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[Federal Register Volume 66, Number 241 (Friday, December 14, 2001)]
[Rules and Regulations]
[Pages 64740-64744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30934]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 8969]
RIN 1545-AW37

Payment by Credit Card and Debit Card

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations authorizing the 
Commissioner to accept payment of internal revenue taxes by credit card 
or debit card and limit the use and disclosure of information relating 
to payment of taxes by credit card and debit card. Additionally, the 
final regulations provide that payments of tax by check or money order 
should be made payable to the United States Treasury. The final 
regulations reflect changes to the law made by the Taxpayer Relief Act 
of 1997 and affect persons who pay their tax liabilities by credit 
card, debit card, check, or money order.

DATES: Effective Date: These final regulations are effective December 
14, 2001.
    Applicability Date: For dates of applicability, see Sec. 301.6311-
2(h).

FOR FURTHER INFORMATION CONTACT: Brinton Warren, (202) 622-4940 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations amending the Procedure and 
Administration Regulations (26 CFR part 301) under sections 6103 and 
6311 of the Internal Revenue Code (Code). The final regulations reflect 
the

[[Page 64741]]

amendment of sections 6103 and 6311 by section 1205 of the Taxpayer 
Relief Act of 1997, Public Law 105-34 (111 Stat. 788) (TRA 1997); 
section 4003(k) of the Tax and Trade Relief Extension Act of 1998, 
Public Law 105-277 (112 Stat. 2681) (TREA 1998); and section 3703 of 
the Internal Revenue Service Restructuring and Reform Act of 1998, 
Public Law 105-206 (112 Stat. 685) (RRA 1998).
    On December 15, 1998, the IRS and Treasury published temporary 
regulations (TD 8793) in the Federal Register (63 FR 68995). A notice 
of proposed rulemaking (REG-111435-98) cross-referencing the temporary 
regulations was published on the same day in the Federal Register (63 
FR 69031). (References herein to the proposed regulations shall be to 
the temporary regulations.) No public hearing was requested or held. 
Two written comment letters were received. After consideration of the 
comments, the proposed regulations are adopted as revised by this 
Treasury decision, and the corresponding temporary regulations are 
removed. The comments and revisions are discussed below.

