4.23.14  Statute Control and Extension

Manual Transmittal

January 15, 2013

Purpose

(1) This transmits revised IRM 4.23.14, Employment Tax, Statute Control and Extension.

Background

Editorial and technical changes have been made throughout this Section.

Material Changes

(1) Editorial and technical changes have been made throughout this Section. References to LMSB changed to LB&I.

(2) 4.23.14.1. Clarification on the difference between the filing due date of annual returns, and the deemed statute date for those annual returns.

(3) 4.23.14.1(4). Added information on Form 940 and CT-1.

(4) 4.23.14.1(6). Cite changed to IRM 20.1.7.8.2.8, Civil Penalties Statute of Limitations.

(5) 4.23.14.2.2. Added (2) on notification requirements.

(6) 4.23.14.2.1. Citation correction.

(7) 4.23.14.3(1). Clarification on processing and time guidelines.

(8) 4.23.14.4(1). Clarified Schedule C rules for SS-10.

Effect on Other Documents

This material supersedes IRM 4.23.14, dated February 26, 2010.

Audience

This section contains instructions and guidelines for all LB&I, TE/GE, and SB/SE employees dealing with employment tax issues.

Effective Date

(01-15-2013)

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

4.23.14.1  (01-15-2013)
Overview: Period of Limitation for Assessment

  1. This section explains the procedures for statute control and extension periods on employment tax returns, including those filed for reporting the taxes due under the following:

    • Federal Insurance Contributions Act (FICA)

    • Federal Unemployment Tax Act (FUTA)

    • Railroad Retirement Tax Act (RRTA)

    • Federal Income Tax Withholding (FITW)

    • Backup Withholding (BWH)

  2. General Rule. Federal employment taxes must be assessed within three years after the return is filed for FICA, FUTA, RRTA, FITW, and BWH purposes. A proceeding in court without assessment for collection of such taxes may not begin following the expiration of the three years. This period of limitation is measured from the date the return is filed. Any return filed prior to the last day prescribed for the filing of such return is considered as filed on such last day.

  3. Presumptive Rule. Forms 941 are filed quarterly. Forms 943, 944, 945, and 1042 are filed annually. For purposes of the statute of limitations, IRC 6501(b)(2) provides a "deemed" filing date for taxes imposed by the following chapters of the Internal Revenue Code:

    1. Chapter 3 — Withholding of Tax on Nonresident Aliens and Foreign Corporations.

    2. Chapter 21 — Federal Insurance Contributions Act.

    3. Chapter 24 — Collection of Income Tax at Source on Wages.



    Any Form 941, Form 943, Form 944, Form 945, or Form 1042 filed for any period ending with or within a calendar year before April 15 of the succeeding year is deemed filed on April 15th of the succeeding year, even if the return is required to be filed prior to that date, e.g. Form 943 and Form 945. If the return is filed after April 15th of the succeeding calendar year, the period of assessment is three years from the date the return is filed. See Treas. Reg. 301.6501(b)–1(b).

    Note:

    Withholding tax returns under Chapter 3, (e.g., Form 1042), are income tax returns under Subtitle A and not employment tax returns under Subtitle C. Revenue agents use Form 4549, Income Tax Examination Changes, as the report form.

  4. The April 15th rule does not apply to returns reporting FUTA taxes (Form 940) or RRTA taxes (Form CT-1). Form 940 is an annual return due January 31 of the next calendar year. Any return filed prior to January 31 is treated as if it were filed on January 31. If the return is filed on or after January 31 of the next calendar year, the period in which to assess is measured from the date the return is actually filed. Form CT-1 is an annual return due the last day of February of the next calendar year. Any return filed prior to this date is treated as if it were filed on the last day of February. If the return is filed on or after the last day of February of the next calendar year, the period in which to assess is measured from the date the return is actually filed.

