- 4.23.14 Statute Control and Extension
- 18.104.22.168 Program Scope
- 22.214.171.124.1 Background
- 126.96.36.199.2 Authority
- 188.8.131.52.3 Responsibilities
- 184.108.40.206.4 Program Objectives and Review
- 220.127.116.11.5 Acronyms
- 18.104.22.168.6 Related Resources
- 22.214.171.124 Period of Limitation for Assessment
- 126.96.36.199 Statute Control and Extension of Statutory Assessment Period
- 188.8.131.52.1 Form 895 and Statute Control Procedures
- 184.108.40.206.2 Statute Controls for Offer-in Compromise, Doubt as to Liability (OIC-DATL) Cases
- 220.127.116.11 Closing Cases With Short Statutes
- 18.104.22.168 Form SS10, Consent to Extend the Time to Assess Employment Taxes
- 22.214.171.124 Employee's Share of FICA
- 126.96.36.199.1 Schedule H
- 188.8.131.52 Form 2750, Waiver Extending Statutory Period for Assessment of the Trust Fund Recovery Penalty
- 184.108.40.206 Form 4016, Consents Fixing Period of Limitation Upon Assessment of Employment or Miscellaneous Excise Taxes Against Transferee
- 220.127.116.11 Form 872, Consent to Extend the Time to Assess Tax, for Form 1042
- 18.104.22.168 Protective Assessments
- 22.214.171.124 Barred Statutes
- 126.96.36.199 Penalties under IRC Sections 6721 and 6722
Part 4. Examining Process
Chapter 23. Employment Tax
Section 14. Statute Control and Extension
August 24, 2017
(1) This transmits revised IRM 4.23.14, Employment Tax, Statute Control and Extension.
Editorial and technical changes have been made throughout this section. Due to the mandatory inclusion of IRM 188.8.131.52, Program Scope and Objectives, et al, all subsequent subsections are renumbered.
(1) Editorial and technical changes have been made throughout this section.
(2) IRM 184.108.40.206. New subsection, Program Scope and Objectives. Rearranged existing IRM content to place information involving internal controls for a program IRM under this subsection to conform to the new rules to ensure that the program’s internal controls are adequately expressed in the IRM. Purpose statement formerly IRM 220.127.116.11(1).
(3) IRM 18.104.22.168.1. New subsection, Background.
(4) IRM 22.214.171.124.2. New subsection, Authority.
(5) IRM 126.96.36.199.3. New subsection, Responsibilities.
(6) IRM 188.8.131.52.4. New subsection, Program Objectives and Review.
(7) IRM 184.108.40.206.5. New subsection, Acronyms. A compilation of frequently used abbreviations and their terms.
(8) IRM 220.127.116.11.6. New subsection, Related Resources.
(9) IRM 18.104.22.168. Renamed Period of Limitation for Assessment. Moved (1) to IRM 22.214.171.124(1), Purpose.
(10) IRM 126.96.36.199.2. New section, Statute Controls for Offer-in Compromise, Doubt as to Liability (OIC-DATL) Cases.
(11) IRM 188.8.131.52. Changed NDWC to "IRC 7436 procedures" , and title of Letter 3523 to Notice of Employment Tax Determination Under IRC 7436 to reflect the changes to IRC 7436 procedures. "NDWC" is not in use - replaced by Letter 3523.
(12) IRM 184.108.40.206. Deleted (6) and added (5), (6) and (7) with additional information on consents and procedure from Memorandum issued on July 6, 2016 entitled Notification and Documentation Requirements Pertaining to Assessment Statute Expiration Cases. Includes guidance if taxpayer exercises his/her right to refuse to extend the statute.
(13) IRM 220.127.116.11(8). Added to reflect the new fax policy dated November 19, 2015, applies to consents to extend the time to assess tax (Forms 872, SS-10, and others).
(14) IRM 18.104.22.168.12. Added clarification that the term "withholding taxes" includes FITW and BUWH.
(15) IRM 22.214.171.124(2). Revised wording to be reflected on Form 872 for Form 1042 statute extensions.
Director, Examination - Specialty Policy
Small Business / Self-Employed Division
Purpose: 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 (BUWH)
Audience: This section contains instructions and guidelines for all Large Business & International (LB&I), Tax Exempt/Government Entities (TE/GE), and Small Business/Self-Employed (SB/SE) employees dealing with employment tax issues.
