Proposed Rule2026-07085
Excise Tax on Remittance Transfers
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 13, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations that would provide rules and definitions related to the excise tax imposed on certain remittance transfers that occur after December 31, 2025. The proposed regulations would affect certain remittance transfer providers and certain individuals sending remittance transfers.
Full Text
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<title>Federal Register, Volume 91 Issue 70 (Monday, April 13, 2026)</title>
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[Federal Register Volume 91, Number 70 (Monday, April 13, 2026)]
[Proposed Rules]
[Pages 18797-18809]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07085]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 40 and 49
[REG-114499-25]
RIN 1545-BR98
Excise Tax on Remittance Transfers
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would provide
rules and definitions related to the excise tax imposed on certain
remittance transfers that occur after December 31, 2025. The proposed
regulations would affect certain remittance transfer providers and
certain individuals sending remittance transfers.
DATES: Electronic or written comments and requests for a public hearing
must be received by June 12, 2026.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and
REG-114499-25) by following the online instructions for submitting
comments. Requests for a public hearing must be submitted as prescribed
in the ``Comments and Requests for a Public Hearing'' section. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish for public availability any comment submitted to
the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-
114499-25), Room 5503, Internal Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Julia Barlow of the Office of the Associate Chief Counsel (Energy,
Credits, and Excise Tax), (202) 317-6855 (not a toll-free number);
concerning submission of comments or request for a public hearing,
Publications and Regulations Section at (202) 317-6901 (not a toll-free
number) or by email at <a href="/cdn-cgi/l/email-protection#3d4d485f51545e55585c4f54535a4e7d544f4e135a524b"><span class="__cf_email__" data-cfemail="85f5f0e7e9ece6ede0e4f7ecebe2f6c5ecf7f6abe2eaf3">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking contains proposed amendments
that would revise the Excise Tax Procedural Regulations (26 CFR part
40) and add new amendments to the Facilities and Services Excise Tax
Regulations (26 CFR part 49) under section 4475 of the Internal Revenue
Code (Code), as enacted by Public Law 119-21, 139 Stat. 72 (July 4,
2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA).
These proposed amendments are issued under the authority granted by
section 4475(b) and (c) of the Code, which authorize the Secretary of
the Treasury or the Secretary's delegate (Secretary) to provide the
time and manner of collection of the tax imposed by section 4475(a)
(remittance transfer tax) and to determine the instruments that
constitute ``similar physical instrument[s]'' for purposes of the tax.
Additionally, these proposed regulations are issued pursuant to
section 7805(a) of the Code, which authorizes the Secretary to
``prescribe all needful rules and regulations for the enforcement of
[the Code], including all rules and regulations as may be necessary by
reason of any alteration of law in relation to internal revenue.''
Background
Section 4475 was added to chapter 36 of the Code by section 70604
of the OBBBA. The remittance transfer tax imposed by section 4475(a) is
a 1 percent tax on the amount of certain remittance transfers that
occur after December 31, 2025. Section 4475(b)(1) and (2) provide that
the remittance transfer tax is paid by the sender, and that the
remittance transfer provider collects and remits the remittance
transfer tax quarterly to the Secretary at the time and in the manner
provided by the Secretary. Section 4475(b)(3) provides that, if the
remittance transfer tax is not collected at the time the remittance
transfer is made, the tax must be paid by the remittance transfer
provider.
Section 4475(c) provides that the remittance transfer tax applies
only to remittance transfers for which the sender provides cash, a
money order, a cashier's check, or any other similar physical
instrument (as determined by the Secretary) to the remittance transfer
provider.
Section 4475(d) provides that the remittance transfer tax does not
apply to any remittance transfer for which the funds being transferred
are (1) withdrawn from an account held in or by a financial institution
described in subparagraphs (A) through (H) of section 5312(a)(2) of
title 31 of the U.S. Code (title 31), and subject to the requirements
under subchapter II of chapter 53 of title 31, or (2) funded with a
debit card or a credit card issued in the United States.
Section 4475(e) defines several terms fundamental to the remittance
transfer tax by cross-reference to the Electronic Fund Transfer Act
(EFTA) (15 U.S.C. 1693-1693r).
Section 4475(f) provides that, for purposes of section 7701(l) of
the Code, with respect to any multiple-party arrangements involving the
sender, a remittance transfer is treated as a financing transaction.
Because section 4475 was added to chapter 36 of the Code, and
because quarterly remittances of the remittance transfer tax are
explicitly required by section 4475(b)(2), the remittance transfer tax
will be reported on Form 720, Quarterly Federal Excise Tax Return, by
the remittance transfer provider as the collector. See 26 CFR 40.0-1(a)
and 40.6011(a)-1(a)(1). Section 6302 of the Code authorizes the
Secretary to establish the mode and time for collecting certain taxes,
including the taxes imposed by chapter 36. Section 40.6302(c)-1(a)(1),
which constitutes an exercise of authority
[[Page 18798]]
under section 6302(a), requires each person that is required to file
Form 720 to make deposits of tax. Accordingly, collectors of the
remittance transfer tax are also required to make semimonthly deposits
of tax pursuant to Sec. 40.6302(c)-1(a)(1). Those deposits are
payments toward an amount that is not fully determined until filing,
and are distinguishable from the quarterly remittances of tax required
by section 4475(b)(2). Pursuant to Sec. 40.0-1(c), a semimonthly
period is the first 15 days of a calendar month or the portion of a
calendar month following the 15th day of the month.
In Notice 2025-55, 2025-43 I.R.B. 625 (October 20, 2025), the
Treasury Department and the IRS provided relief from failure to deposit
penalties under section 6656 of the Code in connection with the
remittance transfer tax for the first three calendar quarters of 2026.
Notice 2025-55 also provides that a remittance transfer provider's
ability to use the deposit safe harbor under Sec. 40.6302(c)-1(b)(2)
will not be affected by a failure during the first three calendar
quarters of 2026 to make deposits of the remittance transfer tax as
required under part 40, provided the remittance transfer provider
satisfies the reasonable cause exception under section 6656(a).
Explanation of Provisions
I. Proposed Amendments to 26 CFR Part 40
Section 40.0-1(a) provides generally that the regulations in part
40 set forth administrative provisions relating to the excise taxes
imposed by chapters 31 through 34, 36, 38, 39, 49, and 50A of the Code.
Proposed Sec. 40.0-1(a) would amend that paragraph by referencing the
remittance transfer tax imposed by section 4475 as a tax imposed under
chapter 36. Proposed Sec. 40.0-1(e) would amend the applicability
dates to reflect the proposed change to Sec. 40.0-1(a).
II. Proposed Amendments to 26 CFR Part 49
A. Definitions
Section 4475(e) defines several terms by cross-reference to
definitions in the EFTA. Specifically, section 4475(e)(1) provides that
the terms ``remittance transfer,'' ``remittance transfer provider,''
and ``sender'' have the meanings provided in section 919(g) of the
EFTA. The cross-referenced definitions incorporate other terms defined
in the EFTA: specifically, ``State,'' ``consumer,'' and ``designated
recipient.'' Section 4475(e)(2) defines the term ``credit card'' by
reference to section 920(c)(3) of the EFTA, which in turn references
section 1602 of title 15 of the U.S. Code. Section 4475(e)(3) defines
the term ``debit card'' by reference to section 920(c)(2) of the EFTA,
without regard to section 920(c)(2)(B) of the EFTA (which provides that
the term ``debit card'' includes a general-use prepaid card, as that
term is defined in section 915(a)(2)(A) of the EFTA). To effectuate
section 4475(e) and reduce compliance burdens on remittance transfer
providers, the proposed regulations would generally draw on the EFTA
definitions of the terms cross-referenced in 4475(e) in a manner that
is consistent with the interpretation of such terms in regulations
issued by the Consumer Financial Protection Bureau, see 12 CFR part
1005 (Regulation E), to the extent such interpretations are consistent
with the statutory provisions governing the remittance transfer tax and
principles of sound tax administration.
Proposed Sec. 49.4475-1(b)(1) would define the term ``cash'' as
United States dollars or any foreign currency in physical form that is
issued by a government or a central bank.
Proposed Sec. 49.4475-1(b)(2) would define the term ``consumer''
as a natural person, which is consistent with the EFTA. See section
903(6) of the EFTA and 12 CFR 1005.2(e). While the EFTA definition of
the term ``consumer'' is not explicitly cross-referenced in section
4475(e), it is implicated by the cross-referenced definition of the
term ``sender'' in section 4475(e)(1).
Proposed Sec. 49.4475-1(b)(3) would define the term ``designated
recipient'' as any person specified by the sender as the authorized
recipient of a remittance transfer to be received at a location in a
foreign country. See section 919(g)(1) of the EFTA; 12 CFR 1005.30(c).
A remittance transfer is received at a location in a foreign country if
funds are to be received at a location physically outside of any State.
See 12 CFR part 1005, supp. I (comment to 30(c), ``designated
recipient''). This proposed definition would ensure alignment with the
EFTA and would clarify the determination of the location of a recipient
and, thus, the determination of the taxability of the transaction.
