1.35.17 Estimating Trust Fund Costs

Manual Transmittal

April 18, 2019

Purpose

(1) This transmits new IRM 1.35.17, Financial Accounting, Estimating Trust Fund Costs.

Material Changes

(1) IRM 1.35.17.1, Program Scope and Objectives – Updated to conform with the new internal control requirements described in IRM 1.11.2, IRM Process. Subsequent sections were renumbered due to additions within this section.

(2) IRM 1.35.17.1.3.2, Associate CFO for FM and Deputy ACFO for Administrative FM – Updated to include the deputy ACFO for Administrative FM.

(3) IRM 1.35.17.1.4, Program Management and Review – Added new subsection to conform with the new internal control requirements described in IRM 1.11.2, IRM Process.

(4) IRM 1.35.17.1.5, Program Controls – Added new subsection to conform with the new internal control requirements described in IRM 1.11.2, IRM Process.

(5) IRM 1.35.17.3.1, Report on Trust Fund Costs – Updated to include high-level guidance information previously found in IRM 1.35.17.9, without the step-by-step instructions typically found in desk procedures. Added requirement for business unit finance offices to maintain desk procedures and coordinate methodology changes with CA/UF.

(6) IRM 1.35.17.7.3, Director, Financial Management Policy Office – Deleted subsection with responsibilities for disbanded office.

(7) IRM 1.35.17.7.5, Director, Beckley Finance Center – Deleted and responsibilities were moved to IRM 1.35.17.1.3.3, Director, Cost Accounting and User Fees Office, to correspond with new organization structure.

(8) IRM 1.35.17.9, Report on Quarterly Trust Fund Costs – Deleted section and incorporated relevant concepts in IRM 1.35.17.3.1, Report on Trust Fund Costs.

(9) Office names and acronyms were updated throughout the IRM to correspond with newly realigned office structure within CFO Financial Management.

(10) Editorial changes were made through the document to improve writing and comply with updates in the IRS Style Guide.

Effect on Other Documents


IRM 1.32.7 Estimating Trust Fund Costs, dated July 27, 2016, is superseded.

Audience


Business unit finance offices responsible for estimating Unemployment, OASDHI, and Black Lung Disability Trust Fund Costs.

Effective Date

(04-18-2019)


Ursula S. Gillis
Chief Financial Officer

Program Scope and Objectives

  1. Purpose: This IRM provides policies and procedures for estimating costs for providing services to the Unemployment; Old-Age, Survivors, Disability and Health Insurance (OASDHI); and Black Lung Disability Trust Funds.

  2. Audience: Business unit finance offices responsible for estimating Unemployment, OASDHI and Black Lung Disability Trust Fund Costs

  3. Policy Owner: Associate CFO (ACFO) for Financial Management

  4. Program Owner: Cost Accounting and User Fees Office (CA/UF)

  5. Primary Stakeholders: Business units that estimate the trust fund costs

  6. Program Goals: Ensure internal controls for estimating trust fund costs are implemented and cost estimates are accurate and consistent

Background

  1. The IRS provides tax administration and support for the following trust fund programs:

    1. The OASDHI Programs. The Social Security Act (SSA) of 1935 established the Old-Age Survivors Insurance program. Subsequent amendments to the SSA established the Disability Insurance and Health Insurance programs. To fund these programs, the Federal Insurance Contributions Act (FICA) authorized payroll taxes to be paid by both employees and employers. The Social Security Administration and the Department of the Treasury (Treasury) share responsibility for administering the FICA tax system.

    2. The Federal/State Unemployment Compensation (UC) Program. The SSA Titles III, IX, and XII and the Federal Unemployment Tax Act (FUTA) of 1939 provide the program's framework. The UC program is funded through FUTA taxes paid by employers to compensate people who are unemployed. The Department of Labor and Treasury share responsibility for administering the FUTA tax system.

    3. The Black Lung Program. The Black Lung Benefits Revenue Act of 1977 established the Black Lung Disability Trust Fund within Treasury. It imposed an excise tax on coal mine operators to fund monthly payments and medical benefits to miners disabled by black lung disease. The Department of Labor and Treasury share responsibility for administering the Black Lung Disability Trust Fund.

  2. Within Treasury, the Bureau of the Fiscal Service (Fiscal Service) is responsible for administrating, maintaining and investing trust fund monies. The IRS performs the following activities for FICA, FUTA and Black Lung taxes:

    1. Processing returns

    2. Processing payments

    3. Providing accounts management

    4. Collecting unpaid assessments

    5. Examining returns

    6. Assessing penalties and interest

    7. Performing document matching

    8. Providing appeal services

    9. Conducting criminal investigations

  3. Treasury requires that the IRS report quarterly on the costs incurred for services for FICA, FUTA and Black Lung. The IRS provides Treasury a ten-year forecast of its costs to support the OASDHI, UC and Black Lung programs annually.

