4.23.2  Employment Tax Examination Objectives

Manual Transmittal

June 14, 2013

Purpose

(1) This transmits a revision to the Table of Contents and text for IRM 4.23.2, Employment Tax, Employment Tax Examination Objectives.

Background

Updates are made to this chapter for procedural and technical changes.

Material Changes

(1) Editorial changes were made throughout IRM 4.23.2. The web addresses, IRM and legal resources were checked and corrected, where necessary. Changes incorporated by IPU 12U1110, issued 05-23-2012, taken into account. Additional changes reflect the incorporation of LB&I Employment Tax to SB/SE.

(2) IRM 4.23.2.1(3). Website List of Delegation Orders by Process, replaces obsolete IRM 1.1.2.

(3) IRM 4.23.2.4.1. Added (a) and (f) from deleted IRM 4.23.2.4.2.

(4) IRM 4.23.2.4.1.1(h). Deleted reference to Centralized Workload Selection and Delivery (CWSD).

(5) IRM 4.23.2.4.1.2. Added (c) from deleted IRM 4.23.2.4.2.

(6) IRM 4.23.2.4.2. Deleted LB&I Employment Tax Program Responsibilities due to transition of LB&I employment tax to SB/SE. Moved (a) and (f) to 4.23.2.4.1(3). Subsequent sections renumbered.

(7) IRM 4.23.2.4.3(4). Deleted (c).

(8) IRM 4.23.2.4.4. Formerly IRM 4.23.2.4.5. Added additional CCP processing functions.

(9) IRM 4.23.2.5(1). Added Tax Examiners.

(10) IRM 4.23.2.5(2). Removed reference to LBI.

(11) IRM 4.23.2.6. Deleted references to the Newport site, as everything is centralized to the Brookhaven Campus.

(12) IRM 4.23.2.6.8. Added cross-reference to new IRM 4.23.18, Employment Tax, Coordinating Worker Classification Determinations Between SS-8 Program and Exam.

(13) IRM 4.23.2.7. Changes made to delete references to LB&I Employment tax managers and assignments to reflect the transition of LB&I employment tax to SB/SE. Corrected website link to the Specialist Referral System.

(14) IRM 4.23.2.8(1). Deleted reference to cross-area reviews.

(15) IRM 4.23.2.9(1). Added that examiners have the option to prepare a dissent memo and request Appeals reconsideration. Also added additional information on the dissent process.

(16) IRM 4.23.2.9(2). Appeals will forward a copy of the ACM to the policy analyst liaison for distribution to the territory manager and group.

(17) IRM 4.23.2.9(5). Changed to SB/SE Territory Manager.

(18) IRM 4.23.2.16. Correction of link to Form 104, and added information that FinCEN has mandated that the Form 104 is to be filed electronically through the BSA E-Filing System beginning July 1, 2012.

(19) IRM 4.23.2.16(4). Additional information for identifying QETP information in the case file and processing.

(20) IRM 4.23.2.17. Note added to acknowledge the amendment to the RRB/IRS Agreement on August 22, 2011.

(21) IRM 4.23.2.17.1.1. Changed name of technical advisor to "LB&I Railroad Collateral Subject Matter Expert" . This change is made throughout.

(22) IRM 4.23.2.17.1.1(2). Revised (a) to delete the requirement that CCP forward refund litigation results. Added (k) to describe this requirement.

Effect on Other Documents

This material supersedes IRM 4.23.2, dated April 8, 2011. This material also incorporates Interim Process Update, IPU 12U1110 issued 05-23-2012.

Audience

LB&I, TE/GE and SB/SE employees dealing with employment tax issues.

Effective Date

(06-14-2013)

John H. Imhoff, Jr.
Director, Specialty Programs
Small Business/Self-Employed

4.23.2.1  (06-14-2013)
Overview: Employment Tax Policy Statement and Philosophy

  1. This section explains the employment tax examination objectives.

  2. The Employment Tax Program is governed by Policy Statements and other internal guidance that apply to all Service personnel regardless of operating division. The Policy Statements found in IRM 1.2.1, Servicewide Policies and Authorities, Policies of the Internal Revenue Service apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

  3. A website, List of Delegation Orders by Process, located at http://www.irs.gov/foia/article/0,,id=257085,00.html, summarizes data contained in the applicable IRM sections under IRM 1.2, relating to Delegation Orders, in a single, electronic source.

4.23.2.2  (04-08-2011)
Comprehensive Program for Employment Tax Administration and Compliance

  1. The Service is committed to provide America's taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. In Employment Tax, we will maintain the integrity of our current tax system while reducing the Employment Tax Gap through implementation and recommendation of legislative changes, enforcement, education, and outreach. The tools to accomplish the task include:

    1. Front-end compliance,

    2. Increasing the number of Voluntary Agreements,

    3. Continuation and expansion of Federal and State partnerships,

    4. Adoption of an Enterprise-wide approach to resources,

    5. Pursuit of automation to improve return classification systems,

    6. Addressing the broad range of noncompliance,

    7. Eliminating/reducing overlaps and gaps in current processes and procedures,

    8. Use of research to better understand the tax gap and assess possibilities for impacting taxpayer behavior,

    9. Modifying the compliance environment through legislation, regulation, or other systemic changes, and

    10. Ensuring that all remuneration subject to employment tax is reported.

  2. The employment tax program's emphasis is on work streams and activities identified by the Enterprise Wide Employment Tax Program (EWETP) that will reduce the tax gap across a broad spectrum of noncompliance, including:

    1. Non-filers,

    2. Worker classification,

    3. Officer compensation,

    4. Fringe benefits,

    5. Tip Income reporting, and

    6. Payment of amounts due.

  3. Enterprise Wide Employment Tax Program (EWETP): Coordination is necessary to effectively and efficiently administer the employment tax law. Through the EWETP Team, we will continue to develop and strengthen the Enterprise Wide Employment Tax Program by working across Business Operating Division (BOD) lines. The EWETP will apply a corporate approach utilizing current enforcement techniques, prospective approaches, enhanced automation, improved systems and process changes, as well as appropriate legislative recommendations. It will be based on the following guiding principles:

    1. National Alignment for Filing, Reporting, and Payment Compliance

    2. Match employee skill sets with work streams

    3. Consider both downstream and upstream consequences

    4. Leverage current IRS systems and processes

    5. Provide balanced coverage within approved workplans

    6. Promote front-end compliance

    7. Increase 3rd Party Information Reporting

    8. Address known gaps in IRS processes

    9. Leverage Federal and State Relationships

    10. Support internal and external communication

    11. Support outreach and education

    12. Commit to multi-year research, and

    13. Develop measures of success

  4. Program Summary: The Employment Tax Program will continue to focus on the tax gap as we pursue actions that make the most business sense and have high impact while considering our limited resources. Actions include:

    1. The selection of the most non-compliant taxpayers for audit, and also working with others involving voluntary agreements to support the Social Security Trust fund,

    2. A balanced approach between Customer Satisfaction and Employee Satisfaction by engaging employees at all levels of management, and

    3. The continued development and strengthening of Employment Tax leadership by working alongside our managers, creating an environment that lends itself to engagement, transfer of skills, and providing support and effective communication to achieve the best possible results for the Employment Tax organization and the American taxpayer.

4.23.2.2.1  (03-27-2009)
Encouraging Voluntary Compliance

  1. The Service recognizes the significant benefits that can accrue from working with taxpayers to understand problems and practices unique to a given industry. Voluntary compliance will improve if taxpayers understand their tax obligations.

  2. Compliance is achieved when a taxpayer makes a diligent effort to meet the requirements of the law. The law requires that the taxpayer take affirmative action to meet his/her legal obligations. Sometimes the taxpayer takes sufficient action to meet the requirements of the law but, because of some unforeseen intervening event, is unable to do so. Affirmative action recognizes that the obligation to comply with the law is ongoing and requires that the taxpayer continue to attempt to meet the requirements of the law.

4.23.2.2.2  (05-23-2012)
Fair and Consistent Approach to Employment Tax Administration

  1. The Service employs a fair and consistent approach to employment tax administration that ensures:

    1. Consistency: In the application of employment taxes from one year to another, the Service should apply the rules in a consistent way for all taxpayers. In dealing with the Government, taxpayers base their perceptions about the fairness of the system in major part on the information they receive from friends, relatives, and acquaintances. Thus, it is important that the Service take into account how others have been treated in administering the employment tax system to ensure that the goal of administering employment taxes in a consistent manner is met.

    2. Accuracy of results: This means arriving at the correct employment tax decision. The Service must also carefully consider all the available information needed to arrive at a correct resolution.

    3. Communication: Taxpayers are given the opportunity to have their interests heard and considered. Taxpayers should have an opportunity to communicate with the Service about specific details of the case. Internal procedural complexities should not make it more difficult for the taxpayer to resolve his or her case. IRS personnel need to take an active approach to case resolution and to the maximum extent possible, remove internal barriers so that the taxpayer’s case receives fair and expeditious consideration.

    4. Correction of Errors: If an error is made in an employment tax determination and if subsequent evidence shows that the employment tax was incorrectly asserted, the error will be corrected.

    5. Proper purpose: Employees need to ensure that decisions on employment tax issues are guided by the applicable statutes, regulations, and procedural instructions issued by the Service.

4.23.2.3  (03-27-2009)
Employment Tax Examination Program

  1. An effective Employment Tax Examination Program will:

    1. Include the employment tax examination of all classes of taxpayers to encourage a high degree of taxpayer voluntary compliance,

    2. Establish responsibilities for control and management that will maintain an effective and balanced examination program in the employment tax area,

    3. Establish responsibility for providing revenue agents/examiners whose specialized training in employment tax techniques and technical knowledge will enable them to complete highly effective examinations and achieve the greatest possible uniformity in treatment of issues,

    4. Ensure that employment tax specialists effectively participate, assist or advise in examination of cases involving employment tax matters, and

    5. Ensure that employment tax specialists provide the necessary training and guidance to other examiners which will enable them to effectively identify employment tax issues and to assist taxpayers who attempt to comply with the laws.

  2. These objectives are intended to improve and strengthen compliance with the employment tax provisions of the Internal Revenue Code. Improved compliance will not only produce immediate revenue in the year of adjustment, but will also result in future compliance.

4.23.2.4  (05-23-2012)
Employment Tax Program Responsibilities

  1. Every function in the IRS has a role in proper employment tax administration. It is essential that each function conduct operations with an emphasis on promoting voluntary compliance. Appropriate reviews should be conducted to ensure consistency with the employment tax policy statements and philosophies. Attention should be given to the coordination of employment tax programs between operating divisions to ensure approaches are consistent.

  2. Managers should continuously review information to suggest changes in employment tax compliance and examination programs, training courses, educational programs, and employment tax administration.

  3. All employees should keep the following guidelines in mind when handling each employment tax case:

    1. Treat similar cases and similarly situated taxpayers alike,

    2. Give each taxpayer the opportunity to have his or her interests heard and considered,

    3. Strive to make a substantially correct decision in the first instance. A wrong decision, even though corrected eventually, negatively impacts voluntary compliance,

    4. Provide an adequate opportunity for consideration of taxpayers rebuttal,

    5. Each case requires the impartial enforcement of tax laws,

    6. Use each employment tax case as an opportunity to educate the taxpayer. Help the taxpayers understand their legal obligations and rights. Assist the taxpayers in understanding their appeal rights and in all cases, observe the taxpayer’s procedural rights,

    7. Endeavor to promptly process and resolve each taxpayer’s case,

    8. Resolve each employment tax case in a manner which promotes voluntary compliance, and

    9. Identify systemic problems and recommend ways to reduce taxpayer burden.

  4. SB/SE and Large Business and International Division (LB&I) managers will work together in a cooperative manner to ensure that cases referred from one division to the other are evaluated and assigned in a manner consistent with improving taxpayer compliance while making the best use of available resources. If agreement cannot be reached regarding the acceptance of a referral, the SB/SE Territory Manager and LB&I Territory Manager will work together to resolve the dispute.

