[Federal Register Volume 90, Number 149 (Wednesday, August 6, 2025)]
[Proposed Rules]
[Pages 37824-37829]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-14883]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-132805-17]
RIN 1545-BP09
Determination of Line of Business for Purposes of No-Additional-
Cost Service and Qualified Employee Discount Fringe Benefits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that would provide
guidance regarding an employer's line or lines of business for purposes
of determining the exclusion from gross income for no-additional-cost
services or qualified employee discounts provided to employees.
DATES: Written or electronic comments and requests for a public hearing
must be received by November 4, 2025.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-132805-17) 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eRulemaking Portal, comments cannot be edited or withdrawn.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 comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-132805-17),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Andrew Holubeck at (202) 317-4774; concerning submissions of comments
and/or requests for a public hearing, Publications and Regulations
Section at (202) 317-6901 (not toll-free numbers) or by email to
[email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking contains proposed regulations
that would amend the Income Tax Regulations (26 CFR part 1) under
section 132(a) of the Internal Revenue Code (Code) related to no-
additional-cost services and qualified employee discounts. The proposed
regulations are issued under the authority conferred by Section 132(o),
which provides the Secretary or his delegate (Secretary) with an
express grant of regulatory authority to prescribe such regulations as
may be necessary or appropriate to carry out the purposes of section
132. The proposed regulations are also issued under the authority of
section 7805(a) of the Code, which authorizes the Secretary to
prescribe all needful rules and regulations for the enforcement of the
Code.
These proposed regulations would replace a business classification
system that has not been updated since 1974 with a much more current
classification system that is updated every five years. Under these
proposed regulations, the application of the no-additional-cost benefit
and employee discount exclusions from employee income under section
132(a)(1) and (2) would be determined under a classification system
that more accurately reflects current economic activity than the system
used under the existing regulations, thereby reducing burden in
applying the exclusions from income under section 132(a)(1) and (2).
Background
Section 132(a)(1) and (2) exclude from the gross income of an
individual any fringe benefit that qualifies as a no-additional-cost
service or a qualified employee discount, respectively. Section 132(b)
defines the term ``no-additional-cost service,'' in part, as any
service provided by an employer to an employee for use by such employee
if such service is offered for sale to customers in the ordinary course
of the line of business of the employer in which the employee is
performing services. Section 132(c)(1) defines the term ``qualified
employee discount,'' in part, as any employee discount with respect to
qualified property or services. Section 132(c)(4) defines the term
``qualified property or services'' as any property (other than real
property and other than personal property of a kind held for
investment) or services that are
[[Page 37825]]
offered for sale to customers in the ordinary course of the line of
business of the employer in which the employee is performing services.
Section 1.132-4(a)(1) provides that, for purposes of determining
whether the exclusion under section 132(a)(1) or (2) applies, an
individual to whom or on behalf of whom the fringe benefit is provided
must have performed substantial services in the employer's line of
business that offers such services or property for sale to customers in
the ordinary course of business.
Section 1.132-4(a)(2)(i) states that an employer's line of business
is determined by reference to the Enterprise Standard Industrial
Classification Manual (ESIC Manual) prepared by the Statistical Policy
Division of the U.S. Office of Management and Budget (OMB) and further
provides that an employer is considered to have more than one line of
business if the employer offers for sale to customers property or
services in more than one two-digit code classification referred to in
the ESIC Manual. Section 1.132-4(a)(2)(ii) lists as examples of two-
digit classifications under the ESIC Manual general retail merchandise
stores; hotels and other lodging places; auto repair, services, and
garages; and food stores.
Section 1.132-4(a)(3) provides that, if pursuant to Sec. 1.132-
4(a)(2), an employer has more than a single line of business, such
lines of business will be treated as a single line of business where
and to the extent that one or more of the following aggregation rules
apply:
(i) If it is uncommon in the industry of the employer for any of
the separate lines of business of the employer to be operated without
the others, the separate lines of business are treated as one line of
business.
(ii) If it is common for a substantial number of employees (other
than those employees who work at the headquarters or main office of the
employer) to perform substantial services for more than one line of
business of the employer, so that determination of which employees
perform substantial services for which line of business would be
difficult, then the separate lines of business of the employer in which
such employees perform substantial services are treated as one line of
business.
