21.7.2  Employment and Railroad Tax Returns (Cont. 2)

21.7.2.5 
Specific Claims and Other Issues

21.7.2.5.12  (03-30-2011)
IRC Section 3121(q) Adjustments

  1. IRC section 3121(q) provides that the employers pay their share of FICA taxes on tips reported by their employees. Such remuneration is deemed to have been paid at a time a written statement including such tips is furnished to the employer. If no such statement is furnished (or to the extent the statement is incomplete or inaccurate) such remuneration shall be deemed paid on the date on which notice and demand for such taxes is made to the employer.

  2. Following a tip examination, employers must pay the employer portion of FICA taxes on unreported tips shown on the Section 3121(q) Notice and Demand. See Letter 3263 and Letter 4520 for more information. They are instructed to include the taxes due on line 5e of their Form 941 for the quarter in which the Section 3121(q) Notice and Demand is made.

    Note:

    For tax periods in 2009 and 2010, taxpayers were instructed to report these taxes on line 7c of Form 941, notate "3121(q)" beside the line, and attach a copy of the Notice and Demand. For tax years 2005 through 2008, instructions were for these taxes to be reported on Line 7e of Form 941.

  3. Generally, 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. However, if the employer files Form 941 late and the filing date is after April 15 of the calendar year following the year the Section 3121(q) Notice and Demand is made, the Service must assess the employer FICA taxes within 3 years after the date the return was filed.

    Example:

    If the employer files Form 941 for the first quarter of 2014 on July 12, 2015, the assessment period ends on July 12, 2018.

    Note:

    If the employer files a false or fraudulent Form 941 for the quarter in which the liability is required to be reported or fails to file Form 941 for that quarter, the additional employer FICA taxes on the unreported tips can be assessed at any time.

21.7.2.5.12.1  (10-01-2012)
Procedures for Section 3121(q) Adjustments — Forms 941-X

  1. Even though employers are instructed to report a Section 3121(q) liability on their current period original Form 941, a Form 941-X may be received reporting a Section 3121(q) liability as an adjustment.

  2. If Form 941-X is received reporting a Section 3121(q) adjustment, verify all applicable sections are complete. See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and IRM 21.7.2.4.7.6, Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund (including Form 941-X (PR)).

    Note:

    IRC Section 3121(q) liabilities must be reported for the tax period in which the Section 3121(q) Notice and Demand was dated.

    Example:

    Section 3121(q) Notice and Demand was dated March 30, 2014. If Form 941-X is filed, the adjustment must be input on the 201403 tax period.

  3. Section 3121(q) adjustments reported on Forms 941-X may qualify for interest-free treatment in limited situations. See IRM 21.7.2.5.12.2, Section 3121(q) and Interest-Free Adjustments, for information on when to use a TC 298 or TC 290 when making Section 3121(q) adjustments.

  4. IRN 114 is used to adjust the employer's share of social security and Medicare tax for Section 3121(q) liability on Form 941 for tax periods beginning on or after 01/01/2011. IRN 114 corresponds to Line 5e of Form 941 and Line 11 of Form 941-X.

    Note:

    IRN 112 was used for Section 3121(q) adjustments on MFT 01 for tax periods ending on or before 12/31/2010.

  5. Accept the employer's figure as reported unless a Section 3121(q) Notice of Demand is attached indicating the amount should be higher. In that case, adjust the account using the higher figure shown on the Section 3121(q) Notice of Demand and inform the employer using Letter 4384C.

    Exception:

    If an employer attaches a copy of a Section 3121(q) Notice and Demand to Form 941-X and it can be determined the employer reported both the employee and employer shares of the social security and Medicare tax adjustment, assess only the employer share of social security and Medicare taxes and inform the employer using Letter 4384C.

    Note:

    If an employer attaches a copy of a Section 3121(q) Notice and Demand to Form 941-X but does not report the tax on the Form 941-X and it was not reported with the original Form 941, assess the amount shown on the Section 3121(q) Notice and Demand and inform the employer using Letter 4384C.

  6. Do not adjust IRN 072 (Tips deemed to be wages) or IRN 073 (Medicare wages) when making Section 3121(q) adjustments for tax periods beginning on or after January 1, 2011 even if the employer provides wage information related to the adjustment on a Form 941-X or attaches the Section 3121(q) Notice and Demand. Wage data figures related to Section 3121(q) adjustments will not be recorded for tax periods beginning on or after January 1, 2011.

    Note:

    For tax periods ending December 31, 2010 and earlier, Section 3121(q) adjustment procedures included instructions to adjust IRN 072 and IRN 073 to record the wages on which the tax was reported.

  7. Ensure all applicable deposits have been applied to the account being adjusted.

  8. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

21.7.2.5.12.2  (10-01-2012)
Section 3121(q) and Interest-Free Adjustments

  1. The date of the Section 3121(q) Notice and Demand is the ascertained date for the taxes due.

    • To qualify for interest-free treatment, a Form 941-X reporting additional tax must be filed by the due date for the tax period in which the liability for additional tax was ascertained. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns).

    • IRC Section 3121(q) liability must be reported for the tax period in which the Section 3121(q) Notice and Demand letter was dated.

    • Therefore, a Form 941-X reporting taxes due for a Section 3121(q) adjustment has the same filing due date as the tax period being adjusted. If the Form 941-X is filed after the return due date for the tax period being adjusted, the adjustment does not qualify for interest-free treatment.

      Example:

      An employer receives a Section 3121(q) Notice and Demand dated June 27, 2014. The ascertained date for the taxes due is therefore June 27, 2014. Per the instructions provided to the employer, the taxes shown on the Section 3121(q) Notice and Demand should be reported on their Form 941 for the second quarter of 2014 which has a filing due date of July 31, 2014. Instead, the employer reports the correction on a Form 941-X. The ascertained date is still June 27, 2014 based on the Section 3121(q) Notice and Demand and the Form 941-X reporting the Section 3121(q) tax is due by July 31, 2014. The employer files the Form 941-X on July 26, 2014. Therefore the adjustment qualifies for interest-free treatment.

      Example:

      An employer receives a Section 3121(q) Notice and Demand dated September 25, 2014. The ascertained date for the taxes due is therefore September 25, 2014. Per the instructions provided to the employer, the taxes shown on the Section 3121(q) Notice and Demand should be reported on their Form 941 for the third quarter of 2014 which has a filing due date of October 31, 2014. Instead, the employer reports the correction on a Form 941-X. The ascertained date is still September 25, 2014 based on the Section 3121(q) Notice and Demand and the Form 941-X reporting the Section 3121(q) tax is due by October 31, 2014. The employer files the Form 941-X on November 15, 2014. The Form 941-X was filed late and therefore the adjustment does not qualify for interest-free treatment.

  2. Use the following table to determine whether to make the Section 3121(q) adjustment using a TC 290 or TC 298:

    If Then
    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported Input the adjustment using a TC 290.
    The Form 941-X is filed by the due date of the tax period for which the Section 3121(q) adjustment is reported Input the adjustment using a TC 298. Input the return due date of the tax period being adjusted as the interest computation date.

    Exception:

    If the Page 1 error discovery date, information in Part 4, or the date of the Section 3121(q) Notice and Demand (if attached) indicate the employer filed the Form 941-X for a tax period other than that required based on the ascertained date, input the adjustment as a TC 290 or TC 298 (if timely filed) on the tax period associated with the ascertained date and inform the employer using Letter 4384C.

    Note:

    For the Section 3121(q) adjustment to be completely interest-free, the tax must be paid by the return due date of the tax period for which the adjustment is reported. Otherwise, underpayment interest accrues from that date to the date of full payment.

21.7.2.5.12.3  (10-01-2012)
Taxpayer Reports Other Adjustments In Addition to Section 3121(q) Adjustments

  1. Even though employers are instructed to report a Section 3121(q) liability on their current period original Form 941, a Form 941-X may be received reporting a Section 3121(q) liability as an adjustment. And, if a taxpayer reports a Section 3121(q) adjustment on Form 941-X, it is possible they may also report other adjustments on the same Form 941-X.

  2. If a Section 3121(q) adjustment and other corrections are reported on the same Form 941-X, separate adjustment actions may be required as per the following table:

    If And Then
    The Form 941-X is filed by the due date of the tax period for which the Section 3121(q) adjustment is reported   Input one adjustment for the entire amount of the corrections reported using a TC 298. Input the return due date of the tax period being adjusted as the interest computation date.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer provided an ascertained date for the other errors being corrected and the Form 941-X was timely filed by the associated due date Input the Section 3121(q) adjustment using a TC 290 and IRN 114. Input the adjustment for the other errors being corrected as a separate TC 298 adjustment using the Form 941-X received date as the interest computation date.
    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer did not provide an ascertained date for the other errors being corrected Input one adjustment for the entire amount of the corrections reported using a TC 290.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer provided an ascertained date for the other errors being corrected but the Form 941-X was not timely filed by the associated due date Input one adjustment for the entire amount of the corrections reported using a TC 290.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    Reminder:

    If the Page 1 error discovery date, information in Part 4, or the date of the Section 3121(q) Notice and Demand (if attached) indicate the employer filed the Form 941-X for a tax period other than for which the Section 3121(q) liability is required to be reported, input the adjustment for the Section 3121(q) liability as a TC 290 or TC 298 (if timely filed) on the correct tax period and inform the employer using Letter 4384C.

21.7.2.5.13  (01-01-2005)
IRC Section 3121(v)

  1. FICA tax is generally imposed at the time wages are actually or constructively paid. However, IRC Section 3121(v)(2)(A), contains a special timing rule. This special timing rule usually results in imposition of FICA tax before benefit payments under the plan begin. The rule provides that any amount deferred under a non-qualified deferred compensation (NQDC) plan must be taken into account as wages for FICA tax purposes the later of:

    • When the services are performed; or

    • When there is no substantial risk of forfeiture of the rights to such amount

  2. Section 31.3121(v)(2)-1, of the employment tax regulations provides guidance as to when amounts deferred under, or paid from, an NQDC plan are taken into account as wages for purposes of FICA tax. The regulations at this section are applicable January 1, 2000 and subsequent. They also contain transitional rules which provide relief for actions taken before the effective date of the regulations based on a reasonable good faith interpretation of the statute.

  3. Treasury Decision 8814 provided final regulations under IRC Section 3121(v).

21.7.2.5.13.1  (10-01-2014)
IRC Section 3121(v) Claims and Requests for Adjustments

  1. Claims and requests for adjustments may be received for current years as well as prior years. Treasury Decision 8814 contained a provision where affected taxpayers could make adjustments for tax years 1994 and 1995 as long as they were made by March 31, 2000. (Form 941 filers should have reported these on their first quarter 2000 return.) Since that period has already passed, these adjustments can no longer be made. Therefore, normal statute implications now apply.

  2. Most adjustments were previously reported as line 7e adjustments on Form 941 with the accompanying Form 941c. However, with the implementation of the new "X" returns, these adjustments will now be reported on the applicable adjusted employment tax return (Form 941-X or 944-X). Forms 943-X and CT-1X (volume should be extremely small) could also be filed.

  3. Any claims or requests for adjustments received (including increases) that indicate any of the following must be routed as CAT-A (Category A). (If there is any other indication you believe pertains to IRC Section 3121(v) not listed below, route as CAT-A also.)

    • 3121(v)

    • Regulations Section 31.3121(v)

    • Non-qualified deferred compensation (or NQDC)

    • Deferred compensation

    • Transitional rules

    • Treasury Decision 8814

    Exception:

    See IRM 21.7.2.5.13.2 for procedures relating to airline employee/retiree claims.

  4. These cases must be recontrolled to Exam. If Exam returns the case, instructions are included.

    Note:

    If a claim is received on Form 843 and Exam provides instructions to disallow the claim, follow normal claim disallowance procedures.

  5. Prior to the introduction of Forms 94XX, adjustment requests for this issue could be seen as line item adjustments on original employment tax returns with Form 941c or correspondence attached. See archived files for this IRM if information is needed on previous handling for that issue.

21.7.2.5.13.2  (03-03-2008)
IRC Section 3121(v) — FICA Claims from Airline Employees and Retirees

  1. Current or retired ≡ ≡ ≡ ≡ ≡ Airline and ≡ ≡ ≡ ≡ Airline employees whose nonqualified deferred pension benefit plans were terminated during the airlines' bankruptcy proceedings have filed claims for refund. Generally, these retirees' claims request a refund of the 1.45% Medicare tax and occasionally the 6.2% social security tax paid by the employer under IRC Section 3121(v)(2)(A). The refund claim amounts are based on FICA taxes paid on the net present value of the deferred benefit for that employee once the value became reasonably ascertainable and the FICA taxes that would have been assessed, if paid on the actual deferred pension benefit received by the retiree. The majority of the claims are related to Medicare tax.

  2. Claims have been filed on Form 843 and/or Form 1040X. These claims may be received at any campus.

  3. All these claims must be disallowed.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105C and include the following paragraphs:

    "We have disallowed your claim for refund of FICA taxes. Section 3121(v)(2) of the Internal Revenue Code requires an employer withhold and pay FICA taxes on amounts deferred under nonqualified deferred compensation plans once the present value of the deferred benefit becomes reasonably ascertainable."

    "Unfortunately, an inherent feature of these plans is that benefits promised by the employer may never actually be distributed to the employees. Even though you may never receive the full value of the deferred benefits, these FICA taxes must be withheld and remitted by the employer. There are no provisions in law which allows the refund of FICA taxes if the plan is terminated."

    Note:

    Ensure all applicable years are addressed in the disallowance process.

    Note:

    Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  4. In addition to the above paragraph, if the taxpayer's claim was not timely filed, provide the following paragraph:

    "You filed your claim for refund more than 3 years after the date the tax return for withheld employee FICA taxes was to be filed. Withheld employee FICA taxes are deemed to be paid, and the tax returns with respect to such taxes are deemed to be filed on April 15 of the calendar year succeeding the calendar year in which your employer remitted these FICA taxes on your behalf."

    Note:

    The "not timely filed" paragraph is required in addition to the "substantive language" paragraph if the Form 843 and/or Form 1040X is filed more than 3 years following April 15 of the year following the year of retirement or any claim year.