4.23.2.4.1  (06-14-2013)
SB/SE Headquarters Office Responsibilities

  1. The Small Business/Self Employed (SB/SE) Division supports the mission of the Internal Revenue Service by providing program leadership for all Service employment tax matters, including the development, execution, and evaluation of quality multi-functional compliance and assistance programs on a nationwide basis in a manner which promotes the highest degree of public confidence in the tax system's integrity, efficiency and fairness.

  2. The SB/SE Division is charged with directing and coordinating policies and procedures concerning the administration of employment tax programs, ensuring consistency with the employment tax policy statements, reviewing and analyzing employment tax information, researching taxpayer attitudes and opinions, and determining appropriate action to take to promote voluntary compliance.

  3. The SB/SE Division, Chief, Employment Tax Operations, has the primary responsibility for SB/SE Employment Tax and leads the Service’s employment tax program by:

    1. Working with the other operating divisions (LB&I, TE/GE, and W&I) to provide a coordinated approach to the employment tax program,

    2. Developing the Coordinated Industry Cases (CIC) employment tax work plan and the LB&I employment tax DESY Plan,

    3. Serving as the liaison to and meeting with the LB&I taxpayer community, which would include professional and trade organizations,

    4. Monitoring SB/SE area employment tax program accomplishments and evaluating performance through visits to SB/SE field offices,

    5. Monitoring and evaluating execution of the program in each territory through visits to each territory office,

    6. Providing adequate resources for an effective program depending on the degree of non-compliance within a territory, and

    7. Researching and analyzing overall program effectiveness.

4.23.2.4.1.1  (06-14-2013)
SB/SE Employment Tax, Policy Program Manager Responsibilities

  1. The SB/SE Division, Employment Tax Policy Program Manager, has primary responsibility for maintaining an effective employment tax policy by:

    1. Developing employment tax work,

    2. Furnishing territories with necessary assistance and guidance,

    3. Ensuring that adequate employment tax training is available on a continuing basis to meet the needs of all examining personnel involved,

    4. Perfecting examination procedures and techniques,

    5. Identifying training needs and providing leadership in course development,

    6. Working with the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) in providing technical assistance to field offices and identifying abusive areas indicating a need for rulings, amended regulations or corrective legislation,

    7. Planning, implementing, and coordinating employment tax education and compliance programs,

    8. Working with Employment Tax Workload and Delivery to develop employment tax program examinations and workload selection, and

    9. Receiving and recommending changes to IRM 4.23, Employment Tax Handbook.

4.23.2.4.1.2  (06-14-2013)
SB/SE Employment Tax Territory Office Responsibilities

  1. Each SB/SE Employment Tax Territory Office is responsible for the following:

    1. Ensuring that examination techniques, guidelines, Headquarter's policy, and examination plans are adequate in promoting quality employment tax examinations and that examiners are adhering to these guides,

    2. Directing resources for effective program administration,

    3. Identifying requirements for the program and developing improvements to promote quality examinations, and

    4. Planning, implementing and coordinating national, regional, and local employment tax education and compliance programs.

4.23.2.4.1.3  (03-27-2009)
SB/SE Employment Tax Group Manager Responsibilities

  1. Each SB/SE Employment Tax Group Manager is responsible for:

    1. Ensuring that the examiner performs a quality examination by addressing employment tax issues,

    2. Securing the necessary training for employment tax examiners,

    3. Providing technical assistance and guidance, and

    4. Ensuring that employment tax goals, objectives, and work plans are met.

4.23.2.4.2  (03-27-2009)
TE/GE Employment Tax Program Responsibilities

  1. The Tax Exempt and Government Entities (TE/GE) Division has primary compliance responsibility for the employment tax returns filed by TE/GE taxpayers. TE/GE work units responsible for employment tax compliance include the following functions:

    1. Employee Plans (EP),

    2. Exempt Organizations (EO),

    3. Federal, State, and Local Governmental Entities (FSLG), and

    4. Indian Tribal Governments (ITG).

  2. The EO, FSLG, and ITG Directors have compliance responsibility for coordinating an effective employment tax program in their areas by:

    1. Developing an employment tax work plan,

    2. Developing, implementing, and coordinating employment tax education and compliance programs,

    3. Identifying the requirements for an effective program and coordinating the identification of necessary resources,

    4. Identifying and assigning appropriate workload in consultation and in conjunction with managers,

    5. Ensuring that adequate employment tax training is available to meet the needs of all technical personnel involved,

    6. Serving as the liaison to, and meeting with, IRS national stakeholder groups involved with employment tax administration, and

    7. Developing improvements to promote quality examinations.

  3. The EO, FSLG, and ITG Managers are responsible for:

    1. Ensuring that the examiner performs a quality examination, and

    2. Providing technical guidance and assistance.

4.23.2.4.3  (05-23-2012)
Responsibilities of Compliance Personnel in Employment Tax Program

  1. Revenue Agents, Revenue Officer Examiners and Tax Compliance Officers: To ensure an efficient Employment Tax Program, it is important that all compliance personnel be aware of their responsibilities under IRM 4.10.5, Required Filing Checks, to enforce the employment tax provisions of the Code.

  2. Examiners will carry out their responsibilities during any examination by properly raising, developing, or resolving any employment tax issue or making a referral to an employment tax specialist.

  3. Depending on the complexity of the issue, and if agreed to by the employment tax group manager, an employment tax specialist may be assigned to assist in research, taxpayer discussion, and to provide guidance for issue development.

  4. Revenue agent specialists, revenue officer examiners, and tax compliance officers skilled in income tax and given specialized training in the technical aspects and examination techniques in employment taxes, will:

    1. Examine employment tax returns containing controversial or complex issues,

    2. Develop employment tax investigations using examination enforcement programs in known or probable areas of non-compliance,

    3. Share their specialized training in employment taxes with other examiners when requested,

    4. Assist in the employment tax examinations conducted by other revenue agents when requested, and

    5. Devote the major portion of examination time to employment tax work.
      The balance of time will be devoted to formal and informal training and discussion of employment tax issues and techniques with other non-specialist examiners to enhance their knowledge in this area.