  5. Returns executed by Area Directors or other IRS personnel under authority of IRC 6020(b) do not start the running of the statutory period of limitations on assessment and collection. See IRC 6501(b)(3) and Treas. Reg. 301.6501(b)–1(c)). The following are among other exceptions to the statute of limitations rules found in IRC 6501(c):

    1. False or fraudulent return, IRC 6501C)(1).

    2. Willful attempt in any manner to defeat or evade tax, IRC 6501(c)(2).

    3. Failure to file a return, IRC 6501(c)(3).

    4. Extension by agreement, IRC 6501(c)(4).

    5. Special rule for amended returns with additional taxes owed and the statute is expiring within 60-days, IRC 6501(c)(7).

  6. The statute of limitations for civil penalties is found in IRM 20.1.7.8.2.8, Civil Penalties Statute of Limitations.

    Note:

    References to Area Director are intended to also refer to Director of Field Operations in the case of LB&I and Area Manager or appropriate official for TE/GE.

4.23.14.2  (01-15-2013)
Statute Control and Extension of Statutory Assessment Period

  1. Generally, the examination of an employment tax return is conducted in a timely manner to ensure that the case is closed prior to the expiration of the statutory period of limitations. In cases where there is a compelling business reason, a Form SS-10, Consent to Extend the Time to Assess Employment Taxes, may be solicited. An example is when a subsequent/related year is under examination and:

    1. There are firm indications that substantial additional tax is due for a prior year,

    2. The limitation period for the prior year will expire within 180 days, and

    3. There is insufficient time to complete the examination and administrative processing of the case.

  2. As a result of an amendment of IRC 6501 by the IRS Restructuring and Reform Act of 1998 (RRA 98), the Service must notify the taxpayer each time when the taxpayer is requested to consent to extend the period for assessment. Examiners are required to follow the procedures in IRM 25.6.22.3, Notification of Taxpayer’s Rights.

  3. The examiner must have the approval of his/her manager prior to requesting a consent.

  4. Detailed instructions on the preparation of Form SS-10 and statute controls are found in IRM 25.6.22, Statute of Limitations - Extension of Assessment Statute of Limitations by Consent, and IRM 25.6.23, Statute of Limitations - Examination Process - Assessment Statute of Limitations Controls, respectively. Form 10949, Statute Extension Checksheet, is available as a job aid for the preparation and issuance of consents, including necessary examiner and group manager actions.

  5. IRM 25.1.4.3.7, Statute Protection, provides the procedures for Criminal Investigation and Examination to follow when allowing the expiration of a civil statute in a joint investigation case.

4.23.14.2.1  (01-15-2013)
Form 895 and Statute Control Procedures

  1. Refer to IRM 25.6.23, Statute Extension - Examination Process - Assessment Statute of Limitations Controls, for procedures and guidelines. Statute controls ensure:

    • • Statute expiration dates are properly reviewed to determine that ERCS/AIMS properly reflects the correct Assessment Statute Expiration Date (ASED).

    • Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.

  2. Statute controls are initiated in all Examination and TE/GE functional areas for all returns meeting control criteria. See IRM 25.6.23.4, Returns Subject to Statute Control for definition.

  3. Instructions on obtaining consents are in IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent.

  4. See IRM 25.6.23.6, Statute Controls in Examination and TE/GE Groups, for Form 895 and group control procedures.

  5. The time for initiating control and issuing Form 895 on an SFR is at the time the substitute-for-return and alpha code "EE" is input ( i.e., when F5345-D, Examination Request-ERCS (Examination Returns Control System) Users, is input). See IRM 25.6.23.6.1.1, Time for Initiating Controls.

  6. See IRM 4.7.3, Examination Returns Control System (ERCS) - Statute of Limitations, for additional group procedures.

4.23.14.3  (01-15-2013)
Closing Cases With Short Statutes

  1. A minimum of 120 days should remain on a statute for Centralized Case Processing (CCP) to properly process agreed, no-change and unagreed cases not involving worker classification issues subject to the Notice of Determination of Worker Classification (NDWC) or a request for Appeals. For unagreed cases subject to a Notice of Determination of Workers Classification (NDWC), Letter 3523, 180 days should remain on the statute to allow Technical Services time to issue the letter and still be able to process the case to CCP upon signature or default of the letter. The statute of limitations on any case that is being sent to Appeals should have no less than 210 days remaining on the statute when the case is forwarded from the exam group to Technical Services for transfer to Appeals. These day limits begin when the case is received in CCP, Technical Services of Appeals, respectively.