Explanation of Provisions

    Section 301.6311-1 currently provides that checks or money orders 
should be made payable to the Internal Revenue Service. Section 3703 of 
RRA 1998 states that the Secretary of the Treasury shall establish such 
rules, regulations, and procedures as are necessary to allow payment of 
taxes by check or money order payable to the United States Treasury. 
The amendment to Sec. 301.6311-1 accordingly provides that checks and 
money orders should be made payable to the United States Treasury.
    As amended by section 1205 of TRA 1997, section 6311(a) provides 
that it shall be lawful for the Secretary of the Treasury to receive 
payment for internal revenue taxes by any commercially acceptable means 
that the Secretary deems appropriate, to the extent and under the 
conditions provided in regulations prescribed by the Secretary. The 
legislative history accompanying TRA 1997 explains that commercially 
acceptable means include ``electronic funds transfers, including those 
arising from credit cards, debit cards, and charge cards.'' H.R. Conf. 
Rep. No. 105-220, at 652 (1997). The current regulations under 
Sec. 301.6311-1 permit payment of taxes by checks, drafts drawn on 
financial institutions, or money orders. The final regulations add 
payments by credit cards (which includes charge cards) and debit cards 
to the acceptable methods of payment under section 6311. Section 6302 
and the regulations thereunder remain the authority for forms of 
payment by electronic funds transfer other than payment by credit card 
or debit card.
    Only credit cards or debit cards approved by the Commissioner may 
be used for payment of internal revenue taxes under section 6311, only 
the types of tax liabilities specified by the Commissioner may be paid 
by credit card or debit card, and all such payments must be made in the 
manner and in accordance with the forms, instructions, and procedures 
prescribed by the Commissioner. The Commissioner has entered into 
contracts with third party service providers who will process the 
credit and debit card transactions. The Commissioner may not impose any 
fee on persons making payment of taxes by credit card or debit card. 
However, other persons participating in the program, including third 
party service providers who process credit or debit card transactions, 
are not prohibited from charging fees.
    The final regulations provide, as required by section 6311(d)(3), 
that the payment of taxes by credit card or debit card is subject to 
the error resolution procedures of section 161 of the Truth in Lending 
Act (TILA) (15 U.S.C. 1666), section 908 of the Electronic Fund 
Transfer Act (EFTA) (15 U.S.C. 1693f), or any similar provisions of 
state or local law. The payment, however, is subject to the error 
resolution procedures of these statutes only for the purpose of 
resolving errors relating to the credit card or debit card account, and 
not for the purpose of resolving any errors, disputes, or adjustments 
relating to the underlying tax liability. These provisions ensure that 
any disputes concerning the merits of the tax liability will be 
resolved in the traditional administrative and judicial forums (e.g., 
by filing a petition in Tax Court or by paying the disputed tax and 
filing a claim for refund), and will not be raised in any dispute with 
the card issuer, financial institution, or other person participating 
in the credit card or debit card transaction.
    As authorized by section 6311(d)(3)(E), the final regulations 
permit the Commissioner to return funds erroneously received due to 
errors relating to the credit card or debit card account by arranging 
for a credit to the taxpayer's account with the issuer of the credit 
card or debit card or other appropriate financial institution or 
person. Returns of funds through credit card or debit card account 
credits, however, are available only to correct errors relating to the 
credit card or debit card account, and not to refund overpayments of 
taxes.
    The final regulations also provide the procedures required under 
sections 6103(k)(9) and 6311(e) with respect to the use and disclosure 
of information relating to payment of taxes by credit card and debit 
card. Section 1205(c)(1) of TRA 1997 (as amended by section 6012(b)(2) 
of RRA 1998) added section 6103(k)(9), which authorizes the IRS to 
disclose returns and return information to financial institutions and 
others to the extent necessary for the administration of section 6311. 
Section 6103(k)(9) further provides that disclosures of information for 
purposes other than to accept payments by check or money order (for 
example, to accept payment by credit card or debit card) shall be made 
only to the extent authorized by written procedures promulgated by the 
Secretary. Section 6311(e) provides that no person shall use or 
disclose any information relating to credit card or debit card 
transactions obtained pursuant to section 6103(k)(9), except to the 
extent authorized by written procedures promulgated by the Secretary.
    Pursuant to section 6311(e), the final regulations provide that 
information received by any person in connection with the payment of 
tax by credit card or debit card shall be treated as confidential by 
all persons who receive such information, whether such information is 
received from the IRS or from any other person, including the taxpayer. 
IRS personnel are authorized to disclose to card issuers, financial 
institutions, and other persons information necessary to process the 
tax payment or to bill or collect the amount charged or debited (for 
example, to resolve billing errors).
    The final regulations set forth the limited purposes and activities 
for which such information may be used or disclosed by card issuers, 
financial institutions, and other persons. The permitted purposes and 
activities principally involve credit card and debit card processing, 
billing, collection, account servicing, account transfers, internal 
business records, legal compliance, and legal proceedings. The final 
regulations expressly prohibit the selling of information, the sharing 
of information with credit bureaus, or the use of information for any 
marketing purpose. Any person who uses or discloses information in 
violation of section 6311(e) is subject to civil liability for damages 
under section 7431(a)(2). See section 7431(h), added by section 
1205(c)(2) of TRA 1997 (as amended by section 6012(b)(3) of RRA 1998).

[[Page 64742]]

Summary of Comments

    Commentators recommended that the final regulations be amended to 
permit the IRS to compensate private sector companies for the services 
they provide in connection with the payment of taxes by credit and 
debit card. However, section 6311(d)(2) prohibits the payment of such 
compensation. Thus, the final regulations do not adopt this 
recommendation.
    Commentators also recommended that the final regulations 
incorporate by reference the applicable regulations and staff 
commentaries adopted by the Federal Reserve Board under the provisions 
of TILA and EFTA referenced in the final regulations. The final 
regulations do not adopt this recommendation because the references in 
section 6311 and the final regulations to section 161 of TILA and 
section 908 of EFTA are sufficient to make the Federal Reserve Board 
regulations and other legal guidance under section 161 of TILA and 
section 908 of EFTA applicable to the payment of taxes by credit card 
or debit card, except as explicitly excepted in sections 6311(d)(3)(A) 
and (C).
    Commentators also recommended a clarification of Sec. 301.6311-
2T(c)(2) of the temporary regulations, which provides that the United 
States has a lien for the guaranteed amount of a transaction upon all 
the assets of the institution making the guarantee if the United States 
is not duly paid after the taxpayer tenders a payment of taxes by 
credit card or debit card. The commentators note that the mere 
tendering of payment by credit card or debit card is not sufficient for 
the United States to have a lien. Rather, the parties involved in the 
transaction must also follow the applicable procedures required to 
authorize the transaction and to obtain the guarantee. Thus, the 
commentators recommended that language be added to the final 
regulations to provide that the United States will not have a lien 
unless the parties involved follow the procedures required to authorize 
the transaction and obtain a guarantee.
    Under the temporary regulations, the financial institution must 
expressly guarantee the payment in order for the United States to have 
a lien on the assets of the institution making the guarantee. The 
financial institution's express guarantee will arise only if the 
applicable procedures necessary to authorize the transaction and obtain 
the guarantee are properly followed. Additional language in the final 
regulations is therefore unnecessary.
    One commentator questioned the use of the term commercial 
transactions in Sec. 301.6311-2T(d)(2)(D). The commentator recommended 
removing the word commercial because, in general, TILA does not apply 
to commercial transactions. The final regulations adopt this 
recommendation by replacing Sec. 301.6311-2T(d)(2)(D) in the final 
regulations with a provision covering other types of errors similar to 
the ones explicitly covered by error resolution procedures in the final 
regulations.
    One commentator recommended clarification of Sec. 301.6311-
2T(g)(3)(i), which prohibits use or disclosure of information relating 
to credit and debit card transactions for purposes related to the sale 
or exchange of such information separate from the underlying receivable 
or account. The commentator stated that this provision conflicts with 
other provisions in the temporary regulations that specifically permit 
an exchange of credit and debit card information to process credit and 
debit card transactions and resolve billing errors without a sale or 
exchange of the underlying receivable or account. The commentator's 
concern stems from an ambiguity created by the use of the term 
exchange. To avoid confusion, the final regulations replace exchange 
with transfer for consideration.

