Payment by Credit Card & Debit Card

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 301 [TD 8793] RIN 1545-AW38

TITLE: Payment by Credit Card and Debit Card

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations that authorize
the Secretary of the Treasury to accept payment of internal revenue
taxes by credit card or debit card. The temporary regulations
reflect changes to the law made by the Taxpayer Relief Act of 1997,
and will affect all persons who pay their tax liabilities by credit
card or debit card pursuant to guidance prescribed by the Secretary.
The text of the temporary regulations also serves as the text of the
proposed regulations set forth in the Proposed Rules section of this
issue of the Federal Register.

DATES: Effective Date: These temporary regulations are effective
January 1, 1999.

Applicability Date: For dates of applicability, see §301.6311-2T(h)
of these regulations.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mitchel
S. Hyman, (202) 622-3620 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains temporary regulations amending the Procedure
and Administration Regulations (26 CFR part 301) under sections 6103
and 6311 of the Internal Revenue Code. The regulations reflect the
amendment of sections 6103 and 6311 by section 1205 of the Taxpayer
Relief Act of 1997 (Public Law 105- 34, 111 Stat. 788, 995)(1997
Act) and section 4003(k) of the Tax and Trade Relief Extension Act
of 1998 (Public Law 105-277, 112 Stat. 2681).

As amended by the 1997 Act, section 6311(a) provides that it shall
be lawful for the Secretary 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 the Act explains that
commercially acceptable means includes "electronic funds transfers,
including those arising from credit cards, debit cards, and charge
cards." H. Conf. Rep. 220, 105th Cong., 1st Sess. 652 (1997). The
current regulations under Treas. Reg.

§301.6311-1 permit payment of taxes by checks, drafts drawn on
financial institutions, or money orders. The temporary regulations
add payments by credit cards (which includes charge cards) and debit
cards to the acceptable methods of payment under section 6311.

Methods of payment by electronic funds transfer other than by credit
card or debit card are currently authorized by section 6302 of the
Internal Revenue Code and its implementing regulations. For example,
Treas. Reg. § 1.6302-4 permits individuals to voluntarily remit
payments of income taxes by electronic funds transfer. Thus, the
temporary regulations only address payments by credit card and debit
card. Section 6302 and its regulations will remain the authority for
forms of payment by electronic funds transfer other than payments by
credit card and debit card.

Section 6103(a) of the Code prohibits disclosure of returns and
return information except as expressly provided in the Code.

Section 1205(c)(1) of the 1997 Act (as amended by section 6012(b)(2)
of the Internal Revenue Service Restructuring and Reform Act of
1998, Public Law 105-206) added section 6103(k)(9) to the Code.
Section 6103(k)(9) 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, 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 obtained pursuant to section 6103(k)(9) related to
credit card or debit card transactions except to the extent
authorized by written procedures promulgated by the Secretary.

Any person who uses or discloses information in violation of section
6311(e) is subject to civil liability for damages. See I.R.C.
section 7431(h), added by section 1205(c)(2) of the 1997 Act (as
amended by Public Law 105-206, section 6012(b)(3)).

Explanation of Provisions

The temporary regulations provide that internal revenue taxes may be
paid by credit card or debit card. Payment of taxes by credit card
or debit card is voluntary on the part of the taxpayer. However,
only credit cards or debit cards approved by the Secretary may be
used for this purpose, only the types of tax liabilities specified
by the Secretary 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 Secretary.
Thus, payments by credit card or debit card may be limited to
certain designated cards, to payments made through certain service
providers, or to payments of specific types of taxes. It is
anticipated that the Secretary will be entering into contracts with
specific card issuers or other persons such as third parties who
will process the credit and debit card transactions, to facilitate
payments by credit cards and debit cards, subject to the requirement
that the Secretary may not pay any fee or provide any other monetary
consideration under such contracts.

Under the temporary regulations, a payment by credit card or debit
card received by the Secretary will be deemed made when the credit
card or debit card transaction is authorized by the card issuer,
provided the payment is actually received by the Secretary in the
ordinary course of business and is not returned due to correction of
errors relating to the credit card or debit card account.

The temporary regulations provide, as required by section 6311(d)
(3), that payments of taxes by credit card or debit card are subject
to the error resolution procedures of section 161 of the Truth in
Lending Act, 15 U.S.C. section 1666, section 908 of the Electronic
Fund Transfer Act, 15 U.S.C. 1693f, or any similar provisions of
state law, only 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. 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., filing a
petition in Tax Court, 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 temporary regulations
permit the Secretary 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 credits, however, are only available to correct errors relating
to the credit card and debit card account, and not to refund
overpayments of taxes.