  2. If a case is closed with less than 90 days remaining on the statute of limitations, the following actions are required:

    1. The case is discussed with the territory manager and a notation is made on Form 4665, Report Transmittal, that the territory manager has been involved,

    2. The compliance group or team manager will contact the manager in CCP or Technical Service to advise of the imminent statute case requiring special handling,

    3. The case is hand-delivered to CCP when feasible. If not feasible, the file is sent using the most expeditious method of delivery. The group or team manager must follow up with the CCP or Technical Service manager to ensure the case has arrived, and

    4. The examiner will be available to assist in the preparation of a 30-day letter or Notice of Determination of Worker Classification (NDWC), if necessary. See (4) following for procedures.

  3. Procedures when not issuing a 30-day letter due to statute being less than 90 days:

    1. The exam group should solicit an extension of the statute of limitation (SOL) from the taxpayer prior to issuance of a 30 day letter.

    2. If the taxpayer refuses to execute an extension at the time the examiner should document clearly on the Contact sheet or Activity record (Form 9984 ) the taxpayer refused to extend the SOL and inadequate time remains to forward the case to Appeals.

    3. The exam group should provide the taxpayer with a copy of the Employment Tax Examiner's Report (ETER) along with the explanation of adjustments. It should be clearly notated on the activity record the date the taxpayer was provided a copy of the ETER.

    4. The Examination group should immediately forward the case file to Technical Services for issuance of a NDWC, if required.

  4. For LB&I cases, the team manager must prepare and deliver a memo to the Territory Manager that explains why the case was not closed within the appropriate time frames.

4.23.14.4  (01-15-2013)
Form SS–10, Consent to Extend the Time to Assess Employment Taxes

  1. Form SS–10, Consent to Extend the Time to Assess Employment Taxes, is used to obtain the taxpayer's consent to extend the statutory period within which assessment may be made of FICA, FUTA, RRTA, FITW, and BWH taxes. Form 10949, Statute Extension Checksheet, is available as a job aid for the preparation and issuance of consents, including necessary examiner and group manager actions.

  2. Form SS-10 is also used to obtain an employer’s consent to extend the assessment statute date for the FICA portion of domestic service employment taxes (Schedule H taxes). An additional Form 872, Consent to Extend the Time to Assess Tax, is used to extend the assessment date for the FITW portion of Schedule H taxes.

  3. Form SS–10 is also used to obtain the employee's consent to extend the statutory period for assessment of the employee's share of FICA taxes. In this case, the Form SS–10 should specifically refer to the employee's liability for the employee's share of FICA.

  4. Form SS–10 is completed in duplicate. The form is typed or printed in ink. Letter 907, Request to Extend Assessment Statute, accompanies the Form SS–10 when mailed or delivered to the taxpayer, as well as Publication 1035, Extending The Tax Assessment Period. If the taxpayer does not return the executed Form SS–10 within 10 days, issue Letter 928, Request to Extend Statute - Follow-up Letter, as a reminder. Once the Form SS–10 is secured, the examiner forwards all copies to the individual delegated to execute consents to extend the statute for assessment. Generally, this is the group/team manager.

  5. One original signed/executed SS-10 is kept in the file. A copy is attached to each tax return on which the statute of limitations has been extended. One original signed/executed SS-10 is returned to the taxpayer accompanied by Letter 929, Transmittal to Taxpayer of Copy of Signed Consent.

  6. The examiner should document all activity in securing of a statute extension on Form 9984, Examining Officer's Activity Record, including the mailing of Letter 907.

  7. In situations where multiple entities require statute extension forms, such as in parent and subsidiary relationships, it is recommended that a separate Form SS–10 be obtained for each entity. The use of a consolidated consent Form SS-10 is authorized by Rev. Proc. 72-38, as modified by Rev. Proc. 82-6, and IRM 25.6.22.6.2.3, Parent and Subsidiary Corporations. If a consolidated consent form is used, confirm the signing authority of the person signing the consent, because not all corporate officials have signing authority for each entity.