Explanation of Other Revisions

    Other changes to the final regulations include the following. 
First, the final regulations clarify that sending receipts or 
confirmation of a transaction to the taxpayer, including secured 
electronic transmissions and facsimiles, is a permissible disclosure. 
See Sec. 301.6311-2(g)(1)(i)(E). Second, the final regulations clarify 
that disclosure of information necessary to complete a transaction by 
the taxpayer with a state or local government agency (for example, to 
pay state or local tax by credit card or debit card) is a permissible 
disclosure when explicitly authorized by the taxpayer. This allows a 
taxpayer to make a state or local tax payment immediately after making 
a federal tax payment without requiring the taxpayer to reenter 
information (for example, name and Taxpayer Identification Number). See 
Sec. 301.6311-2(g)(1)(i)(F). Third, the final regulations provide that 
the term tax as used in these final regulations includes interest, 
penalties, additional amounts, and additions to tax. See Sec. 301.6311-
2(a)(1). The temporary regulations did not refer to additional amounts.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 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 final regulations, and 
because these final regulations do not impose a collection of 
information on small entities, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 
is not required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding these final regulation was submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Drafting Information

    The principal author of these final regulations is R. Bradley 
Taylor of the Office of Associate Chief Counsel, Procedure and 
Administration (Administrative Provisions and Judicial Practice 
Division).

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 is amended by 
adding entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 301.6103(k)(9)-1 also issued under 26 U.S.C. 6103(k)(9) 
and 26 U.S.C. 6103(q). * * *

    Section 301.6311-2 also issued under 26 U.S.C. 6311. * * *
    Par. 2. Section 301.6103(k)(9)-1 is added to read as follows:

Sec. 301.6103(k)(9)-1  Disclosure of returns and return information 
relating to payment of tax by credit card and debit card.

    Officers and employees of the Internal Revenue Service may disclose 
to card issuers, financial institutions, or other persons such return 
information as the Commissioner deems necessary in connection with 
processing credit card and debit card transactions to effectuate 
payment of tax as authorized by

[[Page 64743]]

Sec. 301.6311-2. Officers and employees of the Internal Revenue Service 
may disclose such return information to such persons as the 
Commissioner deems necessary in connection with billing or collection 
of the amounts charged or debited, including resolution of errors 
relating to the credit card or debit card account as described in 
Sec. 301.6311-2(d).

Sec. 301.6103(k)(9)-1T  [Removed]

    Par. 3. Section 301.6103(k)(9)-1T is removed.

Sec. 301.6311-1  [Amended]

    Par. 4. In section 301.6311-1, paragraph(a)(1)(i) is amended by 
removing the language ``Internal Revenue Service'' from the third 
sentence and adding the language ``United States Treasury'' in its 
place.

    Par. 5. Section 301.6311-2 is added to read as follows:

Sec. 301.6311-2  Payment by credit card and debit card.