(iii) If the retail operations of an employer that are located on
the same premises are in separate lines of business but would be
considered to be within one line of business under Sec. 1.132-4(a)(2)
if the merchandise offered for sale in such lines of business were
offered for sale at a department store, then the operations are treated
as one line of business.
Section 132 (including section 132(a)(1) and (2)), was added to the
Code as part of the Deficit Reduction Act of 1984, Public Law 98-369,
98 Stat. 494. Concerning the line of business limitation that applies
to the no-additional-cost service and qualified employee discount
exclusions in section 132(a), the House Report on this legislation
noted that ``[i]n providing guidance as to the treatment of an employer
as consisting of separate lines of business for this purpose, Treasury
regulations . . . may refer to the Standard Industrial Classifications
used for other governmental purposes.'' H. Rept. 98-432, 1594, 1984
U.S.C.C.A.N. 697, 1218.
First used in 1938, the Standard Industrial Classification (SIC) is
an industry classification system developed by OMB for use in the
classification of establishments by type of activity in which the
establishments are primarily engaged. See North American Industry
Classification System (NAICS), United States, 2022, published by OMB,
Executive Office of the President (hereinafter referred to as the
``NAICS Manual''), pg. 13.\1\ For purposes of the SIC, an establishment
is an economic unit, generally at a single physical location, where
business is conducted or where services or industrial operations are
performed (such as a factory, mill, store, hotel, movie theater, mine,
farm, ranch, bank, railroad depot, airline terminal, sales office,
warehouse, or central administrative office). See Standard Industrial
Classification Manual, 1987, published by OMB, Executive Office of the
President (hereinafter referred to as the ``SIC Manual''),
Introduction, pg. 12.\2\ The SIC is a hierarchical classification
system that includes a two-digit major group, a three-digit industry
group, or a four-digit industry code (the most specific
classification). Id. Examples of four-digit industry code SIC
classifications include metal mining, general building contractors--
non-residential buildings, and knitting mills.
---------------------------------------------------------------------------
\1\ To access the 2022 NAICS Manual and other NAICS information,
visit the U.S. Census website at https://www.census.gov/NAICS.
\2\ To access the 1987 SIC Manual and other SIC information,
visit the Library of Congress website at https://guides.loc.gov/industry-research/classification-sic.
---------------------------------------------------------------------------
The ESIC Manual was developed by the Statistical Policy Division of
OMB to supplement the SIC by providing a standard for use with
statistics about enterprises (rather than ``establishments,'' the
applicable unit for SIC) by kind of economic activity. See Announcement
86-6 (1986-4 IRB 52). For this purpose, the term ``enterprise''
consists of all establishments under common direct or indirect
ownership. An enterprise, for this purpose, is generally defined to
include all entities, including subsidiaries, if there is more than 50
percent common ownership. An enterprise may vary in composition ranging
from a single legal entity (e.g., corporation, partnership, individual
proprietorship) to a complex family of legal entities under common
ownership. Id. Just like the SIC, the ESIC Manual uses a four-digit
code for detailed classification (with a decimal between the second and
third digits to visually distinguish an ESIC Manual classification from
a SIC classification). Id. ``The first two digits of the code represent
the Major Group, similar to that for the establishment SIC,'' while
``the third and fourth digits represent the enterprise subdivision.''
ESIC Manual codes are similar, and sometimes identical to, SIC codes,
but they aren't necessarily defined in the same way. The last update of
the ESIC Manual was in 1974.
