AccessibilitySkip to Top NavigationSkip to Main ContentHome  |  Contact IRS  |  About IRS  |  Site Map  |  Español  |  Help  

Part 21. Customer Account Services

Chapter 7. Business Tax Returns and Non-Master File Accounts

Section 2. Employment and Railroad Tax Returns (Cont. 2)

21.7.2  Employment and Railroad Tax Returns (Cont. 2)

21.7.2.4 
Employment Tax Returns Procedures

21.7.2.4.18 
Form 941c, Supporting Statement to Correct Information

21.7.2.4.18.6 
FICA Tax Adjustments

21.7.2.4.18.6.5 
FICA Adjustments on Exempt Organizations Pursuant to IRC Section 501(c)(3)

21.7.2.4.18.6.5.6  (01-01-2005)
Internally Generated Transcripts (IRC Section 218 Coverage)

  1. Transcripts may be received from Accounting which involve EC "T" or EC "G" issues.

  2. If it can be determined taxpayer has elected Section 218 coverage, take the following action:

    1. Change EC to "T" with a filing requirement of "01" , if not already posted on the entity module.

    2. After input of the EC, or if EC "T" has already posted, input TC 29X (see IRM 21.5.2.4.17, Posting Delay Codes (PDC)) with IRN's 004, 007, and 073 to assess FICA taxes based on the wages shown on the return.

    3. Advise taxpayer of action taken.

    4. If no wages are reflected on return, correspond with taxpayer to obtain correct wages.

  3. If you cannot determine taxpayer coverage, verify with appropriate State Retirement Office whether entity has entered into a Section 218 agreement.

    1. See Exhibit 3.13.12-4, in IRM 3.13.12, Exempt Organization Account Numbers, for a list of State offices and contacts.

    2. If Section 218 coverage is elected, process as in (2) above.

    3. If Section 218 coverage is not elected, correspond with taxpayer to resolve issues regarding social security coverage status.

21.7.2.4.18.6.6  (01-01-2005)
IRC 127, Educational Exclusions

  1. Under IRC 127, an employer can exclude from gross income up to $5,250 per employee for educational assistance benefits. The Economic Growth and Tax Relief Reconciliation Act of 2001 permanently extended IRC 127. It also reinstated its applicability to graduate courses beginning after December 31, 2001.

    Note:

    The exclusion for graduate courses does not apply to courses beginning June 30, 1996 - December 31, 2001

    .

  2. The SBJPA (Small Business Job Protection Act) provides for expedite refund procedures involving claims for 1995 and subsequent.

    1. Employer is not required to obtain the certification required for refund of FICA taxes contained on Form 941c. (Do not reject claims for 1995 and subsequent if certification is not provided.)

    2. Employer must include a statement verifying he has notified the employees for which he is claiming a refund on their behalf, and has informed them they should not file a claim.

    3. Employer must state he has refunded over-collected taxes to employees.

    Note:

    If employer does not include statements in b) and c) above, contact employer to obtain them. Fax copies are acceptable.

  3. Claims can only be returned when it is impossible for them to be processed with the information provided. Make every possible attempt to contact taxpayer to obtain the necessary information before they are returned.

    Note:

    See IRM 21.7.3.4.14, for information on FUTA claims involving IRC 127.

21.7.2.4.18.6.6.1  (01-01-2005)
IRC 127 Claims From Employees

  1. SBJPA provides for employees unable to obtain refunds from their employer, to file Form 843 to obtain a refund. A statement from the employer must be attached listing any amount which has been reimbursed by employer. If employee is unable to obtain this statement, he/she must provide this information to the best of his/her ability. (If taxpayer does not provide either, contact taxpayer. Fax copies are acceptable.)

  2. When the required documentation is secured, follow procedures in IRM 21.7.4.17.6.2 under "Claim is correctly filed with employer's statement attached" , in the "If/Then" table.