    (a) Authority to receive--(1) Payments by credit card and debit 
card. Internal revenue taxes may be paid by credit card or debit card 
as authorized by this section. Payment of taxes by credit card or debit 
card is voluntary on the part of the taxpayer. Only credit cards or 
debit cards approved by the Commissioner may be used for this purpose, 
only the types of tax liabilities specified by the Commissioner may be 
paid by credit card or debit card, and all such payments must be made 
in the manner and in accordance with the forms, instructions and 
procedures prescribed by the Commissioner. All references in this 
section to tax also include interest, penalties, additional amounts, 
and additions to tax.
    (2) Payments by electronic funds transfer other than payments by 
credit card and debit card. Provisions relating to payments by 
electronic funds transfer other than payments by credit card and debit 
card are contained in section 6302 and the Treasury Regulations 
promulgated pursuant to section 6302.
    (3) Definitions--(i) Credit card means any credit card as defined 
in section 103(k) of the Truth in Lending Act (15 U.S.C. 1602(k)), 
including any credit card, charge card, or other credit device issued 
for the purpose of obtaining money, property, labor, or services on 
credit.
    (ii) Debit card means any accepted card or other means of access as 
defined in section 903(1) of the Electronic Fund Transfer Act (15 
U.S.C. 1693a(1)), including any debit card or similar device or means 
of access to an account issued for the purpose of initiating electronic 
fund transfers to obtain money, property, labor, or services.
    (b) When payment is deemed made. A payment of tax by credit card or 
debit card shall be deemed made when the issuer of the credit card or 
debit card properly authorizes the transaction, provided that the 
payment is actually received by the United States in the ordinary 
course of business and is not returned pursuant to paragraph (d)(3) of 
this section.
    (c) Payment not made--(1) Continuing liability of taxpayer. A 
taxpayer who tenders payment of taxes by credit card or debit card is 
not relieved of liability for such taxes until the payment is actually 
received by the United States and is not required to be returned 
pursuant to paragraph (d)(3) of this section. This continuing liability 
of the taxpayer is in addition to, and not in lieu of, any liability of 
the issuer of the credit card or debit card or financial institution 
pursuant to paragraph (c)(2) of this section.
    (2) Liability of financial institutions. If a taxpayer has tendered 
a payment of internal revenue taxes by credit card or debit card, the 
credit card or debit card transaction has been guaranteed expressly by 
a financial institution, and the United States is not duly paid, then 
the United States shall have a lien for the guaranteed amount of the 
transaction upon all the assets of the institution making such 
guarantee. The unpaid amount shall be paid out of such assets in 
preference to any other claims whatsoever against such guaranteeing 
institution, except the necessary costs and expenses of administration 
and the reimbursement of the United States for the amount expended in 
the redemption of the circulating notes of such institution.
    (d) Resolution of errors relating to the credit card or debit card 
account--(1) In general. Payments of taxes by credit card or debit card 
shall be subject to the applicable error resolution procedures of 
section 161 of the Truth in Lending Act (15 U.S.C. 1666), section 908 
of the Electronic Fund Transfer Act (15 U.S.C. 1693f), or any similar 
provisions of state or local law, for the purpose of resolving errors 
relating to the credit card or debit card account, but not for the 
purpose of resolving any errors, disputes or adjustments relating to 
the underlying tax liability.
    (2) Matters covered by error resolution procedures. (i) The error 
resolution procedures of paragraph (d)(1) of this section apply to the 
following types of errors--
    (A) An incorrect amount posted to the taxpayer's account as a 
result of a computational error, numerical transposition, or similar 
mistake;
    (B) An amount posted to the wrong taxpayer's account;
    (C) A transaction posted to the taxpayer's account without the 
taxpayer's authorization; and
    (D) Other similar types of errors that would be subject to 
resolution under section 161 of the Truth in Lending Action (15 U.S.C. 
1666), section 908 of the Electronic Fund Transfer Act (15 U.S.C. 
1693f, or similar provisions of state or local law.
    (ii) An error described in paragraph (d)(2)(i) of this section may 
be resolved only through the procedures referred to in paragraph (d)(1) 
of this section and cannot be a basis for any claim or defense in any 
administrative or court proceeding involving the Commissioner or the 
United States.
    (3) Return of funds pursuant to error resolution procedures. 
Notwithstanding section 6402, if a taxpayer is entitled to a return of 
funds pursuant to the error resolution procedures of paragraph (d)(1) 
of this section, the Commissioner may, in the Commissioner's sole 
discretion, effect such return by arranging for a credit to the 
taxpayer's account with the issuer of the credit card or debit card or 
any other financial institution or person that participated in the 
transaction in which the error occurred.
    (4) Matters not subject to error resolution procedures. The error 
resolution procedures of paragraph (d)(1) of this section do not apply 
to any error, question, or dispute concerning the amount of tax owed by 
any person for any year. For example, these error resolution procedures 
do not apply to determine a taxpayer's entitlement to a refund of tax 
for any year for any reason, nor may they be used to pay a refund. All 
such matters shall be resolved through administrative and judicial 
procedures established pursuant to the Internal Revenue Code and the 
rules and regulations thereunder.
    (5) Section 170 of the Truth in Lending Act not applicable. 
Payments of taxes by credit card or debit card are not subject to 
section 170 of the Truth in Lending Act (15 U.S.C. 1666i) or to any 
similar provision of state or local law.
    (e) Fees or charges. The Internal Revenue Service may not impose 
any fee or charge on persons making payment of taxes by credit card or 
debit card. This section does not prohibit the imposition of fees or 
charges by issuers of credit cards or debit cards or by any other 
financial institution or person participating in the credit card or 
debit card transaction. The Internal Revenue