Consistent with section 4475(e)(1), proposed Sec. 49.4475-
1(b)(4)(i) would define the term ``remittance transfer'' as the
electronic transfer of funds requested by a sender to a designated
recipient that is sent by a remittance transfer provider. The term
applies regardless of whether the sender holds an account with the
remittance transfer provider. See section 919(g)(2)(A) of the EFTA; 12
CFR 1005.30(e).
Proposed Sec. 49.4475-1(b)(4)(ii)(A) and (B) would incorporate two
exclusions found in the EFTA and Regulation E: one for small-value
transactions, and one for transfers that fund the purchase of certain
securities and commodities. See section 919(g)(2)(B) of the EFTA; 12
CFR 1005.30(e)(2). These exclusions would serve to align the scope of
remittance transfers subject to the EFTA with those potentially subject
to the remittance transfer tax.
Proposed Sec. 49.4475-1(b)(5)(i) would define the term
``remittance transfer provider,'' consistent with section 4475(e)(1),
the EFTA, and Regulation E, as any person that provides remittance
transfers for a consumer in the normal course of its business,
regardless of whether the consumer holds an account with such person.
See section 919(g)(3) of the EFTA; 12 CFR 1005.30(f). A person is not a
remittance transfer provider merely because it performs activities as
an agent on behalf of a remittance transfer provider. See 12 CFR part
1005, supp. I (comment to 30(f), ``remittance transfer provider''). For
example, a grocery store would not be a remittance transfer provider
merely because it acts as an agent of a remittance transfer provider to
offer consumers remittance transfer services.
The Treasury Department and the IRS are aware that Regulation E
provides a safe harbor in 12 CFR 1005.30(f)(2) under which a person is
deemed not to be providing remittance transfers for a consumer in the
normal course of its business if the person provided 500 or fewer
remittance transfers in the previous calendar year and provided 500 or
fewer remittance transfers in the current calendar year. Proposed Sec.
49.4475-1(c)(5)(ii) would depart from Regulation E in this regard by
providing that this normal course of business safe harbor does not
apply to section 4475(a). This departure is necessary because otherwise
the rule would have the potential to create inconsistent tax results
for senders in otherwise identical remittance transfer transactions.
Consistent with section 4475(e)(1), the EFTA, and Regulation E,
proposed Sec. 49.4475-1(b)(6) would define the term ``sender'' as a
consumer in a State who primarily for personal, family, or household
purposes requests a remittance transfer provider to send a remittance
transfer to a designated recipient. See section 919(g)(4) of the EFTA;
12 CFR 1005.30(g). The Treasury Department and the IRS understand that
many remittance transfer providers may already structure their
businesses to distinguish consumer and business services for purposes
of compliance
[[Page 18799]]
with the EFTA and possibly other applicable regulatory regimes. For
consistency and to minimize costs to remittance transfer providers, a
remittance transfer provider's classification of a remittance
transfer's purpose (for personal, family, household, or other purpose)
should be the same under the EFTA and the remittance transfer tax.
Proposed Sec. 49.4475-1(b)(7) would define the term ``State'' as
any State or territory of the United States, or the District of
Columbia. While the EFTA definition of the term ``State'' is not
explicitly cross-referenced in section 4475(e), it is implicated by the
cross-referenced definition of the term ``remittance transfer'' in
section 4475(e)(1). For this reason, the proposed regulations would
reflect the EFTA definition of ``State,'' found in section 903(11) of
the EFTA, rather than the definition provided in section 7701(a)(10).
Although otherwise identical to the definition of the term ``State''
provided in 12 CFR 1005.2(l), proposed Sec. 49.4475-1(b)(7) would omit
from that definition the words ``possession'' and ``Commonwealth of
Puerto Rico.'' These terms would be redundant in the context of Federal
law in which the term ``possession'' is synonymous with ``territory,''
\1\ and, pursuant to section 7701(d), the Commonwealth of Puerto Rico
is a territory of the United States. The proposed definition would also
omit the reference to ``political subdivision[s]'' in Regulation E
because that concept is irrelevant to the remittance transfer tax.
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\1\ U.S. Department of the Interior, Definitions of Insular Area
Political Organizations, at <a href="https://www.doi.gov/oia/islands/politicatypes#">https://www.doi.gov/oia/islands/politicatypes#</a>.
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B. Imposition of the Tax
1. Attachment of the Tax
Proposed Sec. 49.4475-1(c)(1) would provide that the remittance
transfer tax attaches at the time a remittance transfer is made, see
section 4475(b)(3), clarifying that this occurs at the earlier of the
time the remittance transfer is initiated by the remittance transfer
provider or the time the sender pays the remittance transfer provider
(or its agent). The proposed rule would include an example illustrating
that the fact that funds may not be disbursed to the designated
recipient until a later date does not affect the time a remittance
transfer is made for purposes of determining the calendar quarter in
which the tax attaches and the transfer is reportable.
Consistent with this proposed rule, proposed Sec. 49.4475-1(c)(2)
would clarify that the remittance transfer tax attaches to remittance
transfers regardless of whether the transferred amount is disbursed to
the designated recipient. The proposed rule would also clarify that, in
cases in which a remittance transfer is canceled or expires and the
remittance transfer provider refunds the amount of the remittance
transfer to the sender, the sender may file a claim for refund of the
remittance transfer tax with the IRS. Neither section 4475 nor any
other section of the Code entitles the collector (unlike the sender) to
refunds of the remittance transfer tax.
2. Taxable Remittance Transfers
Section 4475(c) and (d) provide the scope of the remittance
transfers to which the remittance transfer tax applies. Section 4475(c)
provides that the remittance transfer tax applies only to remittance
transfers for which the sender provides cash, a money order, a
cashier's check, or any other similar physical instrument (as
determined by the Secretary) to the remittance transfer provider.
Pursuant to the grant of authority provided in section 4475(c),
proposed Sec. 49.4475-1(d)(1) would add traveler's checks to the list
of taxable instruments. As a method of payment, traveler's checks are
virtually indistinguishable from money orders and cashier's checks and
are, therefore, a ``similar physical instrument.''
Section 4475(d) provides that the remittance transfer tax does not
apply to any remittance transfer for which the funds being transferred
are (1) withdrawn from an account held in or by a financial institution
described in section 5312(a)(2)(A) through (H) of title 31 and subject
to the requirements under chapter 53, subchapter II of title 31, or (2)
funded with a debit card or credit card issued in the United States.
Proposed Sec. 49.4475-1(d)(1) would provide that settlement of a
payment obligation under a money order, cashier's check, or traveler's
check by the issuing entity to the remittance transfer provider does
not constitute a ``withdrawal'' for purposes of section 4475(d)(1).
Such funds satisfy the issuing entity's payment obligation under the
instrument, rather than being withdrawn from an account of the sender
with a financial institution described above. Proposed Sec. 49.4475-
1(d)(1) would not separately address the applicability of section
4475(d)(1) to personal or business checks made out to a remittance
transfer provider or general-use prepaid cards, because a sender's
provision of such instruments would not trigger the remittance transfer
tax under proposed Sec. 49.4475-1(d)(1) in the first instance.
Similarly, proposed Sec. 49.4475-1(d)(1) would not separately
address section 4475(d)(2), which renders remittance transfers funded
with a debit card or a credit card issued in the United States
nontaxable, because a sender's use of such a card to pay for a
remittance transfer would not trigger the tax under proposed Sec.
49.4475-1(d)(1) in the first instance. As a result, any remittance
transfer funded with a debit card or credit card would be nontaxable,
regardless of the country in which such debit card or credit card was
issued.
Proposed Sec. 49.4475-1(d)(2) would provide that in a case in
which a remittance transfer provider (or its agent) cashes a personal
or business check payable to the sender and the funds are used to fund
a remittance transfer, such transaction will be treated for purposes of
proposed Sec. 49.4475-1(d)(1) as a remittance transfer for which the
sender provides cash to the remittance transfer provider. The proposed
regulations would treat this scenario as involving two separate
transactions: a check-cashing transaction followed by a remittance
transfer for which the sender provided cash to the remittance transfer
provider under proposed Sec. 49.4475-1(d)(1), regardless of the steps
involved and regardless of whether the sender ever has actual
possession of any resulting cash. Any remittance transfer funded as
described in proposed Sec. 49.4475-1(d)(2) would, therefore, be
subject to taxation under section 4475(a) as a remittance transfer for
which the sender provided cash to a remittance transfer provider.