Policy Owner: Director, Examination - Specialty Policy of the Small Business/ Self-Employed Division.
Program Owner: Program Manager - Employment Tax Policy. The mission of the Employment Tax Policy is to establish effective policies and procedures, to support compliance with employment tax laws.
Employment Tax – Workload Selection and Delivery (ET-WSD)
Specialty Examination - Employment Tax
Returns filed under the employment tax provisions have unique statue of limitation and statute control requirements. This IRM discusses those unique procedures and issues. In addition, this revision of the IRM reflects the changes from the Notice of Determination of Worker Classification (NDWC) process to IRC 7436 procedures.
Internal Revenue Code Subtitle C:
Chapter 21, Federal Insurance Contributions Act (FICA),
Chapter 22, Railroad Retirement Tax Act taxes (RRTA),
Chapter 23, Federal Unemployment Tax Act (FUTA),
Chapter 24, Federal income tax withholding (FITW), and
Chapter 25, General Provisions relating to employment taxes and collection of income taxes at source.
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, 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.
A website, Delegation Orders by Process, located at https://www.irs.gov/uac/delegation-orders-by-process1, summarizes data contained in the applicable IRM sections under IRM 1.2, relating to Delegation Orders, in a single, electronic source.
IRM 4.23 provides Servicewide instructions for all operating divisions with employees involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. By providing one source of authority for all operating divisions, the Service greatly reduces philosophical and procedural inconsistencies.
Director, Examination - Specialty Policy is responsible for the procedures and updates addressed in this IRM.
Director, Specialty Examination is the executive responsible for examination operational compliance.
Program Goals: The processes and procedures provided in this IRM are consistent with the objectives or goals for Employment Tax - Examination that are addressed in IRM 126.96.36.199.3.3, Employment Tax Examination and for Employment Tax Policy, found in IRM 188.8.131.52.5.2.2, Employment Tax Policy.
Program Effectiveness: Program goals are measured with Employment Tax Embedded Quality Performance Reports that monitor whether quality attributes are applied uniformly and consistently.
Annual Review: Employment Tax Policy - Program Manager, is responsible for reviewing the information in this IRM annually to ensure accuracy and promote consistent tax administration.
The following table lists commonly used acronyms and their definitions:
Acronym Definition AIMS Audit Information Management Systems ASED Assessment Statute Expiration Date BUWH Backup Withholding CCP Centralized Case Processing DATL Doubt as to Liability ERCS Examination Returns Control System ETER Employment Tax Examiner's Report FICA Federal Insurance Compensation Act FITW Federal Income Tax Withholding FSLG Federal, State and Local Government FUTA Federal Unemployment Tax Act ITG Indian Tribal Governments LB&I Large Business & International NDWC Notice of Determination of Worker Classification OIC Offer in Compromise RCCMS Reporting Compliance Case Management System RRTA Railroad Retirement Tax Act SB/SE Small Business/Self-Employed SECA Self-Employment Contributions Act Tax SFR Substitute for Return SOL Statute of Limitations TE/GE Tax Exempt/Government Entities TEGEDC Tax Exempt/Government Entities Division Counsel TFRP Trust Fund Recovery Penalty TIPRA Tax Increase and Prevention Reconciliation Act (of 2005) W&I Wage and Investment
The following table lists the primary sources of guidance:
Source Title Description of Guidance IRM 4.23 Employment Tax IRM Twenty IRM sections owned by SB/SE Examination - Specialty Policy. Provides Servicewide instructions for employees of all operating divisions involved with the correct filing, reporting, and payment of employment taxes. IRM 4.23 serves as the foundation for consistent administration of employment taxes by various IRS operating divisions. IRM 4.7.3 Examination Returns Control System (ERCS) - Statute of Limitations This section contains information regarding the establishment of and requirements for control of the Assessment Statute Expiration Date (ASED) for returns controlled on ERCS. IRM 20.1.7 Penalty Handbook - Information Return Penalties This section provides policy and procedures for the application of information return penalties per IRC 6721, IRC 6722, and IRC 6723. It also discusses reasonable cause criteria per IRC 6724. IRM 25.6.1 Statute of Limitations - Statute of Limitations Processes and Procedures This section provides an introduction to the establishment and awareness of Statute of Limitations IRM 25.6.22 Statute of Limitations - Extension of Assessment Statute of Limitations by Consent This section discusses extensions of the period of time for assessment of tax by consent. IRM 25.6.23 Statute of Limitations - Examination Process - Assessment Statute of Limitations Controls This section contains information on assessment statute controls for all LB&I, SB/SE and W&I organizational components conducting examinations of tax returns, including supporting activities and examination activities conducted by the campuses. IRM 5.7.3 Trust Fund Compliance - Establishing Responsibility and Willfulness for the Trust Fund Recovery Penalty (TFRP) This chapter provides guidance for Collection employees on the basis of the Trust Fund Recovery Penalty (TFRP) liability and information regarding the TFRP Assessment Statute Expiration Date (ASED).
