The Internal Revenue Service yesterday announced it will hold a public hearing on proposed regulations implementing a 2005 law that requires federal, state, and local governmental entities with more than $100 million in annual procurement to withhold 3% of all payments made to contractors for tax purposes.

The hearing, which state and local groups had requested, will be held on April 16, and the IRS is accepting applications until March 25 from those who want to testify.

Groups like the Government Finance Officers Association have long criticized the provision, saying it places a large unfunded mandate imposed by the federal government on municipalities, since they will have to establish systems to identify and withhold the tax revenue for the federal government.

The economic stimulus package was enacted into law last month contained a provision that delayed the implementation of the withholding law for one year, until 2012. However, government groups had been pushing for a provision that would permanently repeal the law, which had been included in the House version of the stimulus package.

GFOA, the National Association of State Auditors, Comptrollers, and Treasurers, and other government groups sent a letter to the IRS earlier this month commenting on the proposed rules.

Although appreciative of the IRS' efforts to implement the law, they said, "We believe that full repeal is the only workable solution, and therefore we will continue to vigorously advocate for the provision's repeal."

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