  4. The Secretary of the Treasury (Secretary) pays the Treasury General Fund quarterly for IRS’s estimated costs of supporting the OASDHI and UC programs. For the Black Lung Program, the Secretary pays the Treasury General Fund for the estimated expenses for examining returns up to a limit of $356,000 per year.

Authorities

  1. Social Security Act, Pub. L. No. 74-271

  2. 42 USC 401, Trust Funds

  3. 42 USC 1104, Unemployment Trust Fund

  4. 26 USC 9501, Black Lung Disability Trust Fund

  5. Treasury Directive 32-06, Administrative Expenses for Trust Funds

Responsibilities

  1. This section provides responsibilities for the:

    1. CFO and deputy CFO.

    2. Associate CFO (ACFO) for Financial Management (FM) and deputy ACFO for Administrative FM.

    3. Director, Cost Accounting and User Fees Office.

    4. Business unit finance offices responsible for estimating trust fund costs.

CFO and Deputy CFO
  1. The CFO and deputy CFO oversee the policy for estimating trust fund costs.

Associate CFO for FM and Deputy ACFO for Administrative FM
  1. The ACFO for FM and deputy ACFO for Administrative FM are responsible for:

    1. Establishing policies, procedures, standards and controls for estimating trust fund costs.

    2. Ensuring compliance with policies and procedures for estimating trust fund costs.

    3. Approving the Report on Quarterly Costs, the Annual and Ten-Year Trust Funds Forecast Report, and the Fiscal Year-End Trust Fund Report.

Director, Cost Accounting and User Fees Office
  1. The director, CA/UF, reports to the deputy ACFO for Administrative FM and is responsible for:

    1. Developing and communicating policies and standards for estimating trust fund costs, including this IRM.

    2. Reviewing, validating and approving the methodology for estimating trust fund costs.

    3. Calculating the corporate overhead rate to be applied to labor and benefit costs to determine the full cost of supporting the trust funds.

    4. Reviewing Treasury Directive 32-06, Administrative Expenses for Trust Funds, annually for updates.

    5. Developing quarterly costs templates for the business units.

    6. Consolidating business unit cost reports.

    7. Preparing the Report on Quarterly Trust Fund Costs and the Annual and Ten-Year Trust Funds Forecast Report based on business unit submissions.

    8. Preparing the Cost Analysis Percent of Change Report, obtaining and validating justifications for variances of ten percent or more, and adjusting the quarterly trust fund report as appropriate.

    9. Creating the Quarterly Estimate of Trust Fund Expenses billing document.

    10. Briefing and receiving approval from the ACFO for FM for the Report on Quarterly Trust Fund Costs, the Annual and Ten-Year Trust Funds Forecast Report and the Fiscal Year-End Trust Fund Report, and retaining the approval for a minimum of three years.

    11. Submitting the approved Quarterly Estimate of Trust Fund Expenses to the Fiscal Service.

    12. Reviewing the business units’ supporting documents and calculations on a revolving schedule, briefing management on the results and providing feedback to the business units.

    13. Maintaining a detailed audit file with original source documents received from the business units and calculations used to compile reports, for a minimum of three years.

Business Unit Finance Offices
  1. The business unit finance offices in organizations supporting the trust funds are responsible for:

    1. Capturing the costs for trust fund activities.

    2. Completing Quarterly Cost Templates within 25 days of the end of each quarter that detail the labor and benefit costs expended for processing returns, enforcing taxpayer compliance and providing customer service for the trust funds.

    3. Providing CA/UF with justifications for cost variances of ten percent or more presented in the Cost Analysis Percent to Change Report.

    4. Reviewing supporting documentation to ensure trust fund costs are accurately estimated.

    5. Maintaining a detailed audit file with the original source documents and electronic files used to prepare the Quarterly Cost Templates, for a minimum of three years.

    6. Providing information to CA/UF annually for preparing the Annual and Ten-Year Trust Funds Forecast Report for the next fiscal year and subsequent ten budget years.