21.7.2.5.14  (01-01-2005)
FICA Adjustments on Exempt Organizations Pursuant to IRC Section 501(c)(3)

  1. Organizations exempt under IRC Section 501(c)(3) are liable for FICA taxes with few exceptions.

  2. Churches and qualified church-controlled organizations opposed to the payment of FICA taxes for religious reasons, are provided a method to elect exemption from the employer's share of FICA taxes. See IRM 21.7.2.5.14.2, Form 8274, Churches Making the Election for Exemption From FICA.

21.7.2.5.14.1  (01-01-2005)
IRC Section 501(c) Definitions

  1. Church means a church described in IRC Section 501(c)(3) and IRC Section 170(b)(1)(A)(i) which includes conventions or associations of churches.

  2. It also includes elementary or secondary schools controlled, operated, or principally supported by a church.

  3. IRC Section 3121(w)(3)(B) provides that a qualified church-controlled organization includes any church-controlled tax-exempt organization described in IRC Section 501(c)(3), except if the organization both:

    1. Offers goods, services, or facilities for sale to the general public, other than on an incidental basis or other than for a nominal charge; and

    2. Normally receives more than 25% of its support from governmental sources or receipts from admissions, sales of merchandise, performance of services, or finishing of facilities in related trade or business activities, or both.

21.7.2.5.14.2  (10-01-2012)
Form 8274, Churches Making the Election for Exemption From FICA

  1. The election is made by filing Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes.

    • Form 8274 is filed after the electing organization has hired employees, but before the first date on which Form 941 is due, or would otherwise be due, except for this election.

    • Form 8274 is processed by the Entity Control Function. See IRM 3.13.2, BMF Account Numbers.

    • Form 8274 can be recognized by Employment Code (EC) "C" .

  2. The election applies to services performed by all current and future employees of the electing organization. The election does not apply to:

    • Service as minister of a church

    • Members of a religious order

    • Service performed in unrelated trade or business of the church or qualified church-controlled organization

  3. The electing organization is required to withhold federal income tax on wages, tips, and other compensation. Forms W-2 and 941 (or 944) must be filed as appropriate. The IRS will permanently revoke the election if the organization does not file Form W-2 for two years or more and does not provide the information within 60 days after a written request by the IRS.

  4. By filing a Form 941 (or Form 944) and paying FICA taxes, the election can be permanently revoked.

21.7.2.5.14.3  (01-01-2005)
Claims (IRC Section 501(c))

  1. Allow the claim if the TC 070 establishment date is within, or prior to, the quarter for which the claim is filed, and either of the conditions below exist:

    1. The claim is filed under one of the exceptions from wages under IRC Section 3121(a).

    2. There is a miscalculation of tax on a previously filed return.

  2. Do not allow the claim if any of the conditions below exist:

    1. A nonprofit organization requests a refund based on "constitutional rights" .

    2. It is filed for refund of FICA taxes and the establishment date posted with TC 070 is after the quarter for which it is filed.

    3. The Form 8274 election was revoked by IRS (TC 071).

    4. The exempt Status under IRC Section 501(c)(3) was revoked (EO Status Code 22) or denied (EO Status Code 70). See IRM 3.13.12.6.18.2, EO Status Codes.

  3. Also, see IRM 21.5.3, General Claims Procedures, for Category A issues.

21.7.2.5.15  (01-01-2005)
State and Local Government FICA Under Section 218

  1. Both the employer and employee share of FICA taxes are collected and reported to IRS by state and local government employers if the employees are covered under Section 218 of the Social Security Act.

    1. Section 218 provides a state may enter into a voluntary agreement with the Secretary of Health and Human Services to provide social security coverage for its employees and the employees of local governments within the state.

    2. Employers under Section 218 agreements are identified by Employment Code (EC) "T" . See Section 3, Document 6209, IRS Processing Codes and Information, for additional information on Employment Codes.

  2. If taxpayer states they are not liable for FICA:

    If Then
    EC is "T" Inform taxpayer they are liable for FICA.
    EC is not "T" Abate any FICA taxes assessed.
    Taxpayer states they did not have any employees during the period Abate any FICA taxes assessed.
    TC 150 shows zero tax and no FICA taxes or wages are shown No adjustment action is necessary.
    There are any discrepancies concerning the agreement Advise taxpayer to contact SSA.
  3. If taxpayer writes concerning payments made to the State, advise taxpayer to contact the State.

21.7.2.5.15.1  (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 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, 112, 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 Social Security Office whether entity is covered by a Section 218 agreement.

    1. See IRM 3.13.12.6.29.11, Employment Code T, for contact information.

    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.

21.7.2.5.16  (07-21-2014)
Claims Related to CSX Corp. and/or Quality Stores, Inc. Litigation

  1. Claims are being filed for refunds or adjustments of FICA, RRTA (Railroad Retirement Tax Act), or FUTA taxes based on the following litigation:

    • The Court of Federal Claim's opinion in CSX Corp. v. United States, and/or,

    • The Sixth Circuit's opinion in United States v. Quality Stores, Inc.

  2. Most of these claims are being filed on Form 941-X, but they may also be seen on Forms 843, Forms 941 with the words "amended return" written in, as line adjustments on Form 941, or on stand alone Forms 941c. With respect to RRTA tax, the claims may be filed on Forms CT-1 X, amended Forms CT-1, or amended Forms CT-2. With respect to FUTA tax, the claims may be filed on amended Forms 940. Forms affected include CT-1, CT-2, 940, 941, and possibly 943. These claims can be received at any campus.

  3. Most claims received reference CSX Corp. v. United States. and/or United States v. Quality Stores, Inc. Each of these court cases addressed 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. However, any claim referencing an item in the list below must also be handled in accordance with the procedures which follow.

    • "Involuntary Separation Plans"

    • "Involuntary Termination Benefits"

    • "SUCB" or "SUB-pay"

    • "Reduction in Force"

    • "Severance pay"

  4. In United States v. Quality Stores Inc., et al., 134 S. Ct. 1395 (March 25, 2014), the Supreme Court held that the severance payments in question were subject to FICA. All claims meeting the criteria discussed above are to be disallowed, including those with addresses of record in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) and those with Form 8275, Disclosure Statement, attached.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105c and include the following paragraphs:

      "Your claim is being denied because of the decision of the Supreme Court of the United States in United States v. Quality Stores, Inc., et al., 134 S. Ct. 1395 (March 25, 2014). In that case, the Supreme Court held that all of the payments were taxable wages for FICA tax purposes."

    Exception:

    Claims citing Rev. Rul. 90-72 (with or without other citations) are to be held pending development of revised guidance on handling. Claims citing Rev. Rul. 90-72 are to be reassigned and placed in suspense status as follows:
    •Claims received at the Cincinnati Campus are to be reassigned to 0230201683.
    •Claims received at the Ogden Campus are to be reassigned to 0440023451.

    Caution:

    Ensure all applicable years are addressed in the disallowance process.

    Reminder:

    Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  5. Responses to 105c letters issued per the instructions in (4) are to be handled as per instructions in IRM 21.5.3.4.6.2, Appeals and Responses to Letter 105C and 106C.

21.7.2.5.17  (02-08-2010)
FICA/Medicare Claims from Automotive Industry Employees

  1. Former and/or current employees of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ who were offered buyouts have filed claims for refund. These buyouts were correctly treated as wages and subject to FICA/Medicare Withholding. Under Rev. Rul. 2004-110, the employee receives the payment as consideration for cancelling the remaining period of their employment contract and relinquishing their contract rights. As such, the payment is part of the compensation the employer pays as reimbursement for employment. The payment provided by the employer to the employee is wages for purposes of FICA, FUTA, and federal income tax withholding. This conclusion applies regardless of the name by which the reimbursement is designated or whether the employment relationship still exists at the time the payment is made.

  2. Claims have been filed on Form 843 and/or Form 1040X by employees of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . These claims may be received at any campus.

  3. All these claims must be disallowed.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105C and include the following paragraph:

      "Your claim is being denied. See Rev. Rul. 2004-110 which states that an amount paid to an employee as considerations for cancellation of an employment contract and relinquishment of contract rights is ordinary income and wages for purposes of FICA, FUTA, and federal income tax withholding."

      Note:

      See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for more information.

21.7.2.5.18  (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 of this IRM through proper channels.

21.7.2.5.19  (10-01-2014)
Premium Assistance for COBRA Benefits

  1. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives employees who lose coverage under the employer's group health plan due to a "qualifying event" , one of which is a termination of employment, the right to elect to continue that coverage for a period of time by paying premiums to the employer to continue such coverage. COBRA (under the Code, ERISA, or the Public Health Service Act) generally covers multi-employer health plans and health plans maintained by private-sector or state or local government employers with 20 or more employees. It generally does not apply to churches and certain religious organizations.

  2. The American Recovery and Reinvestment Act of 2009 (as modified by subsequent legislation) provides premium assistance for COBRA continuation coverage for certain individuals and their families (referred to as assistance eligible individuals) who lose health plan coverage due to an involuntary termination of employment during the period beginning September 1, 2008 and ending May 31, 2010 and who are eligible for COBRA continuation coverage during this period. Workers who were involuntarily terminated between September 1, 2008 and February 17, 2009 (date of enactment), but failed to initially elect COBRA or initially elected COBRA coverage and dropped it before February 17, 2009, were required to be given an additional period to elect COBRA and receive the subsidy. The premium assistance also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program and to continuation coverage under State programs that provide for coverage comparable to COBRA continuation coverage.

  3. A federal subsidy of 65% of the COBRA premium is available to assistance eligible individuals for up to 15 months.

    • Assistance eligible individuals who elect COBRA continuation coverage are treated as having paid the required COBRA continuation coverage premium if the individual elects COBRA and pays 35% of the premium.

    • The 65% of the premium not paid by the assistance eligible individual is reimbursed to the employer maintaining the group health plan through a credit against payroll taxes.

    • Individuals whose modified adjusted gross income exceeds $125,000 ($250,000 for those filing joint returns) are subject to a phase-out of the subsidy and must recapture the full amount of the subsidy if their modified adjusted gross income exceeds $145,000 ($290,000 for those filing joint returns). The employer/COBRA provider is not responsible for enforcing this limit. Instead, an individual who receives the subsidy and is subject to the phase-out must increase their tax liability by the amount of the subsidy to be recaptured.

    Note:

    The 15-month COBRA premium assistance subsidy eligibility period does not begin until employer provided coverage ends. For example, the 15-month eligibility period for an assistance eligible individual who was terminated on April 30, 2010 and received continued employer provided coverage under a 2-year severance package would begin May 1, 2012 (the day after employer provided coverage ended) and would continue through July 31, 2013. See Q-14 of Notice 2009-27 for more information.

  4. The employer reports the 65% premium assistance provided to assistance eligible individuals on their employment tax return after they have received the 35% premium payment from the individual.

    • The first quarter of 2009 was the first tax period employer's could claim the COBRA premium assistance credit.

    • For tax periods 200903 through 201312, employers could claim the COBRA premium assistance credit on their original employment tax return or on a corresponding Form 94XX adjusted return or claim. The amount claimed should be 65% of the total COBRA premiums for assistance eligible individuals and should not include any amounts paid to the employer/COBRA provider by the COBRA assistance eligible individuals.

    • Employment tax returns for tax periods 200903 through 201312 also included lines to report the total number of individuals provided COBRA premium assistance payments. Each assistance eligible individual who paid a reduced COBRA premium in the quarter should be counted as one individual, whether or not the reduced premium was for insurance that covered more than one assistance eligible individual. Each individual is reported only once per quarter.

    • For tax periods after 201312, lines for claiming the COBRA premium assistance credit were removed from original employment tax forms. Those few employers who are still eligible to claim the COBRA premium assistance must do so on the appropriate Form 94XX adjusted return or claim.

    • The credit is posted to Masterfile with a TC 766, CRN 299 and is treated as a deposit made on the first day of the return period (year or quarter) which reduces the employer's employment tax liabilities. Employers can apply the credit to offset their federal tax deposits, to generate a refund, or both.

  5. In most cases, the employer maintaining the group health plan is the party eligible to claim the credit for the subsidy provided to the assistance eligible individual. However, in some cases, a person other than the employer is the proper party to receive the credit. For example, if the COBRA coverage is provided by a multi-employer plan, the plan will provide 65% federal subsidy for the COBRA premium to the assistance eligible individuals who have paid their 35% premium, and then report the subsidy on its Form 941. Similarly, if the premium assistance is provided with respect to continuation coverage required under state law, the insurer is generally the proper party to receive the credit on its Form 941.

  6. Employers/COBRA providers must maintain supporting documentation for the credit claimed. This includes, but is not limited to:

    • Information on the receipt, including dates and amounts, of the assistance eligible individuals' 35% share of the premium.

    • In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.

    • In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.

    • Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from September 1, 2008, to May 31, 2010), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.

    • Proof of each assistance eligible individual's eligibility for COBRA coverage at any time during the period from September 1, 2008, to May 31, 2010, and election of COBRA coverage.

    • A record of the SSN's of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.

    • Proof of delayed eligibility for COBRA (i.e., length of severance period prior to start of COBRA coverage), if applicable.

    • Other documents necessary to verify the correct amount of reimbursement.

    Note:

    This documentation must be maintained, but will not be required to be submitted to the IRS with an original employment tax return or Form 94XX adjusted return or claim.

  7. The Internal Revenue Service issued News Release IR-2009-15 to help employers/COBRA providers claim COBRA premium assistance credit on their employment tax returns. This news release also provided employers/COBRA providers with informative FAQ's. The news release, FAQs, and other information are available on www.irs.gov.

21.7.2.5.19.1  (10-01-2014)
Submission Processing (SP) Procedures — COBRA

  1. This information applies to COBRA premium assistance payments claimed on original employment tax returns filed for tax periods 200903 through 201312. Credit for COBRA premium assistance payments for tax periods after 201312 must be claimed on the appropriate Form 94XX adjusted return or claim.

  2. For credits previously claimed on original employment tax returns, both the COBRA premium assistance amount and the number of COBRA recipients was transcribed and posted to MF. Credit for the COBRA premium assistance payments posts as a TC 766 with CRN 299 and the number of COBRA recipients will be displayed separately.