Proposed Sec. 49.4475-1(d)(3) would define the amount subject to
the remittance transfer tax, with respect to any taxable remittance
transfer, as the amount that will ultimately be transferred to the
designated recipient; amounts that will not be transferred to the
designated recipient are not included. Thus, promotional ``bonuses''
that are included in the amount ultimately transferred to the
designated recipient but not directly paid for by the sender would be
part of the remittance transfer amount under the proposed rule. Service
fees, State taxes, and charges for other goods and services that are
not ultimately transferred to the designated recipient would not be
part of the remittance transfer amount under the proposed rule. The
remittance transfer provider's characterization of an amount would not
be determinative under the proposed rule if, in fact, such amount will
ultimately be transferred to the designated recipient. This proposed
rule is consistent with the ordinary meaning of the term ``remittance
transfer,'' the reference, in section
[[Page 18800]]
4475(d), to ``the funds being transferred,'' and the EFTA disclosure
requirements under 12 CFR 1005.31(b)(1)(i).
Proposed Sec. 49.4475-1(d)(4) would provide that transactions
engaged in for a principal purpose of avoiding the remittance transfer
tax may be disregarded or recharacterized to reflect the substance of
those transactions. The determination of whether a sender and
remittance transfer provider or third party have engaged in a
transaction or series of transactions with a principal purpose of
avoiding the tax would be based on all facts and circumstances,
including facts and circumstances relevant to a remittance transfer
provider's or third party's pattern of conduct. The proposed rule would
also provide two examples of the application of this rule in which a
remittance transfer provider or their agent issues general-use prepaid
cards to customers paying with cash for purposes of avoiding the
remittance transfer tax.
Proposed Sec. 49.4475-1(e) would provide examples illustrating the
application of these proposed definitions and rules.
Proposed Applicability Date
These regulations are proposed to apply to remittance transfers
made in calendar quarters beginning on or after the date these
regulations are published as final regulations in the Federal Register.
Collectors and taxpayers may rely on these proposed regulations for
remittance transfers made after December 31, 2025, and before the first
calendar quarter beginning on or after the date these regulations are
published as final regulations in the Federal Register, provided that
collectors and taxpayers follow these proposed regulations in their
entirety and in a consistent manner.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Executive Orders 12866 and 13563 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits,
reducing costs, harmonizing rules, and promoting flexibility.
The proposed regulations have been designated by the Office of
Management and Budget's (OMB's) Office of Information and Regulatory
Affairs (OIRA) as subject to review under Executive Order 12866
pursuant to the Memorandum of Agreement (MOA, July 4, 2025) between the
Treasury Department and the Office of Management and Budget regarding
review of tax regulations. OIRA has determined that the proposed
rulemaking is significant and subject to review under section 3(f) of
Executive Order 12866 and section 1(c) of the Memorandum of Agreement.
Accordingly, the proposed regulations have been reviewed by OMB. This
rule is expected to be an Executive Order 14192 regulatory action.
A. Need for Regulation
Section 70604 of Public Law 119-21, 139 Stat. 72 (July 4, 2025),
commonly known as the One, Big, Beautiful Bill Act (OBBBA), added a new
section 4475 to the Internal Revenue Code (Code). Section 4475 imposes
an excise tax equal to one percent of the amount of any taxable
remittance transfer. The proposed regulations are needed to clarify the
scope and application of the tax. Following statutory requirements, the
proposed regulations clarify that the tax would be triggered only when
the sender funds the transfer with specified funding instruments. The
proposed regulations also provide that the tax base would be the amount
transferred to the designated recipient (rather than, say, the amount
spent by the sender), and that the tax would attach at the time when a
remittance transfer is made.
B. The Statute and the Proposed Regulations
Section 4475 of the Code imposes an excise tax equal to 1 percent
of the amount of any taxable remittance transfer initiated by a
domestic sender and received by a designated recipient located outside
of the United States. Existing excise tax procedural regulations (ETPR)
apply to the new remittance transfer tax by virtue of section 4475
being placed in chapter 36 of the Code. The ETPR provide administrative
rules for remittance transfer providers regarding collection of the tax
from senders, reporting requirements, and the payment of tax deposits
to the Internal Revenue Service (IRS). The ETPR are operative even in
the absence of the proposed regulations. The proposed regulations
clarify that the ETPR apply to the remittance transfer tax but do not
make any substantive procedural amendments regarding the remittance
transfer tax.
Section 4475(c) specifies that the tax applies only to a remittance
transfer that the sender funds using cash, a money order, a cashier's
check, or other similar physical instrument (as provided by the
Secretary). Section 4475(d) further specifies that the tax does not
apply to funds being transferred that are withdrawn from an account
held in or by certain financial institutions or that are funded using a
debit card or a credit card issued in the United States. Using the
subsection (c) authority, the proposed regulations add traveler's
checks to the list of physical instruments that would give rise to a
tax liability.\2\ Subject to an anti-avoidance rule in the proposed
regulations, a sender's provision of other instruments, such as
personal or business checks, credit and debit cards (regardless of
country of issuance), and general-use prepaid cards, would not trigger
the remittance transfer tax. Although checks are not included on the
list of taxable funding instruments, the proposed regulations clarify
that if a remittance transfer provider or its agent cashes a check
payable to the sender and some, or all, of the cash is used to fund a
remittance transfer, then the remittance transfer is treated as being
funded with cash. In this case, it does not matter whether the sender
is charged a separate check-cashing fee.
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\2\ The proposed regulations clarify that the settlement of a
money order, cashier's check, or traveler's check does not
constitute a withdrawal from an account at a financial institution
for purposes of section 4475(d)(1). Thus, the source of any funds
used to purchase such instruments is immaterial.
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The proposed regulations specify that the remittance transfer tax
attaches at the time when a remittance transfer is made, which occurs
at the earlier of the time the remittance transfer is initiated by the
remittance transfer provider or the time the sender pays the remittance
transfer provider or its agent. If the transfer is canceled or expires,
and the amount of the transfer is returned to the sender, the sender
may be eligible to file a claim for refund with the IRS.\3\
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\3\ Section 6402 of the Code provides authority for the
Secretary to credit the amount of any tax overpayment in respect of
an Internal Revenue tax and, subject to certain rules, may refund
any balance due, including any allowed interest, to the person who
made an overpayment.
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Section 4475(e) provides definitions of ``remittance transfer,''
``remittance transfer provider,'' ``sender,'' ``credit card,'' and
``debit card'' by cross-referencing to the Electronic Fund Transfer Act
(EFTA).\4\ The EFTA definitions have been further refined in
regulations issued by the Consumer Financial Protection Bureau (CFPB),
which are identified as ``Regulation E.'' \5\
[[Page 18801]]
The proposed regulations generally adopt the Regulation E definitions,
which are familiar to remittance transfer providers, but modify those
rules when necessary, in view of the different purpose of implementing
the remittance transfer tax.
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\4\ The EFTA is codified as 15 U.S.C. 1693-1693r.
\5\ Regulation E (Electronic Fund Transfers) is found at 12 CFR
part 1005.
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The proposed regulations adopt the definition of ``remittance
transfer'' from Regulation E. This definition refers to an ``electronic
transfer of funds requested by a sender to a designated recipient that
is sent by a remittance transfer provider.'' It does not specify the
taxable amount of a remittance transfer. Therefore, the proposed
regulations provide that the remittance transfer tax would be imposed
on the total amount that will be transferred to the designated
recipient, including any amount provided by the sender, the remittance
transfer provider, or any other person (including promotional bonuses
or discounts). This tax base excludes fees paid to the remittance
transfer provider, any State taxes imposed on the transfer, charges for
other goods or services that are not transferred, and the remittance
transfer tax itself. The statutory and Regulation E definitions of
remittance transfers exclude ``small-value transactions.'' \6\ These
transfers are currently determined under Regulation E as those valued
at $15 or less. The proposed regulations adopt an additional exclusion
specified under Regulation E for any transfer whose primary purpose is
the purchase or sale through a regulated broker-dealer or futures
commission merchant of certain regulated securities or commodities.
Adoption of these exclusions by the proposed regulations is intended to
align the scope of a remittance transfer under the remittance transfer
tax with that of a remittance transfer under EFTA.
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\6\ See 15 U.S.C. 16930-1(g)(2)(B) and 12 CFR 1005.30(e)(2)(i).
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The proposed regulations refer to and generally adopt the
Regulation E definitions of ``sender,'' ``designated recipient,'' and
``remittance transfer provider.'' Consistent with Regulation E, an
entity acting as an agent on behalf of remittance transfer providers
would not itself be considered a remittance transfer provider.\7\
However, the proposed regulations do not adopt a Regulation E safe
harbor under which a person is deemed not to be providing remittance
transfers for a consumer in the normal course of its business if the
person provided 500 or fewer remittance transfers in the previous and
current calendar years.\8\
---------------------------------------------------------------------------
\7\ See the official interpretation of the section 1005.2
definition of remittance transfer provider at 12 CFR supplement I
30(f)(1).
\8\ See 12 CFR 1005.30(f)(2)(i).
---------------------------------------------------------------------------
C. Baseline
The Treasury Department and the IRS have assessed the benefits and
costs of the proposed regulations relative to a no-action baseline
reflecting anticipated Federal tax-related behavior in the absence of
these proposed regulations.
D. Affected Entities and Taxpayers
By providing additional specificity to needed definitions and to
required rules governing the scope, timing and amount of tax, the
proposed regulations affect senders of remittances, remittance transfer
providers, and agents of remittance transfer providers.