The temporary regulations also provide that the Internal Revenue
Service may not impose any fee or charge on persons making payment
of taxes by credit card or debit card. The regulations provide that
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 are not
prohibited. The Internal Revenue Service may not receive any part of
any fees that may be charged.

The temporary regulations also provide the procedures required under
sections 6103(k)(9) and 6311(e) with respect to use and disclosure
of information relating to payment of taxes by credit card and debit
card. 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). Pursuant to
section 6311(e), information received by any person in connection
with 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 Secretary or from any other
person including the taxpayer.

The temporary 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 temporary regulations expressly prohibit
selling the information, sharing it with credit bureaus, or using it
for any marketing purpose, for example, marketing tax-related
products or any marketing that targets those who have used a credit
card or debit card to pay taxes.

Special Analyses

It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined
that these regulations must be effective by January 1, 1999, to
permit taxpayers the opportunity to pay taxes by credit card for the
1999 filing season, and, therefore, it has been determined that
sections 553(b) and (d) of the Administrative Procedure Act (5
U.S.C. chapter 5) do not apply to these regulations. It has also
been determined that 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 Internal Revenue Code, this temporary
regulation will be 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 regulations is Mitchel S.

Hyman of the Office of Assistant Chief Counsel (General Litigation)
CC:EL:GL, IRS. However, other personnel from the IRS and Treasury
Department participated in their development.

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 continues to read
in part as follows:

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

Par. 2. Section 301.6103(k)(9)-1T is added to read as follows:

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

Officers and employees of the Internal Revenue Service may disclose
to card issuers, financial institutions or other persons such return
information as the Secretary deems necessary in connection with
processing credit card and debit card transactions to effectuate
payment of tax as authorized by §301.6311-2T. Officers and employees
of the Service may disclose such return information to such persons
as the Secretary 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 §301.6311- 2T(d).

Par. 3. Section 301.6311-2T is added to read as follows:

§301.6311-2T Payment by credit card and debit card (temporary).

(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. However,
only credit cards or debit cards approved by the Secretary may be
used for this purpose, only the types of tax liabilities specified
by the Secretary 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 Secretary. All
references in this section to A tax @ also include interest,
penalties 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.

section 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 Funds 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 the
payment is actually received by the Secretary 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 Secretary 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,
and the credit card or debit card transaction has.11 been guaranteed
expressly by a financial institution, and the United States is not
duly paid, 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, or
section 908 of the Electronic Fund Transfer Act, 15 U.S.C. 1693f, or
any similar provisions of state 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.

(D) Similar types of errors that would be subject to resolution
under these procedures in ordinary commercial transactions.

(ii) An error described in paragraphs (d)(2)(i)(A) through (D) of
this section may only be resolved 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 Secretary.

(3) Return of funds pursuant to error resolution procedures.

Notwithstanding section 6402 of the Internal Revenue Code, if a
taxpayer is entitled to a return of funds pursuant to the error
resolution procedures of paragraph (d)(1) of this section, the
Secretary may, in the Secretary'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) 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 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 Service may not receive
any part of any fees that may be charged.

(f) Authority to enter into contracts. The Secretary 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 Secretary 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. Information obtained 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 Secretary or from any other
person (including the taxpayer). No person other than the taxpayer
shall use or disclose such information except as follows:

(1) 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:

(i) Processing of 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.

(ii) Billing the taxpayer for the amount charged or debited with
respect to payment of the tax liability.

(iii) Collection of the amount charged or debited with respect to
payment of the tax liability.

(iv) Returning funds to the taxpayer in accordance with paragraph
(d)(3) of this section.

(2) 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:

(i) Assessment of statistical risk and profitability.

(ii) Transfer of receivables or accounts or any interest therein.

(iii) Audit of account information.

(iv) Compliance with Federal, State, or local law.

(v) Cooperation in properly authorized civil, criminal, or
regulatory investigations by Federal, State, or local authorities.

(3) Notwithstanding the foregoing, 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 or exchange of such information separate from the
underlying receivable or account.

(ii) Marketing for any purpose, for example, 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.

(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.

(4) Use and disclosure of information other than as authorized by
this paragraph (g) may result in civil liability under section
7431(h) of the Internal Revenue Code.

(h) Effective date. This section applies to payments of taxes made
on and after January 1, 1999, and through January 1, 2002.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue
Approved: December 1, 1998
Donald C. Lubick
Assistant Secretary of the Treasury

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