4.23.2.4.4  (06-14-2013)
Centralized Case Processing (CCP)

  1. Centralized Case Processing (CCP) will be responsible for processing:

    • All closed case files received from field employment tax groups,

    • Form W-2 , Wage and Tax Statement, or Form W–2 C, Corrected Wage and Tax Statement, submitted to CCP directly from taxpayers as part of tickler file maintenance. See IRM 4.23.8.10.2, Delinquent Forms W–2/W–2 C Not Secured by Examiner.

    • Form 3870, Request for Adjustment, and Form 2363, Master File Entity Change, on all cases worked by employment tax examiners, and

    • Partial requests and prompt assessments made on open employment tax examinations.

4.23.2.5  (06-14-2013)
Deployment of Employment Tax Examining Personnel

  1. In meeting program objectives, it is important that a sufficient number of employment tax specialists be assigned in each territory. These examiners will be identified as Employment Tax Specialists:

    1. Revenue Agent,

    2. Tax Examiner,

    3. Revenue Officer,

    4. Tax Compliance Officer.

    They may be assigned on a permanent or rotational basis (in accordance with national or local agreements), and will usually be assigned to one field group whose group manager will be responsible for ensuring the effective use of these specialists in carrying out the objectives of the program.

  2. Depending upon the type, amount, and geographical location of the workload and the availability of staffing in an area, deployment of examining personnel in the employment tax area is at the discretion of the SB/SE Chief, Employment Tax or equivalent Program Manager in TE/GE.

4.23.2.6  (06-14-2013)
SS–8 Program

  1. Form SS–8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, is the form used by a firm or worker to request a determination or ruling letter regarding a worker’s federal employment tax status. If the firm/worker submits a request by letter, they should be provided with Form SS–8 and advised to resubmit their request for determination on Form SS–8. There is no user fee for this type of ruling request.

  2. The first revenue procedure issued every year provides procedures for issuing rulings, determination letters, and information letters, and should be referred to for guidance when responding to Form SS–8.

  3. The SS–8 Program has been centralized in one location: the Brookhaven Campus. Taxpayers are required to forward their request to the location identified in the instructions for Form SS-8.

    1. Form SS–8 requests involving state and local government entities are forwarded to the the Brookhaven Campus. The completed SS-8 determination case files affecting state and local government entities will be forwarded to the Governmental Liaison and Disclosure office to ensure compliance with determinations made.

    2. Form SS–8 requests involving agencies and instrumentalities of the Federal government must be submitted directly to the Division Counsel/Associate Chief Counsel (TEGE) (Headquarters Office) at the address provided in the instructions for Form SS-8.

  4. A determination letter or ruling will not be issued if the worker objects to the disclosure to the firm of his/her identity or a copy of the information he/she submitted.

  5. Form SS–8 is a potential source of leads for employment tax examinations. After completing all actions related to issuance or non-issuance of the determination letter, the SS–8 centralized location should determine whether there is any audit potential in the forms received. The centralized location should follow guidelines in IRM 4.23.3.3.8, Employment Tax Leads, in determining the appropriate follow-up action.

    1. Any forms with audit potential should be referred, with a copy of the determination letter, to Centralized Workload Selection and Delivery Unit at the Cincinnati campus for consideration. This includes any Form SS–8 except those sent to the Headquarters Office pending a ruling.

    2. IDRS should be researched to ensure that the worker and the firm are filing required income tax returns or information returns. Where warranted, an income tax referral should be made to the appropriate PSP Support Manager.

  6. In addition to reviewing Form SS-8 requests involving Federal agencies and instrumentalities, the Headquarters Office also provides legal guidance to the Brookhaven office in support of the worker classification process.

  7. The Service will not issue a determination letter pursuant to the filing of Form SS-8 on whether a worker is a bona fide partner and, therefore, not an employee of the business. See section 3.01(72) of Rev. Proc.2011-3.

  8. For information on procedures for examiners coordinating worker classification issues between the SS-8 Program and Examination, see IRM 4.23.18, Employment Tax - Coordinating Worker Classification Determinations Between SS-8 Program and Exam.

4.23.2.7  (06-14-2013)
Coordination Between the Operating Divisions

  1. SB/SE and TE/GE have been assigned the similar task of developing their own employment tax programs. To ensure consistency both in the approach and in the interpretation and application of law, on-going communication between the operating divisions is essential. The Operating Divisions may develop their own systems to accomplish this coordination.

  2. SB/SE has the primary compliance responsibility for the employment tax returns filed by SB/SE and LB&I taxpayers. The SB/SE Employment tax web site has current information regarding group locations and geographic areas of responsibility. The Specialist Referral System should be used by non-employment tax managers and agents to request examination resources and/or consultation services from SB/SE employment tax specialists. See https://srs.web.irs.gov/

  3. SB/SE Employment Tax coordination with LB&I:

    1. When SB/SE employment tax independently selects a taxpayer identified as part a controlled LB&I case, the SB/SE employment tax manager will confer with the appropriate LB&I manager to determine the degree of coordination necessary.

    2. If a LB&I manager determines that SB/SE employment tax support is needed for an LB&I examination, a request will be made to the appropriate SB/SE employment tax manager via the Specialist Referral System to determine the type and level of support that can be provided.

    3. If SB/SE Employment Tax determines it will provide consultation services only, the employment tax returns will be controlled on AIMS by LB&I.

    4. If SB/SE Employment Tax determines it will provide support beyond consultation, the employment tax returns will be controlled on AIMS by the SB/SE employment tax group. Identification of which returns and periods to be controlled will be jointly determined by the SB/SE employment tax manager and the LB&I.

    5. SB/SE Employment Tax and LB&I Exam can and should address employment tax issues identified on their cases even if an Employment Tax specialist is not available to perform consultation or examination activities.