21.7.2.4.18.6.7  (01-01-2005)
IRC Section 3121(q) Adjustments

  1. Forms 941 noted "3121(q)" may be received in Accounts Management. The vast majority are from taxpayers who receive a Section 3121(q) Notice and Demand following a tips examination. These employers must pay the employer portion of FICA taxes on unreported tips shown on the 3121(q) Notice and Demand. They are instructed to:

    1. Make adjustment on their Form 941 for the quarter in which Section 3121(q) Notice and Demand is made.

    2. Note "3121(q)" next to line 9 (2004 and prior) or line 7e (2005 and subsequent) of Form 941.

    3. Attach Form 941c notated "3121(q)" .

    Note:

    Some returns may be submitted voluntarily by taxpayer without a tips examination being performed. In these cases, a Section 3121(q) Notice and Demand will not be attached.

  2. The statute of limitations for assessment is three years after April 15 of the calendar year following the Section 3121(q) Notice and Demand date.

  3. Taxpayer is only required to complete Parts III and IV (if applicable) of Form 941c. ( See IRM 21.7.2.4.18.6.7.1 below, for procedures to adjust these cases.)

21.7.2.4.18.6.7.1  (01-01-2005)
Procedures for Adjustments on Section 3121(q), Forms 941c

  1. It is not necessary to check a box in Part I.

  2. In Part III, only columns (a) Period Corrected, (e) Correct Taxable Tips for Period, and (f) Social Security Tax Adjustment are required. (If taxpayer also completes column (d) Tips Previously Reported for Period, this is acceptable.) In Part IV, only columns (a) Period Corrected, (c) Correct Taxable Wages and Tips for Period, and (d) Medicare Tax Adjustment, are required. (If taxpayer also completes column (b) Wages and Tips Previously Reported for Period, this is acceptable.)

  3. Part III, column (e) reflects the total tips subject to increase.

    1. Use IRN 072 for this amount. (If column (d) is also completed, enter the difference between columns (d) and (e) as the 072 amount, unless a Section 3121(q) Notice and Demand is attached indicating the amount in column (e) should be the amount of tips subject to increase.)

    2. Input IRN 072 on the fourth quarter return for the year identified in column (a).

    3. If a fourth quarter return is not filed for the year identified, input on the latest quarter filed for that year.

  4. Part III, column (f) reflects the employer’s portion only of the social security tax adjustment.

    1. If it does not, adjust the amount (up or down) to only the employer’s share, and inform taxpayer.

    2. If there is a discrepancy between taxpayer’s figures on Form 941c and the figures on the Section 3121(q) Notice and Demand, use the Notice and Demand figures to compute the tax increase, unless taxpayer adequately explains the difference.

    3. Use IRN 007 or 112 (depending on tax year) to adjust column (f).

    4. Adjust on period for which the Form 941 was filed.

    5. Do not adjust on period identified in column (a).

  5. Part IV, column (c) reflects total tips subject to increase.

    1. Use IRN 073 for this amount. (If column (b) is also completed, enter the difference between columns (b) and (c) as the 073 amount, unless a Section 3121(q) Notice and Demand is attached indicating the amount in column (c) should be the amount of tips subject to increase.)

    2. Input IRN 073 on the fourth quarter return for the year identified in column (a).

    3. If a fourth quarter return is not filed for the year identified, input on the latest quarter filed for that year.

  6. Part IV, column (d) reflects the employer’s portion only of the Medicare tax adjustment.

    1. If it does not, adjust the amount (up or down) to only the employer’s share, and inform taxpayer.

    2. If there is a discrepancy between taxpayer’s figures on the Form 941c and the figures on the Section 3121(q) Notice and Demand, use the Notice and Demand figures to compute the tax increase, unless taxpayer adequately explains the difference.

    3. Use IRN 007 or 112 (depending on tax year) to adjust column (d).

    4. Adjust on the period for which the Form 941 was filed. Do not adjust on the period identified in column (a).

21.7.2.4.18.6.7.2  (01-01-2005)
Ascertained Date on Section 3121(q) Adjustments

  1. Use the date of the Section 3121(q) Notice and Demand to determine the ascertained date. The ascertained date is the due date of the quarter which contains the date of the Notice and Demand.