  8. IRM 25.6.22.6.2, Corporations and following subsections provide extensive information on the preparation of consents for corporations, including those with changes in composition including mergers, acquisitions, etc. Also, Counsel is available if there are questions with regard to the correct preparation.

  9. For purposes of extending the period for FICA, RRTA, and withholding taxes, the line "from BLANK through BLANK" includes all the periods being covered under the extension. More than one period may be covered by one Form SS–10.

  10. In the case of a sole proprietorship (Schedule C business), the primary taxpayer’s name as shown on the employment tax return will be input on the Form SS–10 followed by "dba" ( "doing business as." ) If the taxpayer filed a joint return, the primary taxpayer is the person who owns the business, or exercises substantially all of the management and control of the trade or business. See IRM 25.6.22.6.10, Employment Taxes.

  11. On railroad conversion issues - where FICA coverage is converted to RRTA coverage and Form CT–1 has been filed, care should be taken to cover both taxes (FICA and RRTA) on Form SS–10. Note that the statute date for RRTA is three years from the last day of the second month following the end of the tax year, or the date the Form CT-1 is filed, whichever is later.

4.23.14.5  (02-26-2010)
Employee's Share of FICA

  1. Except for the FICA tax on tip wages not reported by the employee to the employer, the regulations under IRC 6011 require the employee's share (and the employer's share) of the FICA taxes to be reported by the employer on Form 941. Therefore, in the absence of fraud, the statute of limitations for assessment of the employee's share of FICA tax is determined by the statute date of the Form 941 filed by the employer. This is true even when the employer omits all wages paid to a particular employee and does not report any FICA taxes for the employee. This must be considered if the examiner intends to pursue the assessment against an individual employee. The statute date of the employee's share of FICA tax corresponds to the statute date of the employer's Form 941, not the employee's Form 1040 statute date. For additional information, see IRM 4.4.10.3, Processing Employee Share of FICA - CCP Responsibility, and IRM 25.6.22.6.10.1, Employment Taxes – Employee Share of FICA.

  2. FICA tax on tips not reported by an employee to the employer is reported on the employee’s income tax return using Form 4137, Social Security and Medicare Tax on Unreported Tip Income. If income tax and FICA tax on tips were reported on the same return, the statute of limitations for assessment of additional FICA tax is the same as the statute of limitations for the income tax. See IRM 25.6.22.6.10.2, FICA Tax on Tips Not Reported to Employer.Form 872 is used to extend the time to assess tax for the income tax return. However, if Form 4137, Social Security and Medicare Tax on Unreported Tip Income, was not filed and no FICA tax on tips was reported on the employee’s income tax return, no consent to extend the period of limitations is necessary because the period of limitations has not begun to run, as no return is considered to have been filed. See Rev. Rul. 79-39, 1971-1 C.B. 435. See also IRM 25.6.1.9.4.3, Forms Reporting More Than One Item of Tax.

  3. There are special circumstances when mitigation rules under IRC 6521 would allow an offset between the employee’s share of FICA tax and self-employment tax. In these instances, the timing of the FICA tax assessment or SECA tax deficiency in relation to the expiration of the statute of limitations on Form 941 and Form 1040 becomes critical. Examiners are advised to take a conservative approach and protect the statute of limitations rather than relying on mitigation rules. See Rev. Rul. 78-127, 1978-1 C.B. 436.

    Note:

    The mitigation procedures provided in IRC 6521 may not be used in cases where the FICA tax was assessed based on IRC 3509.

  4. For statute control on Form 1040, Alpha Code "II" can be used to designate that the period for assessment has not expired for "Other Taxes," including Social Security and Medicare on tip income not reported to the employer. See Exhibit 25.6.23-3, "Instructions for Updating the Statute on AIMS."

4.23.14.5.1  (02-26-2010)
Schedule H

  1. Schedule H is filed by household employers to calculate and report employment taxes for household employees and is generally attached to the household employer's Form 1040. Schedule H examinations are controlled on AIMS with MFT 30 utilizing the employer's SSN. See IRM 4.23.10.12.6, Household Employment Taxes.

