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19694 Federal Register / o. 711 Thursday. April 14. 2005 / Rules and RegulationsLicense RequirementsReason for Control: NP, CB , AT

Contral(s) Country chartNP applies to entire entry ....................... ........ .............. ................... .. ........................................... .. ........ .. NP Column 2.CB applies to "technology" for valves controlled by 2A292 that meet or exceed the technical parameters in 2B350.g ... CB Column 2.AT applies to entire entry ............................ ........................................ .. .... .. ....................... ......... ................ . AT Column 1.

ECCN and the License Requirements items controlled by 2B350, 2B351 and 18. In Supplement NO.1 to Part 774 section to read as follows: 2B352.(the Commerce Control List), Category2-Materials Processing, ECCN 2E301 isamended by revising the heading of the

2E301 "Technology" according to the"General Technology Note" for tbe "use" of

License RequirementsReason for Control: CB, AT

Control(s) Country chartCB applies to entire entry ......... .. ..................................... ..................... ... ................... .. ............... ....... .. .......... .. ...................... .. ..... CB Column 2. AT applies to entire entry .......................... .. ... .. ... .. ...................... ................................... ..... .. .. ..... .. ........ .. ........ .... ............................ AT Column 1.

*Dated: April 11, 2005.

Mattbew S. Borman,Deputy Assistant Secretary for ExportAdministration.[FR Doc. 05-7523 Filed 4-13-05; 8:45 amiBILLING CODE 3511}-33-P

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Part 31[TD 9196] RIN 1545-BE21

Withholding ExemptionsAGENCY: Internal Revenue Service (IRS),Treasury. ACTION: Final and temporary regulations. SUMMARY: This document containsregulations providing guidance undersection 3402(f) of the Internal RevenueCode (Code) for employers andemployees relating to the Form W-4,"Employee's Withholding AllowanceCertificate." These regulations providerules for the submission of copies ofcertain withholding exemptioncertificates to the IRS, the notificationprovided to the employer and theemployee of the maximum number ofwithholding exemptions permitted, andthe use of substitute forms. The text ofthe temporary regulations also serves asthe text of the proposed regulations setforth in the notice of proposedrulemaking on this subject in theProposed Rules section in this issue ofthe Federal Register. The amendmentsto the final regulations provide crossreferences to the temporary regulations.

DATES: These regulations are effectiveApril 14,2005.FOR FURTHER INFORMATION CONTACT:Margaret A. Owens, (202) 622-0047 (nota toll-free call).SUPPLEMENTARY INFORMATION:Paperwork Reduction Act

These regulations do not impose anynew information collection. TheOffice of Management and Budget(OMB) previously approved theinformation collection requirementsconcerning Form W- 4 contained in theregulation under section 6001( 31.6001-5; OMB Control No. 15450798) and in the regulation undersection 3402 ( 31.3402(f)(2)-1; OMBControl No.1545-0010) under theprovisions of the Paperwork ReductionAct, 44 U.S.c. 3501 et seq. Books orrecords relating to a collection ofinformation must be retained as long astheir contents may become material inthe administration of any internalrevenue law. Generally, tax returns andtax return information are confidential,as required by 26 U.S.c. 6103.Background

Under section 3402(f)(2)(A), everyemployee is required to furnish his orher employer with a signed withholdingexemption certificate on or beforecommencing employment. Regulationsprescribe the form of the certificate asthe Form W-4. Th e maximum numberof withholding exemptions to which anemployee is entitled depends upon theemployee's marital status, theemployee 's filing status, the number ofthe employee's dependents, the numberof exemptions claimed by theemployee's spouse (if any) on a FormW-4, an d the amount of the employee'sestimated itemized deductions, taxcredits, an d certain other deductions

from income. A Form W-4 may be ineither paper or electronic form.Section 31.3402(f)(2)-1(g) of theexisting regulations requires employersto submit copies of certain questionableForms W-4 to the IRS. Employers mustsubmit a copy of each Form W-4 onwhich an employee claims more than 10withholding exemptions. Employersmust also submit a copy of each FormW-4 on which the employee claims acomplete exemption from withholdingfor the taxable year if the employerreasonably expects, when the Form W4 is received, that the employee's wagesfrom that employer will usually be $200or more per week.

In addition, the existing regulationsprovide that, upon written request fromthe IRS, employers are required tosubmit to the IRS copies of withholdingexemption certificates which arereceived from emp loyees or groups ofemployees identified by the IRS in thewritten request.The existing regulations provide thatthe IRS may notify an employer that anamed employee is not entitled to claima complete exemption from withholdingand is not entitled to claim a totalnumber of withholding exemptionsmore than the maximum numberspecified by the IRS in the notice. TheIRS will issue such notice if the IRSfinds that the withholding exemptioncertificate contains a materiallyincorrect statement or if the IRS finds,after written request to the employee forverification of the statements on thecertificate, that the IRS lacks sufficientinformation to determine if thecertificate is correct. In these cases, theemployer must withhold tax based onthe maximum number of withholdingexemptions specified in the notice fromthe IRS unless otherwise notified by theIRS. However, if the employee furnishes

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Federal Register / Vol. 70. No. 71 / Thursday . April 14. 2005/ Rules and Regulations 19695a new certificate that claims a numberof withholding exemptions less than thenumber specified in the written noticeto the employer. the employer mustwithhold tax based on that certificate.Under the existing regulations. if theemployee furnishes a new withholdingexemption certificate that claimscomplete exemption from withholdingor claims a number of withholdingexemptions more than the maximumnumber specified by the IRS in thenotice. the employee must submit thenew withholding exemption certificateand a written statement to support theclaims made by the employee on thenew certificate to the IRS or to theemployer . who must then submit themto the IRS. The employer must disregardthis new certificate until the IRS notifiesthe employer to withhold tax based onthe new certificate.Explanation of Provisions