    Note:

    The COBRA TC 766 (CRN 299) credit is applied to Master File using the first day of the tax period as the credit effective date.

  3. During original processing, SP would correspond for missing information related to COBRA premium assistance. If an employer/COBRA provider claimed the credit on an original employment tax return, then an entry for the number of COBRA recipients was required and vice versa.

  4. If credit for COBRA premium assistance payments claimed on an original employment tax return (tax periods 200903 through 201312) was determined to be questionable during initial processing, any credit on the tax module was held pending a review to verify the allowable amount. Taxpayers were informed of the review via issuance of a CP 269C. This notice also advised the taxpayer that the Service could ask them to provide information substantiating the premium assistance payments reported.

21.7.2.5.19.2  (10-01-2014)
Adjusting the Account — COBRA

  1. An employer/COBRA provider must file the applicable Form 94XX in order to claim COBRA premium assistance credits for tax periods after 201312 or to correct previously reported credits for tax periods 200903 and subsequent.

  2. Although taxpayers should check the line 3 certification block and either the line 4c or 5d certification blocks stating the adjustment or claim amounts were not withheld from employee wages, we will accept the applicable "X" form without the Part 2 certifications if the only correction requested is to previously reported COBRA premium assistance payments (assuming the correction request is otherwise processable). Do not reject the form or contact the taxpayer for the certification information if the only correction being requested is to previously reported COBRA premium assistance payments.

  3. Credit Reference Number (CRN) 299 is used to adjust premium assistance for COBRA benefits.

    • Input CRN 299 to adjust this credit when claimed on an adjusted employment tax return. Use a minus (-) when decreasing the COBRA benefit.

    • CRN 299 will generate a TC 766 (increase) or TC 767 (decrease).

    • CRN 299 can be input separately or with any combination of other TCs, IRNs, or CRNs.

    • The COBRA TC 766 (CRN 299) credit is applied by MF using the first day of the tax period as the credit effective date.

    • CRN 299 is a refundable credit. The COBRA credit will generate an overpayment if the taxpayer chooses to make all deposits for tax liability amounts incurred during the period instead of counting the credit as a payment towards tax liability.

    Reminder:

    The total number of individuals provided COBRA premium assistance payments is not an adjustable field.

    Note:

    MF programming was corrected in January of 2011 to recognize that reversals of COBRA refundable credits (CRN 299) are eligible for interest-free adjustments under IRC 6205 provisions. When a TC 298 is input along with a CRN 299 reversal, the Interest Computation Date generates a second date field (showing as “COBRA/TAX-HOL>” on IDRS) which the computer will use as the start date for accruals. Prior to the programming correction, COBRA refundable credit reversal procedures included instructions to restrict penalty and interest calculations with TC 340 and TC 270 transactions as appropriate.

  4. Process claims for COBRA premium assistance credits as follows::

    If And Then
    Taxpayer files Form 941-X claiming COBRA credit The tax period is prior to 200903 Disallow the COBRA portion of the claim by sending the applicable disallowance letter (105C or 106C). Include the following paragraph in the disallowance letter:
    "Credit for COBRA premium assistance payments cannot be claimed for the tax period for which your claim was filed."

    Note:

    Also insert the appropriate paragraphs in the letter if the claim was not timely filed.

    Taxpayer files Form 941-X claiming COBRA credit The Entity is coded with an Employment Code (EC) "C" Disallow the COBRA portion of the claim by sending the applicable disallowance letter (105C or 106C). Include the following paragraph in the disallowance letter:
    "Our records indicate your entity is a church or qualified church controlled organization exempt from tax under Section 501 and therefore you are exempt from COBRA and do not qualify to claim COBRA subsidy reimbursement " .
    Taxpayer files Form 941-X claiming an increase to COBRA credit The claim is filed for tax period ending 12/31/2013 or earlier Send claims requesting an increase to COBRA credit ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files Form 941-X claiming an increase to COBRA credit The claim is filed for a tax period beginning 01/01/2014 or later Send claims requesting an increase to COBRA credit CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files Form 941-X claiming COBRA credit Does not provide the new total number of employees Make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

21.7.2.5.20  (10-01-2012)
HIRE — Payroll Tax Exemption

  1. Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, a new tax benefit was available to employers who hired certain previously unemployed workers ("qualified employees" ) in their trade or business.

  2. The payroll tax exemption provided employers with an exemption from the employer's 6.2% share of social security tax on wages paid to qualified employees, effective for wages paid from March 19, 2010, through December 31, 2010. The employee's 6.2% share of social security tax, and the employer and employee's shares of Medicare tax still applied to all wages. Qualified employers could elect out of the payroll tax exemption.

  3. A qualified employee was an employee who:

    • Began employment with a qualified employer after February 3, 2010, and before January 1, 2011,

    • Certified by signed affidavit, under penalties of perjury, that they had not been employed for more than 40 hours during the 60-day period ending on the date they began such employment,

    • Was not employed by the qualified employer to replace another employee of such employer unless such other employee separated from employment voluntarily or was terminated for cause, and

    • Was not a family member of or related in certain other ways to the employer.

  4. A model affidavit (Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit) was developed for employers to use. Employers were required to secure an affidavit with the same information as the Form W-11, but they were not required to use Form W-11. The Form W-11 or equivalent was not to be filed with the IRS but was instead required to be retained by the employer with other tax documents.

  5. Qualified employers:

    • Taxable Businesses and tax-exempt organizations qualified to claim the payroll tax exemption for eligible newly-hired employees.

    • Qualified employers in all five U.S. territories (i.e., American Samoa, Commonwealth of the Northern Mariana Islands, Guam, the US Virgin Islands, and Puerto Rico) that are subject to social security tax also qualify for the payroll tax exemption.

    • Federal, state and local government employers generally did not qualify for the tax exemption. However, public colleges and universities could qualify; Indian tribal governments also qualified.

    • Household employers did not qualify.

  6. The payroll tax exemption was claimed on Form 941, Employer's QUARTERLY Federal Tax Return, beginning with the second quarter of 2010, or annual employment returns (Forms 943 - Agricultural, 944 - Small Business, and CT-1 - Railroad).

  7. The payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 cannot be applied on the first quarter Form 941. Instead, the amount by which the employer's social security tax would have been reduced as a result of applying the exemption to wages paid during the first quarter was treated as a "payment" for the second quarter. The credit for this payment could be claimed only on the second quarter Form 941 (lines 12c - 12e) and could only be claimed with respect to wages paid to qualified employees from March 19, 2010 (the day after the date of enactment), through March 31, 2010. The amount of the credit claimed on Form 941 for the second quarter could be refunded to the employer or applied against a liability for a later quarter.

    Note:

    A seasonal employer that did not otherwise have to file Form 941 for the second quarter was required to file a Form 941 for that quarter in order to claim the payroll tax exemption for the amount of the exemption that would have applied to wages paid during the first quarter.

  8. "Code CC" was created for box 12 of Form W-2 for employers to identify qualified employees and report the amount of wages and tips covered by the payroll tax exemption. In addition, box 12b was created on Form W-3 to report the aggregate of "Code CC" .

  9. The HIRE payroll tax exemption reduced an employer's tax liability on wages paid to qualified employees during the second, third and fourth quarters of 2010. This reduction was effective as of when wages are paid, and the employer was not required to deposit the employer's 6.2% share of social security tax on such wages. Therefore, employers should not include the exemption amounts in corresponding liabilities reported on Schedule B (or other tax liability schedules for Forms 941, 943 and 944) for the second, third, or fourth quarters of 2010. In addition, since the HIRE payroll tax exemption could not be claimed for the first quarter and had to instead be claimed as a refundable credit for the second quarter, an employer could reduce their deposits for the second quarter of 2010 by the amount of the first quarter credit (treated as a deposit available on April 1, 2010). However, the refundable HIRE credit amount claimed for the second quarter did not reduce the amount of liability required to be reported on Schedule B (or other tax liability schedules for Forms 941, 943 and 944) for the second quarter of 2010.

  10. Additional resources:

    • Hire Act: Questions and Answers for Employers

    • IR-2010-64 Form to Claim Payroll Tax Exemption for Hiring New Workers Now Available

    • IR-2010-43 Special Payroll Tax Exemption Form Now Available

21.7.2.5.20.1  (10-01-2014)
Adjusting the Account — HIRE

  1. If the qualified employer needs to correct a previously reported payroll tax exemption, it will need to file the applicable "X" form. This section applies to Forms 941-X, 943-X, 944-X, and CT-1X.

    Note:

    If the applicable "X" form is only being filed to correct previously reported HIRE exemption amounts or the HIRE refundable credit , then the employer must check the line 3 certification box and should check the line 4 or line 5 certification box which states none of the refund or credit was withheld from the employee wages. If the line 3 certification block is checked but no certification box is checked on lines 4 or 5, process the applicable "X" form without contacting the employer for the missing information so long as the adjustment is for HIRE amounts only.

  2. Credit Reference Number (CRN) 296 is used to adjust the payroll tax exemption for wages paid to qualified employees from March 19 - 31, 2010 (HIRE refundable credit). New Item Reference Numbers (IRN) were used to adjust the applicable tax and wages associated with the payroll tax exemption.

  3. Payroll tax exemption reference numbers:

    Item Reference Numbers (applicable for Forms 941, 943, and 944)
    Number Explanation
    115 Used to adjust exempt wages/tips paid to qualified employees this quarter.
    116 Used to adjust tax from exempt wages/tips paid to qualified employees this quarter.
    117 Used to adjust exempt wages/tips paid to qualified employees March 19 - 31.
    Credit Reference Number (applicable for Forms 941, 943, 944, and CT-1)
    296 Used to adjust the HIRE refundable credit from exempt wages/tips paid to qualified employees March 19 - 31 .

    Caution:

    The Assessment Statute Expiration Date (ASED) and Refund Statute Expiration Date (RSED) for timely filed 2010 employment tax returns expired on April 15, 2014. Accordingly, the future volume of timely filed adjustment requests for HIRE related credits is expected to be minimal. Line numbers for HIRE related items have been removed from current Form 941-X (and other Forms 94XX) versions. However, some small number of valid HIRE related adjustment requests (e.g. original return filed late and/or late paid tax situations) may be received on an older version form for 2010. See IRM 25.6.1, Statute of Limitations Processes and Procedures, as appropriate for additional guidance on determining whether an adjustment request was timely filed.

    Note:

    The number of qualified employees is not an adjustable field.

  4. Use CRN 296 to adjust the payroll tax exemption for wages paid to qualified employees from March 19 - 31 (HIRE refundable credit). Use a minus (-) when decreasing the credit. The CRN 296 will generate a TC 766 (increase) or TC 767 (decrease).

    Note:

    CRN 296 can be input separately or with any combination of other TC's, IRNs, or CRNs.

    Note:

    MF programming was corrected in January of 2011 to recognize that reversals of HIRE refundable credits (CRN 296) are eligible for interest-free adjustments under IRC 6205 provisions. When a TC 298 is input along with a CRN 296 reversal, the Interest Computation Date generates a second date field (showing as “COBRA/TAX-HOL>” on IDRS) which the computer will use as the start date for accruals. Prior to the programming correction, HIRE refundable credit reversal procedures included instructions to restrict penalty and interest calculations with TC 340 and TC 270 transactions as appropriate.

  5. The payroll tax exemption TC 766 (CRN 296) credit is applied using April 1, 2010 as the credit effective date for both quarterly and annual tax returns. If a taxpayer chooses not to count the credit as payment towards the tax liability amounts incurred during the period and makes the applicable deposits instead, the credit will generate an overpayment.

  6. The payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 is only valid for the second quarter 2010. If a request is received for a tax period other than 201006, "no consider" the request and follow existing procedures in IRM 21.5.3.4.6.3, No Consideration Procedures.

  7. Use the chart below to determine if the HIRE claim is processable.

    If And Then
    Taxpayer files the applicable “X” form claiming the payroll tax exemption, ≡ ≡ ≡ ≡ ≡ ≡ The entity is coded with an Employment Code (EC) “F”, “G”, “T”, or “A” Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files the applicable “X” form claiming an increase to the payroll tax exemption, ≡ ≡ ≡ ≡ ≡ The address of record is a foreign address

    Exception:

    the five U.S. territories (i.e., American Samoa, Commonwealth of the Northern Mariana Islands, Guam, the US Virgin Islands, and Puerto Rico) are not considered a foreign address

    Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer with BOD Code "LM" files the applicable “X” form claiming an increase to the payroll tax exemption The amount of tax is a tax decrease of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer with BOD Code "SB" or "TE" files the applicable “X” form claiming an increase to the payroll tax exemption The amount of tax is a tax decrease of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer (any BOD code) files the applicable “X” form claiming an increase to the payroll tax credit for the exempt wages paid to qualified employees March 19 – 31 for tax period 201006 The amount of additional “credit” is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files the applicable “X” form claiming the payroll tax credit for the exempt wages paid to qualified employees March 19 – 31 The tax period is for any period other than 201006 "No consider" the request and inform the taxpayer the payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 is only valid for the second quarter 2010.

    Note:

    See IRM 21.5.3.4.6.3, No Consideration Procedures, for additional information.

21.7.2.5.21  (10-01-2011)
Affordable Care Act (ACA) of 2010 — Income Exclusion for Loan Forgiveness for Health Professionals

  1. The Affordable Care Act expands a tax exclusion for amounts received by health professionals under loan repayment and forgiveness programs. Prior to the new law, only amounts received under the National Health Service Corps Loan Repayment Program or certain state loan repayment programs eligible for funding under the Public Health Service Act qualified for a tax exclusion.

  2. The Affordable Care Act expands this tax exclusion to include any state loan repayment or loan forgiveness programs intended to increase the availability of health care services in underserved areas or health professional shortage areas and makes this exclusion retroactive to the 2009 tax year.

  3. Health care professionals participating in these programs who have reported income from repaid or forgiven loan amounts on their 2009 returns, possibly after receiving a Form W-2, Wage and Tax Statement, or Form 1099, may be due refunds. Those health care professionals who believe they qualify for this relief should be encouraged to consult their state loan program offices to determine whether the program is covered by the new law.