In response to the House Report suggestion that the SIC could be
used as a reference for determining line of business, Treasury and the
IRS elected to use the ESIC Manual, a supplement to the SIC as
described above, as a basis for defining line of business for purposes
of section 132(a)(1) and (2) when they issued final regulations under
section 132 in the Federal Register in 1989 (54 FR 28576). In the early
1990s, ``[r]apid changes in both the U.S. and world economies brought
the SIC under increasing criticism.'' See NAICS Manual, Introduction,
pg. 13. In 1992, the OMB began work on developing a new classification
system to address these criticisms and coordinated this work with
Mexico and Canada. Id. The product of these efforts was the NAICS,
which would take the place of the existing classification systems in
the United States, Canada, and Mexico. Id. The United States
implemented NAICS for the first time in 1997. Since then, the NAICS has
represented a continuing cooperative effort among Statistics Canada,
Mexico's Instituto Nacional de Estad[iacute]stica y Geograf[iacute]a
(INEGI), and the Economic Classification Policy Committee (ECPC) of the
United States, acting on behalf of OMB. See NAICS Manual, Preface, pg.
3. Since its inception, the countries have collaborated in revising the
NAICS every five years in order to keep the classification system
current with
[[Page 37826]]
changes in economic activities. See 2022 NAICS Manual, Preface, pg. 3.
The NAICS is primarily a classification system for establishments,
defined for this purpose as the ``smallest operating entity for which
records provide information on the cost of resources--materials, labor,
and capital--employed to produce the units of output.'' See NAICS
Manual, Introduction, pg. 18. Similar to the SIC, an establishment for
purposes of NAICS is typically ``a single physical location where
business is conducted or where services or industrial operations are
performed (for example, a factory, mill, store, hotel, movie theater,
mine, farm, airline terminal, sales office, warehouse, or central
administrative office).'' Id.
The structure of the NAICS is hierarchical. It classifies
establishments into similar industries using a six-digit coding system.
Id. The first two digits of the code designate the sector of an
establishment, which represents general categories of economic activity
(e.g., under the 2022 classification, sector codes 44 and 45 designate
``Retail Trade''). Id. at pg. 17. The third digit designates the
subsector (e.g., 449 designates the ``Furniture, Home Furnishings,
Electronics, and Appliance Retailers'' subsector of ``Retail Trade'');
the fourth digit designates the industry group (e.g., 4491 designates
the ``Furniture and Home Furnishings Retailers'' industry group in the
``Furniture, Home Furnishings, Electronics, and Appliance Retailers''
subsector); and the fifth digit designates the NAICS industry (e.g.,
44912 designates the ``Home Furnishings Retailers'' industry of the
``Furniture and Home Furnishings Retailers'' industry group). Id. at
pg. 18.
Any particular establishment is usually classified down to the
NAICS five-digit industry level classification, using the
classification of the industry that best matches its primary activity.
Id. at pg. 19. When applicable, the sixth digit is used to designate
the national industry (e.g., 449122 designates the ``Window Treatment
Retailers'' industry). Id. at pg. 18. ``Typically the level at which
comparable data will be available for Canada, Mexico, and the United
States is the five-digit NAICS industry,'' but where additional detail
or clarifying classification is needed for a specific nation (Canada,
Mexico, or the United States) the national industry classification can
be used. Id. A zero as the sixth digit generally indicates that the
NAICS industry and the U.S. industry are the same. Id.
Table I below provides a breakdown of the NAICS classification for
a window treatment retail establishment.
Table I--NAICS Classification of Window Treatment Stores
------------------------------------------------------------------------
Hierarchical classification Description Code
------------------------------------------------------------------------
Sector........................... Retail Trade............ 44
Subsector........................ Furniture, Home 449
Furnishings,
Electronics, and
Appliance Retailers.
Industry Group................... Furniture and Home 4491
Furnishings Retailers.
NAICS Industry................... Furniture and Home 44912
Furnishings Retailers.
National Industry................ Window Treatment 449122
Retailers.
------------------------------------------------------------------------
The NAICS is used by the IRS for various purposes under the Code.
See, e.g., Instructions for Form 1120, U.S. Corporation Income Tax
Return (which asks that a ``principal business activity code'' based on
the NAICS six-digit code be entered on line 2a on Schedule K of Form
1120); Instructions for Schedule C (Form 1040), Profit or Loss From
Business (which requires that a six-digit Principal Business or
Professional Activity Code based on the NAICS be entered on Line B);
and section 15.10 of Rev. Proc. 2025-23 (2025 IRB 1476) (which uses the
first three digits of NAICS codes in defining which taxpayers qualify
as ``specified transportation industry taxpayers'' for purposes of
accounting method change rules that apply specifically to specified
transportation industry taxpayers).