  4. SB/SE Employment Tax coordination with other SB/SE examination functions:

    1. If another SB/SE examination function determines that SB/SE employment tax support is needed for an examination, a request will be made to the appropriate SB/SE employment tax manager via the Specialist Referral System to determine the type and level of support that can be provided.

    2. If SB/SE Employment Tax determines it will provide consultation services only, the employment tax returns will be controlled on AIMS by the referring SB/SE examination function.

    3. If SB/SE Employment Tax determines it will provide examination support beyond consultation services, the employment tax returns will be controlled on AIMS by the SB/SE employment tax group. Identification of the returns and periods to be examined will be jointly determined by the SB/SE employment tax manager and referring SB/SE examining function.

  5. The TE/GE Division includes the following functions:

    • Employee Plans

    • Exempt Organizations

    • Indian Tribal Governments

    • Federal, State and Local Governments, and

    • Tax Exempt Bonds

    1. The Exempt Organizations (EO) office has primary compliance responsibility for employment tax returns filed by IRC 501(c) organizations, IRC 521 organizations, IRC 527 organizations, and IRC 529 organizations, excluding governmental entities. All referrals and/or information items received by EO Examinations must be processed through Examination Programs & Review (EPR) Classification prior to assignment to the field groups.

    2. The Federal, State and Local Governments (FSLG) office has primary compliance responsibility for employment tax returns filed by federal agencies, U.S. Possessions, state agencies, local governments, and quasi-governmental entities. All referrals and/or information items pertaining to Federal, State, local, and quasi-government entities should be forwarded to:

      Internal Revenue Service
      c/o Compliance and Program Management Staff
      300 8th Street; M/S 409AUS
      SE:T:GE:FSL:CPM
      Austin, TX 78701

    3. Employee Plans (EP) will coordinate with Exempt Organizations (EO) and Federal, State and Local Governments (FSLG) for their examination of the above entities where it is anticipated that their assistance will be needed in the review of employment tax returns such as on IRC 403(b) and IRC 457 examinations.

    4. The Indian Tribal Governments (ITG) office has compliance responsibility for employment tax and all other aspects of Federal tax administration as it applies to Indian and Alaska Native tribal governments. See IRM 4.86.1.1.2, Tax Administration. All IRS employees are required to contact the local area ITG Specialist before making initial contact on Indian tribal government cases.

4.23.2.8  (05-23-2012)
Feedback of Employment Tax Information

  1. It is important that reviewers of regular income tax cases be alert to employment tax issues and provide feedback of information pertinent to the employment tax program.

  2. Two important means of providing feedback of employment tax information are:

    1. prompt reporting of new or creative examination techniques and development of unusual issues, and

    2. prompt submission of Technical Coordination Report of significant tax abuses, inequities, and administrative problems.

  3. The quality of the examinations will be measured by reviewers utilizing the Embedded Quality Review System (EQRS).

4.23.2.9  (06-14-2013)
Coordination Concerning Appeals Determinations

  1. Each business unit should establish mutually satisfactory procedures for resolving disagreements arising from subsequent review of Appeals determinations. The procedures should contain enough flexibility to permit use of a variety of methods for the compliance functions and Appeals to discuss disagreements. Methods could range from informal telephone discussions or discussions at joint meetings to formal memorandums. Examiners have the right to prepare a dissent memo and request that Appeals re-open or re-consider the case. Any decision to reopen a case rests solely with Appeals. Appeals is guided by Policy Statement P-8-3 (formerly P-8-50), which covers reopening cases closed by Appeals. See IRM 8.6.4.1.9 , Disagreements to Appeals Determinations, for more information.

  2. For each case closed by Appeals, a copy of the Appeals Case Memorandum (ACM) will be provided to the Employment Tax Policy Analyst Appeals liaison, who will forward the ACM to the appropriate territory manager for distribution to the proper examination group. The ACM will usually be the only feedback vehicle.

  3. Where Appeals feels some aspect of a closed case warrants special attention in addition to the ACM, feedback will be provided in separate memorandum. Favorable comments by memoranda are encouraged.

  4. Appeals will return cases for verification of new information or for further development using an explanatory memorandum.

  5. LB&I coordination with Appeals will be through the Appeal Issue Specialization Program (ISP) Employment Tax appeals officer and the SB/SE Territory Manager.

4.23.2.10  (03-27-2009)
Coordination With Social Security Administration

  1. The Internal Revenue Service administers the employment taxes imposed by Chapter 21 through 25 of the Internal Revenue Code and the tax on self-employment income imposed by Chapter 2. An important phase of the administration of employment taxes, including the self-employment tax, is interpreting the sections of the Code applicable to these taxes; that is, issuing rulings and technical advice that clarify the intent of these sections.

  2. The Service refers all questions of eligibility for and computation of social security benefits to the Social Security Administration in Baltimore, Maryland, or to their nearest local field office. Similarly, inquiries relating to unemployment benefits are referred to the State Unemployment Compensation Board. Those relating to railroad employee retirement benefits are sent to the Railroad Retirement Board in Chicago, Illinois.

  3. Coverage and earnings provisions are contained in both the Internal Revenue Code and the Social Security Act. Provisions in one are related to provisions in the other. If a taxpayer produces evidence of a conflicting determination made by the Social Security Administration, either as to a worker’s status as an employee or concerning the taxability of any fringe benefit, the examiner must ascertain the current position of the Service. Every effort should be made to coordinate and resolve such difference by consultation or exchange of views at the field level. If the difference of opinion cannot be resolved so as to render consistent the views of the Area office and the SSA’s field office regarding the tax and benefit status of a particular case, the matter will be referred to the Headquarters Office for appropriate technical advice. See IRM 4.23.15, Technical Advice From the Office of Chief Counsel, for additional instructions.

4.23.2.11  (03-27-2009)
Employee Wage Data for SSA

  1. The IRS makes available any information returns to the Social Security Administration for use in administering the benefit provisions of the Social Security Act. Neither the Code nor the Social Security Act requires the preparation of information returns by the Service.

  2. Wage information is reported by the taxpayer on Form W–2, Wage and Tax Statement, which is sent to the Social Security Administration. When correcting an omission or error in a return, the taxpayer is required to file Form W–2c, Corrected Wage and Tax Statement.

