CUNA Comment Letter

Electronic Payee Statements (Supplemental)

July 24, 2001

CC: M&SP: RU (REG-107186-00)
Room 5226
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Dear Sir or Madam:

This letter supplements the Credit Union National Association’s (CUNA’s) May 15, 2001 comments to the Internal Revenue Service (IRS) regarding its temporary and proposed regulations that permit payors required to furnish payee statements -- IRS Form W-2, "Wage and Tax Statement," and Form 1098-E, "Education Loan Statement," the option to do so electronically. As a national trade association, CUNA represents more than 91 percent of the nation's over 10,600 state and federal credit unions.

CUNA commends the IRS for its initiative to increase electronic filing. In general, CUNA believes that the IRS temporary and proposed regulations to allow payors the option of providing payee statements electronically will assist credit unions by minimizing paperwork and lowering transaction costs. Credit unions could pass along these savings to their members. In the Supplementary Information to the temporary regulations, it states that "[t]his objective of the temporary regulations is to facilitate the voluntary electronic furnishing of these [payee] statements." (Federal Register, February 14, 2001, Vol. 66, No. 31, page 10191)

The regulations in their current form, however, hinder rather than promote this intended outcome with respect to the electronic transmission of payee statements between employers and employees. In the Supplemental Information to the temporary regulations, the IRS notes that "This objective is consistent with the general goals of...the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) to facilitate voluntary use of certain electronic records." [emphasis added] CUNA’s position is that it is not appropriate to apply the "notice and consent" provisions of the E-SIGN Act in the case of furnishing electronic W-2s. A legal analysis of the E- SIGN Act leads to the conclusion that the employer-employee relationship falls outside the scope of these provisions. According to Section 101(c), the "notice and consent" provisions of the E-SIGN Act apply only to consumer transactions. In the definitions section of the E-SIGN Act (Section 106(1)), it states, "[t]he term ‘consumer’ means an individual who obtains, through a transaction, products or services which are used primarily for personal, family, or household purposes...." In simply receiving a W-2, an employee is not obtaining such a product or service. Further, the language in the Supplemental Information indicates that the agency does not believe itself to be under a legal obligation to have these electronic payee regulations comply with the E-SIGN Act.

Even if the IRS were to determine that the employer-employee relationship is covered by the term "consumer," we believe that Section 104(d)(1) of the Act authorizes and implicitly requires IRS to provide an exemption to the "notice and consent" provisions on the basis that "such exemption is necessary to eliminate a substantial burden on electronic commerce...." Under the temporary and proposed regulations, a credit union member or employee must have affirmatively consented to receive the statement electronically and must not have withdrawn that consent before the statement is furnished. In CUNA’s view, credit unions could not efficiently provide payee statements to their employees electronically if they were subjected to the E-SIGN Act’s consumer "notice and consent" requirements. We think it would be impractical and unduly cumbersome administratively for employers, including credit unions, to keep track of those employees who have consented to receive their W-2s via electronic format, those who have not provided consent, and those who have revoked their consent. Any savings in administrative costs and time would be lost. Credit unions, as well as other types of employers, routinely disseminate organization-wide employee manuals, policy directives, and work instructions effectively via electronic format without being compelled to comply with such "notice and consent" requirements. Moreover, compelling compliance with "notice and consent" provisions in the workplace is unnecessary given that many credit unions and other employers already provide their employees with network computer-based workstations to perform their daily tasks.

While many credit unions would like to provide W-2s to their employees via electronic format, we feel they will likely elect to forego the potential benefits rather than bear the costs of establishing and maintaining two systems for current employees--an electronic one and a paper-based system for those who do not provide consent.

Thank you for your consideration of these supplemental comments on the proposed and temporary regulations concerning electronic delivery of payee statements. If you have any questions about our comments, please contact one of us at (202) 682-4200.


Mary Mitchell Dunn
Associate General Counsel

Catherine A. Orr
Senior Regulatory Counsel