Explanation of Provisions
These proposed regulations would replace the ESIC Manual with the
NAICS as the industry classification system used to determine an
employer's line of business for purposes of excluding no-additional-
cost services and qualified employee discounts from employees' gross
income pursuant to section 132(a)(1) and (2) of the Code, respectively.
The ESIC Manual has not been updated since 1974. Conversely, the NAICS
was most recently updated in 2022, and is the most current
classification system in the United States, making it a more accurate
and detailed reflection of present economic realities.
In addition, because significant changes and advances in technology
have occurred since 1974, many current industries are not accounted for
in the ESIC Manual because they did not exist at the time it was last
updated. Examples include internet service providers, cell phone
manufacturers, cell phone service providers, and smart phone
application designers. The NAICS, on the other hand, is updated
regularly to take into account new and developing industries. For
instance, the 2022 NAICS specifically describes broadband internet
service providers as falling under the four-digit category of Wired and
Wireless Telecommunications (except Satellite) (5171). Under the ESIC
Manual, this line of business could be considered under the two-digit
code ``Communication'' (48), but none of the sub-categories in the
Communication category include the broadband internet service provider
industry, making determination of the appropriate ESIC Manual category
for broadband internet service providers unclear. Replacing the ESIC
Manual with the NAICS as the industry classification system used to
determine an employer's line of business will make determining the line
of business for new and constantly evolving industries easier and more
certain.
While the numeric NAICS and SIC codes are not related to each
other, their organizational structures have some similarities.\3\ SIC
codes (as well as ESIC Manual codes) are grouped into ``divisions''
that are labeled with a letter (e.g., Division A is ``Agriculture,
Forestry, and Fishing'').\4\ This roughly corresponds with the NAICS
two-digit ``Sector'' level of classification (e.g., the NAICS Sector 11
is Agriculture, Forestry, Fishing and Hunting'').\5\ Continuing down
the classification levels of both systems, the SIC two-digit ``Major
Group'' level roughly corresponds to the NAICS three-digit
``Subsector'' level, the SIC three-digit ``Industry Group'' level
roughly corresponds to the NAICS four-digit
[[Page 37827]]
``Industry Group'' level, and the four-digit SIC ``Industry'' level
roughly corresponds with the NAICS five-digit ``NAICS Industry''
level.\6\
---------------------------------------------------------------------------
\3\ U.S. Bureau of Labor Statistics website titled ``Industrial
Classification Overview'' accessed at https://www.bls.gov/ces/naics/#2 on March 20, 2024.
\4\ Id.
\5\ Id.
\6\ Id.
---------------------------------------------------------------------------
Because the ESIC Manual is structured very similarly to the SIC
codes, the comparison between ESIC Manual codes and NAICS codes largely
parallels the comparison between SIC Codes and NAICS codes. Therefore,
the NAICS three-digit ``Subsector'' level would roughly correspond with
the ESIC Manual two-digit ``Major Group'' level used to determine line
of business under the current Sec. 1.132-4(a)(2)(i) regulations.
However, the five-digit NAICS industry classification is intended to be
applied to the primary activity of a single-location establishment,
making it a more appropriate level for determining the line of business
of an employer for whom the employee receiving the fringe benefit is
performing services, since an employee typically performs services at a
single location or establishment. Nevertheless, to account for the fact
that some establishments may represent more than one NAICS industry,
making determination of the most accurate NAICS industry classification
challenging in certain situations, these proposed regulations would use
the NAICS four-digit ``Industry Group'' classification in determining
an employer's line of business for purposes of section 132(a)(1) and
(2).
An employer is considered to have more than one line of business if
the employer offers for sale to customers property or services in more
than one four-digit NAICS industry group classification, according to
the most recent version of the NAICS available on the first day of the
taxable year in which the no-additional-cost service or qualified
employee discount exclusion is being applied. Examples of four-digit
NAICS industry groups are: General Merchandise Stores, including
Warehouse Clubs and Supercenters; Traveler Accommodation; Automotive
Repair and Maintenance; and Grocery Stores.