Banks, credit unions, and money services businesses (MSBs) make up
the universe of remittance transfer providers. Since remittance
transfers facilitated by financial institutions are primarily funded by
non-cash instruments, the Treasury Department and the IRS expect that
banks and credit unions will not be materially affected by the
remittance tax and proposed regulations. According to annual data from
NMLS Money Services Businesses Report, there are approximately 600 MSBs
that are licensed as money transmitters.\9\ Among them, more than 200
MSBs, through approximately 500,000 authorized agents, provide
remittance transfers at retail locations and likely accept cash and
cash-like payment instruments. The remaining 400 MSBs do not work with
agents and likely provide remittance transfers solely through online
platforms and accept non-physical payment instruments. In addition, the
Treasury Department and the IRS estimate that approximately 3.6 million
households per year have sent remittance transfers through nonbank
money transfer services in recent years, among which 30 percent to 36
percent, or 1.1 million to 1.3 million households, likely used cash or
cash-like instruments.\10\
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\9\ The Nationwide Multistate Licensing System (NMLS) regulates
and collects data on MSBs, some of which provide remittance transfer
services, i.e., money transmitters. The NMLS annual MSB reports are
available at <a href="https://mortgage.nationwidelicensingsystem.org/knowledge/Products/nmls/aboutNMLS/SitePages/NMLSReports.aspx">https://mortgage.nationwidelicensingsystem.org/knowledge/Products/nmls/aboutNMLS/SitePages/NMLSReports.aspx</a>.
\10\ The 2020 Census enumerated 331.4 million people and 126.9
million households in the U.S. (see <a href="https://www2.census.gov/library/publications/decennial/2020/census-briefs/c2020br-10.pdf">https://www2.census.gov/library/publications/decennial/2020/census-briefs/c2020br-10.pdf</a>). The FDIC
National Survey of Unbanked and Underbanked Households in 2021 and
2023 finds that 2.8 percent of all surveyed households sent or
received international remittances through nonbank money transfer
services (see 2021 FDIC National Survey of Unbanked and Underbanked
Households, at <a href="https://www.fdic.gov/analysis/household-survey/2021report.pdf">https://www.fdic.gov/analysis/household-survey/2021report.pdf</a>, and 2023 FDIC National Survey of Unbanked and
Underbanked Households, at <a href="https://www.fdic.gov/household-survey/2023-fdic-national-survey-unbanked-and-underbanked-households-report">https://www.fdic.gov/household-survey/2023-fdic-national-survey-unbanked-and-underbanked-households-report</a>). Based on these statistics, the Treasury Department and the
IRS estimate that approximately 3.6 million households will send
remittances through MSBs annually. Also see subsequent analysis in
``Economic Background of Remittance Transfers'' for how the Treasury
Department and the IRS derived that 30 percent of remittance
transfers are paid for by cash.
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E. Economic Effects of the Proposed Regulations
The Treasury Department and the IRS analyzed the economic effects
of the proposed regulations in adopting Regulation E definitions with
some modifications, clarifying that the tax base of the remittance tax
excludes service fees imposed by remittance transfer providers and
includes promotional values being transferred, adding traveler's checks
as a cash-like instrument, and clarifying the treatment of remittance
transfers paid for with funds from checks cashed by a remittance
transfer provider or its agent.
The proposed regulations provide clarity and certainty to the
implementation of the statute and promote a consistent application of
the tax, while minimizing the associated compliance burdens for
remittance transfer providers and agents. The Treasury Department and
the IRS do not have readily available parameters and models to quantify
the impact the proposed regulations may have on the type of funding
instruments used to pay for remittance transfers or on the level of
remittance transfers. The following sections describe in further detail
the potential economic impacts of specific elements of the proposed
regulations.
1. Economic Background of Remittance Transfers
Annual data from NMLS Money Services Businesses Report shows that
the total money transmissions to domestic and foreign destinations via
MSBs grew from $1.3 trillion in 2019 to $4 trillion in 2024. Money
transmitted to foreign destinations (remittance transfers) accounted
for 9 to 25 percent of the total money transmissions, equaling $236
billion in 2019, growing to almost $1 trillion in 2021 and 2022, but
decreasing to $365 billion in 2024. Over 2019-2024, annual remittance
transfers to foreign destinations through MSBs averaged $520
billion.\11\ The
[[Page 18802]]
average individual money transfer size ranged from $290 to $740 over
the same time period.
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\11\ Money transfers to foreign destinations were highly
volatile during this time period. The 2021 and 2022 annual totals
are about three times as large as those in other years, likely due
to a variety of factors, such as strong economic recovery post-COVID
in the United States, sluggish economic recovery overseas (higher
demand for remittances at the destination), and fluctuations in
immigration flows. Excluding 2021 and 2022, the annual remittance
transfers to foreign destinations averaged $303 billion.
Table 1--Money Transfers via MSBs
----------------------------------------------------------------------------------------------------------------
Total money transfer, Total remittance Average transfer,
domestic and foreign transfer (foreign only) domestic and foreign
(millions of USD) (millions of USD) (USD)
----------------------------------------------------------------------------------------------------------------
2019................................. 1,310,111 235,820 290
2020................................. 1,821,770 273,265 303
2021................................. 3,768,884 942,221 740
2022................................. 3,715,101 965,926 566
2023................................. 3,770,451 339,341 370
2024................................. 4,058,716 365,284 365
--------------------------------------------------------------------------
Average.......................... 3,074,172 520,310 439
----------------------------------------------------------------------------------------------------------------
Remittance transfers are subject to transaction fees charged by the
remittance transfer providers, which can vary by provider, the size of
the transfer, payment modes, the corridor of transaction, speed of
delivery, as well as other factors. For $200 and $500 remittance
transfers sent from the United States in 2025, the World Bank estimates
an average transaction fee of 5.56 percent and 3.81 percent,
respectively.\12\ For taxable remittance transfers within that range of
amounts, a 1 percent tax rate amounts to an average 18 to 26 percent
increase in the total remittance cost (exclusive of the amount
remitted) that senders will face.
---------------------------------------------------------------------------
\12\ This estimate is based on Remittance Prices Worldwide
database analysis available in Remittance Prices Worldwide
Quarterly, at <a href="https://remittanceprices.worldbank.org/sites/default/files/rpw_main_report_and_annex_q125_1_0.pdf">https://remittanceprices.worldbank.org/sites/default/files/rpw_main_report_and_annex_q125_1_0.pdf</a>.
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MSBs offer money transfers via two main channels: at retail
locations and through digital platforms. Based on industry reporting
and consumer surveys, the Treasury Department and the IRS estimate that
the share of remittances transferred through digital platforms is
likely 40 to 50 percent. Remittance transfers through digital platforms
are funded by non-cash instruments such as debit cards and ACH
transfers. Among remittance transfers conducted through retail
locations (the remaining 50 to 60 percent), customers can fund the
transfers using cash, credit and debit cards, and other payment methods
accepted by the MSB.
There is limited public information on the share of various payment
methods used by senders for remittance transfers. The Treasury
Department and the IRS therefore estimate the share of cash transfers
based on three factors that are relevant for choosing cash payment at
retail remittance transfer providers--the identity of the senders, the
share of the unbanked population among senders, and broadband and smart
phone penetration rates. The Treasury Department and the IRS expect
that the population using MSB retail locations to make remittance
transfers consists of unbanked senders, plus banked senders who lack
internet or smartphone access.
A U.S. Census Bureau working paper estimates that the vast majority
of remittance transfers are sent by immigrants, i.e., foreign-born
persons living in the United States.\13\ In addition, 7 percent of
immigrants live in an unbanked household, according to a recent
study.\14\ The Treasury Department and the IRS therefore estimate that
about 7 percent of immigrants would send remittance transfers using
cash because they have no access to alternative payment methods, such
as debit cards, through accounts with financial institutions.
---------------------------------------------------------------------------
\13\ A 2010 Census study using the 2008 CPS Migration Supplement
estimates that foreign-born households comprised 84 percent of the
households that sent remittance transfers and accounted for 90
percent of the total amount of remittance transfers. The study is
available at <a href="https://www.census.gov/content/dam/Census/library/working-papers/2010/demo/POP-twps0087.pdf">https://www.census.gov/content/dam/Census/library/working-papers/2010/demo/POP-twps0087.pdf</a>.
\14\ ``A Profile of Low-Income Immigrants in the United States''
(2022), at <a href="https://www.migrationpolicy.org/sites/default/files/publications/mpi_low-income-immigrants-factsheet_final.pdf">https://www.migrationpolicy.org/sites/default/files/publications/mpi_low-income-immigrants-factsheet_final.pdf</a>.
