4.4.10  Employment/Excise Tax Adjustments

Manual Transmittal

October 07, 2011

Purpose

(1) This transmits revised IRM 4.4.10, AIMS Procedures and Processing Instructions, Employment/Excise Tax Adjustments.

Material Changes

(1) This IRM was revised as follows:

Reference Change Details
All IRM sections Grammatical, editorial, and website address links were adjusted throughout. Also clarified responsibilities assigned to the group and responsibilities assigned to Centralized Case Processing (CCP).
IRM 4.4.10.2 Updated information on processing and maintenance of Form 4668.
IRM 4.4.10.2.1 New section added to address conversion cases.
IRM 4.4.10.2.2 New section added for preparation of tickler file by group for Form 4668.
IRM 4.4.10.2.3 New section added for maintenance of tickler file by CCP for Form 4668.
IRM 4.4.10.2.4 New section added to provide clarification regarding group responsibility for barred periods.
IRM 4.4.10.2.5 New section added to provide clarification regarding group responsibility for Railroad Retirement Tax Act (RRTA) adjustments.
IRM 4.4.10.2.5.1 New section added to provide clarification regarding CCP's responsibility for forwarding RRTA adjustments to the Railroad Retirement Board (RRB) and updated address.
IRM 4.4.10.2.6 New section added to provide instructions for reconciling Form 4668.
IRM 4.4.10.2.6.1 New section added to provide additional instructions.
IRM 4.4.10.2.6.2 New section added to provide reference for locating Social Security Administration (SSA) addresses.
IRM 4.4.10.2.6.3 New section added to provide additional instructions for creating penalty case referral.
IRM 4.4.10.2.6.4 New section added to provide clarification regarding CCP responsibility.
IRM 4.4.10.3 Updated instructions and clarified CCP responsibility
IRM 4.4.10.4 Updated instructions and clarified Group responsibility.
IRM 4.4.10.4.1 Updated instructions and clarified CCP responsibility
IRM 4.4.10.4.2 Clarified state code
IRM 4.4.10.5 Clarified Group responsibility
IRM 4.4.10.5.1 Clarified CCP responsibility
IRM 4.4.10.5.2 Information has been moved to IRM 4.4.10.6
IRM 4.4.10.5.3 Information has been moved to IRM 4.4.10.6
IRM 4.4.10.7 New section added to provide content addressing Fuel Compliance Program Penalties.
IRM 4.4.10.7.1 New section added to provide content addressing Dyed Fuel Penalty Controls and Assessment

Effect on Other Documents

This IRM supersedes IRM 4.4.10 dated May 1, 2003.

Audience

Large Business and International (LB&I), Wage and Investment (W&I), and Small Business/Self-Employed (SB/SE) employees

Effective Date

(10-07-2011)

Karen M. Schiller
Director, Examination Planning and Delivery
Small Business/Self-Employed

4.4.10.1  (10-07-2011)
Introduction

  1. This IRM contains AIMS processing procedures related to employment and excise tax adjustments.

  2. For additional information on employment taxes see IRM 4.23, Employment Taxes.

  3. For additional information on excise taxes see IRM 4.24, Excise Taxes.

4.4.10.2  (10-07-2011)
Processing and Maintenance of Form 4668, Employment Tax Examination Changes Report, - Group Responsibility

  1. When employment taxes are adjusted, Form 4668 is used to correct FICA wage records maintained by the Social Security Administration (SSA) or to notify the Railroad Retirement Board (RRB) that railroad retirement tax adjustments were closed for assessment (or overassessment).

  2. Form 4668 must not be forwarded to the SSA. Employers are required to report the wage adjustment to SSA via Form W-2, Wage and Tax Statement, or Form W-2C, Statement of Corrected Income and Tax Amounts. Employers must file Form W-2 and Form W-2C by the last day of February following the calendar year in which the wages were paid. Except in instances where the examining officer has secured Form W-2 or Form W-2C prior to case closure, for agreed employment tax cases, employers will be instructed to forward these forms to Centralized Case Processing (CCP) in Cincinnati for all SB/SE cases or CCP in Ogden for LB&I cases. The examining officer will annotate on Form 4668 the CCP address where the employer is to forward Form W-2 or Form W-2C. The CCP address for forwarding of Form W-2 or Form W-2C is:


    For all SB/SE Cases:
    Internal Revenue Service
    Centralized Case Processing
    Mail Stop 8412-G
    300 Madison Ave.
    Covington, KY 41011


    For all LB&I Cases:
    Internal Revenue Service
    Centralized Case Processing
    Mail Stop 4030
    1973 N. Rulon White Blvd.
    Ogden, UT 84404

  3. Form W-2 or Form W-2C secured from employers during the examination by the examining officer will be reconciled to the amounts shown on Form 4668. See IRM 4.4.10.2.6 for instructions on reconciling the forms. After reconciliation, the examining officer will forward the Form W-2/Form W-2C to the appropriate SSA address. See IRM 4.4.10.2.6.2 for information on where to find the list of SSA addresses.