[[Page 64744]]

Service may not receive any part of any fees that may be charged.
    (f) Authority to enter into contracts. The Commissioner may enter 
into contracts related to receiving payments of tax by credit card or 
debit card if such contracts are cost beneficial to the Government. The 
determination of whether the contract is cost beneficial shall be based 
on an analysis appropriate for the contract at issue and at a level of 
detail appropriate to the size of the Government's investment or 
interest. The Commissioner may not pay any fee or charge or provide any 
other monetary consideration under such contracts for such payments.
    (g) Use and disclosure of information relating to payment of taxes 
by credit card and debit card. Any information or data obtained 
directly or indirectly by any person other than the taxpayer in 
connection with payment of taxes by a credit card or debit card shall 
be treated as confidential, whether such information is received from 
the Internal Revenue Service or from any other person (including the 
taxpayer).
    (1) No person other than the taxpayer shall use or disclose such 
information except as follows--
    (i) Card issuers, financial institutions, or other persons 
participating in the credit card or debit card transaction may use or 
disclose such information for the purpose and in direct furtherance of 
servicing cardholder accounts, including the resolution of errors in 
accordance with paragraph (d) of this section. This authority includes 
the following--
    (A) Processing the credit card or debit card transaction, in all of 
its stages through and including the crediting of the amount charged on 
account of tax to the United States Treasury;
    (B) Billing the taxpayer for the amount charged or debited with 
respect to payment of the tax liability;
    (C) Collecting the amount charged or debited with respect to 
payment of the tax liability;
    (D) Returning funds to the taxpayer in accordance with paragraph 
(d)(3) of this section;
    (E) Sending receipts or confirmation of a transaction to the 
taxpayer, including secured electronic transmissions and facsimiles; 
and
    (F) Providing information necessary to make a payment to state or 
local government agencies, as explicitly authorized by the taxpayer 
(e.g., name, address, taxpayer identification number).
    (ii) Card issuers, financial institutions or other persons 
participating in the credit card or debit card transaction may use and 
disclose such information for the purpose and in direct furtherance of 
any of the following activities--
    (A) Assessment of statistical risk and profitability;
    (B) Transfer of receivables or accounts or any interest therein;
    (C) Audit of account information;
    (D) Compliance with federal, state, or local law; and
    (E) Cooperation in properly authorized civil, criminal, or 
regulatory investigations by federal, state, or local authorities.
    (2) Notwithstanding the provisions of paragraph (g)(1) of this 
section, use or disclosure of information relating to credit card and 
debit card transactions for purposes related to any of the following is 
not authorized--
    (i) Sale of such information (or transfer of such information for 
consideration) separate from a sale of the underlying account or 
receivable (or transfer of the underlying account or receivable for 
consideration);
    (ii) Marketing for any purpose, such as, marketing tax-related 
products or services, or marketing any product or service that targets 
those who have used a credit card or debit card to pay taxes; and
    (iii) Furnishing such information to any credit reporting agency or 
credit bureau, except with respect to the aggregate amount of a 
cardholder's account, with the amount attributable to payment of taxes 
not separately identified.
    (3) Use and disclosure of information other than as authorized by 
this paragraph (g) may result in civil liability under sections 
7431(a)(2) and (h).
    (h) Effective date. This section applies to payments of taxes made 
on and after December 14, 2001.

Sec. 301.6311-2T  [Removed]

    Par. 6. Section 301.6311-2T is removed.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: December 10, 2001.
Mark Weinberger,
Acting Assistant Secretary of the Treasury.
[FR Doc. 01-30934 Filed 12-13-01; 8:45 am]
BILLING CODE 4830-01-P
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