  4. A health care professional whose employer withheld and paid taxes under FICA on a repaid or forgiven loan covered by the new provision of the Affordable Care Act may request that the employer seek a refund of withheld FICA on the employee’s behalf.

  5. Since the employer also pays a portion of FICA (Social Security and Medicare tax) that is not withheld from the amount paid to the employee, the employer will also be entitled to a refund.

    • To obtain the refund, the employer must file a separate Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, for each Form 941 that needs to be corrected.

    • Employers filing a Form 941-X are also required to file Form W-2c.

    Note:

    These claims will only be identifiable if the taxpayer states in the explanation the specific reason for filing. Some possible explanations may be "excluded student loan amount under 2010 Health Care Act" , "Affordable Care Act" or "Student Loan Forgiveness" .

  6. These returns will be centralized in Accounts Management (AM) at the Ogden campus. Once these claims are identified and you are not part of the centralized team, route accordingly.

    1. If you receive a paper case, route to:
      Internal Revenue Service
      ARKA Building
      1973 North Rulon White Blvd
      Ogden, UT 84404
      Attn: MS 6552

    2. If you receive a case that has already been scanned into CIS, reassign to the Ogden Campus IDRS number 0441307815 and notate on AMS/CIS "Affordable Care Act" .

  7. The procedures below are for the Ogden AM centralized team only:

    1. Follow existing procedures in IRM 21.7.2 to make the applicable adjustments.

    2. Beginning July 1, 2010. In addition to inputting the applicable adjustment, TC 971 action code 389 must be input via CC REQ77 in order to track these applicable claims. This 971 code must be input on the specific tax module for which the applicable adjusted return was filed.

    3. Organization, Function, and Program (OFP) Code 710-84381 must be used when working these ACA claims.

21.7.2.5.22  (08-05-2014)
Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans

  1. The VOW to Hire Heroes Act of 2011 expanded the Work Opportunity Credit (WOC) to businesses that hire certain eligible unemployed veterans who begin work before January 1, 2013. For the first time, this law also made the Work Opportunity Credit available to certain tax-exempt organizations who hire qualified veterans who begin work on or after November 22, 2011, and before January 1, 2013. Section 309 of the American Tax Relief Act of 2012 (ATRA 2012) extended the eligibility period to include qualified veterans who begin work on or after January 1, 2013 but before January 1, 2014. (See IRC 52(c)(2) and IRC 3111(e).) Qualified tax-exempt organizations (organizations described in IRC 501(c) and exempt from tax under IRC 501(a)) will claim this credit against the employer portion of social security tax on wages paid to all employees during the 1-year period beginning on the day a qualified veteran begins working for the organization.

  2. Qualified tax-exempt organizations entitled to a credit under IRC 3111(e) must use Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the credit after they file their employment tax return (Form 941, Form 943, or Form 944). The credit cannot be claimed on an original employment tax return or on a Form 94XX.

    Note:

    For-profit employers will claim the credit as part of the general business credit by filing Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit, with their income tax return.

  3. Key points relative to the filing of Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, are as follows:

    • Although the credit under IRC 3111(e) is applied against the employer social security tax liability for the employment tax period in which the credit is claimed, the liability reported on the qualified tax-exempt organization's employment tax return (Form 941, Form 943, or Form 944) is not reduced when that return is filed. Accordingly, the qualified tax-exempt organization should not reduce tax liabilities reported on an original or subsequently filed Schedule B (or other tax liability schedules for Forms 941, 943 and 944) by the amount of any credit claimed on Form 5884-C.

    • Qualified tax-exempt organizations should not reduce their required deposits in anticipation of any credit claimed on Form 5884-C. However, any balance due, including applicable penalties and/or interest, will generally be recomputed when the credit is allowed. See IRM 21.7.2.5.22.2, CRN 290 Impact on Penalties and Interest, for more information.

    • Any credit claimed on Form 5884-C will be refunded to the qualified tax-exempt organization (along with any applicable overpayment interest) unless the IRS corrects the Form 5884-C during processing or the organization owes other taxes, penalties, or interest.

    • Form 5884-C is filed separately and should not be attached to any other return filed by the qualified tax-exempt organization.

    • Form 5884-C should be filed after the qualified tax-exempt organization files its employment tax return for the tax period for which the credit is claimed. However, Form 5884-C must be filed within 2 years from the date the tax reported on the employment tax return was paid, or 3 years from the date the employment tax return was filed, whichever is later.

    • The qualified tax-exempt organization using Form 5884-C must calculate the cumulative credit to which the qualified tax-exempt organization is entitled under IRC 3111(e) for all qualified veterans hired on or after November 22, 2011 and before January 1, 2014. The qualified tax-exempt organization must reduce the cumulative credit by any credits claimed on any Forms 5884-C filed for prior tax periods.

    • The amount of the credit claimed on each Form 5884-C will be limited to the amount of employer social security tax reported on the employment tax return filed by the qualified tax-exempt organization for the employment tax period for which the credit is claimed.

    • Any excess credit (i.e., credit that exceeds the employer social security tax for the period the credit is claimed) may be carried forward and will be included in the qualified tax-exempt organization's cumulative calculation on Form 5884-C for a subsequent tax period to the extent provided in the instructions for Form 5884-C.

      Note:

      Due to the cumulative calculation method incorporated into Form 5884-C, it should generally not be necessary for a qualified tax exempt organization to file more than one Form 5884-C per employment tax return period (quarterly or annually).

  4. Additional information on this credit may be found in the Form 5884-C instructions, Notice 2012-13, and under the heading "Tax-exempt Employers" on the following IRS.GOV webpage: Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans.

  5. Qualified tax-exempt organizations are directed in the form instructions to file Form 5884-C at the Ogden campus.

  6. Processing of Forms 5884-C will be centralized in Accounts Management (AM) at the Ogden campus. If you receive a Form 5884-C claim and are not part of the centralized team, route the claim as follows:

    1. If you receive a paper case, route to:
      Internal Revenue Service
      1973 North Rulon White Blvd
      Ogden, UT 84404
      MS 6750
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If you receive a case that has already been scanned into CIS, reassign to the Ogden Campus IDRS number 0443069667 and notate on AMS/CIS "Form 5884-C" .

  7. Form 5884-C processing guidelines for the centralized team are found in the following subsections.

21.7.2.5.22.1  (01-31-2013)
General Processing Guidelines for Form 5884-C

  1. Qualified tax-exempt organizations will claim the credit by filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, after they file their employment tax return (Form 941, Form 943, or Form 944).

    Reminder:

    The credit cannot be claimed on an original employment tax return or on a Form 94XX.

  2. The credit applies to qualified tax-exempt organizations hiring certain eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2014. The valid claims tax periods for Form 5884-C are as follows:

    • Form 941 (MFT 01): 201112 through 201412

    • Form 943 (MFT 11): 201112 through 201412

    • Form 944 (MFT 14): 201112 through 201412

    Note:

    Forms 5884-C filed for other than valid tax periods will be formally disallowed.

  3. Credit Reference Number (CRN) 290 is used to adjust the Work Opportunity Credit (WOC) claimed on Form 5884-C. Use a minus (-) when decreasing the credit. The CRN 290 will generate a TC 766 (increase) or TC 767 (decrease).

    Note:

    The programming for CRN 290 will permit it to be input separately or with any combination of other TCs, IRNs, or CRNs. However, because of the unique nature of this credit, any allowance or correction of a CRN 290 amount should generally be input as a separate adjustment unless manual penalty and/or interest corrections are required.

    Caution:

    CRN 290 was selected to record and adjust the credit claimed on Form 5884-C due to the immediate effective date of the legislation and other administrative reasons. However, by law, this credit is NOT a refundable credit. The maximum credit allowable is limited to the employer portion of social security tax on wages paid to all employees during any period.

  4. Forms 5884-C will be scanned into Correspondence Imaging System (CIS) with Document Type 941-X, 943-X or 944-X (as appropriate) and Category Code SPC3. The scanning of a Form 5884-C will systemically generate a TC 971 AC 010 and set a -A or E- freeze which must be addressed before closing the case. See IRM 21.5.6.4.2, -A Freeze, and/or IRM 21.5.6.4.9, E- Freeze, for additional information. Also see the fourth paragraph of IRM 21.5.3.4.2, Tax Decrease or Credit Increase, when rejecting a Form 5884-C and IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted, when a Form 5884-C is received but no related original return has been posted.

  5. Use blocking series 15, 18, or 00 as appropriate when adjusting an account per a Form 5884-C. Do not use blocking series 20.

  6. Form 5884-C cases are to be worked under the 1005X program.

  7. Forms 5884-C requesting a credit (or an increase to credit) are considered claims. Special processing instructions for Forms 5884-C are provided in the following subsections. However, guidance found in IRM 21.5.3, General Claims Procedures, also applies to their handling.

  8. Verify the following items to ensure the Form 5884-C is complete for processing:

    • Verify the entity information (EIN, organization name, and address) entered on the Form 5884-C matches IRS records.

    • Verify there are entries in lines 4a/4b and/or 5a/5b, in lines 6 through 10, and in either line 11 or 12, as appropriate.

    • Verify the Form 5884-C is signed. See IRM 21.5.3.4.4, Signature Requirements for Claims, for more information.

    • Verify the tax form and tax period for which the Form 5884-C was filed. If blocks on lines 2 and/or 3 are not marked, attempt to determine the correct tax form and tax period by comparing the line 9 entry to posted return data. If not found, make two attempts to contact the taxpayer by phone (if a telephone number is available) for the missing information. If still unable to determine the correct tax form and tax period, reject the Form 5884-C with Letter 916C.

    • Compare the entry on line 9 to the appropriate wage/tips figure(s) on the account being adjusted. Math verify lines 10 and 11 (only) to ensure the claim amount does not exceed the employer share of social security tax for the claim period. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. Eligibility for the credit claimed on Form 5884-C is limited to qualified tax-exempt organizations (organizations described in IRC 501(c) and exempt from tax under IRC 501(a)). Review the entity and EO submodule data on INOLES and follow the instructions in the table below to determine if the Form 5884-C was filed by an eligible entity and the appropriate handling:

    If And Then
    There is an EO submodule The EO status is 18, 19, 20, 22, 70, 71, 72, 97, 98 or 99 Send the claim CAT-A.
    There is an EO submodule The EO status is 34 Formally disallow the claim and send Letter 105C. Use the following text in an open paragraph: "Our records indicate you are not a qualified tax-exempt organization (an organization described in Section 501(c) and exempt from tax under Section 501(a)) and you are therefore not eligible for the credit you claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans." Also refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

    Exception:

    If there is no TC 150 posted to the tax period for which the Form 5884-C was filed, issue Letter 916C using the text provided above instead of issuing a Letter 105C and "no consider" the claim.

    There is an EO submodule The EO status is not one of those listed in an earlier row of this table Continue to process the claim.
    There is no EO submodule The account reflects an Employment Code of "W" or "C" Continue to process the claim.
    There is no EO submodule None of the other rows of this table apply Formally disallow the claim in the same manner as discussed in the second row of this table.
  10. In addition to the claims described in the first row of the table in (9) above, send all Forms 5884-C (including amended Forms 5884-C) reflecting a line 11 claim amount of ≡ ≡ ≡ ≡ or more CAT-A.

21.7.2.5.22.2  (03-01-2012)
CRN 290 Impact on Penalties and Interest

  1. FTD penalty: The credit claimed on Form 5884-C does not reduce the tax liability reported on the qualified tax-exempt organization’s employment tax return. However, the TC 766 / CRN 290 credit is applied by Masterfile as a credit against tax liability using the first day of the tax period as the credit effective date for FTD penalty purposes (only). Any previously assessed FTD penalty will be recomputed on that basis when a CRN 290 credit is allowed. This recomputation will generally occur systemically unless the FTD penalty was previously restricted.

    Note:

    The qualified tax-exempt organization should not reduce tax liabilities reported on an original or subsequently filed Schedule B (or other tax liability schedules for Forms 941, 943 and 944) by the amount of any credit claimed on Form 5884-C.

  2. FTF penalty: For purposes of any late filing penalty, the CRN 290 credit is considered a timely credit as of the return due date for the tax period to which it is applied. Similarly, a reversal of the credit is considered a reduction in timely credits as of the return due date. Accordingly, the computer will generally recompute the FTF penalty systemically with CRN 290 adjustments unless the penalty was previously restricted.

  3. FTP penalty: For FTP penalty purposes, allowances and reversals of a CRN 290 credit will be treated in the same manner as an increase or decrease to tax liability even though we are not actually increasing or decreasing recorded tax when making these adjustments. When allowing a CRN credit (or increasing the amount allowed), the computer will accurately compute FTP if there has not been a previous tax assessment on the account. However, if there has been a previous tax increase on the account, or if the credit is being reversed in part or full, the FTP penalty will generally need to be manually computed and restricted as discussed later in specific handling procedures.

  4. Overpayment interest: For the purposes of calculating any applicable overpayment interest, a CRN 290 credit will be considered to be available as of the return due date for the tax period for which the Form 5884-C was filed.

    Note:

    The 45-day interest rule for claims and amended returns applies to Forms 5884-C claiming (or increasing) a CRN 290 credit. See (10) through (13) of IRM 21.5.3.4 and IRM 20.2.4.7.5.4.4 for more information, including instructions for inputting the date the processable claim was received by the Service as the Amended Claims Date on ADJ54.

  5. Underpayment interest: Any applicable underpayment interest arising from the reversal of a CRN 290 credit, or arising from an amount reported due on line 12 of Form 5884-C, will be charged from the return due date of the tax period for which the Form 5884-C was filed.

    Note:

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

21.7.2.5.22.3  (03-01-2012)
Form 5884-C Filed — TC 150 Posted

  1. After considering all verification requirements in IRM 21.7.2.5.22.1, follow the procedures provided in the table below to process a Form 5884-C when there is a TC 150 posted to the tax account for which the Form 5884-C was filed.