---------------------------------------------------------------------------
Senders without access to smartphones or internet, even if banked,
do not have access to digital payment platforms, and these senders are
assumed to make up the rest of the customers who use MSB retail
locations. A 2023 Pew Research Center survey finds that 95 percent of
adults living in the United States have access to the internet and 90
percent have a smartphone.\15\ The Treasury Department and the IRS
therefore estimate that approximately 4.65 percent of the total
immigrant population live in banked households but do not have internet
access or smartphones (5 percent without internet access or smartphones
x 93 percent in banked households). This population may find money
transfers through a bank uneconomical, but do not have access to less
costly, digital remittance transfer platforms. Therefore, they would
likely send remittances through an MSB retail location using non-
physical payments, such as a debit card.
---------------------------------------------------------------------------
\15\ See full report at <a href="https://www.pewresearch.org/wp-content/uploads/sites/20/2024/01/PI_2024.01.31_Home-Broadband-Mobile-Use_FINAL.pdf">https://www.pewresearch.org/wp-content/uploads/sites/20/2024/01/PI_2024.01.31_Home-Broadband-Mobile-Use_FINAL.pdf</a>.
---------------------------------------------------------------------------
Among the two groups who are assumed to visit MSB retail
locations--unbanked immigrants and banked ones without internet or
smartphone access--only the first group would likely use cash or
similar instruments to pay for remittance transfers. Based on the
relative share of these two groups, the Treasury Department and the IRS
estimate that 60 percent of retail money transfers are funded by cash
and cash-like instruments.\16\ Therefore, the Treasury Department and
the IRS estimate that 30 to 36 percent of remittance transfers by MSBs
are funded by cash.\17\ Applying these shares to the average 2019-2024
annual remittance transfer volume of $520 billion results in annual
cash remittance transfers totaling about $156 billion to $187 billion.
These estimates are based on data from years before the remittance
transfer tax went into effect.
---------------------------------------------------------------------------
\16\ The estimated share of retail payments funded by cash is
(0.07/(0.07 + 0.0465)) = 60 percent.
\17\ If retail transfers make up 50 to 60 percent of all
transfers, and 60 percent of retail transfers are deemed to be
funded by cash, then 30 percent (0.5 x 0.6) to 36 percent (0.6 x
0.6) of total remittance transfers are estimated to be funded with
cash.
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[[Page 18803]]
2. Defining Terms by Cross-Referencing and Modifying Regulation E
Definitions
The proposed regulations generally adopt definitions employed in
Regulation E that were initially promulgated for purposes of providing
consumer protections while using electronic fund transfers. Because
affected remittance transfer providers are already familiar with these
terms from complying with EFTA, the proposed regulations minimize
compliance burdens by not introducing new terms to affected providers.
Under the proposed regulations, an entity acting as an agent on
behalf of remittance transfer providers would not itself be considered
a remittance transfer provider. The decision to adopt this rule in the
proposed regulations eases the potential compliance burden for the
approximately 500,000 agents that work with MSBs. While these agents
must adapt their current practices to collect the tax on remittance
services, the MSBs must develop systems and internal controls in order
to comply with the procedural rules of the ETPR as they relate to the
tax on remittance transfers. Thus, under the proposed regulations, the
compliance burden of the ETPR, such as familiarization with laws and
regulations, recordkeeping, and reporting costs, falls primarily on
MSBs rather than agents. Given their familiarity with EFTA and
Regulation E, MSBs are better equipped to shoulder the ETPR compliance
burden than their agents. MSBs can also leverage their size to absorb
the fixed costs of complying with the ETPR on behalf of their network
of agents. In the aggregate, this is less costly than an alternative
where each agent would have to incur the full fixed costs of ETPR
compliance.
The definition of ``remittance transfer provider'' in the proposed
regulations departs from Regulation E by not adopting a safe harbor
under which a person is deemed not to be providing remittance transfers
for a consumer in the normal course of its business if the person
provided 500 or fewer remittance transfers in the previous and current
calendar years. If the proposed regulations were not issued, entities
that currently qualify for the Regulation E safe harbor would face
uncertainty whether they would need to collect and remit the remittance
transfer tax. The proposed regulations provide certainty to entities
potentially affected by the Regulation E safe harbor, though the
affected entities may face an increase in compliance cost relative to
the case where the Regulation E safe harbor was adopted in the proposed
regulations.
The Treasury Department and the IRS estimate that not adopting the
safe harbor provided under Regulation E would affect a limited number
of remittance transfer providers and a small share of remittance
transfers. In 2020, the CFPB was not aware of any MSB remittance
transmitter providers with less than 500 annual transfers. Therefore,
the Treasury Department and the IRS expect that very few, if any, MSBs
currently qualify for the safe harbor. According to the same CFPB
analysis, banks and credit unions are more likely to qualify for the
safe harbor, but remittance transfers facilitated by these financial
institutions are unlikely to be funded with cash and hence would not be
taxable with or without the safe harbor.\18\
---------------------------------------------------------------------------
\18\ See CFPB's analysis at <a href="https://www.federalregister.gov/documents/2020/06/05/2020-10278/remittance-transfers-under-the-electronic-fund-transfer-act-regulation-e#footnote-84-p34896">https://www.federalregister.gov/documents/2020/06/05/2020-10278/remittance-transfers-under-the-electronic-fund-transfer-act-regulation-e#footnote-84-p34896</a>.
---------------------------------------------------------------------------
The safe harbor was not adopted in the proposed regulations because
it is inconsistent with the operation of an efficient and effective
excise tax. The safe harbor is not based on a characteristic of the
remittance transfer or of the sender but on the transaction volume of
the entity. Consequently, under such a safe harbor rule, identical
remittance transfer transactions could be either taxable or nontaxable,
depending on the vendor used. Some vendors could possibly reorganize
their legal structures to avoid being subject to the remittance tax,
and such restructuring would be an inefficient use of resources. In
addition, with the safe harbor, entities would need to accurately
predict their annual remittance transfer volume to avoid the increased
tax reporting and collection costs associated with being a ``remittance
transfer provider.'' Overall, the Treasury Department and the IRS
expect the benefits of a consistent application of the remittance tax
and lower economic distortions in the provision of remittance transfers
from not adopting the safe harbor to outweigh the increased compliance
costs for the relatively small number of affected low-volume entities.
3. Specifying the Tax Base of the Remittance Tax
The proposed regulations clarify that the amount subject to the
remittance tax is the amount ``transferred to the designated
recipient.'' Specifically, the tax base excludes identified fees and
taxes paid by the sender to the remittance transfer provider but not
transferred to the designated recipient. However, the tax base includes
any promotional bonuses transferred to the recipient, but which are not
paid by the sender.
The Treasury Department and the IRS considered an alternative tax
base that would include amounts paid by the sender but not transferred
to the designated recipient but decided against this option. These
amounts include transfer fees, State taxes, and other charges imposed
or collected by the remittance transfer provider. They can vary by
provider, location of the sender, destination of the recipient, payment
method, speed of delivery, and the amount of transfer. Under this
alternative tax base, the costs and profit of the remittance transfer
provider that are associated with providing the remittance transfer
service would be taxed in addition to the transfer amount. Remittances
of the same amount would give rise to varying amounts of tax.
Including transfer fees and taxes in the base of the remittance
transfer tax would increase the cost of a taxable remittance transfer
to the sender. For example, if the fees to send a $100 transfer were
$10, then including fees in the tax base would increase the tax due on
this transaction from $1.00 to $1.10. The after-tax price of the
transaction would increase from $11.00 to $11.10, an increase of 0.9
percent. This small increase in price would discourage taxable
remittance transfers by a small amount, with the magnitude dependent on
the elasticity of demand for remittance transfers.\19\
---------------------------------------------------------------------------
\19\ Recent literature suggests that the price elasticity of
remittance transaction costs is around 0.09 (see Kpodar and Imam
(2024), How do transaction costs influence remittances? World
Development, vol. 177, May 2024, 106537, at <a href="https://doi.org/10.1016/j.worlddev.2024.106537">https://doi.org/10.1016/j.worlddev.2024.106537</a>).
---------------------------------------------------------------------------
If provider fees and taxes were included in the remittance transfer
tax base, then the tax can be analytically thought of as two separate
taxes. The first, an excise tax on remittances and second, a targeted
sales tax on the fees (inclusive of other taxes) charged by remittance
transfer providers. While the primary distortion of the combined tax
would be upon the after-tax price of remittances, the sales tax
component of the larger tax base would introduce other distortions on
remittance transfer providers. The sales tax component may affect
providers and their senders differentially depending on factors such as
cost structure, specialization, and location. The broader base may also
encourage tax avoidance behavior by providers, such as bundling the
price of services and charging a higher price for the untaxed service
and a lower price for the taxed remittance transfer compared to when
the services are
[[Page 18804]]
purchased separately. These effects are not expected to be large, given
that the tax rate is only one percent, but indicate that the economic
distortions from the remittance tax would increase if the base included
provider fees and other taxes. Thus, the decision to apply the
remittance transfer tax to only the amount transferred would result in
lower economic distortions relative to a more expansive base that
included provider fees and taxes.
