

Authority for a Rulemaking Proceeding

As stated in the Librarian’s review of

the CARP decision, the Copyright Office

believes that it has the authority to

gather information and conduct a

rulemaking to resolve whether localinto-local retransmission of network

signals is permissible under section 119.

The Office has determined in the past,

in the context of the section 111 cable

compulsory license, whether certain

retransmissions were subject to

statutory licensing. See 57 FR 3284

(January 29, 1992) (determining that

retransmissions of broadcast signals by

satellite carriers and Multichannel

Multipoint Distribution Services were

not eligible for the section 111 license);

62 FR 18705 (April 17, 1997)

(determining that retransmissions of