    Example:

    The Notice and Demand is dated April 21, 2008. The ascertained date is July 31, 2008.

  2. If no Notice and Demand is attached, check for an ascertained date.

  3. If neither is available, input TC 290 for the amount of the increase.

21.7.2.4.18.6.7.3  (01-01-2005)
Form 941c Not Attached to Section 3121(q) Form 941

  1. If Form 941c is not attached, but other information is provided which allows you to ascertain the adjustment requested, adjust the account.

  2. If Form 941c is not attached, and enough information is not provided to ascertain correct adjustment:

    1. Call taxpayer for needed information.

    2. Note the history sheet with the name of the person contacted, time, date, and information provided.

    3. If unable to contact taxpayer by phone, correspond for the needed information (enclose blank Form 941c, if appropriate) and suspend case for 40 days.

    4. If no reply, adjust the account based on the line item adjustment on line 9 or 7e (depending on tax year) of Form 941.

    5. If unable to ascertain appropriate period(s), input on period on which line item adjustment was claimed.

    Example:

    Form 941, line 7e is $76.50. Input IRN 072 for $1,000, IRN 073 for $1,000 and IRN 112 for $76.50 ($1,000 × 6.2%, plus $1,000 × 1.45%) on the appropriate period(s).

21.7.2.4.18.6.7.4  (01-01-2005)
Taxpayer Reports Other Adjustment In Addition to Section 3121(q) Adjustment

  1. Taxpayers are instructed to attach two Forms 941c if line 9 reflects an adjustment in addition to 3121(q) amount. If so, combine Forms 941c and input on same adjustment document, if possible.

21.7.2.4.18.6.7.5  (01-01-2005)
Math Verified Form 941c with 3121(q) Adjustment

  1. If a math verified Form 941c indicating a Section 3121(q) adjustment is received, follow procedures in IRM 21.7.2.4.18.6.4.2, Math Verified Forms 941c (Detached), except use IRN 072 rather than IRN 005 to correct tips.

21.7.2.4.18.6.8  (01-01-2006)
IRC Section 3509

  1. IRC Section 3509 provides for employer liability for employment tax if a worker is reclassified from an independent contractor to an employee status. Amount of the assessment depends on whether a Form 1099 is filed. (Generally, the assessment under IRC 3509 is made by the Service, but the employer may self-assess, under IRC 3509, if he/she discovers the worker was mis-classified and all requirements are satisfied. An assessment by the Service can be identified by IRN 079.)

  2. The employer pays his/her share of FICA tax and either 20% or 40% of employee’s share. Income tax withholding is either 1.5% or 3% of the wages.

    1. Since FICA is not assessed at the regular rate, the taxpayer must prepare a Form 941c and enter the FICA portion on line 9 or line 7g, Form 941 (depending on tax year). Any income tax withholding must be reported on line 4 or line 7f (depending on tax year), Form 941.

    2. Taxpayer attaches a statement to return showing how the tax was computed.

    3. Do not question or change the FICA tax computed, as long as it is mathematically correct.

    4. Assess interest from the ascertained date to the payment received date.

  3. If there is an ascertained date and the Form 941c was filed late (after the due date of the ascertained date quarter), assess the tax separately using TC 290 for each quarter wages are being corrected.

  4. Apply the payment(s) to the appropriate tax period(s), if tax was paid with Form 941c.

21.7.2.4.18.6.9  (06-09-2006)
Medical/Dental Residents Excess FICA Claims (Mayo Clinic or Minnesota vs. Apfel)

  1. In the court case Minnesota vs. Apfel, the court ruled that certain medical/dental residents may be considered students and, therefore, not subject to FICA taxes.