4. Enumeration of Similar Physical Instruments That Trigger the
Remittance Tax
Section 4475(c) authorizes the Secretary to identify physical,
cash-like instruments that would be treated as triggering the
remittance tax. The proposed regulations add traveler's checks to the
list of funding instruments that would give rise to taxable
remittances. Traveler's checks are virtually indistinguishable from
money orders and cashier's checks and are, therefore, a ``similar
physical instrument.''
Table 2--Taxable Payment Instruments
------------------------------------------------------------------------
Included by proposed
Included by statute regulations
------------------------------------------------------------------------
--Cash................................. --Traveler's checks.
-- Money orders........................
-- Cashier's checks....................
------------------------------------------------------------------------
Table 3--Non-Taxable Payment Instruments
------------------------------------------------------------------------
Not included by proposed
Excluded by the statute regulations
------------------------------------------------------------------------
--Direct debit from an account held in --All other instruments not
or by a financial institution. included by statute or
regulations, such as:
--Debit cards and credit cards issued --Debit cards and credit
in the U.S.. cards issued outside the
U.S.
--ACH transfers.
--Personal or business checks
used as payment.
--General-use prepaid debit
cards.
------------------------------------------------------------------------
By enumerating a finite list of instruments that are subject to the
remittance tax, the proposed regulations provide clarification and ease
compliance burdens for senders and remittance transfer providers. For
senders, knowing which payment instruments give rise to taxable
transfers eliminates the uncertainty around the fees and taxes they
need to cover before they arrive at the retail location to send
remittance transfers. For providers, having a finite, exhaustive list
of taxable payment instruments provides needed certainty for payment
system updates and compliance with ETPR as well as for agent
notifications and trainings.
A traveler's check--the only instrument added by the proposed
regulations under the authority granted in section 4475(c)--is not a
widely accepted payment method at remittance transfer providers. Based
on information publicly available to consumers, payment methods
accepted at retail locations are primarily cash, and in some instances,
debit and credit cards. The Treasury Department and the IRS therefore
consider that adding this instrument to the list of taxable funding
sources will have minimal effects on the behavior of senders or
remittance transfer providers.
Other instruments were considered and not added to the list. The
Treasury Department and the IRS determined that ACH transfers, general-
use prepaid cards, and personal and business checks are not ``similar
physical instruments'' that trigger the tax.
Debit and credit cards that are issued in the United States are
treated under the law as not triggering the remittance transfer tax
when used to fund a remittance transfer. The proposed regulations do
not include any credit or debit cards in the list of tax-triggering
instruments, even when issued in a foreign country.
In general, if an instrument were added to the taxable list,
senders would likely switch away from that type of payment instrument
towards non-taxable instruments. The ability of a sender to switch
instruments depends on the characteristics of the sender and the
substitutability of the instruments. For example, banked households
would generally find it easy to find a similar non-taxable funding
instrument, as many of the instruments are tied to having an account at
a financial institution. However, for non-banked households,
substitution of payment methods is more difficult. For such alternative
methods to be considered, they need to meet two conditions: (1) they
must be accessible to senders, and (2) using them should be less costly
relative to cash than the one percent remittance tax. However, the
Treasury Department and the IRS consider that these conditions would
rarely both be met for non-banked households.\20\
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\20\ In 2023, 66.2 percent of unbanked households only use cash.
See FDIC National Survey of Unbanked and Underbanked Households in
2023, at <a href="https://www.fdic.gov/household-survey">https://www.fdic.gov/household-survey</a>.
---------------------------------------------------------------------------
Among the non-enumerated instruments with reasonably wide
acceptance at remittance transmitters (although typically only through
digital platforms), general-use prepaid cards would likely be the most
accessible instrument to senders with limited access to the banking
system. General-use prepaid cards are able to support many financial
transactions on digital platforms, and in some cases, can present a
close alternative to bank accounts.\21\ However, general-use prepaid
cards come with numerous fees and charges, including activation fees,
monthly fees, reloading fees, and many others the sum of which add up
to significantly more than one percent of the usable card value in most
cases.\22\ Therefore, obtaining a general-use prepaid card solely for
the purpose of funding a remittance transfer and avoiding the
remittance transfer tax would not be economical for most senders and is
unlikely to become economical in the future.
---------------------------------------------------------------------------
\21\ Users of reloadable prepaid cards report using them to
receive direct deposits, pay monthly bills, build up savings, send
and receive money transfers, and more. See more detail at <a href="https://www.fdic.gov/household-survey">https://www.fdic.gov/household-survey</a>.
\22\ See CFPB, What types of fees do prepaid cards typically
charge? at https://www.consumerfinance.gov/ask-cfpb/what-types-of-
fees-do-prepaid-cards-typically-charge-en-2053/
#:~:text=With%20most%20prepaid%20cards%2C%20you,card%20and%20how%20it
%27s%20used.
---------------------------------------------------------------------------
There may be instruments not included on the list of taxable
funding
[[Page 18805]]
instruments that are not currently typically accepted by remittance
transfer providers but may become more commonly accepted and used once
remittance transfer providers and senders understand that these
instruments would result in non-taxable remittance transfers. For
example, remittance transfer providers may change their policies to
more commonly accept store gift cards, gift certificates, or loyalty
cards to pay for remittance transfers, and some senders may switch from
cash to those methods of payment. There is, however, an anti-avoidance
provision in the proposed regulations that would limit the ability to
avoid the remittance tax through buying a nontaxable payment instrument
with cash and immediately using it to fund a remittance transfer.
5. Treatment of Check Cashing
Under the proposed regulations, checks are not on the list of
instruments that would trigger the remittance tax. However, the
proposed regulations provide that when a personal or business check
payable to the sender is cashed by a remittance transfer provider (or
their agent) and funds from the cashed check are used to pay for a
remittance transfer, the remittance transfer is treated as being paid
for with cash and is therefore taxable. This treatment applies
regardless of whether the sender ever has possession of the cash from
the cashed check or whether the sender is charged an explicit check-
cashing fee.
In clarifying this treatment, the proposed regulations provide
clarity and certainty to both remittance transfer providers and senders
who engage in check cashing transactions. This increased clarity should
lower compliance burdens for remittance transfer providers since all
remittance transfers involving cashed checks payable to the sender will
be treated the same way no matter whether cash is handed back to the
sender. In addition, this clarification eliminates potential avoidance
behaviors using cashed checks. In the absence of the proposed
regulations, senders who would have otherwise funded a remittance with
cash may have switched to endorsing, say, a payroll check and garnered
the funds for the remittance through check-cashing services. Senders
and remittance providers might have then claimed that such a remittance
transfer was not funded with cash, particularly in the case of
transactions where cash from a cashed check was not physically handed
to the sender.
The Treasury Department and the IRS do not have the data and models
necessary to quantify the economic effects of the proposed regulations'
treatment of remittance transfers that involve check-cashing services,
but NMLS annual data is available on the volume of check-cashing by
MSBs and can provide information on how the size of check cashing
compares to money transfers. Table 4 presents the total annual volume
of check-cashing by MSBs, which reached about $18 billion in 2024.
Averaged across the years 2019-2024, check-cashing volume is about 0.5
percent of total domestic and foreign money transfers and about 3
percent of total foreign only (remittance) money transfers. The 3
percent represents an upper bound of the amount of remittance transfers
that could have been funded by cashed checks, but the Treasury
Department and the IRS consider 0.5 percent to be a more reasonable
estimate of the share of remittances funded by cashed checks, as that
assumes that cashed checks were used to fund both domestic and foreign
transfers.
However, consumers cash checks at MSBs for a variety of reasons and
not solely to furnish funds for money transfers. Therefore, the total
share of remittances funded by cashed checks is likely even lower than
0.5 percent.
Table 4--Size of Check-Cashing and Money Transfers
[Dollar amounts are in millions of USD]
----------------------------------------------------------------------------------------------------------------
Share of check
Total money Share of check Total money cashing as a
Total check transfer, cashing as a transfer, foreign percentage of
cashing domestic and percentage of all only foreign money
foreign money transfers transfers
----------------------------------------------------------------------------------------------------------------
2019............. 10,436 1,310,111 0.80 235,820 4.43
2020............. 17,875 1,821,770 0.98 273,265 6.54
2021............. 16,623 3,768,884 0.44 942,221 1.76
2022............. 14,059 3,715,101 0.38 965,926 1.46
2023............. 13,159 3,770,451 0.35 339,341 3.88
2024............. 17,925 4,058,716 0.44 365,284 4.91
Average.......... 15,013 3,074,172 0.49 520,310 2.89
----------------------------------------------------------------------------------------------------------------
6. Summary
Based on the available models and data, the Treasury Department and
the IRS estimate that the economic costs and benefits of the proposed
regulations would be small. The Treasury Department and the IRS invite
public comments and additional data on the economic effects that would
result from these proposed regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA)
generally requires that a Federal agency obtain the approval of OMB
before collecting information from the public, whether that collection
of information is mandatory, voluntary, or required to obtain or retain
a benefit. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a valid control number assigned by the OMB.