The IRS adopted the Taxpayer Bill of Rights (TBOR) in June 2014. Employees are responsible for being familiar with and acting in accordance with taxpayer rights. See IRC 7803(a)(3). For additional information about the TBOR, see http://irweb.irs.gov/AboutIRS/tbor/default.aspx.
General Rule. Federal employment taxes must be assessed within three years after the return is filed for FICA, FUTA, RRTA, FITW, and BUWH 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. See Treas. Reg. 301.6501(a)-1(a) and (b); IRC 6501(a) and (b).
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:
Chapter 3: Withholding of Tax on Nonresident Aliens and Foreign Corporations.
Chapter 21: Federal Insurance Contributions Act.
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 IRC 6501(b)(2) and Treas. Reg. 301.6501(b)–1(b).
The Presumptive 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.
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):
False or fraudulent return, IRC 6501(c)(1)
Willful attempt in any manner to defeat or evade tax, IRC 6501(c)(2)
Failure to file a return, IRC 6501(c)(3)
Extension by agreement, IRC 6501(c)(4)
See IRM 184.108.40.206.4, Returns That Begin the Period of Limitations, to determine what is a valid return which would start the running of the statute of limitations. See IRM 220.127.116.11.4.1, Valid Return, paragraph (2), if the taxpayer filed a return on the wrong tax form.
The statute of limitations for civil penalties is found in IRM 18.104.22.168.2.8, Civil Penalties Statute of Limitations.
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:
IRC 6501 mandates that the Service must notify the taxpayer of certain rights each time when requesting the taxpayer’s consent to extend the period for assessment. Examiners are required to follow the procedures in IRM 22.214.171.124, Notification of Taxpayer’s Rights.
The examiner must have managerial approval prior to requesting a consent. See IRM 126.96.36.199.1.
Detailed instructions on the preparation of Form SS-10 and statute controls are found in IRM 188.8.131.52, Preparation of Consent Forms – General Procedures, 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.
IRM 184.108.40.206.8, 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.
Refer to IRM 25.6.23, Statute of Limitations, 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 (RCCMS/AIMS for TE/GE) properly reflects the correct Assessment Statute Expiration Date (ASED).
Cases are closely monitored to prevent unintended expiration of the assessment statute of limitations.
Statute controls are initiated in all Examination and TE/GE functional areas for all returns meeting control criteria. See IRM 220.127.116.11, Returns Subject to Statute Control, for definition.
Instructions on obtaining consents are in IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent.
See IRM 18.104.22.168, Statute Controls in Examination, for Form 895, Notice of Statute Expiration, and group control procedures.
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 Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, is input). See IRM 22.214.171.124.1.1, Time for Initiating Controls.
See IRM 4.7.3, Examination Returns Control System (ERCS) - Statute of Limitations, for additional group procedures.
IRC 7122(f) applies to all Offers in Compromise (OIC) cases, including both Doubt as to Liability and Doubt as to Collectability offers. OIC cases worked in Examination will fall under OIC-Doubt as to Liability (DATL); Collection handles all OIC-Doubt as to Collectability (DATC) offers.
Under this code section, if the IRS does not make a determination with regard to the OIC-DATL within 24 months of receipt, the OIC will be deemed accepted. The IRS received date is the earliest date stamped on the Form 656-L, Offer in Compromise (Doubt as to Liability), and will be used to determine the new statute date (also known as the TIPRA statute). If IRS does not make a timely determination, the offer is considered accepted-in-full and the statute is considered barred.