  2. All of these claims are CATA, regardless of the amount. The claim does not have to specify Minnesota vs. Apfel. If claims reference medical or dental residents, "NRSA" Grant excludability under Section 117, or similar wording, forward as CATA. However, do not forward as CATA until the taxpayer supplies the necessary supporting statements. Close your base before referring to Exam indicating 'CATAMEDDEN' as your action. Follow procedures in subsections 21.7.2.4.18.6.9.1 (employer claims) and 21.7.2.4.18.6.9.2 (employee claims) below.

  3. Two explanations frequently used by taxpayers when attempting to claim exemption from FICA (social security and Medicare) taxes are:

    1. "Amounts paid to residents in training are scholarship grants for training. Such training grants are not payments for services within the meaning of I.R.C. Section 117(c) or Section 3121(b)(10). Consequently, these training grants are not subject to FICA taxes."

    2. "Amounts paid to residents in training were originally included in the FICA (Social Security and Medicare) wages for periods included in this Form 941c. We are adjusting the FICA (Social Security and Medicare) wages to exclude the amounts paid to residents in training since these amounts are not subject to FICA taxes."

  4. Handle any claim received at any site requesting excess FICA refunds citing the Mayo Clinic decision, as follows:

    1. If an individual files a claim for refund of excess FICA for tax years 1997–2003 and states they were an employee of the Mayo Clinic, forward expeditiously (do not send CATA) to the Cincinnati Accounts Management Campus at:
      IRS
      201 W Rivercenter Blvd
      Stop 5111G Team B108
      Covington, KY 41011

    2. If an individual files a claim for excess FICA and they are NOT an employee or former employee of the Mayo Clinic, but is basing their claim on the Mayo Clinic decision. See IRM 21.7.2.4.18.6.9.2.

    3. If an employer files a claim for excess FICA and is basing the claim on the Mayo Clinic decision, forward (do not send CATA) directly to:
      IRS
      TE/GE EO Classification
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
      MC 4910
      1100 Commerce St
      Dallas, TX 75242

  5. Rev. Proc. 2005-11 was published January 10, 2005, and clarified who can be considered a student for exemption from FICA tax. Both the final regulations and this revenue procedure are applicable with respect to services performed on or after April 1, 2005.

    Note:

    This revenue procedure disallows almost all medical residents and interns as well as postdoctoral students and fellows from being considered "students" , and therefore, all wages earned by these employees are considered wages subject to all FICA taxes.

21.7.2.4.18.6.9.1  (04-15-2004)
Employer Claims (Medical/Dental Residents)

  1. Follow the instructions in the table below.

    If And Then
    A claim is received from an employer claiming a refund for both the employer and employee portions Form 941c (or similar statement) is attached with one of the boxes checked in Part I (or statement containing the necessary certification) Close your base to Exam indicating 'CATAMEDDEN' and forward as CATA.
    A claim is received from an employer claiming a refund of both the employer and employee portions The necessary information is NOT attached 1. Attempt to contact the taxpayer (employer) for the necessary information. (The information can be faxed as long as the original claim contains a signature.) Upon receipt, follow instructions above.
    2. If unable to contact taxpayer, return claim using Letter 916C. Inform taxpayer of information needed and to resubmit claim when the necessary information is obtained. If claim is received within 180 days of RSED, follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.
    A claim is received from an employer requesting refund of the employer's portion only A statement is attached as described in IRM 21.7.2.4.18.6.1(1) Close your base to Exam indicating 'CATAMEDDEN', and forward as CATA.
    A claim is received from an employer requesting refund of the employer's portion only A statement is NOT attached as described in IRM 21.7.2.4.18.6.1(1) Follow procedures in the second "Then" box above.

  2. Line item adjustments identified in Code & Edit are also forwarded to Exam. The same procedures are followed as with IRC Section 3121(v) cases. See the table in IRM 21.7.2.4.7.4.1(5).