    If And Then
    The Form 5884-C was filed for an invalid tax period (see IRM 21.7.2.5.22.1 (2) for valid tax periods)   Formally disallow the request and send Letter 105C. Use the following text in an open paragraph: "The credit you claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, cannot be claimed for the tax period for which your form was filed. We are therefore disallowing your claim." Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.
    The Form 5884-C reflects both a claim amount on line 11 and an amount due on line 12 (regardless of whether there is a previously posted CRN 290 credit on the tax period for which the Form 5884-C was filed)   Net the line 11 and 12 amounts:
    • If the result would be a credit, continue to process (per the table guidance below) as if the net credit had been claimed on line 11.
    • If the result would be an amount due, treat the Form 5884-C as if the net amount due had been reported on line 12 and process as per procedures in IRM 21.7.2.5.22.7, Form 5884-C, Line 12 Credit Reversals.

    Exception:

    If there is documentation attached to the Form 5884-C indicating the line 11 and line 12 amounts apply to different tax periods, contact the IRM author through the Ogden Accounts Management Campus P & A Staff for guidance on resolving the case.

    The Form 5884-C reflects an amount due on line 12 (regardless of whether there is a CRN 290 credit posted to the tax period for which the Form 5884-C was filed)   See IRM 21.7.2.5.22.7, Form 5884-C, Line 12 Credit Reversals.
    The Form 5884-C reflects a credit amount on line 11 There is no previous CRN 290 credit on the tax period for which the Form 5884-C was filed Input a CRN 290 transaction to allow the amount claimed on Line 11 of Form 5884-C. Input the appropriate Amended Claims Date with the adjustment.
    The Form 5884-C reflects a credit amount on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is for the same amount as shown on the current form Treat as a previous action situation. Input a TC 290 $.00 to release the -A freeze.
    The Form 5884-C reflects a credit on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is less than what is shown on the current form (i.e. the Form 5884-C reflects an increase to credit claimed) Input a CRN 290 transaction to allow the difference between the net posted CRN 290 amount and the amount claimed on line 11 of Form 5884-C. Input the appropriate Amended Claims Date with the adjustment.

    Exception:

    If there is documentation attached which indicates the amount claimed on the current Form 5884-C is an additional amount (for example, the credit claimed on the current Form 5884-C is in regards to a qualified veteran not claimed on the previously filed Form 5884-C for the same tax period), allow the full amount claimed on the current Form 5884-C.

    The Form 5884-C reflects a credit on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is more than what is shown on the current form (i.e. the Form 5884-C reflects a decrease to credit claimed) Treat this situation as if the difference between the amount previously allowed and the amount claimed on the new Form 5884-C (i.e. the credit amount to be reversed) had been reported as an amount due on line 12 and process according to the procedures in the second row of the table in IRM 21.7.2.5.22.7 (3).

    Exception:

    If there is documentation attached which indicates the amount claimed on the current Form 5884-C is an additional amount (for example, the credit claimed on the current Form 5884-C is in regards to a qualified veteran not claimed on the previously filed Form 5884-C for the same tax period), allow the full amount claimed on the current Form 5884-C.

    Note:

    Form 5884-C does not include a line or check mark to request a credit elect. However, if the Form 5884-C includes a written request to reapply the credit to a particular tax period, we will generally honor the request unless there is an earlier tax period with a balance due to which the credit must be applied. If reapplying the credit per this guidance, transfer the overpayment as a TC 820/TC 700 credit transfer and use the later of the return due date of the tax period for which the Form 5884-C was filed or the credit availability date as the transaction date. See IRM 21.5.8, Credit Transfers, for general guidance on credit transfers.

    Reminder:

    If the account is in Collection Status 22, 24, or 26, also see IRM 21.3.3.4.10.2.1, Amended Returns/Claims - Compliance Criteria.

  2. Special FTP penalty procedures when allowing CRN 290 credits: See IRM 21.7.2.5.22.2 (3). If an FTP penalty was charged in association with an additional tax assessment made after the original return posted, special procedures must be applied when allowing a CRN 290 credit as per the following table:

    If Then
    The CRN 290 amount being allowed is equal to or exceeds the tax assessment amount to which the FTP applied Input an adjustment to reverse the full amount of FTP that posted in association with the tax assessment amount with a restricting TC 271 transaction along with the appropriate CRN 290 amount being allowed (and the appropriate Amended Claims Date). Interest will be accurately recomputed by the computer.
    The CRN 290 amount being allowed is less than the tax assessment amount to which the FTP penalty applied
    1. Manually recompute the amount of FTP due by treating the CRN 290 amount as a reduction to the tax assessment (for calculation purposes only).

    2. Input an adjustment to reduce or reverse (as appropriate) the assessed FTP penalty with a restricting TC 271 transaction along with the appropriate CRN 290 amount being allowed (and the appropriate Amended Claims Date). Interest will be accurately recomputed by the computer.

    Reminder:

    The procedures above do not apply to FTP penalty assessments associated with the original return. The computer will generally accurately recompute penalties and interest associated with original return filing when allowing a CRN 290 credit unless penalties and/or interest were previously restricted. See IRM 21.7.2.5.22.2, CRN 290 Impact on Penalties and Interest, for more information.

21.7.2.5.22.4  (03-01-2012)
Form 5884-C Filed — No TC 150 Posted

  1. If a Form 5884-C is received and there is no TC 150 posted to the tax account for which the Form 5884-C was filed, handle as follows:

    If And Then
    The Form 5884-C was received with a Form 94X   See IRM 21.7.2.5.22.5, Form 5884-C Filed with Form 94X.
    The Form 5884-C was received with a Form 94XX   See IRM 21.7.2.5.22.6, Form 5884-C Filed with Form 94XX.
    There is an indication on the account or Form 5884-C that an employment tax return was filed  
    1. Monitor the account for the posting of the employment tax return.

    2. Process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    There is an indication on the account or Form 5884-C that an employment tax return was filed More than 60 days have passed since the normal due date for filing the employment tax return or from the known date of actual filing and the return has not posted
    • If a copy of the employment tax return is available, send it to Submission Processing (retain a copy with the Form 5884-C) to be processed, monitor it to posting, and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    • If a copy of the employment tax return is not available, make two attempts to contact the taxpayer for a copy of their employment tax return if a telephone number is available. Follow procedures in the first bullet above if a copy is obtained from the taxpayer.

    • If a copy of the employment tax return cannot be obtained, reject the Form 5884-C using Letter 916C. Advise the taxpayer that we cannot process it because we have no record of receiving their original return and to refile the Form 5884-C after they file a newly signed copy of their employment tax return.

    There is an open TDI on the tax period for which the Form 5884-C was filed There is no indication on the Form 5884-C that an employment tax return was filed Reject the Form 5884-C using Letter 916C and include the following text in an open paragraph:
    "We are unable to process your Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, because we have no record of receiving your original Form [enter form number] for [enter tax period]. You may resubmit your Form 5884-C for our consideration after you file your original employment tax return. "
    The taxpayer has no employment tax return filing requirements There is no indication on the Form 5884-C that an employment tax return was filed Reject the Form 5884-C using Letter 916C and include the following text in open paragraphs:
    "The credit claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, is taken against the employer’s share of social security tax. We are unable to process your claim because our records show you do not file employment tax returns reporting social security taxes."
    "If you have recently hired employees, you must report and pay required employment taxes on the appropriate employment tax form. After you have filed the appropriate employment tax form to report those taxes, you may resubmit your Form 5884-C for our consideration."

    Reminder:

    Any E- freeze set on these cases must be resolved prior to closing the case. If rejecting the Form 5884-C, release the E- freeze by inputting a TC 971 Action Code 002.

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.26, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

21.7.2.5.22.5  (03-01-2012)
Form 5884-C Filed with Form 94X

  1. Taxpayers are instructed to file Form 5884-C separately from the associated employment tax returns. However, some taxpayers may file a Form 5884-C with a Form 94X despite the instructions.

  2. If Submission Processing receives a Form 5884-C with a Form 94X for the same tax period, Submission Processing will process the original return, notate on the Form 5884-C that it was received with an original return, and route the Form 5884-C with a copy of the Form 94X to be scanned into CIS and assigned to the designated AM unit for handing.

  3. If a Form 5884-C is received with a Form 94X attached, handle as follows:

    If And Then
    The Form 94X or Form 5884-C has a notation made by Submission Processing as discussed in (2) above   Follow procedures in IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted, or IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted, as appropriate.
    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is no TC 150 posted to the tax period for which the Form 5884-C was filed
    1. Forward the Form 94X to Submission Processing to be processed to the account (retain a copy of the Form 94X with the Form 5884-C).

    2. Monitor the account until the TC 150 posts.

    3. Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which matches the Form 94X received with the Form 5884-C (i.e. True Duplicate) Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.
    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which reflects more tax than the Form 94X received with the Form 5884-C
    1. Research the taxpayer account for common situations such as misapplied tax returns or an unprocessed Form 94XX. If such a situation is identified, take the appropriate action to resolve that issue and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    2. If the taxpayer's intent cannot be determined through account research, make two attempts to contact the taxpayer if a telephone number is available and take the appropriate action based on information provided by the taxpayer.

    3. If unable to resolve the issue as per items 1) and 2) above, input a TC 290 for $.00 to release the -A freeze. Reject the Form 5884-C and Form 94X using Letter 4384C. Explain that we are unable to process the documents because the Form 94X does not match our records. Advise the taxpayer to file the appropriate Form 94XX if their original return was incorrect and advise the taxpayer to refile the Form 5884-C separately or with a Form 94XX. Also see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

      Exception:

      Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 5884-C was received within 180 days of the Refund Statute Expiration Date (RSED).

    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which reflects less tax than the Form 94X received with the Form 5884-C
    1. Research the taxpayer account for common situations such as misapplied tax returns or an unprocessed Form 94XX. If such a situation is identified, take the appropriate action to resolve that issue and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    2. If the taxpayer's intent cannot be determined through account research, make two attempts to contact the taxpayer if a telephone number is available and take the appropriate action based on information provided by the taxpayer.

    3. If unable to resolve the issue as per items 1) and 2) above, make the appropriate tax increase per the Form 94X. See the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX which should have been filed (e.g., if an amended or supplemental Form 941 is received reporting a tax increase, follow IRM 21.7.2.4.7.6.3). Send Letter 4384C and include the paragraph that explains we have adjusted their account but that they must use one of the "X" forms for any future corrections.

    4. Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.26, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

21.7.2.5.22.6  (03-01-2012)
Form 5884-C Filed with Form 94XX

  1. Taxpayers are instructed to file Form 5884-C separately from the associated employment tax returns. However, some taxpayers may file a Form 5884-C with a Form 94XX despite the instructions.

  2. If a Form 5884-C is received with a Form 94XX, handle as follows:

    If Then
    There is no TC 150 posted
    1. Follow the procedures in IRM 21.7.2.4.6.6, Adjusted Employer's Tax Return or Claim for Refund Return Filed — No TC 150 Posted.

    2. Once a TC 150 is posted and any tax changes reported on the Form 94XX are processed, process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    The Form 94XX reflects no tax data or reflects only the credit claimed on the Form 5884-C Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.
    The Form 94XX reflects a tax increase
    1. Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted. However, use Hold Code 1 if allowing the CRN 290 credit (and/or if there are other credits on the account needed to pay the Form 94XX tax increase).

    2. Process the Form 94XX using applicable procedures. However, use a post delay code of 1 cycle with this adjustment.

      Note:

      Because of the unique nature of this credit, CRN 290 adjustments should generally NOT be combined with other tax or credit adjustments in a single ADJ54 input.

    The Form 94XX reflects a tax decrease
    1. Process the Form 94XX using applicable procedures. However, use Hold Code 1 if the Form 5884-C reflects an amount due on Line 12.

    2. Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted. However, use a post delay code of 1 cycle with this adjustment.

      Note:

      Because of the unique nature of this credit, CRN 290 adjustments should generally NOT be combined with other tax or credit adjustments in a single ADJ54 input.

21.7.2.5.22.7  (03-01-2012)
Form 5884-C, Line 12 Credit Reversals

  1. In some rare instances, qualified tax-exempt organizations may file a Form 5884-C showing a balance due on line 12.

  2. These cases require special handling due to programming limitations associated with use of CRN 290 to administer this credit.

    Caution:

    An unpostable will result if a CRN 290 credit reversal is input for more than the net posted CRN 290 credit on a tax module.

  3. After considering all verification requirements in IRM 21.7.2.5.22.1, follow the procedures provided in the table below to process a Form 5884-C showing an amount due on line 12.

    If Then
    There is no TC 150 posted for the tax period for which the Form 5884-C was filed. Follow procedures in IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted.
    The amount reported due on line 12 of Form 5884-C is less than or equal to the net previously posted CRN 290 credit on the tax period for which the Form 5884-C was filed. Input a CRN 290 transaction to reverse the amount reported on line 12 of Form 5884-C. See (4) and (5) below for required actions with regards to penalties and interest.
    The amount reported due on line 12 of Form 5884-C is more than the net previously posted (non-zero) CRN 290 credit on the tax period for which the Form 5884-C was filed.
    1. Input a CRN 290 transaction to fully reverse the net posted (non-zero) CRN 290 on the tax period for which the Form 5884-C was filed. See (4), (5), and (6) below for required actions with regards to penalties and interest.

    2. Determine the remaining amount of credit reversal to be addressed by subtracting the amount reversed in step 1) from the amount shown on line 12 of Form 5884-C.

    3. Address the remaining amount of credit to be reversed by following the procedures provided in the next row of this table.

    There is no previously posted net CRN 290 credit on the period for which the Form 5884-C was filed
    1. Review the employment tax accounts for the tax periods immediately preceding the tax period shown on the Form 5884-C. Locate the most recent tax period reflecting the allowance of a CRN 290 credit.

    2. Input a CRN 290 to reverse the previously posted credit allowance for the amount shown on Line 12 of the Form 5884-C. See (4) and (6) below for required actions with regards to penalties and interest. If the amount on Line 12 of Form 5884-C exceeds the CRN credit allowed on the most recent tax period, reverse the entire posted CRN 290 on that most recent tax period. If the taxpayer paid the amount due on Line 12 of Form 5884-C, transfer credit as appropriate to the tax period in which the CRN 290 credit reversal was actually made.