The temporary regulations change theprocedures for submitting copies ofForms W-4 to the IRS und allow the IRSto issue a notice specifying themaximum number of withholdingexemptions permitted without firstobtaining a copy of the withholdingexemption certificate from theemployer.The temporary regulations also clnrifythat a substitute withholding exemptioncerti fieate developed by the employermay be u ~ e d in lieu of the prescribedForm W-4. if the employer alsoprovides the worksheets contained inthe Form W-4 in effect at that time. Thetemporary regulations also provide thatemployers may refuse to accept asubstitute form developed by anemployee and that the employeesubmitting such form will be treated asfailing to furnish a withholdingexemption certificate.As noted in the Background portionof this preamble. 31.3402(f)(2)-1(g) ofthe existing regulations sets forth rulesfor employers to submit copies ofcertain questionable Forms W-4 to theIRS . The Treasury Department an d theIRS want to relieve employers of theburden of submitting copies of certainquestionable Forms W-4 and want tomore effectively address withholdingnoncompliance by using informationalready provided to the IRS. Under thetemporary regulations. employers are nolonger required to suhmil a copy of an yPorm W-4 on which an employeclaims more fum) 10 wil hholdingoxemptions. In addition. under Ihetomporary regulations. employers are noLonger requjred tl) submit a copy of anyForm W-4 on which an employoeclaims complete exemption fromwithholdillg for tho taxable yeiu' if the

empLoyer reason ably expects, when hForm W-4 is received. that theemployee' s wages from th at employerwill usually be $200 or more per week.Instead. an employer must submit acopy of any currently effectivewithholding exemption certificate onlyif directed to do so in a written noticeto the employer from the IRS or ifdirected to do so under any publishedguidance. As under existing regulations,the written notice may direct theemployer to submit copies of Forms W4 for certain employees. The temporaryregulations also authorize the IRS toprovide specific criteria for those FormsW- 4 that must be submitted either in awritten notice to an employer or bypublished guidance.The temporary regulations providethat the IRS may issue a notice to anemployer specifying the maximumnumber of withholding exemptionspermitted for a specific employee. TheIRS may issue such a notice afterdetermining that a copy of awithholding exemption certificatesubmitted to the IRS contains amaterially incorrect statement or afterthe employee fails to respondadequately to a request for verificationof the statements on the certificate.The IRS may also issue such a noticeafter it determines an employee is notentitled to claim complete exemptionfrom withholding or more than aspecified number of withholdingexemptions based on IRS recordswithout first obtaining a copy of thewithholding exemption certificate fromthe employer.After the IRS issues a notice of themaximum number of withholdingexemptions permitted. if the employeewants to claim complete exemptionfrom withholding or claim a number ofwithholding exemptions more than themaximum number specified by the IRSin the notice. the employee must submita new withholding exemption certificateand a written statement to support theclaims made by the employee on thenew certificate to the IRS. To reduceburdens on employers and to moreefficiently respond to the employee. thetemporary regulations provide that theemployee must send this new certificatean d written statement directly to theIRS. The option under existingregulations to send this information tothe employer for forwarding to the IRShas been removed. The employer mustdisregard this new certificate until theIRS notifies the employer to withholdtax based on the new certificate.However, if. at any time. the employeefurnishes a certificate that claims anumber of withholding exemptions lessthan the maximum number specified in

the written notice to the employer, theemployer mllst withhold tax based onthat certificate.The temporary regulations provide aperiod during which the employee canaddress the pending withholdingadjustment by pruviding a newcertificate and written statement to theIRS. The temporary regulatiuns providethat the earliest the notice of themaximum number of withholdingexemptions permitted may be effectiveis 45 calendar days after the date of thenotice. The notice may specify a latereffective date.The Treasury Department and the IRSare conSidering additional amendmentsto the regulations under section 3402 toaddress other issues including. bu t notlimited to. the criteria for identifying avalid withholding exemption certificate.The Treasury Department and the IRSspeCifically welcome comments on thisissue in response to the related notice ofproposed rulemaking in the ProposedRules section in this issue of the FederalRegister.Effective Da te

These regulation s are applicable onApril 14. 2005.Special Analyses

It has been determined that thisTreasury decision is not a significantregulatory action as defined inExecutive Order 12866. Therefore. aregulatory assessment is not required. Italso has been determined that section553(b) of the Administrative ProcedureAct (5 U.S.c. chapter 5) does not applyto these regulations. For applicability ofthe Regulatory Flexibility Act (5 U.S.c.chapter 6) refer to the Special Analysesof the preamble to the cross-referencenotice of proposed rulemakingpublished in the Proposed Rules sectionin this issue of the Federal Register.Pursuant to section 7805(f) of the Code.these regulations will be submitted tothe Chief Counsel for Advocacy of theSmall Business Administration forcomment on its impact on smallbusiness.Drafting Information

The principal author of theseregulations is Margaret A. Owens. Officeof the Division CounsellAssociate ChiefCounsel (Tax Exempt and GovernmentEntities). IRS. However, other personnelfrom the IRS and the TreasuryDepartment participated in theirdevelopment.List of Subjects in 26 CFR Part 31

Employment taxes. Income taxes.Penalties, Pensions. Railroad retirement.Reporting and record keeping