21.7.2.4.18.6.9.2  (04-15-2004)
Employee Claims (Medical/Dental Residents)

  1. Follow instructions in the table below.

    If And Then
    A claim is received from an employee (even on Form 1040X)

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    		A statement is attached as described in IRM 21.7.2.4.18.6.2(2), Step 2, or the employee makes a statement to the best of their knowledge and belief (including a statement of the employees inability to obtain the statement from their employer) Close your base to Exam indicating 'CATAMEDDEN' as your action, and forward as CATA.
    A claim is received from an employee Neither of the statements described in the "Then" box directly above, are attached Follow procedures in the second "Then" box in IRM 21.7.2.4.18.6.9.1(1). See Note below.

    Note:

    If the claim is filed on a Form 1040X and you are rejecting the claim back to the employee, you must advise the employee that Form 843 (rather than Form 1040X) must be used when/if the claim is resubmitted with the necessary information.

21.7.2.4.18.6.10  (01-01-2005)
Refund Claims/Major League Baseball

  1. Alert S02163 dated 03/25/2002 provided instructions for referring claims for refunds of excess FICA or FUTA tax, received from Major League Baseball Clubs or players. No future claims are expected. If a claim is received, contact the author for this IRM through proper channels.

21.7.2.4.18.6.11  (10-01-2007)
CSX Claims

  1. Claims for refunds or adjustments of FICA, RRTA, or FUTA based on CSX Corp. litigation are treated as protective claims, as explained below. The court case CSX Corp. v. United States, is on appeal to the United States Court of Appeals for the Federal Circuit. It addresses whether certain payments made pursuant to reduction in force programs are considered wages for purposes of FICA and FUTA taxes and compensation for purposes of RRTA taxes. Once the litigation is resolved, further instructions will be provided for handling these claims.

  2. Most of these claims are being filed on Form 843 with an attached Form 941c, but adjustments may also be seen on a Form 941 with the words "amended return" written in, or as a line adjustment on Form 941, or on a Form 941c filed alone. Forms affected include CT-1, CT-2, 940, 941, and possibly 943. Forward any claims as a protective claim, per procedures in IRM 21.5.3.4.7.3, Protective Claims, if they reference the CSX case or any of the related terms on the following list:

    • "Involuntary Separation Plans"

    • "Involuntary Termination Benefits"

    • "SUCB" or "SUB-pay"

    • "Reduction in Force"

    • "Severance pay"

  3. Accounts Management does not request original returns from Files before sending to Examination.

21.7.2.4.18.6.12  (01-13-2005)
Railroad Retirement Board Determinations

  1. If a Form 941c mentions RRB determinations or transferring overpaid FICA taxes to Form CT-1, see IRM 21.7.2.4.24.5.8.

21.7.2.4.18.6.13  (01-01-2005)
Frivolous Employment Tax Claims

  1. Claims citing IRC Section 861 are frivolous claims and must be sent to the Ogden Compliance Campus Frivolous Return Program as outlined in IRM 21.5.3.4.16.8, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments. Do not, under any circumstances, adjust the account prior to sending to Ogden.

  2. Some claims may be received that don't indicate this section. However, they may also be considered frivolous. See (3) for examples.

  3. There may be a Form 941c or Form 941 annotated across the top "Amended or Corrected" filed to reduce all the payroll taxes to zero for all open payroll tax quarters. Most of these returns have been prepared by hand.

    • Part V of Form 941c generally states "see attached..." which is generally a cover letter. The letters do not state a specific reason for filing the amended return, or they provide a general explanation such as "I have enclosed a corrected Form 941c as required by law when the filer discovers any error made on such return." Often the cover letter contains a cc: to a congressperson.

    • The TP only cites "Administrative Error" and does not indicate further why they are reducing the tax to zero.

  4. If doubt exists as to whether the claim is frivolous, do not send the claim to Ogden. Reject the claim back to the TP following "No Consideration" procedures outlined in IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns. Inform the taxpayer sufficient information was not received to consider the claim at this time and that a detailed explanation is necessary. If the claim received is a numbered return, or statute is imminent, contact the TP for a complete explanation before adjusting the account.