Program Management and Review

  1. Program reports used to review estimated trust fund costs quarterly are:

    1. Report on Trust Fund Costs

    2. Cost Analysis Percent of Change Report

    3. Quarterly Estimate of Trust Fund Expenses

  2. Program effectiveness is measured by providing accurate and consistent estimated costs.

Program Controls

  1. The following controls are in place to ensure compliance:

    1. Quarterly statement of difference

    2. Annual reviews of costing methodology

Terms/Definitions

  1. In this IRM, the terms below have the following meanings:

    1. Benefit rate - The rate calculated by dividing the total benefit costs of the organization by the total salary costs (permanent and temporary salaries) of the organization. The rate is applied to estimated salary costs for a particular program to determine the benefit costs for that program.

    2. Corporate overhead rate - The rate calculated annually by CA/UF and applied to total labor and benefit costs to determine the full cost of providing services.

    3. Direct hours - Labor hours incurred by IRS employees that can be specifically identified with or assigned to a program, activity or output.

    4. Direct staff years - Direct hours converted to staff years using the fiscal year’s compensable hours.

    5. Federal Insurance Contributions Act - A U.S. payroll or employment tax imposed on both employees and employers to fund Social Security and Medicare.

    6. Full cost - All costs used in generating outputs, including all direct and indirect costs.

    7. Full time equivalent - The total number of regular hours worked and approved leave taken by employees, divided by the fiscal year’s compensable hours.

    8. Federal Unemployment Tax Act - A U.S. payroll or employment tax imposed on employers to fund unemployment compensation.

    9. Indirect hours - Total available hours for an organization less the direct hours spent on programs.

    10. Trust fund - An account established to record receipts used to finance specific purposes or programs under a trust agreement or statute.

Acronyms

  1. The following chart contains acronyms that are used throughout this IRM.

    Acronym Description
    CA/UF Cost Accounting and User Fees Office
    FICA Federal Insurance Contributions Act
    Fiscal Service Bureau of the Fiscal Service
    FUTA Federal Unemployment Tax Act
    IFS Integrated Financial System
    OASDHI Old-Age, Survivors, Disability and Health Insurance
    SSA Social Security Act
    UC Unemployment Compensation

Related Resources

  1. Federal Accounting Standards Advisory Board Accounting Concepts and Standards, Standard No. 4, Managerial Cost Accounting

  2. IRM. 1.35.16, Managerial Cost Accounting

General Methodology

  1. The business units use their respective timekeeping systems, subject matter experts and the Integrated Finance System (IFS) to estimate labor and benefit costs supporting the trust funds. Costs include administrative and management support of trust fund activities.

  2. The CA/UF office applies the corporate overhead rate to the business units' costs to determine the full cost of supporting the trust funds.

Quarterly Reports

  1. Three trust fund reports are created quarterly by CA/UF and briefed to FM management:

    1. Report on Trust Fund Costs

    2. Cost Analysis Percent of Change Report

    3. Quarterly Estimate of Trust Fund Expenses

  2. The ACFO for FM approves the reports.

Report on Trust Fund Costs

  1. The CA/UF office compiles this report to summarize the business unit trust fund costs for the quarter.

  2. The CA/UF office calculates the overhead rate and reviews the methodology for estimating trust fund costs annually.

  3. The CA/UF office develops and distributes the Quarterly Cost Template to business units.

  4. The business unit finance offices prepare, review and submit Quarterly Cost Template and justifications for significant variances in the Cost Analysis Percent to Change Report to CA/UF.

  5. The business unit finance offices develop estimates for labor and benefit costs to support the trust funds and complete the Quarterly Cost Template by:

    1. Determining direct hours used to perform trust fund work.

    2. Increasing direct hours to full time equivalent by including the appropriate rate of indirect hours.

    3. Applying salary and benefit rates to those hours to determine the total labor and benefit costs for supporting the trust funds.

  6. Business unit finance offices maintain desk procedures for developing quarterly trust fund cost estimates and coordinate changes with CA/UF.

  7. The SB/SE division develops the labor and benefit costs for its:

    1. Field collection for balance due FICA and FUTA returns.

    2. Automated call site collection of balance due FICA and FUTA returns.

    3. Field and campus examinations of FICA, FUTA and Black Lung Disability returns.

    4. Campus FUTA units that perform document matching activities.

    5. Combined Annual Wage Reporting unit in the SB/SE campuses for FICA document matching activities.

    6. Headquarters FICA and FUTA program oversight.

    7. Communications and Stakeholder Outreach costs for FICA activities.

  8. The W&I division develops the labor and benefit costs for its:

    1. Campus processing of paper and electronic forms for FICA and FUTA.

    2. FUTA customer account calls and correspondence.

    3. Campus FICA customer account calls and correspondence.

    4. Headquarters FICA and FUTA program oversight.

  9. The Appeals division develops the labor and benefit costs for its technical employees working on cases with FICA and FUTA taxes.