  3. If the correction of error is a result of an examination by the Service, the taxpayer is required to prepare and file Form W–2 or Form W–2c and file them with the area office that conducted the examination. If required to be field electronically, the filing will be with SSA. Refer to IRM 4.23.8.10, Delinquent Forms W–2/W–2c, for additional instructions.

  4. IRM 4.23.8.11, Information Return Penalty Package, contains instruction on the information return penalty package.

4.23.2.12  (03-27-2009)
Processing Delinquency or Correction Notices, Forms SSA–7010

  1. Notices on Form SSA–7010, Notice of Determination of SSA Wages, are sent to the Philadelphia Campus by the Social Security Administration to report errors in employer or employee accounts discovered by the SSA. Most of these notices are processed in a Campus. However, the Campus forwards to the Area Director any Form SSA–7010 case which involves a ruling question or other issue of essentially an examination nature. The Area Director will handle all cases referred under this procedure.

4.23.2.13  (04-21-1999)
Availability of SSA Program Operation Manual System

  1. The Social Security Administration (SSA) Program Operation Manual System (POMS) is available to IRS personnel from SSA field offices.

  2. Examiners will find the POMS helpful, particularly the examples that are provided throughout the text and the manner in which the text relates SSA actions to IRS law and procedures.

4.23.2.14  (04-08-2011)
Churches, Conventions or Association of Churches

  1. IRC 7611 provides guidelines and a procedural framework for certain examinations of churches. Also see Treas. Reg. 301.7611-1.

  2. IRC 7611 procedures do not apply to employment tax inquiries. However, there is potential that an employment tax adjustment may impact TE/GE issues. At a minimum, examiners should coordinate with an exempt organizations agent before an employment tax examination of a church is initiated.

4.23.2.15  (04-21-1999)
United States Citizenship and Immigration Services

  1. There is ongoing contact between the United States Citizenship and Immigration Services (USCIS) and the IRS. The programs are generally divided into two categories, those dealing with aliens legally admitted to the U. S. and those dealing with aliens who are illegally in the country.

    1. Certain programs ensure that nonresident aliens who are authorized by USCIS to enter the U.S. are aware of Federal tax requirements and are meeting their obligations.

    2. Other efforts are geared to aliens who have entered the country illegally and are apprehended by USCIS personnel. Many of the illegal aliens are paid low wages and have limited tax potential. However, those with significant tax potential are referred to the IRS.

4.23.2.16  (06-14-2013)
Federal/State Exchanges

  1. IRC 6103(d) authorizes disclosures to States for tax administration purposes. Notwithstanding the provisions of IRC 6103 or IRC 4102, the disclosure of certain returns and return information is prohibited by law. Prior to disclosure of a record or document to any authorized State or local agency representative, data related to the following must be identified and removed from the file:

    1. Information obtained pursuant to tax treaty,

    2. Wagering tax information as defined in IRC 6103(o)(2) and IRC 4424,

    3. FinCEN Form 104, Currency Transaction Report, http://bsaefiling.fincen.treas.gov/main.html (formerly Form 4789 - obsolete), and

    4. Grand jury information obtained in accordance with an order issued pursuant to Rule 6(e) of the Federal Rules of Criminal Procedure, unless the terms of such order permit such disclosure.

    Note:

    FinCEN has mandated that the Form 104 is to be filed electronically through the BSA E-Filing System beginning July 1, 2012.

  2. For all such cases, Form 3198, Special Handling Notice, will be attached to the front of the case file with a notation "Federal/State Exchange."

  3. Any exchange agreements require the involvement and approval of the Disclosure Office.

  4. Questionable Employment Tax Program (QETP): The IRS has Memoranda of Understanding (MOUs) with more than 30 different states. The MOUs allow the IRS and the State Workforce Agencies (SWAs) to exchange audit reports and audit plans and to participate in side-by-side examinations, when appropriate. The MOUs also allow for the receipt of information and the reciprocal sharing of information to the states.

    1. ET referrals will be forwarded to the states through our Centralized Case Processing (CCP) unit located at the Cincinnati Campus. This will provide consistent, meaningful information to the states and allow us to monitor and track outgoing referrals.

    2. Examiners are in the best position to determine which work papers are essential to development of the worker classification issue. Therefore, prior to closing these cases, examiners will photocopy pertinent case information, mark the copies "QETP Information for State Examination," and place them in an envelope clearly marked "For QETP" to remain in the case file..

    3. The Employment Tax Group Manager will ensure the state copies are included in the case files when closing to CCP. CCP will accumulate the copies and provide them to the Employment Tax Centralized Workload and Delivery Section.

    4. Employment Tax Centralized Workload and Delivery Section will forward the referrals to the respective states on a monthly basis and send a disclosure accounting to a central Disclosure contact.

    5. SB/SE Employment Tax Headquarters will capture pertinent data on outgoing referrals and collaborate with the states to develop a reporting format to measure results stemming from the use of ET data.

4.23.2.17  (06-14-2013)
Railroad Retirement Board (RRB) Coordination Agreement

  1. The Internal Revenue Service (IRS) has responsibility for the processing of Form CT-1, Employer's Annual Railroad Retirement Tax Return, and Form CT-2, Employee Representative's Quarterly Railroad Tax Return. The IRS also provides information to the Railroad Retirement Board (RRB) for the administration of the Railroad Retirement Act of 1974 (RRA), as amended.

  2. On March 1, 2010, the IRS and RRB signed an agreement titled "Agreement between the Railroad Retirement Board and the Internal Revenue Service" (RRB/IRS Agreement). This agreement was amended on August 22, 2011, entitled "Amendment 1." This agreement provides the basis for coordinating the administration of the Railroad Retirement Tax Act by the Internal Revenue Service and the administration of the Railroad Retirement Act by the Railroad Retirement Board. Refer to the LB&I Railroad Technical Guidance web site for access to the RRB/IRS Agreement. See http://lmsb.irs.gov/hq/pftg/railroad/index.asp.