21.7.2.4.18.6.14  (01-01-2007)
Fiscal/Employer Agents Operating in Accordance with IRC Section 3504

  1. An employer may designate an agent under IRC Section 3504 to withhold, report and pay Federal employment taxes. For example, an employer may be an individual who is receiving in-home care from a home-care provider. The individual receives funds from a federal, state, or local government to pay for this care. Therefore, this individual is the employer of the home-care service provider.

  2. IRC Section 3504 allows a disabled individual to designate someone else to take care of all of the tax responsibilities that come with being an employer. This designee is known as an Employer Agent or Fiscal Agent.

  3. A Fiscal/Employer Agent may apply for, and receive approval from the IRS, to act as a Fiscal/Employer Agent on behalf of individuals for the limited purpose of withholding, filing and depositing federal employment taxes and income tax withholding for workers they hire directly.

  4. There are two types of Fiscal/Employer Agents that operate under IRC Section 3504.

    • Government Fiscal/Employer Agent (in accordance with IRS Revenue Procedures 80-4 and Notice 2003-70)

    • Vendor Fiscal/Employer Agent (in accordance with IRS Revenue Procedure 70-6)

  5. Both types of Fiscal/Employer Agents may elect to perform all of the agent tasks themselves or contract with a reporting agent or subagent.

  6. Both types of agents must file Form 2678, Employer/Payer Appointment of Agent, and are advised to have an approved Form 8821, Tax Information Authorization, on file.

21.7.2.4.18.6.14.1  (01-01-2007)
Government Fiscal/Employer Agent

  1. Government Fiscal/Employer Agent is a state or local government program agency who files on behalf of the service recipient.

  2. These agents may have an existing Employer Identification Number (EIN) that is used to file employment taxes for the entity's own employees, but is required to obtain an EIN for the sole purpose of acting as an agent under IRC Section 3504.

  3. Government Fiscal/Employer Agent files Form 941 and 940 in the aggregate, using the government agent's EIN to report all wages paid on behalf of the service recipients or their designated representatives.

  4. If a Government Fiscal/Employer Agent performs all agent tasks directly or uses a reporting agent, they can file and pay federal income tax withholding and Medicare and social security in full when they file the Form 941 and 940.

21.7.2.4.18.6.14.2  (01-01-2007)
Vendor Fiscal/Employer Agent

  1. Vendor Fiscal/Employer Agent is a private or public vendor entity or authority that works under contract to a state or local government agency who files on behalf of the service recipient.

  2. These agents may have an existing Employer Identification Number (EIN) that is used to file employment taxes for the entity's own employees, but is required to obtain an EIN for the sole purpose of acting as an agent under IRC Section 3504.

    Note:

    Regardless of how many states, local government social service programs or service recipients it provides agent service for, all federal taxes must be reported under the Vendor Fiscal/Employer Agent's single, separate EIN, not the organization's EIN.

  3. Vendor Fiscal/Employer Agent files Form 941 and 940 in the aggregate, using the vendor's agent's EIN to report all wages paid on behalf of the service recipients or their designated representatives.

  4. Vendor Fiscal/Employer Agents must deposit according to their deposit schedules.

    Note:

    Vendor agents are subject to the federal tax deposit penalty.

21.7.2.4.19  (04-15-2004)
Section 3402(d), 3406 Employment Tax Case Requiring Forms 4668, 4669, and 4670

  1. If, during the course of an examination, it is determined an employer/employee relationship exists, IRS may propose the assessment of tax, penalty, and interest against the employer for the amount of income taxes which should have been withheld from employees.

    1. IRC Sections 3402 and 3406 relieve the employer of these taxes, if the employee has filed income tax returns and paid the tax due.

    2. Employers are required to use Form 4670, Request for Relief From Payment of Income Tax Withholding, along with one or more Forms 4669, Employee Wage Statement, to obtain this relief.