    3. If the full amount reported on Line 12 of Form 5884-C has not been fully accounted for by credit reversal(s), repeat steps 1) and 2) until the full amount reported on Line 12 of Form 5884-C has been accounted for by credit reversals.

  4. Special FTP penalty and underpayment interest procedures when reversing CRN 290 credits: Due to systemic limitations associated with use of CRN 290 for administering this credit, the computer is generally unable to accurately calculate the FTP penalty or underpayment interest when CRN 290 credits are reversed in part or whole. See IRM 21.7.2.5.22.2 (3) and IRM 21.7.2.5.22.2 (5). The special procedures in the tables in (5) and (6) below must be followed when reversing CRN 290 credits as per the guidance in (3) above.

  5. Apply the following special procedures for FTP penalty and underpayment interest when reversing a CRN 290 on the same tax period for which the Form 5884-C was filed:

    If And Then
    The CRN 290 amount to be reversed has been paid by the time the adjustment is being input   Input the appropriate CRN 290 reversal with a TC 270 for $.00 and close the case. Accurate underpayment interest will be systemically generated with the adjustment.
    The CRN 290 amount to be reversed has not been paid by the time the adjustment is being input  
    1. Input the appropriate CRN 290 reversal with a TC 270 for $.00. Accurate underpayment interest will be systemically generated with the adjustment.

    2. Suspend the case for 60 days and monitor the account for the posting of a payment.

    3. Continue processing the case as per the guidance in the last three rows of this table.

    The case was suspended as per instructions in the second row of this table Payment is received within 21 days (10 days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment No additional penalties or interest are due. Close the case.
    The case was suspended as per instructions in the second row of this table Payment is received but not within 21 days (10 days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment
    1. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the date of payment.

    2. Input an adjustment with a TC 270 using the amounts computed in step 1). Accurate underpayment interest will be systemically generated with the adjustment.

    3. Close the case.

    The case was suspended as per instructions in the second row of this table Payment is not received by the close of the 60 day suspense period.
    1. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 2) below.

    2. Input an adjustment with a TC 270 using the amount computed in step 1) above. Accurate underpayment interest will be systemically generated with the adjustment.

    3. Close the case.

  6. Apply the following special procedures for FTP penalty and underpayment interest when reversing a CRN 290 on a tax period earlier than the tax period for which the Form 5884-C was filed:

    If And Then
    The CRN 290 amount to be reversed has been paid by the time the adjustment is being input  
    1. Compute the underpayment interest due on the amount of the credit reversal from the return due date of the tax period for which the Form 5884-C was filed to the date of payment.

    2. Input the appropriate CRN 290 reversal with a TC 340 for the amount computed in step 1) and a TC 270 for $.00.

    3. Close the case.

    The CRN 290 amount to be reversed has not been paid by the time the adjustment is being input  
    1. Compute the underpayment interest due on the amount of the credit reversal from the return due date of the tax period for which the Form 5884-C was filed to the 23c date of your adjustment.

    2. Input the appropriate CRN 290 reversal with a TC 340 for the amount computed in step 1) and a TC 270 for $.00.

    3. Suspend the case for 60 days and monitor for the account for the posting of a payment.

    4. Continue processing the case as per the guidance in the last three rows of this table.

    The case was suspended as per instructions in the second row of this table Payment is received within 21 days (10 business days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment No additional penalties or interest are due. Close the case.
    The case was suspended as per instructions in the second row of this table Payment is received but not within 21 days (10 business days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment
    1. Compute additional interest due on the amount of the CRN 290 credit reversal and the previously input TC 340 amount from the 23c date of the previous adjustment to the date of payment.

    2. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the date of payment.

    3. Input an adjustment with a TC 340 and TC 270 using the amounts computed in steps 1) and 2).

    4. Close the case.

    The case was suspended as per instructions in the second row of this table Payment is not received by the close of the 60 day suspense period.
    1. Compute additional interest due on the amount of the CRN 290 credit reversal and the previously input TC 340 amount from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 3 below.

    2. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 3 below.

    3. Input an adjustment with a TC 340 and TC 270 using the amounts computed in steps 1) and 2).

    4. Close the case.

  7. The following examples are provided to illustrate the application of the procedures discussed in the table above.

    Example:

    The IRS receives a Form 5884-C for the second quarter of 2012 on September 17, 2012 along with a payment of $200 which is posted to the second quarter of 2012. The Form 5884-C reports a balance owed of $200 on line 12. The taxpayer is a quarterly Form 941 filer and previously claimed a CRN 290 credit of $450 on the second quarter of 2012. To record the $200 owed in this example, a CRN 290 reversal transaction for $200 would be input to the second quarter of 2012. No FTP penalty would be owed because the amount due was paid before the credit reversal was made, so a TC 270 for $.00 must be input to prevent the computer from charging the penalty from the second quarter due date to the date of payment. The computer will accurately compute underpayment interest in this example from July 31, 2012 (the second quarter due date) to September 17, 2012 (date of payment) and issue a bill for the correct amount due. The CRN 290 and TC 270 transactions must be input with the same ADJ54.

    Example:

    The IRS receives a Form 5884-C for the third quarter of 2012 on November 15, 2012 along with a payment of $500 which is posted to the third quarter of 2012. The Form 5884-C reports a balance owed of $500 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $900 on the second quarter of 2012 and a CRN 290 credit of $750 on the first quarter of 2012. To record the $500 owed in this example, a CRN 290 reversal transaction for $500 would be input to the second quarter of 2012 and the $500 payment would be transferred from the third quarter to the second quarter. No FTP penalty would be owed because the amount due was paid before the credit reversal was made, so a TC 270 for $.00 must be input to prevent the computer from charging the penalty from the second quarter due date to the date of payment. Underpayment interest must be manually computed and assessed with a TC 340 on the $500 credit reversal from October 31, 2012 (the third quarter due date) to the November 15, 2012 payment date and manually assessed with a TC 340. The CRN 290, TC 270, and TC 340 transactions must be input with the same ADJ54 on the second quarter account.

    Example:

    The IRS receives a Form 5884-C for the fourth quarter of 2012 on February 12, 2013 without payment. The Form 5884-C reports a balance owed of $1,200 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $2,500 on the third quarter of 2012 and a CRN 290 credit of $750 on the first quarter of 2012. To record the $1,200 owed in this example, a CRN 290 reversal transaction for $1,200 would be input to the third quarter of 2012. The case is worked on February 25, 2013, so the adjustment will carry a 23c date of March 18, 2013. Because the amount due for the credit reversal was not paid by the time the adjustment is being made, the CRN 290 reversal adjustment will be input with a TC 270 for .00 and a TC 340 for the amount of interest calculated as due from January 31, 2013 to March 18, 2013. The case is then suspended for 60 days (counting days from February 25, 2013). On April 3, 2013, the case is reviewed and it is seen that a payment for the CRN 290 reversal and underpayment interest assessed with TC 340 posted to the account on March 26, 2012. Since payment was received within 21 days of the 23c date (notice date)≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , no additional penalty or interest would be due and the case would be closed with no additional action.

    Example:

    The IRS receives a Form 5884-C for the fourth quarter of 2012 on January 25, 2013 along with a payment of $700 which is posted to the fourth quarter of 2012. The Form 5884-C reports a balance owed of $700 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $300 on the third quarter of 2012, a CRN 290 credit of $500 on the second quarter of 2012, and a CRN 290 credit of $200 on the first quarter of 2012. To record the $700 owed in this example, a CRN 290 reversal transaction for $300 would be input to the third quarter of 2012, $300 of the payment dated January 25, 2013 on the fourth quarter would be transferred to the third quarter, and penalties and interest associated with this portion of the credit reversal would be restricted to zero amounts (with a TC 270 $.00 and TC 340 $.00 on the same ADJ54 input as the CRN 290 credit reversal) since payment was received before the fourth quarter 2012 return due date of January 31, 2013. The remaining $400 of the amount reported owed on Line 12 of Form 5884-C would be accounted for by inputting a CRN 290 reversal transaction for $400 on the second quarter of 2012, transferring the remaining $400 of the payment dated January 25, 2013 on the fourth quarter to the second quarter, and penalties and interest associated with this portion of the credit reversal would be restricted to zero amounts (with a TC 270 $.00 and TC 340 $.00 on the same ADJ54 input as the CRN 290 credit reversal) since payment was received before the fourth quarter 2012 return due date of January 31, 2013.

  8. Contact the IRM author through the Ogden Accounts Management Campus P & A Staff for guidance in the event that an unusual credit reversal situation is encountered which the special instructions provided above do not address.

21.7.2.5.23  (10-22-2013)
FICA Claims for Calendar Year 2012 Transit Benefit Exclusion

  1. Section 203 of the American Tax Relief Act of 2012 (ATRA 2012) retroactively increased the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $125 to $240 per participating employee for the period of January 1 through December 31, 2012.

  2. Notice 2013-8 provided guidance to employers regarding the retroactive application of the increased exclusion for 2012 and provided a special administrative procedure for employers to use in filing Form 941 (or other required employment or railroad retirement tax returns) for the fourth quarter of 2012 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2012 and in filing Forms W-2. This special administrative procedure was for employers that provided transit benefits during 2012 in excess of $125 per month up to $240 per month (excess transit benefits).

  3. Employers who repaid or reimbursed the overcollected FICA on the excess transit benefits for all four quarters of 2012 on or before filing the fourth quarter Form 941 (or other required employment or railroad retirement tax return) were permitted to reduce the fourth quarter wages, tips, and compensation reported on line 2, taxable social security wages on 5a, and Medicare wages on line 5c, (or equivalent lines on other required employment tax returns) by the excess transit benefits for all four quarters of 2012. By taking advantage of this special administrative rule, employers could avoid having to file a Form 941-X (or other required "X" form) for each quarter of 2012 and avoid having to file Forms W-2c.

  4. Employers who filed the fourth quarter Form 941 (or other required employment or railroad retirement tax return) prior to the issuance of Notice 2013-8, employers who chose not to follow the special administrative procedure, and employers who were unable to reimburse all or some of the employees within the required timeframe, must use Form 941-X (or other required "X" form) to make an adjustment or claim a refund for any quarter with regard to overpayment of tax on the excess transit benefits after repaying or reimbursing employees or, for refund claims, securing consents from its employees.

    Note:

    To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2013-8 were advised to reduce the last liability reported on the tax liability schedule for the fourth quarter by the amount of the correction made to tax. If the correction made under the special administrative procedure exceeded the amount of the last tax liability, additional tax liabilities on the schedule were to be reduced in reverse date order until the full amount of the correction being made was absorbed.

21.7.2.5.24  (10-01-2014)
DOMA (United States v. Windsor) Related Employment Tax Claims

  1. In United States v. Windsor, 570 U.S. 12, 133 S. Ct. 2675 (2013), the Supreme Court held section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional and found that it was impermissible to deny federal recognition to marriages that are valid under state law.

  2. Subsequent to the Court's decision, the Service issued Rev. Rul. 2013-17, effective September 16, 2013, with the following guidance on tax treatment of same sex spouses:

    1. For federal tax purposes, the terms "spouse" , "husband and wife" , "husband" , and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex.

    2. For federal tax purposes, the Service adopted a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

    3. For federal tax purposes, the terms “spouse”, "husband and wife" , “husband”, and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

  3. As a result of the Court's decision, certain amounts previously deemed to be wages for employment tax purposes (also referred to as "imputed wages" ) are no longer taxable for federal tax purposes. Also, although Rev. Rul. 2013-17 was effective September 16, 2013, it allows for the filing of original returns, amended returns, adjusted returns, or claims for refund or credit for prior tax years if the Refund Statute Expiration Date (RSED) has not expired.

  4. The Service also issued Notice 2013-61 to provide guidance to employers regarding the application of United States v. Windsor to employment taxes. Notice 2013-61 included special administrative procedures for employers to use in filing:

    • Form 941 for the third quarter of 2013

    • Form 941, or Form 941-X, for the fourth quarter of 2013 to make corrections for the 2013 tax year.

    • Form 941-X for the fourth quarter of prior tax years to make corrections for that tax year.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

  5. The special administrative procedures provided in Notice 2013-61 are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures. There are no special documentation requirements for Forms 94XX filed in that manner and DOMA related claims issues can be combined with other adjustment issues on the same Form 94XX.

  6. Employers filing DOMA related employment tax claims on Form 941-X using the special administrative procedures in Notice 2013-61 were instructed to write "WINDSOR" in dark, bold letters across the top margin of page 1 of Form 941-X.

  7. Employers cannot combine a DOMA related employment tax claim filed under one of the special administrative procedures in Notice 2013-61 with claims for other unrelated claims issues. If the taxpayer files a Form 941-X using one of the special administrative procedures in combination with other claims issues:

    • Reject the Form 941-X using Letter 4384C.

    • Explain in the letter that we are unable to process the Form 941-X because claims filed under the special administrative procedures in Notice 2013-61 cannot be combined with claims for other employment tax issues.

    • Advise the taxpayer to file separate Forms 941-X for the respective claims issues.

    • Also see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

    Reminder:

    Taxpayers not filing a claim using one of the special administrative procedures in Notice 2013-61 may combine DOMA related claims with other adjustment issues on the same Form 94XX.

    Exception:

    Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 941-X was received within 180 days of the Refund Statute Expiration Date (RSED).

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.26, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

  8. Procedures for processing DOMA (United States v. Windsor) related employment tax claims, including special administrative procedures, are provided in the subsections which follow.

21.7.2.5.24.1  (12-31-2013)
DOMA (United States v. Windsor) Related Employment Tax Protective Claims

  1. Many taxpayers filed protective claims for employment taxes in anticipation that a decision by the Supreme Court in United States v. Windsor, 570 U.S. 12, 133 S. Ct. 2675 (2013) would alter the tax treatment of amounts paid to same sex spouses.

  2. Through July 21, 2013, BMF protective claims related to this litigation were sent to Exam Classification as per normal procedures found in IRM 21.5.3.4.7.3.2, Processing Protective Claims.