  3. The parties agreed to explore and adopt mutually acceptable techniques and modes of information exchange to improve administration with the least possible interruption of their respective operating routines and with strict adherence to laws, regulations, and rules for protecting the confidentiality of exchanged information.

  4. The IRS and RRB will review the RRB/IRS Agreement annually to evaluate the existing data exchange, examine the continuing need for, and uses of, the exchanged data, and determine whether the provisions of the RRB/IRS Agreement require amendment or revision.

4.23.2.17.1  (04-08-2011)
Disclosure of Federal Returns and Federal Return Information

  1. IRC 6103(l)(1)(C) authorizes disclosure of Federal returns and Federal return information concerning Railroad Retirement Tax (Chapter 22, IRC) to the Railroad Retirement Board for administering the Railroad Retirement Act. The RRB/IRS Agreement satisfies the written request requirement of IRC 6103(l)(1)(C) for routine disclosures on a continuing basis.

  2. Upon the occurrence of any change in employment, duties, or other relevant matters affecting an RRB Representative's authority to access Federal Returns and Federal Return Information, or status as an RRB Representative, an RRB Liaison Official shall promptly advise in writing the IRS Commissioner, Liaison Official, Designated Official, or IRS Representative, of such change.

  3. Notwithstanding any other provision of the RRB/IRS Agreement, the IRS will not disclose Federal Return or Federal Return Information if such disclosure would identify a confidential informant or seriously impair a Federal civil or criminal tax investigation. The RRB agrees that it will not make any further use of disclosure of a Federal Return or Federal Return Information disclosed to them by the IRS if the IRS notifies the RRB in writing that further use of disclosure would identify a confidential informant or seriously impair a Federal civil or criminal investigation.

4.23.2.17.1.1  (06-14-2013)
Information to be Provided on a Continuing Basis

  1. Section 6.1 of the RRB/IRS Agreement lists the information that will be provided to the IRS on a continuing basis by the RRB:

    1. The RRB CFO will forward copies of fully developed Compliance Audit reports to the LB&I Railroad Collateral Subject Matter Expert, upon completion.

    2. The scope of RRB Compliance Audits is limited to matters within the RRB's jurisdiction under the RRA and/or the Railroad Unemployment Insurance Act (RUIA). If, in the course of a Compliance Audit, RRB auditors become aware of significant Federal tax issues outside the scope of the RRB audit, they will forward the names and addresses of the employer and/or employees and the issues involved to the LB&I Railroad Collateral Subject Matter Expert.

    3. To assist the IRS in protecting the statute of limitations, the RRB CFO will provide the LB&I Railroad Collateral Subject Matter Expert, with a list of projected audits for the upcoming year by December 31st of each year.

    4. The RRB CFO will forward copies of Discrepancy Reports and supporting documentation explaining the discrepancy to the SB/SE Speciality Tax Program Analyst, Covington Campus.

    5. The Secretary to the Board will provide complete copies of Form G-215, request for Employer Status, and the written Board Coverage Determinations, to Submission Processing, Entity Unit, and the LB&I Railroad Collateral Subject Matter Expert.

  2. Section 6.2 of the RRB/IRS Agreement lists the information that will be provided to the RRB on a continuing basis by the IRS:

    1. Campus Compliance Services, Centralized Case Processing, will forward copies of all RRTA tax audit results, assessments, or abatements to the RRB CFO.

    2. When the IRS has completed its determination regarding the status of railroad workers with respect to Forms SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, filed by either a firm or worker, the SB/SE Employment Tax Policy Program Manager will provide a copy of the determination and Form SS-8 to the RRB CFO (provided such determination and Form SS-8 relate to RRTA tax).

    3. SB/SE Speciality Tax Program Analyst, Covington Campus, will return a copy of the completed Discrepancy Reports to the RRB indicating account resolution.

    4. Submission Processing will provide an annual electronic file that provides original Form CT-1 data by employer no later than October 31st of each year.

    5. Submission Processing will provide an annual electronic file, starting in 2010, that provides TC 29X adjustments with significant amounts for processed amended Forms CT-1, including Form CT-1X, and TC 30X assessments with significant amounts for Form CT-1, by employer, no later that October 31st of each year.

    6. Submission Processing will provide a three-year cumulative listing of Form CT-1 filers annually, no later than September 30th of each year.

    7. Submission Processing will provide copies of original and amended Forms CT-2, Employee Representative Quarterly Railroad Tax Return, filed with IRS as the forms become available.

    8. IRS Chief Financial Officer (CFO), Office of Revenue Systems, will provide written notification regarding IRS total monthly charges or charge-backs of principal and interest (through Intra-Governmental Payment and Collection System (IPAC) to RRB's accounts. In addition to the IPAC accounting, the following two documents will be provided directly to the RRB CFO with a copy to the RRB Chief of Accounting, Treasury and Financial Systems Division: a copy of the Monthly Net Tax Refund Analysis Report and a copy of the Monthly IPAC's, both principal and interest.

    9. IRS, CFO Office of Revenue Systems, will concurrently copy the RRB CFO and the RRB Chief of Accounting, Treasury and Financial Systems Division, when they send a letter to the Bureau of Public Debt regarding RRTA tax. The information sent will include a copy of the Reclassification Amount by Campus Report - which shows the reclassification of tax by campus by month.

    10. Appeals Processing Services will forward copies of all closed Appeals or Tax Court Cases involving RRTA tax assessments to the RRB CFO. See section 6.2(j) of the RRB/IRS Agreement for additional required information.

    11. Accounts Management, Taxpayer Relations Department (Large Corp Technical Unit) will send a letter of refund litigation results to the RRB CFO with a copy to the LB&I Railroad Collateral Subject Matter Expert. This will contain the information as specified in the RRB/IRS Agreement as amended August 28, 2011.

4.23.2.17.1.2  (04-08-2011)
Information that Needs a Written Request

  1. Section 7 of the RRB/IRS Agreement lists information that requires a written request.

  2. Section 7.1 provides that upon receipt of a written request from the IRS to the RRB CFO, the RRB will forward copies of RRB work papers.