    3. If the employer has paid the tax, Form 843 is required.

  2. Tax assessed under IRC Section 3509 is not subject to abatement. See IRM 21.7.2.4.18.6.8 for more information on IRC Section 3509.

  3. Employer must secure signed Forms 4669 from employees covered by the examination.

    1. The employer then prepares and signs Form 4670 indicating the tax year and number of statements (Forms 4669) secured.

    2. These signed forms are considered "prima facie" evidence of filing. Further research is not required.

  4. Form 4668, Employment Tax Examination Report, is the basic report used for all Forms 941 and 943 examinations.

    1. It is used to show the additional tax, over-assessment, or delinquent tax proposed by the examiner.

    2. It should be attached to the last quarter return examined as part of the Revenue Agents Report.

21.7.2.4.19.1  (01-01-2005)
Processing Procedures (Forms 4668, 4669, 4670)

  1. The revenue agent/officer provides taxpayer with an extra copy of the Form 4668, along with Forms 4669/4670. Taxpayer is instructed to file the copy of the Form 4668, along with Forms 4669/4670, with the appropriate campus. If the Forms 4669/4670 are received without the Form 4668 copy:

    1. Request last quarter return for last calendar year shown on Form 4670. (If return is charged to Examination, suspend case and request again in 30 days.)

    2. If document cannot be secured after the 30 day period, return Form 4669 or Form 4670 to the taxpayer with instructions to resubmit them after a bill is received.

  2. Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Over-assessment, is used to obtain a taxpayer’s agreement to the proposed assessment of employment tax or over-assessment.

    1. An error is considered ascertained on the date taxpayer signs Form 2504. Therefore, to meet the provisions of a totally interest free adjustment, the additional liability must be paid by the due date of the return for the period which includes the date the Form 2504 is signed.

      Example:

      Form 2504 is signed February 6, 2008, on a Form 941 proposed assessment. Tax must be paid by April 30, 2008, to constitute a totally interest free adjustment. If tax is not paid by April 30, 2008, the ascertained date is still April 30, 2008.

    2. Form 2504 should be attached to the same period’s return as Form 4668.

      Note:

      If Form 2504 is unavailable, and there is a TC 308 on the module, it can be assumed the interest computation date used with the TC 308 is the due date of the return in which taxpayer discovered the error. If there is no TC 308, contact taxpayer to provide a copy of the Form 2504. Fax copies are acceptable.

  3. When claim can be processed, adjust module for proper amount using TC 29X and IRN 003:

    If Then
    Interest is not restricted on module Input TC 299 with an "interest from" date using the ascertained date.
    Interest is restricted on module Input TC 291 along with appropriate TC 34X amount. Correct amount of interest due is figured by using the ascertained date as the interest start date.

  4. Use Forms 4668 and 4669 to determine amount to be adjusted:

    1. Compare line 17 of Form 4668, Maximum tax available for abatement under IRC Section 3402 (d), to line 5 of Form(s) 4669, Amount of Wages …on Which Income Tax and Social Security Tax Were Not Withheld.

    2. Limit the amount of tax adjustment to 31%.

    3. If sum of the line 5 wage amounts on Form(s) 4669 exceed wage amount on line 17, Form 4668, limit amount of tax adjustment to 31%.

    4. If line 17, Form 4668, is zero, blank or "none" , do not make any adjustment.

  5. Area Office Forms 3870, Request for Adjustment, do not need to be verified against Form 4668.

  6. Attach Forms 4669 and 4670 to the Revenue Agents Report which is used as the adjustment backup document.

    Note:

    Employer is liable for all penalties as a result of the examination, and they should not be decreased when tax is adjusted.