4.4.10.2.1  (10-07-2011)
Conversion of Independent Contractor to Employee - Group Responsibility

  1. Annotate on Form 3198, Special Handling Notice for Examination Case Processing, "Reclassification-Self-Employed/Employee Status" in the "Special Features" section under "Other Instructions" and on the top of Form 4668. See IRM 4.23.8, Employment Tax - Determining Employment Tax Liability, for additional instructions.

4.4.10.2.2  (10-07-2011)
Preparation for Form 4668 Tickler File - Group Responsibility

  1. When Form W-2 or Form W-2C is not obtained from the employer in an agreed case, the examiner will attach a list of employees who should receive wage statements to Form 4668 in preparation of a tickler file.

  2. The examiner will annotate on Form 3198, in the "Special Features" section under "Other Instructions" "Create Tickler File - Employer to forward Form W-2 and/or Form W-2C to CCP" . The tickler file will contain the following information:

    1. Copy of Form 4668 for each year examined

    2. Copy of the agreement form

    3. The revenue agent report (RAR)

    4. An explanation of the failure

    5. A list of employees who did not receive Form W-2 or Form W-2C

  3. All SB/SE examiners, even those examiners not assigned to an SB/SE employment tax specialty group (PBC 212) will forward the tickler file to CCP in Cincinnati. See IRM 4.4.10.2 for the CCP Cincinnati address. The income tax examination will be forwarded to either CCP in Memphis or Technical Services, as appropriate, the same as all other closed SB/SE examination cases.

  4. The Form 4668 tickler file for LB&I cases will be included with the employment tax examination and forwarded to CCP in Ogden. See IRM 4.4.10.2 for the CCP Ogden address.

4.4.10.2.3  (10-07-2011)
Processing and Maintenance of Form 4668 Tickler File - CCP Responsibility

  1. The tickler file prepared by the examining officer for each year examined will be maintained by CCP awaiting receipt of Form W-2 or Form W-2C for those cases in which the forms were not secured by the examining officer.

  2. After receipt of these forms from the employer, the amounts from the transmittal form will be reconciled against the retained copy of Form 4668 - Schedule of Adjustments . See IRM 4.4.10.2.6 for instructions on reconciling the forms. If there is any difficulty in reconciling the amounts from the forms, the assistance of the examiner who conducted the examination may be requested.

    Note:

    Only those forms that do not agree with the dollar amount as shown on Form 4668 - Schedule of Adjustments will be returned to the employer. Maintain in the tickler file a copy of the letter outlining the reason for returning Form W-2 or Form W-2C. This letter may help establish whether reasonable cause should be considered if a penalty referral is made.

  3. After reconciling these forms, the transmittal form (Form W-3, Transmittal of Wage and Tax Statements, or Form W-3C, Transmittal of Corrected Wage and Tax Statements), along with Form W-2 or Form W-2C will be sent to the SSA under cover of Form 3210, Document Transmittal. See IRM 4.4.10.2.6.2 for information on where to find the list of SSA addresses.

4.4.10.2.4  (10-07-2011)
Barred Periods - Group Responsibility

  1. If late filed Form W-2 or Form W-2C are secured for a tax year which is barred, they will be forwarded to the appropriate SSA address. See IRM 4.4.10.2.6.2 to locate the list of SSA addresses. Consider any applicable information return penalties that may apply.

4.4.10.2.5  (10-07-2011)
Adjustments to Railroad Retirement Tax Act (RRTA) - Group Responsibility

  1. All agreed railroad employment tax examination cases will be flagged on Form 3198 in the "Special Features" section under "Other Instructions" with the following statement: "Railroad Retirement Board Case, Special Disclosure Action Required" .

4.4.10.2.5.1  (10-07-2011)
Adjustments to RRTA - CCP Responsibility

  1. CCP will forward copies of Form 4668, Form 886-A, Explanation of Items, and attachments pertinent to Chapter 22 taxes, for all agreed railroad employment tax examination reports to the Railroad Retirement Board (RRB). The address for the RRB is:

    Railroad Retirement Board
    Chief Financial Officer
    844 N. Rush Street
    Chicago, IL 60611

4.4.10.2.6  (10-07-2011)
Reconciling Transmittal Forms - Group and CCP Responsibility

  1. Reconcile Form W-3 by ensuring:

    1. The Social Security Wages on Form W-3 equal Lines 1, 2, and 3, Columns (b) through (e) of Form 4668 - Schedule of Adjustments.