  3. Section 7.2 lists information that can be obtained from the IRS with a written request:

    1. Requests for Federal Returns and Federal Return Information must be in writing and signed by an RRB Liaison Official. See section 7.2(a) of the RRB/IRS Agreement for the required information.

    2. The LB&I Railroad Technical Advisor, will provide the status of previously unagreed audit report findings.

    3. Accounts Management, Taxpayer Relations Department Supervisor, will provide Form CT-1 data for employers who were not on the annual CT-1 electronic file.

    4. Accounts Management, Taxpayer Relations Department Supervisor, will provide railroad employer transcripts of Form CT-1 accounts.

    5. In preparation of the RRB Performance and Accountability Reports, RRB will provide IRS with written requests addressed to the Field Director, Submission Processing, with a copy to LB&I Railroad Technical Advisor, for a statement of the aggregate principal and interest amounts of specified claims for refund by issue, outstanding as of September 30th. A copy of the response will be sent to the RRB Office of Inspector General. This will be provided by October 1st.

    6. In preparation of the RRB Performance and Accountability Reports, RRB will provide IRS with written requests addressed to the IRS CFO, with a copy to the LB&I Railroad Technical Advisor, requesting the amount of RRTA taxes paid during the fiscal year, a breakdown of taxes electronically deposited and other deposits, adjustments to RRTA taxes, and the total railroad carrier refunds paid. A copy of this will be sent to the RRB Office of Inspector General. This will be provided by October 15th.

4.23.2.17.2  (04-08-2011)
Liaison and Designated Officials

  1. Section 3 of the RRB/IRS Agreement describes the designated liaison officials who serve as points of contact between the RRB and IRS.

  2. For IRS:

    • Examination activities: the primary Liaison Officials will be, for LB&I, the LB&I Railroad Technical Advisor, and for SB/SE, the Employment Tax Policy Program Manager,

    • IRS Campus activities: the primary Liaison Officials for Wage and Investment are the Director of Accounts Management and the Director of Submission Processing, and for SB/SE, the Director, Campus Compliance Operations, at each of the designated campuses handling RRTA issues, and

    • IRS Counsel activities: the primary Liaison Official will be Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities.

  3. RRB Liaison Officials will be:

    • Chief Financial Officer (CFO),

    • General Counsel,

    • Chief, Audit and Compliance Division, and

    • Chief of Accounting, Treasury an Financial Systems.

  4. Exhibit A of the RRB/IRS Agreement contains a list of addresses where information should be sent in accordance with the RRB/IRS Agreement. Any changes should be made by providing a revised exhibit within thirty days of the change.

4.23.2.17.3  (04-08-2011)
Reasonable Fee for Furnishing Information

  1. Pursuant to the provisions of IRC 6103(p)(2), IRS may charge RRB a reasonable fee for furnishing Federal Returns and Federal Return Information under the terms of the RRB/IRS Agreement.

  2. Pursuant to the provisions of 45 U.S.C. section 362(d), incorporated into the RRA, 45 U.S.C. section 231f(b)(3), the RRB may charge the IRS a reasonable fee for furnishing RRB Returns and RRB Gathered Information under the terms of the RRB/IRS Agreement.

  3. The IRS and the RRB agree, however, not to charge each other for the costs of routine reproduction of returns and gathered information mutually exchanged.

4.23.2.17.4  (04-08-2011)
On-Site Audit Information Exchange

  1. Section 8 of the RRB/IRS Agreement addresses On-Site Audit Information Exchanges. In the event that RRB and IRS are simultaneously auditing the same employer for the same year, RRB auditors may provide information regarding the scope and depth of their audit to the IRS on-site examiner.

  2. Likewise, where the IRS audits the same employer for the same tax year as RRB auditors, IRS examiners may, upon written request from the RRB CFO or Chief, Audit and Compliance Division, and with the concurrence of the local IRS Disclosure Office, provide information regarding the scope and depth of the IRS examination of issues with respect to RRTA tax enforcement to the RRB on-site auditor.

4.23.2.17.5  (04-08-2011)
Role of the Office of the Division Counsel/Associate Counsel (TEGE)

  1. Section 9.1 of the RRB/IRS Agreement states that the Office of the Division Counsel/Associate Counsel (TEGE) will provide to the RRB's Office of General Counsel copies of technical advice memoranda, letter rulings, and Chief Counsel Advice involving railroad employers and employees and the application of RRTA tax.

  2. Division Counsel/Associate Chief Counsel (TEGE) has responsibility for coordination with the RRB on proposed guidance (e.g., regulations) relating to Railroad Retirement Tax Act taxes. In addition, Division Counsel/Associate Counsel (TEGE) is responsible for all coordination procedures between the Service and the RRB with respect to cases involving technical questions. See IRM 32.2.5.4.2, Coordination Required on Railroad Retirement Matters and IRM 33.3.2.6, Other Matters for Counsel Assistance..

4.23.2.17.6  (04-08-2011)
RRTA Statute of Limitations

  1. The RRB's Chief Financial Officer will send a written request to the SB/SE Employment Tax Policy Program Manager and the LB&I Railroad Technical Advisor, asking the IRS to take appropriate steps to protect the RRTA statute of limitations in cases that have been fully developed by the RRB auditors and where there is potential significant financial impact to the RRB's trust funds. The IRS will act at its own discretion with respect to the request and will advise the RRB CFO in writing as to the decision.

4.23.2.17.7  (04-08-2011)
Cooperative Training and Education Programs

  1. Section 12 of the RRB/IRS Agreement addresses cooperative training and education programs. Resources permitting, the IRS will allow RRB auditors to attend IRS railroad industry conferences and other IRS training that may enhance the technical expertise of RRB auditors or assist RRB auditors in meeting the General Accounting Office's standards for continuing professional education.

  2. The RRB will allow the IRS access to training materials and training classes subject to the normal availability criteria. The RRB will invite the IRS to speak at various employer seminars.

  3. All costs associated with training including any travel and transportation expenses will be the expense of the employee's agency unless agreed otherwise.


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