  3. On July 22, 2013, Alert 13A0440 was issued requiring all BMF DOMA (United States v. Windsor) related claims to be suspended pending further guidance.

  4. Alert 13A0440 was rescinded on October 22, 2013 with the issuance of Alert 13A0561 in coordination with the addition of these IRM procedures. As a result, routing of DOMA (United States v. Windsor) related protective claims, including those protective claims held in suspense per instructions in Alert 13A0440, resumed in accordance with IRM 21.5.3.4.7.3.2 procedures with the following two exceptions:

    1. When referring DOMA related protective claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.

    2. Any DOMA related protective claim for tax year 2011 or after with a received date prior to January 1, 2014 is to be rejected with Letter 916C as these claimants have more than adequate time available to submit fully perfected claims for consideration. Include the following text in two open paragraphs:
      "We cannot consider your protective claim(s) filed for the tax year(s) shown above. The Service provided formal guidance on filing claims related to federal recognition of same-sex marriages in Rev. Rul. 2013-17 and Notice 2013-61. There is adequate time on the applicable refund statute of limitations for the tax period(s) of your claim(s)."
      "Therefore, you must file a claim or adjusted return with perfected dollar amounts in order for it to be considered. Please resubmit your requests with all dollar amounts specified."

    Exception:

    Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 941-X was received within 180 days of the Refund Statute Expiration Date (RSED).

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.26, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

    Reminder:

    Untimely, unsigned, or incomplete protective claims are not to be sent to Exam Classification. See IRM 21.5.3.4.7.3.2 for more information. However, it should be noted that protective claims are not required to include dollar figures for wage or tax changes since these amounts are often contingent on the specific outcome of litigation (or other unresolved matters) and are unknown at the time the claim is filed.

  5. A special process has been implemented within the Examination function for the purpose of perfecting and processing DOMA related protective claims for tax years 2010 and earlier. Once those protective claims are received through the CAT-A referral process discussed in (4) above, Exam will be sending letters to employers requesting the information needed to perfect the claims. However, Exam will generally not be opening AIMS control bases on these cases. It is possible that letter replies for this issue will be received in Accounts Management rather than being directed to Exam as intended. Therefore, when working any new DOMA related claims filed for 2010 and earlier, check the module for an Exam control base (open or closed) with IDRS number 0260900001. Also check for prior cases on AMS/CIS which were routed CAT-A per (4) above. If the specified Exam control base and/or a previous CAT-A referral of a DOMA related protective claim (tax year 2010 or earlier) is found, route the new case to:
    Internal Revenue Service
    % Terry Brewer
    201 W Rivercenter Blvd
    Covington, KY 41011
    Stop 825G

21.7.2.5.24.2  (10-22-2013)
Third Quarter 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections

  1. Notice 2013-61 advised employers who withheld employment taxes on amounts paid to same sex spouses in the third quarter of 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision to repay or reimburse the employee before filing the third quarter Form 941.

    If And Then
    Employees were repaid or reimbursed prior to the filing of the third quarter 2013 Form 941   The related wages and withholding are not to be reported on the third quarter 2013 Form 941.
    Employees were not repaid or reimbursed prior to the filing of the third quarter 2013 Form 941   The employer must report the wages and tax on the third quarter 2013 Form 941.
    The employer reported the wages and tax on the third quarter 2013 return Meets the requirements for the special administrative procedure discussed in IRM 21.7.2.5.24.3, Tax Year 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections The employer may correct amounts overreported for the third quarter 2013 by adjusting wage and tax figures reported on the fourth quarter Form 941, or by filing a Form 941-X for the fourth quarter of 2013 reporting corrections for the entire 2013 tax year.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

21.7.2.5.24.3  (12-20-2013)
Tax Year 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections

  1. Notice 2013-61 provided a special administrative procedure for employers who withheld employment taxes on wages paid to same sex spouses in first three quarters of 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision to use in filing Form 941 for the fourth quarter of 2013. If all requirements are met, this special administrative procedure allows employers to modify wages and taxes reported on the fourth quarter Form 941 to account for reporting changes for the first three quarters of 2013. Alternately, employers may file one Form 941-X for the fourth quarter of 2013 to report corrections for the entire 2013 tax year.

    If Then
    Employees were repaid or reimbursed on or before December 31, 2013 The employer may reduce the fourth quarter wages, tips, and compensation on the following lines to account for wages and tax overreported during the first three quarters of 2013:
    • Compensation on line 2

    • Income tax withheld on line 3

    • Taxable social security wages on 5a

    • Medicare wages on line 5c

    • Taxable wages & tips subject to Additional Medicare Tax withholding on line 5d

    Employees were not repaid or reimbursed on or before December 31, 2013 The employer may file one Form 941-X for the fourth quarter of 2013 to make adjustments or claim refunds of overpayments of FICA taxes (but not income tax withheld) paid in the first three quarters of 2013.

    Reminder:

    See IRM 21.7.2.5.24.2, Third Quarter 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections, for guidance provided to employers for filing third quarter 2013 tax returns. Also see IRM 21.7.2.5.24 (7) if multiple claims issues are included on the same Form 941-X.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

  2. To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2013-61 were also advised as follows:

    If Then
    Employees were repaid or reimbursed before October 1, 2013 Employers were instructed to reduce the first liability reported on the tax liability schedule for the fourth quarter of 2013 by the amount of the correction made to tax under the special administrative procedure. If the correction exceeded the amount of the first tax liability, additional tax liabilities on the schedule were to be reduced in ascending date order until the full amount of the correction being made was absorbed.
    Employees were repaid or reimbursed after September 30, 2013 and before December 31, 2013 Employers were instructed to reduce the liability reported on the tax liability schedule for the day of repayment/reimbursement and/or the next liability in ascending date order until the full amount of the correction being made was absorbed.
  3. Forms 94XX filed under this special administrative procedure are to be processed as per normal procedures for the form filed (e.g. Form 941-X claim filed, follow procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    Caution:

    The beginning and ending figures on Forms 941-X filed for the fourth quarter of 2013 using this special administrative period may represent the fourth quarter of 2013 only or the 2013 tax year as a whole. Either method of completion by the taxpayer will be deemed acceptable for processing purposes in this specific claims filing situation.

21.7.2.5.24.4  (12-20-2013)
DOMA (United States v. Windsor) Related Employment Tax Corrections for Tax Years 2012 and Earlier

  1. Notice 2013-61 provided a special administrative procedure for employers who withheld employment taxes on wages paid to same sex spouses in tax years prior to 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision.

  2. If the Refund Statute Expiration Date (RSED) has not expired, the employer may file one Form 941-X for the fourth quarter of the prior tax year to make adjustments or claim refunds of overpayments of FICA taxes (but not income tax withheld) paid in all four quarters of that tax year.

    Reminder:

    See IRM 21.7.2.5.24 (7) if multiple claims issues are included on the same Form 941-X.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

  3. Forms 94XX filed under this special administrative procedure are to be processed as per normal procedures for the form filed (e.g. Form 941-X claim filed, follow procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    Caution:

    The beginning and ending figures on Forms 941-X filed for the fourth quarter of a given tax year using this special administrative period may represent the fourth quarter of that tax year only or the tax year as a whole. Either method of completion by the taxpayer will be deemed acceptable for processing purposes in this specific claims filing situation.

  4. A special process has been implemented within the Examination function for the purpose of perfecting and processing DOMA related protective claims for tax years 2010 and earlier. See IRM 21.7.2.5.24.1, DOMA (United States v. Windsor) Related Employment Tax Protective Claims. Once those protective claims are received through the CAT-A referral process, Exam will be sending letters to employers requesting the information needed to perfect the claims. However, Exam will not be opening AIMS control bases on these cases unless there are unusual circumstances in play. It is possible that letter replies for this issue will be received in Accounts Management rather than being directed to Exam as intended. Therefore, when working any new DOMA related claims filed for 2010 and earlier, check the module for an Exam control base (open or closed) with IDRS number 0260900001. Also check for prior cases on AMS/CIS which were routed CAT-A per (4) above. If the specified Exam control base and/or a previous CAT-A referral of a DOMA related protective claim (tax year 2010 or earlier) is found, route the new case to:
    Internal Revenue Service
    % Terry Brewer
    201 W Rivercenter Blvd
    Covington, KY 41011
    Stop 825G

21.7.2.5.24.5  (10-22-2013)
DOMA (United States v. Windsor) Related FICA Claims Filed by Employees

  1. Claims filed by employees on Form 843 for FICA taxes withheld from wages paid to same sex spouses which were not taxable as a result of the DOMA (United States v. Windsor) decision are to be processed as per normal procedures in IRM 21.7.2.4.6.4.2, Excess FICA Tax Withheld — Employee Claims for Refund.

  2. There are no special documentation requirements for these claims:

    • Do not request a copy of the claimant's marriage certificate.

    • Do not request information regarding the locality in which the marriage ceremony took place.

21.7.2.6  (01-01-2005)
CT-1, CT-2 Railroad Tax Returns

  1. This section contains information on:

    • Form CT-1, Employer's Annual Railroad Retirement Tax Return

    • Form CT-2, Employee Representative's Quarterly Railroad Tax Return

    • Unexplained adjustments to Form CT-1 (CP 177)

    • Railroad Retirement Board (RRB) Employer Status Determinations

  2. A revised Memorandum of Understanding (MOU) was executed by RRB and IRS in March 2010 (Agreement between RRB and IRS (2010)) to govern data sharing between the two agencies.

21.7.2.6.1  (10-01-2013)
What are Forms CT-1 and CT-2?

  1. Form CT-1, Employer's Annual Railroad Retirement Tax Return, is used to report and pay railroad retirement taxes (including Additional Medicare Tax (AdMT)) imposed on compensation paid to railroad employees.

    • Form CT-1 is a calendar year return due by the last day of February of the following year.

    • The MFT is 09

    • Tax Class 7

    • Document Code 11

  2. Form CT-2, Employee Representative's Quarterly Railroad Tax Return, is used to report railroad retirement taxes (including AdMT) imposed on compensation received by employee representatives.

    • Form CT-2 is a quarterly return due the last day of the second month following the end of the quarter.

    • It is filed using the representative's Social Security Number (SSN).

    • Forms CT-2 are processed to NMF.

    • The MFT is 72

    • Tax Class 6

    • Document Code 2

  3. Form CT-1 and Form CT-2 are processed at the Cincinnati Submission Processing Campus (CSPC). Claims or other correspondence received at other campuses must be routed or coordinated as detailed in IRM 21.7.2.6.4.1.

21.7.2.6.2  (10-01-2014)
Imposition of RRTA Tax (Forms CT-1)

  1. The Railroad Retirement Tax Act (RRTA) imposed two tiers of taxes on employee compensation. Tier I is designed to mirror the taxes imposed by the Federal Insurance Contributions Act (FICA) and Tier II is an additional tax to provide a pension benefit. Both the employer and the employee are subject to Tier I and Tier II taxes.

    • A railroad employer must withhold Tier I and Tier II taxes from each employee’s compensation.

    • A railroad employer who does not withhold the applicable tax is liable for that tax.

  2. Forms CT-1 do not include any listing of employees' names, account numbers, or amount of compensation paid (except for statements attached in certain circumstances to support adjustments to Tier l and Tier ll). The railroad employer provides wage information reports directly to the Railroad Retirement Board (RRB). The railroad employer reports railroad retirement compensation, Tier I tax, Tier II tax, Medicare tax and Additional Medicare Tax in Box 14 of Form W-2.

21.7.2.6.3  (10-01-2013)
Imposition of RRTA Tax (Forms CT-2)

  1. RRTA also imposes the same two tiers of taxes described in (1) of IRM 21.7.2.6.2 on employee representatives. The employee representative is liable for both the employer and the employee portion of the Tier I taxes and the employer portion of the Tier II taxes.

21.7.2.6.4  (01-01-2005)
Forms CT-1 and CT-2 Research

  1. This section discusses research on Forms CT-1 and CT-2.

21.7.2.6.4.1  (10-01-2014)
Forms CT-1 Are Processed at Cincinnati Submission Processing Campus

  1. Forms, claims or correspondence received at other campuses must be routed or coordinated with:

    IRS
    Large Corp/Technical Unit (LCTU)
    Stop 537G
    201 W. Rivercenter Blvd.
    Covington, KY 41011

    Note:

    For Form CT-1 cases in debit status that are being routed as above, input a STAUP for 8 cycles and send Letter 86C to advise taxpayer the case is being transferred. Notate the routing form that the STAUP and letter action were taken.

    ,

  2. For inquiries received via the toll-free line, prepare Form 4442/e4442 and fax to the Technical Unit at:

    • 859-669-5018, Team 401, or

    • 859-669-4776, Team 402.

21.7.2.6.4.2  (12-20-2013)
Form CT-1 and Form CT-2 Tax Rates (including Additional Medicare Tax)

  1. There are separate tax rates for Tier l and Tier ll taxes for both employers and employees.

  2. Tier l taxes are equivalent to FICA taxes. Since Tier I and Tier II have separate wage bases, separate lines appear on the return. The Medicare portion of the Tier l tax is 1.45% of all compensation for both the employer and employee (2.9% total).

  3. The Tier l portion equivalent to the social security portion is 6.2% for both employer and employee (12.4% total) except as modified by legislation for particular years (2010, 2011, and 2012) as described in (4), (5), and (6) below. Tier I taxes are withheld from wages and tips only up to a wage limit. The table below shows the Tier I wage limits from year to year.

    Tax Year Taxable Amount
    2005 On the first $90,000
    2006 On the first $94,200
    2007 On the first $97,500
    2008 On the first $102,000
    2009 - 2011 On the first $106,800
    2012 On the first $110,100
    2013 On the first $113,700
    2014 On the first $117,000
  4. Section 101 of the Hiring Incentives to Restore Employment (HIRE) Act enacted March 18, 2010 created a payroll tax exemption for the employer's share of social security taxes on wages paid to certain previously unemployed workers from March 19, 2010 through December 31, 2010. This payroll tax exemption also applied to the employers 6.2% share of Tier I railroad retirement taxes for wages paid to qualified employees reported on Form CT-1 (but not to taxes reported on Form CT-2). The employee's 6.2% share of Tier I tax (figured up to the wage limit), and the employer and employee's shares of Medicare Tier I taxes still applied to all wages. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

    Caution:

    Credit Reference Number (CRN) 296 was validated for Forms CT-1 (tax period 201012 only) for allowance of the HIRE refundable credit arising from employment of qualified employees for the period of March 19, 2010 through March 31, 2010. However, the Item Reference Numbers (IRNs) 115, 116, and 117 discussed in the IRM cross referenced above do not apply to Form CT-1.