The collections of information in these proposed regulations relate
to reporting and recordkeeping requirements that would allow section
4475 collectors to meet their tax reporting obligations. The
collections of information would generally be used by the IRS for tax
compliance purposes and by collectors to facilitate proper tax
reporting and compliance. The likely respondents are corporations and
partnerships. The burden associated with these information collections
will be included in Form 720 and its instructions and approved with OMB
control number 1545-0023 in accordance with PRA procedures under 5 CFR
1320.10.
Any burden associated with a claim for refund of the remittance
transfer tax is included in the relevant form and its instructions
approved with the associated OMB control number in accordance with PRA
procedures under 5 CFR 1320.10.
Books or records relating to a collection of information must be
retained as long as their contents may
[[Page 18806]]
become material in the administration of any Internal Revenue law.
Generally, tax returns and tax return information are confidential, as
required by section 6103.
III. Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter
6) (RFA), the Secretary of the Treasury hereby certifies that these
proposed regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that the remittance transfer tax is imposed on senders, who
are defined in this notice of proposed rulemaking as natural persons,
and collected by the approximately 600 remittance transfer providers in
the United States,\23\ few of which are likely to meet the relevant
definition of a small entity under the RFA and regulations thereunder.
Although some small entities, such as grocery stores, convenience
stores, and pharmacies, are engaged as agents of these remittance
transfer providers, the proposed regulations would clarify that an
entity is not deemed to be acting as a remittance transfer provider
when it performs activities as an agent on behalf of a remittance
transfer provider. As a result, any remittance transfer tax-related
burden borne by such a small entity would be properly attributable to
the remittance transfer provider and not to the small entity as such.
Even were that not the case, any remittance transfer tax-related burden
borne by an agent of a remittance transfer provider (for example,
additional training), regardless of whether a small entity for RFA
purposes, would likely constitute a small change in the already
existing burdens imposed by such entity's contractual relationship with
the remittance transfer provider. These proposed regulations will not,
therefore, create additional obligations for, or have a significant
economic impact on, a substantial number of small entities, and
analysis under the RFA is not required. Notwithstanding this
certification, the Treasury Department and the IRS welcome comments on
the impact of these proposed regulations on small entities.
---------------------------------------------------------------------------
\23\ A review of North American Industry Classification System
(NAICS) data collected by the IRS showed that such data was
insufficiently granular to identify the remittance transfer
providers within significantly broader categories, such as
``Financial Transactions Processing, Reserve, and Clearinghouse
Activities,'' (NAICS Code 522320) and thus a poor indicator of the
size of such entities, regardless of how measured. For purposes of
this RFA certification, the Treasury Department and the IRS are
instead relying on publicly available data sources to estimate the
total number of remittance transfer providers in the United States.
---------------------------------------------------------------------------
IV. Submission to the Small Business Administration
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking has been submitted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on its impact
on small businesses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. These proposed rules do not include any Federal mandate that
may result in expenditures by State, local, or Tribal governments, or
by the private sector in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the Treasury Department and the IRS as prescribed in this preamble
under the ADDRESSES heading. The Treasury Department and the IRS
request comments on all aspects of the proposed regulations. Any
electronic and paper comments submitted will be made available at
<a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn.
A public hearing will be scheduled if requested in writing by any
person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will be
published in the Federal Register.
Statement of Availability of IRS Documents
The IRS notice cited in this preamble is published in the Internal
Revenue Bulletin and is available from the Superintendent of Documents,
U.S. Government Publishing Office, Washington, DC 20402, or by visiting
the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of these proposed regulations is Julia Barlow
of the Office of the Associate Chief Counsel (Energy, Credits, and
Excise Tax). However, other personnel from the Treasury Department and
the IRS participated in their development.
List of Subjects
26 CFR Part 40
Excise taxes, Reporting and recordkeeping requirements.
26 CFR Part 49
Excise taxes, Reporting and recordkeeping requirements, Telephone,
Transportation.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR parts 40 and 49 as follows:
PART 40--EXCISE TAX PROCEDURAL REGULATIONS
0
Paragraph 1. The authority citation for part 40 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805.
* * * * *
0
Par. 2. Section 40.0-1 is amended by revising paragraphs (a) and (e) to
read as follows:
Sec. 40.0-1 Introduction.
(a) In general. The regulations in this part are designated the
Excise Tax Procedural Regulations. The regulations in this part set
forth administrative provisions relating to the excise taxes imposed by
chapters 31 through 34, 36, 38, 39, 49, and 50A of the Internal Revenue
Code (Code) (except for the chapter 32 tax imposed by section 4181
(firearms tax) and the chapter 36 taxes imposed by sections 4461
(harbor maintenance tax) and 4481 (heavy vehicle use tax)), and to
floor stocks taxes imposed on articles subject to any of these taxes.
Chapter 31 relates to retail excise taxes; chapter 32 to
[[Page 18807]]
manufacturers' excise taxes; chapter 33 to taxes imposed on
communications services and air transportation services; chapter 34 to
taxes imposed on certain insurance policies; chapter 36 to taxes
imposed on transportation by water and remittance transfers; chapter 38
to environmental taxes; chapter 39 to taxes imposed on registration-
required obligations; chapter 49 to taxes imposed on indoor tanning
services; and chapter 50A to taxes imposed on the sale of designated
drugs. References in this part to taxes also include references to the
fees imposed by sections 4375 and 4376 of the Code. See parts 43, 46
through 49, and 52 of this chapter for regulations related to the
imposition of tax.
* * * * *
(e) Applicability dates--(1) Paragraph (a). Paragraph (a) of this
section applies to returns required to be filed under Sec. 40.6011(a)-
1 for calendar quarters beginning on or after [date of publication of
final regulations in the Federal Register]. For rules that apply before
[date of publication of final regulations in the Federal Register], see
26 CFR part 40, revised as of April 1, 2025.
* * * * *
PART 49--FACILITIES AND SERVICES EXCISE TAXES
0
Par. 3. The authority citation for part 49 is amended by adding an
entry for Sec. 49.4475-1 in numerical order to read, in part, as
follows:
Authority: 26 U.S.C. 7805.
* * * * *
Section 49.4475-1 also issued under 26 U.S.C. 4475(b) and (c).
0
Par. 4. Section 49.0-1 is amended by revising the second sentence to
read as follows:
Sec. 49.0-1 Introduction.
* * * The regulations relate to the taxes on communications and
transportation by air imposed by chapter 33 of the Internal Revenue
Code (Code), the tax on remittance transfers imposed by section 4475 of
the Code, and the taxes on indoor tanning services imposed by section
5000B of the Code. * * *
Subpart G [Redesignated as Subpart H]
0
Par. 5. Subpart G is redesignated as subpart H.
0
Par. 6. Add a new subpart G to read as follows:
Subpart G--Remittance Transfers
Sec. 49.4475-1 Remittance transfers.
(a) In general. Section 4475(a) of the Internal Revenue Code (Code)
imposes a 1 percent tax on taxable remittance transfers (remittance
transfer tax). Paragraph (b) of this section provides definitions that
apply for purposes of section 4475 and this section. Paragraph (c) of
this section provides rules regarding when the remittance transfer tax
attaches to taxable remittance transfers described in paragraph (d) of
this section. Paragraph (e) of this section provides examples that
illustrate the application of section 4475 and this section.
(b) Definitions. The following definitions apply for purposes of
section 4475 and this section.
(1) Cash. The term cash means United States dollars or any foreign
currency in physical form that is issued by a government or a central
bank.
(2) Consumer. The term consumer means a natural person.
(3) Designated recipient. The term designated recipient means any
person specified by the sender as the authorized recipient of a
remittance transfer to be received at a location in a foreign country.
A remittance transfer is received at a location in a foreign country if
funds are to be received at a location physically outside of any State.
(4) Remittance transfer--(i) In general. The term remittance
transfer means the electronic transfer of funds requested by a sender
to a designated recipient that is sent by a remittance transfer
provider. The term applies regardless of whether the sender holds an
account with the remittance transfer provider.
(ii) Exclusions. The term remittance transfer does not include--
(A) Small value transactions. Transfer amounts, as described in 12
CFR 1005.31(b)(1)(i) revised as of January 1, 2026, of $15.00 or less.
(B) Securities and commodities transfers. Any transfer that is
excluded from the definition of electronic fund transfer under 12 CFR
1005.3(c)(4) revised as of January 1, 2026.
(5) Remittance transfer provider--(i) In general. The term
remittance transfer provider means any person that provides remittance
transfers for a consumer in the normal course of its business,
regardless of whether the consumer holds an account with such person. A
person is not a remittance transfer provider merely because it performs
activities as an agent on behalf of a remittance transfer provider. For
example, a grocery store would not be a remittance transfer provider
merely because it acts as an agent of a remittance transfer provider to
offer consumers remittance transfer services.
(ii) Non-applicability of normal-course-of-business safe harbor.
