The Internal Revenue Service has given design and construction firms a
one-year reprieve from a contract-payment withholding requirement that
industry contends would deal them a financial blow.

At issue is a provision of a 2006 statute that requires federal, state and
local governments to withhold an amount equal to 3% of their payments to
anyone providing them with goods or services.

The mandate applies to agencies whose total annual spending on goods and
services is $100 million or more.

Individual payments of less than $10,000 would be exempt from the
withholding requirement.

The mandate originally was to take effect for payments starting Jan. 1,
2011. But the 2009 economic stimulus law postponed the effective date by one
year, to have it apply to payments beginning Jan. 1, 2012.

Now in a final rule published in the Federal Register on May 9, IRS has
extended the effective date for another year. Under the newly published
regulation, the 3% withholding would apply to payments starting Jan. 1,

Payments made under contracts in place by the end of 2012 that are not
"materially modified" would be exempt from the 3% withholding but that
exception would only be in place for one year and expire as of Dec. 31,

Geoff Burr, Associated Builders and Contractors' vice president of federal
affairs, says, "While we welcome this news by the IRS, ABC firmly believes
that delaying the effective date is not a solution because there is still no
equitable, practical, or cost-effective way to implement this new

ABC, the American Council of Engineering Companies, American Institute of
Architects, American Society of Civil Engineers, Associated General
Contractors of America, U.S. Chamber of Commerce and a long list of other
business organizations belong to the Government Withholding Relief
Coalition, which has been lobbying to have the 3% withholding repealed.

In the House, a repeal bill introduced by Rep. Wally Herger (R-Calif.) has
101 co-sponsors. In the Senate, a bill proposed by David Vitter (R-La.) has
six co-sponsors and a measure introduced by Scott Brown (R-Mass.) has eight