OIC-DATL cases should contain a statute date that is two years from the IRS offer received date (earliest date stamped on the Form 656-L). The statute date will reflect an "R" at the end identifying the case as an OIC-DATL statute.
Any new OIC-DATL case assigned to the group from Employment Tax - Workload Selection and Delivery (ET-WSD) will carry the new date.
All cases will use:
Tracking Code: "6506"
AIMS Freeze Code: "08" . This ensures proper closing to Technical Services for the Offer resolution before sending to Centralized Case Processing (CCP) for final examination closure.
Project Code: "0264" if no project code is assigned. Otherwise, use the appropriate project code identifying the key issue.
When submitting a case to:
Centralized Case Processing (CCP): A minimum of 120 days should remain on a statute for CCP to properly process agreed, no-change, and unagreed cases not involving IRC 7436 issues or a request for Appeals.
Technical Services: For unagreed cases subject to Letter 3523, Notice of Employment Tax Determination Under IRC 7436, 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.
Appeals: The statute of limitations on any case sent to Appeals should have no less than 395 days remaining on the statute when the case is forwarded from the exam group to Technical Services for transfer to Appeals. (The case must have 365 days on the statute when received by Appeals, with an extra 30-day allowance for Tech Services to review and transfer the case.)
If a case is closed with less than 90 days remaining on the statute of limitations, the following actions are required:
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,
The compliance group manager or team manager will contact the manager in CCP or Technical Service to advise of the imminent statute case requiring special handling,
When feasible, the case is hand-delivered to CCP or Technical Services. (The routing to CCP or Technical Services depends on whether it is a IRC 7436 issue or a non-IRC 7436 issue. See IRM 126.96.36.199, Special Procedures for Notices of Determination of Worker Classification or Section 530 Relief, for information on IRC 7436.) 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
For cases sent to Technical Services, the examiner will be available to assist in the preparation of the Letter 3523, if necessary. See (3) below for procedures.
Procedures when not issuing a 30-day letter due to inadequate time remaining on the statute:
The examiner will solicit an extension of the statute of limitation (SOL) from the taxpayer prior to issuance of a 30-day letter.
If the taxpayer refuses to execute an extension, the examiner should document on the contact sheet or Activity Record (Form 9984) that the taxpayer refused to extend the SOL and inadequate time remains to forward the case to Appeals.
The examiner will 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.
The examination group should immediately forward the case file to Technical Services for issuance of a Letter 3523 (for issues involving IRC 7436) or to CCP for immediate assessment (for issues not involving IRC 7436).
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.
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 BUWH taxes. See IRM 188.8.131.52.10, Employment 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.
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.
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. See IRM 184.108.40.206.10.1, Employment Taxes - Employee’s Share of FICA.
Form SS–10 is completed in duplicate. The form is typewritten or computer generated; hand-printing in ink is discouraged. See IRM 220.127.116.11.1, Preparation of Consents. 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. See IRM 18.104.22.168.2, Letters and Publications Sent with Consents. 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, the group/team manager. See IRM 22.214.171.124, Delegation Order 25-2 (Rev. 2) (formerly DO-25-2 and DO-42, Rev. 28).
The Service employee requesting the consent will document in the case file on Form 9984, Examining Officer's Activity Record, or other appropriate form, as specified by the procedures of the particular operating division or function, that the required notification of rights was made, the date of notification, specify who was notified, and how notified, i.e., by mail or personal presentation, including the mailing of Letter 907. See IRM 126.96.36.199, Notification of Taxpayer's Rights, for additional information.
If the taxpayer is represented, a copy of any documents mailed to the taxpayer should be mailed to the properly authorized representative using Letter 937, Transmittal Letter for Power of Attorney.
If a taxpayer exercises his/her right to refuse to extend the statute, the taxpayer and representative, if any, will be notified that issuance of a Letter 3523 or other appropriate action will be taken to assess tax. The refusal and resulting procedures will be explained to the taxpayer and must be documented in the case file.
If taxpayer contact has been made and the case history documents the date of contact and the desire of the taxpayer to submit the consent by fax, the IRS can accept by fax consents to extend the time to assess tax (Forms 872, SS-10, and others).