In situations where an employer has multiple primary activities
corresponding to multiple four-digit NAICS industry group
classifications causing it to have more than one line of business, the
aggregation rules under Sec. 1.132-4(a)(3) continue to apply under
these proposed regulations. Minor modifications to the text of the
aggregation rules under Sec. 1.132-4(a)(3)(i) and (ii) have been
proposed to accommodate the change from the ESIC Manual to the NAICS.
In addition, the proposed regulations would amend the aggregation
rule under Sec. 1.132-4(a)(3)(iii). Currently, this section provides
that if the retail operations of an employer that are located on the
same premises are in separate lines of business but would be considered
to be within one line of business if the merchandise offered for sale
in such lines of business were offered for sale at a department store,
then the operations are treated as one line of business. The proposed
regulations would amend this rule to replace ``department store'' with
``general merchandise store, including warehouse clubs and super
centers.'' This update of the regulations reflects the pervasiveness of
big-box stores, hypermarkets, super centers, and warehouse clubs in the
current retail economy, especially in comparison to the traditional
department store. These types of establishments sell an ever-increasing
variety of merchandise but are still classified under one NAICS
industry group (4552, Warehouse Clubs, Supercenters, and Other General
Merchandise Retailers, under the 2022 NAICS). Therefore, under the
proposed regulations, employees working for these types of employers
would be considered to be working in one line of business. The proposed
amendment to this section provides equal treatment for employees
working for other types of employers that similarly sell a variety of
kinds of merchandise on their business premises, but the variety is
more narrowly tailored to cater to a specific segment of the retail
market (e.g., a store that primarily sells coffee and tea, but that
also sells electric coffeemakers, electric tea kettles, and similar
related small home appliances). Under the proposed amendment, employees
working for such employers would still be considered to be working in
one line of business, even if the sale of the various merchandise sold
by the employer is classified under two or more NAICS industry groups
(e.g., specialty food retailers and electronics and appliance
retailers), as long as the sale of the merchandise would be considered
to be one line of business if the merchandise was being sold at a
general merchandise store, warehouse club, or super center.
Finally, the proposed regulations provide updated examples of the
application of the aggregation rules reflecting the use of NAICS
classifications.
The Treasury Department and the IRS request comments on all aspects
of the proposed rules, including on the use of the NAICS four-digit
industry group code, whether additional changes are necessary to the
aggregation rules under Sec. 1.132-4(a)(3), whether the proposed
applicability date could pose any challenges, and whether transition or
other rules are necessary to accommodate the change in the standard for
determining lines of business.
Proposed Effective/Applicability Dates
These regulations are proposed to be effective on the date these
rules are published in the Federal Register as final regulations and
would apply to taxable years beginning on or after that date.
Statement of Availability of IRS Documents
IRS guidance 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 https://www.irs.gov.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
The Office of Management and Budget's Office of Information and
Regulatory Analysis has determined that these regulations are not
significant and not subject to review under section 6(b) of Executive
Order 12866, as amended.
II. Paperwork Reduction Act
These proposed regulations do not create new collection
requirements, as defined under the Paperwork Reduction Act (44 U.S.C.
35), and do not alter any previously approved OMB information
collection requirements and their associated burden.
III. Regulatory Flexibility Act
It is hereby certified that these proposed regulations will not
have a significant economic impact on a substantial number of small
entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter
6). This certification is based on the fact that these proposed
regulations do not impose any new requirements on small entities. The
proposed regulations would apply only to employers that provide no-
additional-cost services and/or qualified employee discount fringe
benefits to their employees and, therefore, would affect a relatively
small number of taxpayers. In addition, these proposed regulations are
very unlikely to affect employment tax reporting or require any
additional substantiation. Rather, the proposed regulations affect the
industry classification system used to determine an employer's line of
[[Page 37828]]
business for purposes of the exclusions from gross income under section
132(a)(1) and (2) and for this reason do not add any economic burden to
affected entities. Therefore, a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Notwithstanding this certification that the proposed regulations
would not have a significant economic impact on a substantial number of
small entities, the Treasury Department and the IRS invite comments on
the impacts these proposed regulations may have on small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code, these proposed regulations
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on its impact on small business.