  7. Restrict any penalty assessments on module if tax decrease would cause penalties to recompute.

  8. Sections 3402(d) and 3406 cases are not Exam criteria even though they were previously examined.

21.7.2.4.20  (01-01-2005)
Federal Labor Laws – Wage Payments Made by Federal Agencies

  1. Certain government agencies are empowered to collect, from employers, wages erroneously not paid to employees (or former employees). Agencies are allowed to disburse these wages to the employees concerned, and withhold income taxes and employee’s share of FICA tax. Agencies allowed to take this action and the provisions which allow such action are:

    • Department of Labor – Fair Labor Standards Act

    • General Accounting Office – Davis-Bacon Act

    • National Labor Relations Board – Labor Management Relations Act

    Note:

    An extensive investigation is performed to determine if claim for back wages or unfair labor practices is valid, therefore, a relatively long period of time may elapse between the time employees become entitled to the wages and the time they actually receive payment from the agency involved.

21.7.2.4.20.1  (01-01-2005)
Processing of Returns (Wage Payments Made by Federal Agencies)

  1. Returns are processed at the campus of receipt.

  2. A consolidated Form 941c reporting wages for all employees and the tax withheld from all employees should be attached to Form 941.

    1. Form 941c is prepared with entries in the taxable wages and tax adjustment columns.

    2. In the explanation area, the agency indicates the name of the agency and the Act which authorizes them to collect and pay back wages.

    3. Form 941c is stamped "Do Not Transmit to SSA" .

  3. Wages are reported on line 6 or 5a (depending on tax year), Form 941, and the full amount of tax computed. Form 941c tax adjustment is shown on line 9 or 7e, Form 941.

  4. Agency prepares two copies of Form 941c and sends them to the Correspondence Section of the Campus serving the area in which the employer is located.

    1. A separate form is prepared for each employer.

    2. They are used to inform the employers of the liability and to make the necessary adjustments to their MF accounts.

21.7.2.4.20.1.1  (01-01-2005)
Adjustment Procedures (Wage Payments Made by Federal Agencies)

  1. When a copy of the continuation page(s) and a return and/or transcript is received, compute the employer’s share of the FICA tax liability.

21.7.2.4.20.1.1.1  (01-01-2005)
Return Posted (TC 150), Account Not in TDA Status

  1. If a return is posted:

    1. Input an adjustment using IRN 004 to show the amount of taxable social security wages.

    2. Input IRN 073 to show the taxable amount of Medicare wages.

    3. Input IRN 007 or 112 (depending on tax year) for the total FICA tax adjustment.

    4. Initiate a letter to the employer advising a bill for employer’s portion of FICA will be issued in the near future and include a copy of Form 941c from the government agency.

21.7.2.4.20.1.1.2  (01-01-2005)
Return Posted, Account in TDA Status

  1. If a return has posted, but the account is in TDA Status, forward the case to the Collection Function at the campus. State the facts in the case.

21.7.2.4.20.1.1.3  (01-01-2005)
No Return Posted, No Filing Requirements

  1. If no return has posted and there are no filing requirements for the current quarter, prepare Form 941 for the amount of the assessment and input as a "Final" return.

  2. Enter one-half of the tax as a plus adjustment on the following lines:

    • Prior quarters' social security and Medicare taxes

    • Total Adjustments

    • Total taxes after adjustments

    • Balance due

  3. Indicate along the bottom portion of the return, in accordance with which agency (Department of Labor, etc.) the return was prepared.

  4. Initiate a letter to the employer advising a bill for the employer’s portion of FICA will be issued in the near future and include a copy of the Form 941c from the government agency.

21.7.2.4.20.1.1.4  (01-01-2005)
No Return Posted, Delinquency Notice Issued

  1. If no return has posted and a delinquency notice has been issued:

    1. Route to your Campus Collection Function.

    2. State facts in case and amount due.

    3. Attach continuation page(s) of Form 941c to the memo.

21.7.2.4.20.1.1.5  (01-01-2005)
Return Prepared Prior to Return Due Date

  1. If return was prepared by the federal agency prior to the actual return due date for the period effected (and taxpayer has filing requirements), monitor the account until the return posts. Taxpayer should report this as an adjustment on lines 9 or 7e (depending on tax year):

    If And Then