The original consent, executed by both the taxpayer and the delegated Service official, will be securely attached to the back of page one of the return for the latest year covered by the consent. A copy of the consent will be securely attached to the back of each page one of all other returns covered by the consent. See IRM 188.8.131.52.5.1, Multiple Tax Periods. One original signed/executed SS-10 is returned to the taxpayer accompanied by Letter 929, Transmittal to Taxpayer of Copy of Signed Consent.
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 184.108.40.206.2.3, 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.
IRM 220.127.116.11.2, Corporations, and following subsections provide extensive information on the preparation of consents for corporations, including those with changes in composition including mergers, acquisitions, etc. Local TEGEDC (Area Counsel) is available if there are questions with regard to the correct preparation.
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. The term "withholding taxes" includes FITW and BUWH.
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 18.104.22.168.10, Employment Taxes.
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.
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 22.214.171.124, Processing Employee Share of FICA - CCP Responsibility, and IRM 126.96.36.199.10.1, Employment Taxes – Employee Share of FICA.
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 188.8.131.52.10.2, 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 184.108.40.206.4.3, Forms Reporting More Than One Item of Tax.
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 the Self-Employment Contribution Act (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.
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.
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 220.127.116.11.5, Household Employment Taxes.
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.
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.
Alpha Code "II" is used to indicate that:
The Schedule H (Form 1040), Household Employment Taxes, is being examined for the non-filing or under-reporting 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.
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" . Include a statement in the "Remarks" section of Form 895 that there are no issues on the Form 1040 other than Schedule H tax issues, therefore the statute is updated to the alpha statute to "II" . See Exhibit 25.6.23-3, Instructions for Updating the Statue on AIMS for additional information on Alpha Code "II" .
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.
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."
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 2014 Form 1040 with no Schedule H attached. The income tax ASED will expire in 200 days. The examiner inspected the Form 1040 and notes 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 4/15/18, or the extended statute if the Form 872 was signed. When the ASED is within 180 days, it should be updated to 04/II/18.
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 4/15/18. When the ASED is within 180 days, update it to 04/II/18.
For more information, see:
Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS
IRM 18.104.22.168.4.3, Forms Reporting More Than One Item of Tax
IRM 22.214.171.124.5, Household Employment Taxes
In all cases where the Trust Fund Recovery Penalty (TFRP) 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.
Form 2750 is used to extend the period of limitations for assessment of the TFRP 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.
Form 2750 must be secured when the TFRP statute expires within one year for agreed cases, or two 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.
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.
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 IRM 126.96.36.199 , Delegation Order 25-2 (Rev. 2) (formerly DO-25-2 and DO-42, Rev. 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.
For information on TFRP, see:
IRM 188.8.131.52.10.3, Trust Fund Recovery Penalty (formerly referred to as 100% Penalty)
IRM 184.108.40.206, Statutory Assessment Period
IRM 220.127.116.11, Extension of Statutory Assessment Period
See IRM 18.104.22.168, Trust Fund Recovery Penalty, and subsequent sections for additional information on procedures and Form 6238.
Form 4016, Consent 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). See:
IRM 22.214.171.124.10, Employment Taxes
IRM 126.96.36.199.2.5, Merged Corporations
Form 872, Consent to Extend the Time to Assess Tax, or Form 872-A, Special 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.
Line (1) of Form 872 should be modified to read as follows:
"(1) The amount of any Federal "tax liability under IRC sections 1441–1474" 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.
See IRM 188.8.131.52.14, Form 1042 Withholding on U.S. Income of Foreign Persons, for additional information.
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 the probable additional tax due. Any over-assessment will be adjusted after the examination has been completed. Quick assessment procedures are used to protect the statute. See IRM 184.108.40.206, Quick Assessments.
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 the probable additional tax due. If collection is in jeopardy, the procedures described in IRM 220.127.116.11, Jeopardy Assessments, may be used.
Procedures for processing barred statute cases are covered in IRM 18.104.22.168, Barred Assessments/Barred Statute Cases.
Procedures for processing LB&I barred statute cases are covered in IRM 22.214.171.124.2.9, Statute Expiration Reporting Responsibilities and Procedures for LB&I Field Operations and LB&I Campus Employees.
IRC 6665(a)(1) provides that these 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.
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.
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 penalty" ) tax...,
The word "tax" printed right after the blank line should be lined through and deleted.