IRS issues final regs on disregarded entities: FICA, FUTA exceptions

The IRS has released final regulations relating to disregarded entities, including qualified subchapter S subsidiaries. The regulations affect entities responsible for collecting that tax and owners of those entities. The IRS issued final and temporary regulations on the excise tax in 2012 (T.D. 9596), as well as proposed regulations (NPRM REG-125570-11). These regulations treated disregarded entities as separate entities for purposes of the excise tax.

The final regulations also address certain exceptions to taxes under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). The IRS issued final and temporary regulations on the FICA and FUTA exceptions in 2011 (T.D. 9554), as well as proposed regulations (NPRM REG-136565-09). These regulations extend to services performed by employees of certain disregarded entities the exceptions to FICA and FUTA taxes concerning individuals working for family members, members of religious faiths, and persons employed by children and children employed by their parents.

No comments were received as to either notice of proposed rulemaking, so the proposed regulations were adopted without substantive change and the temporary regulations removed. The final regulations reorganize and revise the existing regulations for clarity, moving certain provisions to more suitable locations and reformatting one provision into a list with headings. The final regulations are effective June 26, 2014. (T.D. 9670, 2014FED ¶47,027; 79 FR.36,204, June 26, 2014.)

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