    2. For 2010 Form W-3, line 12b should equal line 3 of Form 4668 (or line 9, columns (b) through (e) of the Schedule of Adjustments), This adjustment is for the 2010 Hiring Incentives to Restore Employment (HIRE) credit.

    3. The Social Security Tips on Form W-3 equals Line 4, Columns (b) through (e) of Form 4668 - Schedule of Adjustments.

  2. Reconcile Form W-3C by ensuring:

    1. Corrected Social Security wages, on Form W-3C, equal Lines 1, 2 and 3 Columns (b) through (e) of Form 4668 - Schedule of Adjustments;

    2. For 2010 Form W-3C, line 12b should equal line 3 of Form 4668 (or line 9, columns (b) through (e) of the Schedule of Adjustments) plus the amount originally reported on Form W-3C by the taxpayer.

    3. Corrected Social Security tips, on Form W-3C, equals Line 4, Columns (b) through (e) of Form 4668 - Schedule of Adjustments plus the amount originally reported on Form W-3C by the taxpayer.

4.4.10.2.6.1  (10-07-2011)
Combined Form W-2/Form W-3 and Form W-2C/Form W-3C - Group Responsibility

  1. If one employer forwards Form W-2/Form W-3 and Form W-2C/Form W-3C, the combined total of the amounts shown for Social Security wages/tips on transmittals Form W-3 and Form W-3C must be equal to the applicable line entries on Form 4668 - Schedule of Adjustments as stated above.

4.4.10.2.6.2  (10-07-2011)
SSA Addresses

  1. Use Form 3210, Document Transmittal to send Form W-2/Form W-3 and/or Form W-2C/Form W-3C to the appropriate SSA address as shown in IRM 4.23.8.10, Delinquent Form W-2/ Form W-2C.

    Note:

    The SSA addresses are the same for both worker classification cases and those cases that do not involve worker classification.

  2. Do not include Form 4668 in the package being sent to SSA.

4.4.10.2.6.3  (10-07-2011)
Penalty Referral for Not Filing Form W-2/Form W-2C - CCP Responsibility

  1. If an employer fails to file paper Form W-2/Form W-2C by April 1 following the February in which the forms are due, CCP will prepare a penalty case referral (using the retained copy of Form 4668 and attachments) from the tickler file as follows:

    1. Referrals on cases worked by SB/SE employment tax specialty groups (PBC 212) will be sent to the employment tax designee in the Centralized Workload Function for the SB/SE employment tax specialty area,

    2. Referrals for cases worked by SB/SE Examination or LB&I will be returned to the field group that examined the employment tax case.

    Note:

    Electronically filed Form W-2/Form W-2C are not due to be filed until March 31. Therefore, a penalty case referral would not be initiated until May 1.

  2. Form 4668 will be annotated "Penalty Case Referral." Any Form W-2/Form W-2C received in CCP after the penalty referral is made, will be forwarded to the appropriate SSA address found in IRM 4.23.8.10.

4.4.10.2.6.4  (10-07-2011)
Document Code 54 Carryback Penalty Adjustments - CCP Responsibility

  1. When processing an adjustment through Document Code 54, special action is necessary when adjusting a Transaction Code (TC) 180, Deposit Penalty, along with interest-free TCs 294, 295, 298, or 299. Transaction Codes 294, 295, 298, and 299 are used to post the tax adjustment and establish the beginning date for the interest computation. See IRM 20.1.4.21.5, Adjusted Returns (Forms 941–X, 943–X, 944–X, 945–X, and CT-1X), for additional information.

4.4.10.3  (10-07-2011)
Processing Employee Share of FICA - CCP Responsibility

  1. When an income tax case is being processed that contains adjustments for an EMPLOYEE share of FICA tax, process the FICA tax adjustment as a partial assessment using Disposal Code 08 without an agreement date entry. Disposal Code 08 is used because the 30 day interest free waiver period is not applicable to FICA tax and interest is computed to the payment date or 23C Date, whichever is earlier. Adjustments on cases that contain the employee share of FICA tax adjustments are NOT INTEREST FREE.

  2. As with all FICA tax adjustments, the examining officer must secure taxpayer agreements on Form 2504, Agreement to Assessment or Collection of Additional Tax and Acceptance of Overassessment. FICA tax is not an income tax. It is not subject to deficiency procedures and cannot be included on a statutory notice of deficiency. When a statutory notice of deficiency is to be issued, any adjustments made to the employee share of FICA is to be processed as a partial assessment.