  2. There is no separate Assessment Statute Expiration Date (ASED) reflected on Master File or AIMS for Schedule H taxes as Master File will reflect only the Form 1040 ASED. The ASED for Schedule H needs to be determined separately in the instances of non-filing Schedule H.

  3. Non-filing for the purposes of this AIMS Alpha Code means that the taxpayer filed a Form 1040 return but did not attach the information required by Schedule H. The taxpayer must provide information sufficient for calculating the household employment tax liability in order to commence the running of the period of time for assessment of that tax.

  4. Alpha Code "II" is used to indicate that:

    • the Schedule H (Form 1040), Household Employment Taxes, is being examined for the non-filing or underreporting of taxes, and

    • a determination has been made that there are no income tax issues of material tax consequence on the Form 1040 return which require examination, or the assessment statute of limitations period has already expired with respect to the income taxes.

  5. Since the extended tax assessment statute resulting from the non-filing of Schedule H only applies to the tax liability relating to the Schedule H, a careful determination that no income tax issues are present on the return must be made before coding the AIMS ASED with Alpha Code "II."

  6. If the income tax ASED has not expired at the time the alpha coding determination is made and if, based on an inspection of the Form 1040, there are income tax issues of consequence, a referral to the appropriate BOD must be made on Form 5346, Examination Information Report. Action must be taken to protect the income tax ASED in the following manner:

    • If 211 days or more remain on the ASED, refer to the appropriate BOD via Form 5346 and continue to develop the Schedule H issue.

    • If 210 days or less remain on the ASED, solicit Form 872, Consent to Extend the Time to Assess Tax. Refer to the appropriate BOD via Form 5346 (include the signed Form 872 with the referral) and continue to develop the Schedule H issue. If the taxpayer refuses to sign Form 872, expedite the referral and include a detailed explanation.

  7. After a referral to General Program has been made and the income tax ASED is within 180 days, code the AIMS ASED with Alpha Code "II."

  8. Examples:

    • Example 1: The taxpayer timely filed his Form 1040 for 2008, but failed to attached Schedule H. The ASED for an income tax assessment has expired. To begin a Schedule H examination, establish the 1040 on AIMS with Alpha Statute Code 04/II/12.

    • Example 2: The taxpayer timely filed his 2011 Form 1040 with no Schedule H attached. The income tax ASED will expire in 200 days. The examiner inspected the Form 1040 and noes that a large amount of income reflected on an IRP was not reported. The examiner should solicit Form 872 from the taxpayer, refer the income tax issue to General Program, and immediately begin the Schedule H examination. The Schedule H examination should be controlled on AIMS with the normal ASED of 4/15/15, or the extended statute if the Form 872 was signed. When the ASED is within 180 days, it should be updated to 04/II/15.

    • Example 3: Assume the same facts as example 2 except that inspection of the Form 1040 notes no income tax issues of consequence. The examiner should immediately begin the Schedule H examination and establish the 1040 on AIMS with a statute of 4/15/15. When the ASED is within 180 days, update it to 04/II/15.

  9. For more information, see:

    • Exhibit 25.6.23-3, Instructions for Updating the Statue on AIMS

    • IRM 25.6.1.9.4.3, Forms Reporting More Than One Item of Tax

    • IRM 4.23.10.12.6, Household Employment Taxes

4.23.14.6  (02-26-2010)
Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty

  1. In all cases where the Trust Fund Recovery Penalty provided by IRC 6672 is, or can be, imposed, the examiner must secure the waiver Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty, along with the Form SS-10, Consent to Extend the Time to Assess Employment Taxes.

  2. Form 2750 is used to extend the period of limitations for assessment of the Trust Fund Recovery Penalty under IRC 6672. All examiners are responsible for protecting the statute of limitations. Form 2750 is obtained from all persons who appear responsible for, but did not collect, account for and/or pay the taxes.

  3. Form 2750 must be secured when the Trust Fund Recovery Penalty statute expires within 1 year for agreed cases, or 2 years for unagreed cases. The waiver should provide for extension of the statutory assessment period to allow ample time during which issues bearing on assertion of the penalty may be resolved, so that normally it is necessary to secure only one waiver from each responsible officer. Care should be exercised in determining the date to which the statute of limitations is extended. In the absence of unusual circumstances, this date is December 31 of the year following the year in which the statutory period will expire.