For purposes of section 4475 and this section, the safe harbor provided
in 12 CFR 1005.30(f)(2), which provides a threshold number of
remittance transfers below which a person is deemed not to be providing
remittance transfers for a consumer in the normal course of its
business, does not apply.
(6) Sender. The term sender means a consumer in a State who
primarily for personal, family, or household purposes requests a
remittance transfer provider to send a remittance transfer to a
designated recipient.
(7) State. The term State means any State or territory of the
United States, or the District of Columbia.
(c) Attachment of tax--(1) In general. The remittance transfer tax
attaches at the time a remittance transfer described in paragraph (d)
of this section is made. A remittance transfer is made at the earlier
of the time the remittance transfer is initiated by the remittance
transfer provider or the time the sender pays the remittance transfer
provider (or its agent). For example, if a sender pays for a remittance
transfer on December 31, 2026, the remittance transfer provider
initiates the transfer on the same day, and the funds are disbursed to
the designated recipient on January 2, 2027, such remittance transfer
occurred on December 31, 2026, and is reportable for the fourth
calendar quarter of 2026 and not in the first calendar quarter of 2027.
See part 40 of this chapter for rules relating to returns, payments,
deposits, and other procedural rules applicable to this section.
(2) Canceled or expired remittance transfers. The remittance
transfer tax attaches when the remittance transfer is made regardless
of whether the remittance transfer is ever paid out to the designated
recipient (for example, if the transfer was canceled or expired). In a
case in which the transfer is canceled or expires and the amount of the
remittance transfer is returned to the sender, the sender may be
eligible to file a claim for refund of the remittance transfer tax with
the Internal Revenue Service. See sections 6401 and 6402 of the Code.
(d) Taxable remittance transfers--(1) In general. The remittance
transfer tax applies only to remittance transfers for which the sender
provides cash, a money order, a cashier's check, or a traveler's check
to the remittance transfer provider. Subject to the anti-avoidance rule
in paragraph (d)(4) of this section, this is the exclusive list of
instruments that, when provided to a
[[Page 18808]]
remittance transfer provider, trigger the remittance transfer tax.
Settlement of the issuer's payment obligation to the remittance
transfer provider under a money order, cashier's check, or traveler's
check does not constitute withdrawal for purposes of section 4475(d)(1)
and, consequently, the source of any funds transferred is not relevant
if such instruments have been provided to a remittance transfer
provider.
(2) Personal or business check cashed by remittance transfer
provider. If a remittance transfer provider (or its agent) cashes a
personal or business check payable to the sender and some or all of the
cash from the check cashing is used to fund a remittance transfer, such
transaction is treated as a remittance transfer for which the sender
provides cash to the remittance transfer provider, regardless of
whether the sender ever has actual possession of any resulting cash.
(3) Amount subject to taxation. The remittance transfer tax is
imposed on the total amount that will be transferred to the designated
recipient, including any amount provided by the sender, the remittance
transfer provider, or any other person (for example, promotional
bonuses or discounts), regardless of how such amounts are characterized
for purposes of the remittance transfer. Fees, taxes, and other amounts
that will not be transferred to the designated recipient with respect
to any remittance transfer, including the amount of the remittance
transfer tax imposed, are excluded from the total amount on which the
remittance transfer tax is imposed.
(4) Transactions for tax-avoidance purposes. If a sender and
remittance transfer provider (or its agent) or third party engage in a
transaction (or series of transactions) with a principal purpose of
avoiding the remittance transfer tax, the Secretary may disregard or
recharacterize the transaction (or series of transactions) in
accordance with its substance. The determination of whether a sender
and remittance transfer provider (or its agent) or third party have
engaged in a transaction (or series of transactions) with a principal
purpose of avoiding the tax is based on all facts and circumstances,
including a remittance transfer provider's or third party's pattern of
conduct, the timing of the transactions involved, the amount of the
transactions involved, and the relationship between any parties
involved. For example, if a sender provides $500.00 in cash to a
remittance transfer provider (or its agent) in exchange for a general-
use prepaid card loaded with $500.00 and then immediately initiates a
remittance transfer in the amount of $500.00 paid for with the general-
use prepaid card, the series of transactions (the purported purchase of
a general-use prepaid card immediately followed by a remittance
transfer) may be recharacterized as a remittance transfer in which the
sender provided cash to the remittance transfer provider. As a result,
the remittance transfer tax attaches to the remittance transfer and, if
not collected from the sender at the time of attachment, becomes a
liability of the remittance transfer provider. The same result would
arise if, under the same sequence of events, the consumer immediately
provides the general-use prepaid card to a relative who initiates the
remittance transfer with the remittance transfer provider.
(e) Examples--(1) In general. The following examples illustrate the
application of section 4475 and this section. For purposes of these
examples, Sender is a sender as defined in paragraph (b)(6) of this
section, Designated Recipient is a designated recipient as defined in
paragraph (b)(3) of this section, and Remittance Transfer Provider is a
remittance transfer provider as defined in paragraph (b)(5) of this
section. Retailer is a retailer that accepts payments for remittance
transfers from consumers and remits such payments to Remittance
Transfer Provider (as an agent of Remittance Transfer Provider).
(2) Example 1: Fees, taxes, and bonuses--(i) Facts. Sender engages
Remittance Transfer Provider through Retailer in State A to transfer
$1,000.00 to Designated Recipient. Sender pays cash to Retailer for the
remittance transfer. Remittance Transfer Provider charges a service fee
of $20.00 for the remittance transfer and, as part of a marketing
promotion, transmits an additional $5.00 ``bonus'' to Designated
Recipient. State A imposes a $12.00 tax on the transaction.
(ii) Analysis. Because Sender, Designated Recipient, and Remittance
Transfer Provider are a sender, designated recipient, and remittance
transfer provider, respectively, as those terms are defined in
paragraph (b) of this section, and because Sender requested an
electronic transfer of funds to Designated Recipient, the transfer
qualifies as a remittance transfer under the definitions provided in
paragraph (b) of this section. Moreover, because Sender has provided
Retailer (as an agent of Remittance Transfer Provider) an instrument
described in paragraph (d)(1) of this section (cash), the remittance
transfer is, upon payment by Sender, subject to the remittance transfer
tax. The total amount transferred to Designated Recipient is $1,005.00,
which includes the amount provided by Sender to be sent to Designated
Recipient ($1,000.00) and the ``bonus'' transmitted to Designated
Recipient by Remittance Transfer Provider ($5.00) but excludes
Remittance Transfer Provider's service fee ($20.00) and the State A tax
($12.00), neither of which are sent to Designated Recipient. The
remittance transfer tax imposed is one percent of $1,005.00, or $10.05.
(3) Example 2: Remittance transfer paid for with a personal check--
(i) Facts. The facts are the same as those provided in paragraph
(e)(2)(i) of this section (Facts of Example 1), except that Sender
provides Retailer (as an agent of Remittance Transfer Provider) with a
personal check payable to Remittance Transfer Provider.
(ii) Analysis. For the reasons provided in paragraph (e)(2)(ii) of
this section (Analysis of Example 1), the transfer qualifies as a
remittance transfer under the definitions provided in paragraph (b) of
this section. Sender has not, however, provided Retailer (as an agent
of Remittance Transfer Provider) any instrument described in paragraph
(d)(1) of this section. As a result, the remittance transfer will not,
upon payment by Sender, be subject to taxation under section 4475(a).
The result would be the same if Sender had instead provided, for
example, a debit card, general-use prepaid card, credit card, or store
gift card.
(4) Example 3: Remittance transfer paid for using check-cashing
service--(i) Facts. The facts are the same as those provided in
paragraph (e)(2)(i) of this section (Facts of Example 1), except that
Remittance Transfer Provider offers customers a check cashing service
for a fee of $4.00 and Sender provides Retailer (as an agent of
Remittance Transfer Provider) a $1,000.00 paycheck payable to Sender
and requests a transfer in the amount of $800.00. Retailer (as an agent
of Remittance Transfer Provider) charges Sender the Remittance Transfer
Provider's $20.00 service fee and the State A's $12.00 tax, but does
not charge Sender the $4.00 check-cashing fee.
(ii) Analysis. For the reasons provided in paragraph (e)(2)(ii) of
this section (Analysis of Example 1), the transfer qualifies as a
remittance transfer under the definitions provided in paragraph (b) of
this section. Under paragraph (d)(2) of this section, the transaction
is treated as a remittance transfer for which the sender provided cash.
This is true despite the fact that Retailer (as an agent of Remittance
Transfer Provider) did not charge Sender the $4.00 check-
[[Page 18809]]
cashing fee. As a result, the remittance transfer is, upon payment by
Sender, subject to taxation under section 4475(a). The remittance
transfer tax imposed is one percent of $805.00, or $8.05.
(f) Applicability date. This section applies to remittance
transfers made in calendar quarters beginning on or after [date of
publication of final regulations in the Federal Register].
Frank J. Bisignano,
Chief Executive Officer.
[FR Doc. 2026-07085 Filed 4-10-26; 8:45 am]
BILLING CODE 4831-GV-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.