4.4.10.4  (10-07-2011)
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, Adjustments, - Group Responsibility

  1. In order to correctly process Form 940 cases, examining officers must annotate the information below on the RAR and Form 5344 for CCP:

    1. Total tax adjustment and the two-letter state abbreviation the change is made for;

    2. Wage adjustment and the two-letter state abbreviation the change is made for;

    3. Total corrected Form 940 wages; and

    4. Credit reduction wages, credit reduction amount and the two-letter state abbreviation for the state(s) subject to credit reduction (if applicable).

    Reminder:

    This information is not necessary on no change cases.

4.4.10.4.1  (10-07-2011)
Processing Form 940 Federal Unemployment Tax Adjustments - CCP Responsibility

  1. For all increases or decreases in FUTA tax or wages, in which Disposal Codes 03, 04, 08, 09, or 10 are used, unique reference codes must be entered with the tax adjustment. If the adjustment is for penalties only, use Disposal Code 12 to bypass the reference code requirement.

4.4.10.4.2  (10-07-2011)
Reference Codes

  1. The reference code(s) reflect the state for which the tax/wages are being adjusted. The three digit reference code for the tax portion of the adjustment is comprised of a "T" FOLLOWED by the two-letter state abbreviation (e.g., California is CA; New Jersey is NJ). The total of the tax (T) reference code amount must equal the TC 300/301 tax adjustment on Form 5344, Examination Closing Record. If the "T" reference code amount does not equal the tax amount or is not entered, a terminal reject will occur.

  2. If the adjustment is due to an increase or decrease in wages, a wage reference code(s) is also required. The three digit reference code for the wage adjustment is comprised of a "W" FOLLOWED by the two -letter state abbreviation. If adjustments were made to more than one state, the tax and or wage adjustment amount(s) attributed to each state will be entered.

  3. Input of these reference codes are not applicable for no change cases, cases closed to Appeals, or second adjustment documents processed through the Audit Information Management System (AIMS) after input of a quick assessment.

4.4.10.5  (10-07-2011)
Schedule H (Form 1040) Household Employment Taxes, - Group Responsibility

  1. Form 4668, Form 4667, Examination Changes, Federal Unemployment Tax, and Form 2504 are used to make adjustments to Schedule H (Form 1040).

4.4.10.5.1  (10-07-2011)
Employer Identification Number (EIN) - CCP Responsibility

  1. If the EIN per the original Schedule H, (Form 1040) is incorrect or there was no Schedule H, (Form 1040) filed:

    1. Use IRS Reference Number (IREF) 993 to add or correct the primary taxpayer’s nine digit EIN.

    2. Use IREF 994 to add or correct the secondary taxpayer’s nine digit EIN.

4.4.10.6  (10-07-2011)
Completion of Form 5344 for Employment Tax Closures - Group Responsibility

  1. A job aid has been developed to assist employment tax examiners in preparing Form 5344 based on entries from Form 4668/Form 4667. See the MySB/SE website for examining employment taxes for the document titled, Form 5344 Job Aid For Employment Taxes.

4.4.10.7  (10-07-2011)
Excise Civil Penalty Procedures (Fuel Compliance Program Penalties)

  1. The following procedures apply to excise civil penalties proposed by fuel compliance officers (FCOs) and fuel compliance agents (FCAs).

  2. The Issue Management System (IMS) computer application allows FCOs and FCAs to enter inspection and penalty information into a laptop computer. The information is transmitted to a host server. The group manager accesses the server to review cases and approve recommended penalties. Once the penalty is approved, the penalty case will be established and controlled utilizing the Examination Returns Control System (ERCS). After group manager approval of the penalty, the case will be closed to CCP.

4.4.10.7.1  (10-07-2011)
Dyed Fuel Penalty Controls and Assessment

  1. The dyed fuel penalties are assessed as civil penalties through the Master File civil penalty module on Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties via Masterfile Tax Code (MFT) 55 for Individual Master File (IMF) cases and MFT Code 13 for Business Masterfile (BMF) cases. The Internal Revenue Code (IRC) section and penalty reference numbers are listed below:

    • IRC 6715 - Reference Number 656

    • IRC 6715(a)(1) - Reference Number 665

    • IRC 6715(a)(2) - Reference number 665

    • IRC 6717 - Reference Number 655

    • IRC 6718 - Reference Number 657

    • IRC 6720A - Reference Number 673

  2. No AIMS controls are established on Masterfile or Non-Masterfile. The dyed fuel penalty cases are not sent to CCP for processing.


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