4.4.29  Social Security Administration (SSA) Adjustments

Manual Transmittal

May 10, 2011

Purpose

(1) This transmits revised IRM 4.4.29, AIMS Procedures and Processing Instructions, Social Security Administration (SSA) Adjustments.

Material Changes

(1) Minor editorial changes have been made throughout this IRM. Also, website addresses, form references, and IRM references were reviewed and updated as necessary. Other significant changes to this IRM include the following:

  1. IRM 4.4.29.2.1 was deleted. Procedures for returns filed before 1/1/86 are no longer necessary.

  2. IRM 4.4.29.3.1 was deleted. Tip income is no longer manually reported.

  3. IRM 4.4.29.4 was revised to eliminate obsoleted forms and refer the examiner to the current IRM for processing of Federal Insurance Contributions Act (FICA) adjustments.

  4. IRM 4.4.29.5.1 was revised and renumbered to IRM 4.4.29.3.3.

  5. IRM 4.4.29.6 was updated and renumbered to IRM 4.4.29.5.

Effect on Other Documents

IRM 4.4.29, dated August 1, 2001, is superseded.

Audience

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

Effective Date

(05-10-2011)

Charlestine D. Hardy
Director, Examination Planning and Delivery
Small Business/Self Employed

4.4.29.1  (05-06-2011)
Introduction

  1. This chapter contains procedures for reporting income and tax adjustments to the Social Security Administration (SSA).

4.4.29.2  (05-10-2011)
Self-Employment Income Adjustments

  1. The following procedures are for cases in which the increase to self-employment income (SEI) brings the total SEI to over $399.99 or any decrease to SEI if the original SEI was greater than $399.99.

    Note:

    The decrease must not bring the total SEI below zero.

4.4.29.2.1  (05-10-2011)
Group Return Processing Procedures

  1. Adjustments to self-employment tax are forwarded to SSA electronically by Centralized Case Processing (CCP) during the case closure process.

  2. The following information must be provided by the examiner to CCP by taking one or more of the actions below:

    1. Include the computer generated page of the Revenue Agent Report (RAR) attached to the Form 5344Examination Closing Record containing the reference number information; or

    2. Enter the correct figures in Item 15 on Form 5344.

4.4.29.2.1.1  (05-10-2011)
Reference Code Changes to Self-employment Income/Tax

  1. Changes to self-employment income/tax are input using the following reference codes in Item 15 of Form 5344 for examination adjustments:

    1. The net increase or decrease to the (SEI) of the primary taxpayer —Reference Number 878. The Reference Number 878 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 878 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 878.

    2. The net increase or decrease to the SEI of the secondary taxpayer—Reference Number 879. The Reference Number 879 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 879 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 879.

    3. The net increase or decrease for the primary taxpayer that is subject to Medicare tax — Reference Number 895.

    4. The net increase or decrease for the secondary taxpayer that is subject to Medicare tax — Reference Number 896.

    5. The net increase or decrease to the total self-employment tax is the Reference Number 889 amount. This amount must reflect the total self-employment tax adjustment for both taxpayers if applicable.

    6. If Reference Number 878 or 879 is entered but there is no adjustment to be made to the self-employment tax due because the adjustments made to income did not change the tax, Reference Number 889 must be entered with a "zero" amount. AIMS and Master File programming will accept the input of Reference Number 889 with a "zero" amount.

    7. On no change cases where there has been a change to the self-employment income/tax, Reference Numbers 878 or 879 and 889 must still be input. Item 12 must contain a transaction code TC 300 for zero, Item 13 must be Disposal Code 01, and Item 15 must contain the appropriate reference numbers.

4.4.29.3  (05-10-2011)
Group Procedures for Adjustments to Tip Income

  1. Tip income can result in changes to both income and FICA/Medicare taxes. The procedures for reporting the FICA/Medicare changes are listed below.

4.4.29.3.1  (05-10-2011)
Group Procedures

  1. If an examination results in an adjustment to tip income or a delinquent return is secured after a substitute for return (SFR) TC 150 has posted, the following information will be supplied by the examiners to CCP by taking one or more of the actions below:

    1. Ensure the correct figures are entered in item 15 of Form 5344. Refer to IRM 4.4.29.3.2

    2. Complete Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to Employer.

4.4.29.3.2  (05-10-2011)
Reference Code Changes to Tip Income

  1. Changes to tip income are input by reference codes in Item 15 of Form 5344 for Examination adjustments:

    Reference Number Description
    891 Adjustment to Primary Unreported Tip Income
    892 Adjustment to Secondary Unreported Tip Income
    898 Amount of Unreported tip income adjustment for the primary taxpayer that is subject to Medicare tax
    899 Amount of unreported tip income adjustment for the secondary taxpayer that is subject to Medicare tax

4.4.29.3.3  (05-10-2011)
CCP Procedures for Reviewing Form 885-T

  1. Only one taxpayer's name may appear on Form 885-T. It must be legible and match the name on Form 5344 for the taxpayer whose SSA account is being adjusted. If both names appear and it can be determined from the examiner's workpapers which name is correct, line out the incorrect name. If such a determination cannot be made, return the case to the originator.

  2. The taxpayer's address must match the Master File address and also be legible.

  3. The social security number (SSN) on the form must match that shown on the Form 5344 including any corrections, with one exception; if a joint return was filed under the husband's SSN and the wife's SSA account is being adjusted, the wife's SSN must appear on the form even though it is not shown on Form 5344.

4.4.29.4  (05-10-2011)
Group Procedures for FICA Tax Adjustments

  1. When an examination results in an adjustment to employee share of FICA where the employer is not liable due to Section 530 of the Revenue Act of 1978, 95 PL 600, Form 885-E, Schedule for FICA Tax Adjustment of Wages not Previously Reported, must be prepared. IRM 4.10.8.13.9, Adjustment for Employee FICA Tax, contains procedures for completion of the form.

4.4.29.5  (05-10-2011)
Group Procedures for FICA or Railroad Retirement Tax Adjustments Due to Tip Income

  1. The tax adjustment in Item 12, of Form 5344 will include any adjustment in FICA or railroad retirement tax which is due to an adjustment in tip income. The penalty (50% unreported tax) will be shown separately in Item 12, and will be coded with TC 310 or 311.

  2. If the adjustment involves railroad retirement tax, the case file will include a memorandum to the Railroad Retirement Board (RRB) stating the employee’s name and SSN, the name of the railroad employer and the increase or decrease in the amount subject to railroad retirement tax. CCP will remove the memorandum from the case file and forward it to:

    Director of Budget and Fiscal Operations
    Railroad Retirement Board
    844 Rush Street
    Chicago, IL. 60611

  3. If the taxpayer reports salary income on Form 1040, U.S. Individual Income Tax Return, but fails to report the tip income, the requirement for filing a return for this category of tax has not been met. To determine the statute of limitations to assess the social security tax on tip income, refer to Rev. Rul. 79-39, 1979-1 C.B. 435. According to Rev. Rul. 79-39, the period of limitation for assessment of the social security taxes on the tip income is still open after the expiration of the three year statute for the Form 1040.


More Internal Revenue Manual