  5. Section 601 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee tax rate for social security taxes from 6.2% to 4.2% for wages paid January 1, 2011 through December 31, 2011. This payroll tax rate reduction also applied to the employee's share of Tier I railroad retirement taxes reported on Form CT-1 and on Form CT-2. The employer's 6.2% share of Tier I tax (figured up to the wage limit), and the employer and employee's shares of Medicare Tier I taxes still applied to all wages. Due to late passage of the legislation, employers may have experienced difficulty in promptly implementing the reduced employee Tier I tax rate. Employers were instructed to implement the new 4.2% employee tax rate as soon as possible but not later than January 31, 2011. Employers were further instructed to correct any overwithholding of taxes on a subsequent pay period but not later than March 31, 2011. Since the tax rate reduction was incorporated into the 2011 Form CT-1 and Form CT-2 versions, no special adjustment procedures to account for the tax rate change were required.

  6. Section 101 of the Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the two percentage point payroll tax cut for employees discussed in (5) above through February 29, 2012. Subsequently, Section 1001 of the Middle Class Tax Relief and Job Creation Act of 2012 further extended the two percentage point payroll tax cut for employees discussed in (5) above through December 31, 2012. As with 2011, the 2012 Form CT-1 and Form CT-2 reflected the reduced tax rate and no special adjustment procedures are required.

  7. A new Additional Medicare Tax (AdMT) is effective for tax periods beginning after December 31, 2012:

    • The AdMT tax rate is 0.9%.

    • Employers are required to withhold AdMT at the specified tax rate from wages and tips paid to an employee in excess of $200,000 for a calendar year beginning with the payroll period in which the threshold is exceeded and continuing each pay period until the end of the calendar year.

    • AdMT is in addition to the 1.45% Medicare tax rate withheld from employee wages and tips.

    • AdMT is only imposed on the employee. There is no employer share of AdMT.

    • Amounts of AdMT withheld by the employer will be reported on the employee's Form W-2.

    • While employers will begin withholding the Additional Medicare Tax (AdMT) as soon as wages paid to an employee exceed the $200,000 threshold, the final amount owed or refunded will be calculated as part of the individual's income tax return. Employers may not increase or decrease amounts of AdMT withheld from wages/tips paid to an employee based on an employee’s expectation that they will owe more or less tax when filing their individual income tax return. Employees who expect to owe more AdMT than is withheld from their wages should make estimated tax payments and/or use Form W-4, Employee's Withholding Allowance Certificate, to request additional income tax withholding which will be applied against taxes shown on their individual tax return, including any AdMT liability.

    • Lines were added to 2013 and subsequent railroad retirement tax returns for the purpose of reporting amounts of AdMT withheld.

    • IRN 070 will be used to record adjustments to Additional Medicare Tax on Form CT-1 accounts (along with other tax corrections).

    • Although employers are required to calculate, withhold and report Additional Medicare Tax in a manner similar to other RRTA taxes, the tax treatment closely follows income tax withholding procedures. AdMT cannot be corrected after the close of a tax year unless the issue constitutes an administrative error, IRC Section 3509 rates are being applied, or as the result of an Examination. This is true even if AdMT was erroneously withheld. See IRM 21.7.2.4.6.3, Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments, IRM 21.7.2.4.6.3.1, Administrative Errors, and IRM 21.7.2.5.4, IRC Section 3509, for more information.

    • Information on AdMT is found throughout this IRM, in Publication 15, and instructions for railroad retirement tax returns. Additional information, including a "questions and answers" link to Frequently Asked Questions (FAQs), may also be found on the IRS website under the “Additional Medicare Tax” topic heading at: Employment Taxes.

  8. Tier ll tax rates are shown in the table below.

    Tax Year Employer %/Employee % On the first:
    2005 12.6%/4.4% $66,900
    2006 12.6%/4.4% $69,900
    2007 12.1%/3.9% $72,600
    2008 12.1%/3.9% $75,900
    2009 - 2011 12.1%/3.9% $79,200
    2012 12.1%/3.9% $81,900
    2013 12.6%/4.4% $84,300
    2014 12.6%/4.4% $87,000
  9. Due to expiration of the reduced employee Tier I tax rates described in (5) and (6) above, the employee tax rate for Tier I taxes for 2013 (and thereafter) reverted to 6.2%. Notice 1036 (Rev. January 2013) provided that employers were to implement the 6.2% employee tax rate as soon as possible, but not later than February 15, 2013. After implementing the 6.2% rate, employers were to make an adjustment in a subsequent pay period to correct any underwithholding of tax as soon as possible, but not later than March 31, 2013.

  10. Section 203 of the American Tax Relief Act of 2012 (ATRA 2012) retroactively increased the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $125 per participating employee to $240 per participating employee for the period of January 1 through December 31, 2012. See IRM 21.7.2.5.23, FICA Claims for Calendar Year 2012 Transit Benefit Exclusion, for more information.

21.7.2.6.5  (10-01-2014)
Forms CT-1 and CT-2 Procedures

  1. This section contains procedures for working common railroad retirement issues.

21.7.2.6.5.1  (02-27-2013)
Form CT-1 Tax Adjustments

  1. IRN 070 is necessary for adjusting the total of railroad retirement tax (including Additional Medicare Tax for calendar years beginning after December 31, 2012).

  2. Returns for 199412 and subsequent do not reflect the taxpayer's original liability (assessed with TC 150) in the field ADJ-RR-RETIRMNT.

    If Then
    A TC 290 is input Field reflects the TC 290 amount only.
    A TC 291 is input Field shows nothing (unless a previous TC 290 was input).
    Adjusting these returns Do not rely on this field to determine current tax liability, add the original assessment plus all increases; and then subtract all decreases to compute taxpayer's current tax liability.
  3. Credit Reference Number (CRN) 296 was validated for Forms CT-1 (tax period 201012 only) for allowance of the HIRE refundable credit arising from employment of qualified employees for the period of March 19, 2010 through March 31, 2010. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

    Caution:

    Item Reference Numbers (IRNs) 115, 116, and 117 discussed in the IRM cross referenced above do not apply to Form CT-1.

21.7.2.6.5.2  (01-01-2005)
Form CT-1 Duplicate Filing Cases

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Use approved local procedures when working duplicate filing cases involving tax decreases.

  3. Input TC 29X with IRN 070 in appropriate BS.

  4. Route claims received involving large case controls to the area office where the railroad is located.

21.7.2.6.5.3  (01-01-2005)
Interest-Free Adjustments

  1. If an employer has made an undercollection and underpayment of taxes for a prior period under the IRC Sections listed below, employer may be entitled to an interest-free adjustment, per REG. 31.6205-1. (See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for additional information.)

    • IRC Section 3101, FICA tax on employees

    • IRC Section 3111, FICA tax on employers

    • IRC Section 3201, RRTA tax on employees

    • IRC Section 3221, RRTA tax on employers

  2. The interest-free adjustment rules under section 6205 do not apply to the employee representative tax under IRC 3211 reported on Form CT-2.

21.7.2.6.5.4  (10-01-2013)
Form CT-1 Deposits

  1. Federal tax deposits of RRTA taxes reported on Form CT-1 are due based on a pre-determined deposit schedule under which the frequency of deposits generally remains consistent throughout the year. See IRM 20.1.4, Failure to Deposit Penalty, for more information on deposit requirements.

    Note:

    Tax liabilities are incurred when compensation is paid, not when the payroll period ends.

  2. For tax periods 200112 and subsequent, federal tax deposits are required if the tax reported on Form CT-1 is $2,500 or more. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for more information.

  3. Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon. As of January 1, 2011, taxes must be deposited by using Electronic Funds Transfer (EFT). See IRM 20.1.4.2.1, Electronic Funds Transfer (EFT), for more information.

    Note:

    RRBLINK was used to make payments until December 31, 2007 when that processing system was discontinued.

21.7.2.6.5.5  (01-01-2005)
Form CT-1 Discrepancy Report

  1. RRB performs a yearly reconciliation of tax, and reports any discrepancies using CT-1 Discrepancy Report to the SB/SE Speciality Tax Program Analyst. See Agreement between RRB and IRS (2010), Section 6.1(d).

  2. Forward any inquiries related to this procedure to the CT-1 specialist at the address cited in IRM 21.7.2.6.4.1. Forms CT-1 are Processed at Cincinnati Submission Processing Campus.

21.7.2.6.5.6  (10-01-2014)
Unexplained Adjustment on Form CT-1 (CP 177)

  1. CP 177 (and CP 175/875) are no longer generated. See archived IRM 21.7.2 if information is needed on CP 177 (or CP175/875).

21.7.2.6.5.7  (10-01-2014)
Claims filed on Form CT-1X and Form 843

  1. Forward all excess Tier I and Tier II claims filed by employees or employers on Form CT-1X or Form 843 to the Large Corp/Technical Unit at the Cincinnati campus at the address shown in IRM 21.7.2.6.4.1. The instructions which follow are for the Large Corp/Technical Unit at the Cincinnati campus.

  2. Forward claims on Form CT-1X (or Form 843) which meet CAT-A criteria specified in Exhibit 21.5.3–2 (only) as follows:
    Internal Revenue Service
    % Elizabeth Goodwin
    201 W Rivercenter Blvd
    Covington, KY 41011
    Mail Stop 5702A

  3. Route claims involving large case control (taxes of $1,000,000 or more) to the area office where the railroad is located.

  4. Excess Tier I and Tier II tax claims filed on Form 843 by employees are worked following the procedures outlined in IRM 21.7.2.4.6.4.2, Excess FICA Tax Withheld — Employee Claims for Refund.

21.7.2.6.5.8  (10-01-2014)
RRB Employer Status Determinations

  1. The RRB may determine that a railroad has been reporting and paying FICA taxes in error. The employer may then file a claim or make an adjustment using Form 941-X to remove the FICA taxes in previous years and request they be applied to their Railroad Retirement Tax account (Form CT-1). Employers are instructed to file Form CT-1X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund. If the employer had not filed Form CT-1 for the prior period, see IRM 21.7.2.6.5.9, Incorrect Type of Return Filed – RRTA vs. FICA. They may also file an amended Form 940 for refund of FUTA taxes based on the RRB determination.

  2. Do not work these claims or correspondence in sites other than Cincinnati. If a claim or correspondence is received, forward to CAMC as indicated in IRM 21.7.2.6.4.1.

21.7.2.6.5.9  (10-01-2013)
Incorrect Type of Return Filed – RRTA vs. FICA

  1. There are instances where taxpayer files Form 941/944 but should file Form CT-1, or vice versa.

  2. If the employer should have filed a Form CT-1 to report RRTA taxes, the employer can make an interest-free adjustment by filing an original return, Form CT-1, reporting the correct amount of RRTA tax and attaching an adjusted return (Form 941-X/944-X/CT-1X) to correct the erroneously reported FICA tax.

    Example:

    Taxpayer files Form 941 for the 201303, 201306, and 201309 quarters. At the end of the year, the taxpayer realizes they filed incorrect Forms 941 for the first three quarters of 2013 and should have filed Form CT-1. Instruct the taxpayer to file an original Form CT-1 for 201312 and include RRTA for the entire year (including what was previously reported on Forms 941 as FICA tax. Also, instruct the taxpayer to file Forms 941-X for each of the first three quarters of 2013.

    Note:

    Reapply credits as appropriate when adjusting accounts for the situation described above.

21.7.2.6.5.10  (10-01-2013)
Form CT-1X — Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund

  1. Form CT-1X is filed to correct taxes previously reported on Form CT-1. Taxpayers can choose to either file:

    • An adjusted railroad retirement tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form CT-1X reflects a tax decrease, make two attempts to contact the taxpayer by phone to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3.

  2. Taxpayers are required to complete the applicable certification box based on their selection in Part 1 of Form CT-1X.

    Example:

    If the taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) on line 4. If the taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) on line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form CT-1X based on the information provided in Part 1.

21.7.2.6.5.10.1  (10-01-2014)
Form CT-1X Decreases — Adjusted Employment Tax Return

  1. Verify all required items on Form CT-1X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 1 is checked

    • Applicable certification is checked on line 4a, 4b or 4c

    • Detailed explanation

    • Signature

  2. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  3. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form CT-1X with the following text: "90 day - Claim" .

    2. Process the Form CT-1X per procedures in IRM 21.7.2.6.5.10.2 and refer to IRM 21.7.2.4.6.5 for additional information on 90 day - Claims.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  4. Process adjusted employment tax returns as follows::

    1. Input TC 291, HC 1, BS 20 for the amount of decrease along with IRN 070.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form CT-1X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

21.7.2.6.5.10.2  (11-08-2010)
Form CT-1X Decreases — Claim

  1. Verify all required items on Form CT-1X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Part 1 Box 2 is checked

    • Applicable certification is checked on line 5a, 5b, 5c or 5d

    • Detailed explanation

    • Signature

  2. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form CT-1X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can allow the claim. See Instructions for Form CT-1X for more information.

  3. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5.

  4. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

21.7.2.6.5.10.3  (03-02-2011)
Form CT-1X Increases — Adjusted Employment Tax Return

  1. Verify all required items on Form CT-1X are complete.

  2. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form CT-1X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form CT-1X reporting a tax increase for tax year 2013 received on or before February 28, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

  3. Use the table below to make your adjustment(s).

    If Then
    Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 1, 2014 and files a Form CT-1X which is received by the IRS on March 1, 2014 for the 09/201212 tax period. The interest computation date would be March 1, 2014.

  4. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3) or a TC 298 (see IRM 20.1.4.21.5).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 291 and an amended ROFTL was provided with the adjusted return.

  5. Be sure any payments are credited to period(s) where the tax is being assessed.


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