  4. If the potentially responsible person(s) refuses to extend the statute of limitations for Trust Fund Recovery Penalty, a memorandum accompanies Form 6238, Referral Report for Potential Trust Fund Recovery Penalty Cases, stating this fact and the reasons given for refusal to extend the statute.

  5. Completion of various line items on Form 2750 are self-explanatory. Items 1 through 4 on the waiver are completed by the examiner. Items 5 and 6 are signed and dated by the person potentially responsible if he/she agrees to extend the statute of limitations. The examiner’s manager completes Item 7. See Delegation Order No. 25–2 (formerly Delegation Order No. 42, Revision 28). After the manager completes the signature portion of the waiver, Part 2 is given to the responsible person concerned. The remaining copies are forwarded with Form 6238 to Collection.

  6. See IRM 4.23.9.13, Trust Fund Recovery Penalty, and subsequent sections for additional information on procedures and Form 6238.

4.23.14.7  (05-14-2008)
Form 4016, Consents Fixing Period of Limitation Upon Assessment of Employment or Miscellaneous Excise Taxes Against Transferee

  1. Form 4016, Consents Fixing Period of Limitation Upon Assessment of Employment or Miscellaneous Excise Taxes Against A Transferee, is used in extending the statutory period of limitation upon assessment of employment taxes against a transferee, arising on liquidation of a corporation or partnership, or on a reorganization within the meaning of IRC 368(a).

4.23.14.8  (02-26-2010)
Form 872, Consent to Extend the Time to Assess Tax, for Form 1042

  1. Form 872, Consent to Extend the Time to Assess Tax, is used to extend the period of limitations for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

  2. Line (1) of Form 872 should be modified to read as follows:

    • "(1) The amount of any Federal "withholding tax under sections 1441–1442" tax due on any return(s) made by or for the above taxpayer(s) for the period(s) ended… "

    • The wording in quotes should be included on the blank line on the Form 872, and the word "tax" after the blank line should be lined through.

4.23.14.9  (02-26-2010)
Protective Assessments

  1. When a taxpayer refuses to sign a consent on Form SS–10, Consent to Extend the Time to Assess Employment Taxes, and the assessment statute expiration date (ASED) is 180 days or less, a protective assessment is made to protect the government's interest. The examiner should determine, to the best of their ability, the probable additional tax due. Any overassessment will be adjusted after the examination has been completed. Quick assessment procedures are used to protect the statute in situations described in (1) above. See IRM 4.23.11.9, Quick Assessments.

  2. When a taxpayer refuses to sign a consent on Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty, do not make a protective assessment. A preliminary notice may be issued under IRC 6672(b) to protect the government's interest. The examiner should determine, to the best of his or her ability, the probable additional tax due. If collection is in jeopardy, the procedures described in IRM 4.23.11.11, Jeopardy Assessments, may be used.

4.23.14.10  (02-26-2010)
Barred Statutes

  1. Procedures for processing barred statute cases are covered in IRM 25.6.1.13, Barred Assessments/Barred Statute Cases.

  2. Procedures for processing LB&I barred statute cases are covered in IRM 25.6.1.13.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees.

4.23.14.11  (05-14-2008)
Penalties under IRC Sections 6721 and 6722

  1. IRC 6665(a)(1) provides that penalties are assessed, collected, and paid in the same manner as taxes, and IRC 6665(a)(2) states that any reference to "tax" shall also be deemed to refer to penalties.

  2. There is no form designed to accommodate an extension of the statute of limitation on IRC 6721 (Failure to file correct information return) or IRC 6722 (Failure to furnish correct payee statement) penalties.

  3. Form 872-B, Consent to Extend the Time to Assess Miscellaneous Excise Taxes, is used to extend the statute of limitations on IRC 6721 and IRC 6722 penalties. Line (1) of the extension form is completed as follows for "the kind of tax" :

    • The amount of liability for "Failure to file correct information returns penalty" (or "Failure to furnish correct payee statements" ) tax...,

    • The word "tax" printed right after the blank line should be lined through and deleted.


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