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 regulations 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, do not impose substantial direct
compliance costs on State and local governments, and do not 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 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 comments submitted will be available at
https://www.regulations.gov or upon request. A public hearing will be
scheduled if requested in writing by any person who timely submits
electronic or written comments. Requests for a public hearing are also
encouraged to be made electronically. If a public hearing is scheduled,
notice of the date and time for the public hearing will be published in
the Federal Register.
Drafting Information
The principal author of these regulations is Andrew Holubeck of the
Office of the Associate Chief Counsel (Employee Benefits, Exempt
Organizations, and Employment Taxes). However, other personnel from the
IRS and the Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and IRS propose to amend 26
CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by revising
an entry for Sec. Sec. 1.132-0 through 1.132-8T in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Sections 1.132-0 through 1.132-8T also issued under 26 U.S.C.
132(o).
* * * * *
0
Par 2. Section 1.132-4 is amended by revising paragraphs (a)(2) and (3)
and adding paragraph (a)(4) to read as follows:
Sec. 1.132-4 Line of business limitation.
(a) * * *
(2) Definition of line of business--(i) In general. An employer's
line of business is determined by reference to the most recent version
of the North American Industry Classification System (NAICS), as
prepared by Statistics Canada, Mexico's Instituto Nacional de
Estad[iacute]stica y Geograf[iacute]a, and the Economic Classification
Policy Committee of the United States, acting on behalf of the Office
of Management and Budget (OMB) (or successor organizations), that is
available on the first day of the taxable year in which the no-
additional-cost service or qualified employee discount exclusion is
being applied. An employer is considered to have more than one line of
business if the employer offers for sale to customers goods or services
in more than one four-digit code classification referred to in the
NAICS (i.e., NAICS industry group).
(ii) Examples. Examples of the four-digit industry group
classifications are: General Merchandise Stores, including Warehouse
Clubs and Supercenters; Traveler Accommodation; Automotive Repair and
Maintenance; and Grocery Stores.
(3) Aggregation of four-digit classifications. If, pursuant to
paragraph (a)(2) of this section, an employer has more than one line of
business, such lines of business will be treated as a single line of
business where and to the extent that one or more of the following
aggregation rules apply:
(i) If it is uncommon in the industry of the employer for any of
the separate lines of business of the employer to be operated without
the others, the separate lines of business are treated as one line of
business.
(ii) If it is common for a substantial number of employees (other
than those employees who work at the headquarters or main office of the
employer) to perform substantial services for more than one line of
business of the employer, so that determination of which employees
perform substantial services for which line of business would be
difficult, then the separate lines of business of the employer in which
such employees perform substantial services are treated as one line of
business. For example, assume that an employer operates a delicatessen
(i.e., a specialty food store) with an attached service counter at
which food is sold for consumption on the premises (i.e., a restaurant
or eating place). Assume further that most but not all employees work
both at the delicatessen and at the service counter. Under the
aggregation rule of this paragraph (a)(3)(ii), the delicatessen and the
service counter are treated as one line of business.
(iii) If the retail operations of an employer that are located on
the same premises are in separate lines of business but would be
considered to be within one line of business under paragraph (a)(2) of
this section if the merchandise offered for sale in such lines of
business were offered for sale at a general merchandise store,
including a warehouse club or super center, then the operations are
treated as one line of business. For example, assume that on the same
premises an employer sells both specialty foods (i.e., specialty food
retailers) and small kitchen appliances
[[Page 37829]]
(i.e., electronics and appliance retailers). Because, if sold together
at a general merchandise store, the operations would be part of the
same line of business, the operations are treated as one line of
business.
(4) Applicability date. Paragraphs (a)(2) and (3) of this section
apply to taxable years beginning on or after [DATE OF PUBLICATION OF
THE FINAL RULE IN THE FEDERAL REGISTER].
Edward T. Killen,
Acting Chief Tax Compliance Officer.
[FR Doc. 2025-14883 Filed 8-5-25; 8:45 am]
BILLING CODE 4830-01-P