  10. The LB&I division develops the labor and benefit costs for examining FICA, FUTA and Black Lung Disability returns.

  11. The TE/GE division:

    1. Develops the labor and benefit costs for examining FICA and FUTA returns, including supervision and support costs.

    2. Uses IFS to determine the labor and benefit cost of the Federal, State, and Local Government Division, which is 100 percent devoted to employment tax issues.

  12. Chief Counsel develops the labor and benefit costs for its case work that includes FICA and FUTA return issues worked by Counsel's LB&I, SB/SE, TE/GE and Procedure and Administration offices.

  13. The CI division develops the labor and benefit costs for its work on FICA return issues in employment tax investigations.

  14. The CA/UF office:

    1. Compiles the business units' Quarterly Cost Templates into the Report on Trust Fund Costs.

    2. Analyzes the data for significant variances between the reporting quarter and the same quarter of the prior year.

    3. Corresponds with the business units for explanations of variances.

    4. Adjusts the Report on Trust Fund Costs.

    5. Prepares the Quarterly Estimate of Trust Fund Expenses.

Cost Analysis Percent of Change Report

  1. This analysis compares the business unit quarterly costs (excluding corporate overhead) to the prior year quarter’s costs and identifies variances greater than ten percent. The CA/UF office:

    1. Prepares the Cost Analysis Percent of Change Report quarterly.

    2. Forwards the results to the business units.

    3. Reviews and substantiates business unit justifications and updates the Report of Trust Fund Costs as needed.

    4. Briefs the results and business unit justifications to the deputy ACFO for Administrative FM and the ACFO for FM

  2. The business units review and justify cost variances of ten percent or more for each quarter. If errors are found during this review the business units submit revised quarterly costs.

Quarterly Estimate of Trust Fund Expenses

  1. This estimate is provided in a memo format. It tells the Fiscal Service how much to bill to the trust funds for the upcoming quarter.

    1. The CA/UF office prepares the Quarterly Estimate of Trust Fund Expenses, which details the cost estimates for the upcoming quarter and the adjustment for prior quarter costs.

    2. The adjustment is the difference between the prior quarter’s estimated and the actual costs.

    3. If there are other adjustments attributed to prior periods the adjustment is included in the current memo.

    4. The CA/UF office emails the approved memo to the Fiscal Service by the last day of each quarter.

Annual and Ten-Year Trust Funds Forecast Report

  1. This report details the forecasted trust fund expenses for the next year by quarter and annually for the following ten years.

  2. The CA/UF office prepares the Annual and Ten-Year Forecast OASDHI, Unemployment and Black Lung Trust Funds Reports. To prepare the forecast, the CA/UF office:

    1. Determines the methodology to estimate future costs by considering current cost trends.

    2. Determines the appropriate labor inflation factor based on the latest OMB projections for federal pay increases.

    3. Updates data to account for prior period adjustments.

    4. Obtains information from business units for expected workload changes.

    5. Applies those factors to the baseline costs and projects the following ten years.

  3. The ACFO for FM approves the Annual and Ten-Year Forecast Trust Fund Report.

  4. The CA/UF office submits the approved report to the Fiscal Service by December 1 each year.

Fiscal Year-End Trust Fund Report

  1. This report summarizes the costs from the Quarterly Trust Fund Cost Reports.

    1. The CA/UF office compiles a Fiscal Year-End Trust Fund Report.

    2. The ACFO for FM approves the report.

    3. The CA/UF office submits the approved report to the Fiscal Service by January 1 of the following fiscal year.

Periodic Reviews

  1. The CA/UF office reviews each business unit’s supporting documents and calculations on a revolving schedule to ensure the business unit prepared its template according to the approved methodology.

  2. The revolving schedule ensures each business unit is reviewed at least once every two years.

  3. Each business unit’s finance office maintains detailed audit files for a minimum of three years. The files contain the source documents used for providing trust fund cost information.

  4. IFS data supporting average salary rates, average benefit rates and other aspects of the methodology should be downloaded into Excel files and maintained as supporting documents.

  5. If discrepancies are noted, CA/UF calculates the adjustment. If the adjustment is material, the business unit resubmits the corrected template. The CA/UF office includes the adjustment on the current Quarterly Estimate of Trust Fund Expenses.

  6. The CA/UF office prepares a white paper documenting the review results.

  7. To improve future performance, CA/UF briefs the business unit finance office on the review results and recommendations.

  8. The CA/UF office briefs the deputy ACFO for Administrative FM and the ACFO for FM on the review results.

  9. The CA/UF office maintains the review documentation in its audit files.