Rev. Rul. 88-53

1988-1 C.B. 384, 1988-25 I.R.B. 38.

                       Internal Revenue Service

                                 Revenue Ruling

               INFORMATION REPORTING; RENTAL ASSISTANCE PAYMENTS

                            Published: June 20, 1988

SECTION 6041. - INFORMATION AT SOURCE, 26 CFR 1.6041-1: Return of information as to payments of $600 or more

(Also Section 3406; 35a.9999-2.)

  Information reporting; rental assistance payments. Rental assistance payments made by public housing agencies to owners of authorized housing projects are subject to information reporting under section 6041 of the Code.

  Under section 8 of the Housing Act of 1937, as amended, 42 U.S.C. section 1437f (1982), the Department of Housing and Urban Development (HUD) administers a program that provides rental assistance payments for lower income families. HUD makes rental assistance payments to public housing agencies that, in turn, make payments to the owners of housing projects. Many housing projects are owned by individuals.

  ISSUE. At issue is whether rental assistance payments made by public housing agencies to owners of authorized housing projects are subject to information reporting under section 6041.

  HOLDING. The Service has held that rental assistance payments, aggregating  $600 or more and made by public housing agencies to owners of HUD-authorized housing projects, are subject to information reporting under section 6041 and the backup withholding rules contained in section 3406.

  ANALYSIS. The Service's approach was one of simple statutory interpretation. Section 6041(a) provides the general requirement of information reporting when a person engaged in a trade or business makes payments in the course of that trade or business of $600 or more in any taxable year. Regulations under section 6041 exclude from information reporting 'most corporations,' but do not specifically exclude nonprofit organizations, according to the Service. Finally, the Service noted, regulation section 1.6041-1(g) requires information returns on Forms 1099 of payments made by the Federal government, or a state, or political subdivision thereof.

  Finding that the public housing agencies at issue are organizations described in regulation section 1.6041-1(g) and that the organizations are engaged in a trade or business, the Service held the payments made to housing project owners are subject to information reporting and backup withholding requirements. The Service indicated that Forms 1099-MISC, 'Statements for Recipients of Miscellaneous Income,' must be filed by payors and written statements must be furnished to payees.

                                     ISSUE

  Are rental assistance payments made by public housing agencies to owners of authorized housing projects subject to information reporting under section 6041 of the Internal Revenue Code?

                                     FACTS

  Under section 8 of the United States Housing Act of 1937, as amended (Act), 42 U.S.C. section 1437f (1982), the United States Department of Housing and Urban Development (HUD) administers a program that provides rental assistance payments for lower-income families. HUD authorizes public housing agencies to administer various aspects of the program. Section 3(6) of the Act, as amended, 42 U.S.C. section 1437a(b)(6)(1982), defines the term 'public housing agency' to mean any state, county, municipality, or other governmental entity or public body (or agency or instrumentality thereof) that is authorized to engage in or assist in the development or operation of lower income housing. The rental assistance payments are made by HUD to public housing agencies that, in turn, make the payments to the owners of the housing projects. Many of the housing projects are owned by individuals.

                                LAW AND ANALYSIS

  Section 6041(a) of the Code (with exceptions not here applicable) provides that all persons engaged in a trade or business and who make payments in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable gains, profits and income, of $600 or more in any taxable year must file an information return showing the amount of such gains, profits, and income, and th name and address of the recipient. Section 6041(d) provide that every person required to make a return under section 6041(a) shall furnish a written statement to the payee.

  Section 1.6041-1(a)(1)(ii) of the Income Tax Regulations requires every person engaged in a trade or business to make an information return reporting payments made in the course of the trade or business to another person of fixed or determinable interest, rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more in a calendar year unless such payments are specifically excluded from the reporting requirements under section 1.6041-3. Section 1.6041-3(c) specifically excludes form the reporting requirement payments made to most corporations.

  Section 1.6041-1(b) of the regulations defines the term 'all persons engaged in a trade or business' as used in section 6041(a) of the Code to include not only those so engaged for gain or profit, but also organizations the activities of which are to for the

purpose of gain or profit, for example, the organizations referred to in paragraph (g) of section 1.6041-1.

  Section 1.6041-1(g) of the regulations requires that information returns on Forms 1099 of payments made by the United States or a state, or political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing, shall be made by the officer or employee of the United States, or of such state, or political subdivision, or of the District of Columbia, or of such agency or instrumentality, as the case may be, having control of such payments or by the officer or employee appropriately designated to make such returns.

  Under section 3406 of the Code, a payee is subject to backup withholding of 20 percent on payments of a kind required to be shown on a return required under section 6041(a) if the payee fails to furnish the payee's taxpayer identification number (TIN) in the required manner or the Internal Revenue Service notifies the payor that the TIN furnished by the payee is incorrect, and any one of the following three conditions exists: (1) payments to the payee aggregate $600 or more during the calendar year; (2) the payor was required to file and return with respect to payments under section 6041(a) for the preceding calendar year; or (3) the payor was required to impose backup withholding on payments made to the payee during the preceding calendar year. Payments to payees who are not subject to reporting requirements under section 1.6041-3 of the regulations are not subject to backup withholding. Section 3406(b)(3) of the Code. Other payees, such as organizations exempt from taxation under section 501(a), are also not subject to backup withholding. Section 3406(g), and section 35a.9999-3 Q. & A. 13 of the Temporary Employment Tax Regulations.

  In the instant case, the public housing agencies as defined in section 3(6) of the Act are organizations described in section 1.6041-1(g) of the Income Tax Regulations. Such public housing agencies are therefore 'persons engaged in a trade or business' as defined in section 1.6041-1(b). The payments made by the public housing agencies are payments made in furtherance of the purpose for which the organizations are formed and are therefore payments made in the course of the trade or business of those organizations.

                                    HOLDING

  The rental assistance payments that aggregate $600 or more made by the public housing agencies to noncorporate owners of housing projects are subject to information reporting under section 6041(a) and (d) of the Code. Forms 1099- MISC, Statements for Recipients of Miscellaneous Income, must be filed, and written statement must be furnished to the recipients by th officer or employee of the public housing agency having control of the rental assistance payments or by the officer or employee appropriately designated to make such returns.

  In addition, the public housing agencies are required to impose backup withholding under section 3406 of the Code on payments made to payees who are subject to backup withholding and to report amounts withheld on Forms 1099-MISC and on the written statements furnished to the recipients.

DRAFTING INFORMATION

  The principal author of this revenue ruling is Margaret Owens of the Individual Tax Division. For further information regarding this revenue ruling contact Ms. Owens on (202) 566-6682 (not a toll-free call).

Rev. Rul. 88-53, 1988-1 C.B. 384, 1988-25 I.R.B. 38.