information regarding the five year rule. These reporting and withholding rules for pension payments are effective for payments made after December 31, 1982. The Internal Revenue Service may delay compliance until June 30, 1983 where prior compliance would cause undue hardship." In addition, the Internal Revenue Service is authorized to issue exemptions on a case by case basis on pre-July '83 payments where the payor has attempted to comply in good faith and has a plan to assure its ability to comply by July 1,1983." Also, the Act provides that there will be no penalty levied for the failure to collect or account for payments made before July 1, 1983 where the payor has made a good faith effort to withhold and actually withholds from any subsequent 1983 payments sufficient amounts to satisfy the preJuly 1, 1983 requirements." However, there is no relief for any failure to timely pay over any amount actually withheld. BACK UP WITHHOLDING RULES The act provides for withholding at the rate of 15%, starting in 1984, on certain payments to a taxpayer who has failed to furnish his taxpayer 1.0. number to the payor or with respect to whom IRS has notified the payor that the number furnished is incorrect. The new provision does not apply to payments for which withholding is otherwise required. 49 The category of payments to which this rule applies consists of the following; (1) payments made by a person in the course of a trade or business as rent, salaries, wages, premiums, annuities, compensations, remunerations or other fixed or determinable gain or upon the collection of certain foreign items, (2) payments relating to non-employees, (3) payments relating to dividends, (4) payments relating to
patronage dividends, (5) payments relating to the returns of brokers, (6) payments relating to interest payments, and (7) payments relating to certain fishing boat operators." The withholding on a payment described above is required if the payee fails to furnish his taxpayer identification number to the payor or IRS notifies the payor that the number the payee furnished is incorrect. In the case a taxpayer who fails to furnish a number or who furnishes an obviously incorrect number, the withholding obligation applies immediately and continues until an apparently correct 1.0. number is furnished."
The Tax Equity and Fiscal Responsibility Act of 1982 is a vast and complex law which touches almost every facet of the Internal Revenue Code. It will take some time for scholars and practitioners to totally digest and become comfortable in applying its provisions. One can only hope that Congress will refrain from mammoth tax legislation over the next few years so as to permit the tax community to catch up in its understanding of the full ramifications of T.E.F.R.A. The next installment will cover the business, pension and corporate provisions of the act.
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FOOTNOTES Unless otherwise noted all section references are to the Internal Revenue Code of 1954 as amended by T.E.F.RA 1982. Medical & Casualty Loss
1. *213(a) 2. *213(b) and (b)(2), *202(b)(1). Group Term Life Insurance
3. 4. 5. 6.
Alternative Minimum Tax
9. *55(b) and (d), S. Rept pp 109-111. 10. For good explanation of Throwback Rules see: McNulty, Federal Income Taxation of Individuals pp 320·323 (West Publishing Co. 1978). 11. *55(a) and (1)(1). 12. 155(e), S. Rept. p. 110. 13. 1155(e)(5)(A); 55(e)(5)(B); 55(c)(5)(c) and 55(e)(8). 14. *55(e)(4), S. Rept p. 110. 15. 155(e)(5)(A). 16. 155(e)(5)(c). 17. 155(d), S. Rept. p. 111. 18. *57(a), Conf. Rept. p. 475. 19. Id. 20. *55(c)(1). 21. S. Rept. p.l11. Prolonged Write Off
CONCLUSION
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Unemployment Compensation
7. *85(b). 8. TEFRA *611(b)(2).
*79 as amended by *244 of T.E.F.R.A. *79(d)(6). *416(i)(I). * 79(d)(3)(A).
22. *58(c). 23. *58(i)(4). 24. ConI. Rept. p. 475. Withholding Provisions 25. Codified as §3451 (a) for an explanation of the policy behind the withholding rules. See
26. 27. 28. 29. 30. 31. 32. 33. 34. 35.
Senate Report p. 288. *3452. *3452(b). *3456(b). *3453(a). §3453(b) and (e). *3451 (e) §3454(a) §3454(b). §3454(a). *3454(b). Pension Withholding
36. §3405(a)(l) and (d)(2) Policy statement: Senate Report p. 288, Conference Report
37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48.
pp. 584, 586. 13405(d)(5). *3405(a)(1) and (d)(2). *3405(a)(4). *3405(d)(4). 13405(b)(2)(B) and (C). *3405(b)(2)(A). *3405(b)(3)(A) and (B); *3405(a)(2) and (3); *3405(d)(10)(A). *3405(d)(10)(B). Reg. *35.3405-1. *334(e)(5). Conf. Report p. 586. *334(e)(6). Backup Withholding
49. *3402(S). SO. *3402(S)(3)(A). 51. *3402(S)(I).
Joseph M. Erwin and Paul J. Nicholson are practicing attorneys in Little Rock, Ark. Erwin was graduated from Southern Methodist University Law School where he received his J.D. and L.L.M. Nicholson was graduated from the University of Arkansas Law School. This article is presented on behalf of the Taxation, Trust and Estate Planning Section of the Arkansas Bar Association.
Paul J. Nicholson 72/Arkansas Lawyer/July 1983
Joseph M. Erwin