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Part 4. Examining Process

Chapter 4. AIMS Processing

Section 29. Social Security Administration (SSA) Adjustments

4.4.29  Social Security Administration (SSA) Adjustments

4.4.29.1  (02-08-1999)
Introduction

  1. This chapter contains procedures for reporting income and tax adjustments to the SSA.

4.4.29.2  (02-08-1999)
Self-Employment Adjustments

  1. The way in which self-employment tax adjustments are reported to SSA depend upon when the applicable tax return was processed (TC 150 posting.)

  2. The following procedures are for cases in which the increase to self-employment income (SEI) brings the total SEI to over $399.99 or any decrease to SEI if the original SEI was greater than $399.99. The decrease must not bring the total SEI below zero.

4.4.29.2.1  (02-08-1999)
Return Processed Before 1/1/86

  1. If a self-employment tax adjustment is made to a return that was processed before January 1, 1986 a Form 885–F is used to forward the information to SSA. The Form 885–F will be attached to the inside top of the case folder and ESP must forward the form to SSA. Refer to IRM 4.4.29.5 for procedures on Form 885–F.

4.4.29.2.2  (02-08-1999)
Returns Processed After 1/1/86

  1. If an examination results in an adjustment to self-employment tax, and the return was processed after January 1, 1986, the information is forwarded to SSA electronically.

  2. The information will be supplied by the examiners by one of the following methods:

    1. Form 3198 attached to the case file indicating Self-Employment Income/Tax Adjustment figures for primary and/or secondary taxpayer;

    2. Computer generated page of the RAR attached to the Form 5344 that contains the reference number information; or

    3. Form 5344 — the correct figures entered in Item 15.

4.4.29.2.2.1  (02-08-1999)
Reference Code Changes to Self-employment Income/Tax

  1. Changes to Self-employment income/tax are input by reference codes in Item 15 of either Form 5344 for Examination or Form 5403 for Appeals adjustments

    1. The net increase or decrease to the self-employment income (SEI) of the primary taxpayer —Reference Number 878. For 1990 and subsequent years, the Reference Number 878 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 878 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 878.

    2. The net increase or decrease to the SEI of the secondary taxpayer—Reference Number 879. For 1990 and subsequent years, the Reference Number 879 amount is the SEI adjustment multiplied by .9235. The amount entered with Reference Number 879 must not bring the taxpayer’s total SEI over the maximum amount subject to self-employment tax. Reference Number 889 is required with Reference Number 879.

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

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

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

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

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

4.4.29.3  (02-08-1999)
Tip Income

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

4.4.29.3.1  (02-08-1999)
Manually Reported

  1. If an examination results in an adjustment to tip income or a delinquent return is secured after a dummy TC 150" has posted for 9011 or prior return, Form 885–T is used to forward the information to SSA. The Form 885–T must be attached to the inside top of the case folder. The processing function will forward the form to SSA.

4.4.29.3.2  (02-08-1999)
Electronically Reported

  1. If an examination results in an adjustment to tip income or a delinquent return is secured after a dummy TC 150" has posted for a 9012 and subsequent return, the information is forwarded to SSA electronically.

  2. In lieu of Form 885–T, the information will be supplied by the examiners by one of the following methods:

    1. Form 3198 attached to the case file indicating Tip Income/Tax Adjustment figures for primary and/or secondary taxpayer;

    2. Computer generated page of the RAR attached to the Form 5344 that contains the reference number information; or

    3. Form 5344 — the correct figures entered in Item 15.

4.4.29.3.3  (02-08-1999)
Reference Code Changes to Tip Income

  1. Changes to Tip Income is input by reference codes.

    1. Adjustment to Primary Unreported Tip Income Reference Number 891.

    2. Adjustment to Secondary Unreported Tip Income—Reference Number 892.

    3. Amount of Unreported tip income adjustment for the primary taxpayer that is subject to Medicare tax — Reference Number 898.

    4. Amount of unreported tip income adjustment for the secondary taxpayer that is subject to Medicare tax — Reference Number 899.

4.4.29.4  (02-08-1999)
Employee FICA Tax Adjustments

  1. When an examination results in an adjustment to employee share of FICA where the employer is not liable due to Section 530 of Revenue Act of 1978, Form 885–E must be prepared and attached to the top of the front inside of the case folder. Refer to Text 4.4.29.5 for procedures on Form 885–E.

  2. The adjustment for employee share of FICA will be reflected on Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment. A Form 3198, Special Handling Notice must be prepared and attached to the case file to ensure proper processing of the adjustment. See Employment section.

4.4.29.5  (02-08-1999)
Form 885–E, Form 885–F, Form 885–T, and Schedule U

  1. Form 885–E, Employee FICA Tax Adjustment, Form 885–F, Self-Employment Tax Adjustment, Form 885–T, Tip Income Adjustment, and Schedule U, U.S. Schedule of Unreported Tip Income, are used to manually report to Social Security Administration (SSA) information on adjustments generated by Examination.

  2. The examining officer will prepare the following form if there is an adjustment:

    • Form 885–E for all tax periods — employee share of FICA;

    • Form 885–F for timely filed 1984 and prior returns — self-employment tax;

    • Form 885–T or Schedule U for tax periods 8912 and prior returns—tip income adjustments.

4.4.29.5.1  (02-08-1999)
Reviewing the Forms

  1. All forms will be reviewed:

    1. Only on taxpayer’s name may appear. It must be legible and match the name on Form 5344 or 5403 for the taxpayer whose SSA account is being adjusted. If both names appear and it can be determined from the examiner’s workpapers which name is correct, line out the incorrect name. If such a determination cannot be made, return the case to the originator.

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

    3. The SSN on the form must match that shown on the Form 5344 or 5403, including any corrections, with one exception; if a joint return was filed under the husband’s SSN, and the wife’s SSA account is being adjusted, the wife’s SSN must appear on the form even though it is not shown on Form 5344 or 5403.

  2. If the form is acceptable, remove from the case file and route for mailing to the service center shipping function which at service center option, may be located in either the Receipt and Control Branch or Facilities Management Branch. Upon receipt, the service center will route the forms to SSA.

  3. See IRM 4.10, Examination of Returns, for instructions relating the preparation of the form.

4.4.29.6  (02-08-1999)
FICA or Railroad Retirement Tax Adjustments Due to Tip Income

  1. The tax adjustment in Item 12, of Form 5344/5403 will include any adjustment in FICA or railroad retirement tax which is due to an adjustment in tip income. The penalty (50% unreported tax) will be shown separately in Item 12, and will be coded with TC 310 or 311.

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

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

  3. If the taxpayer reports salary income on a Form 1040, but fails to report the tip income, the requirement for filing a return for this category of tax has not been met. To determine the statute of limitations to assess the social security tax on tip income, refer to Revenue Ruling 79–39. According to Rev. Rul. 79–39, the period of limitation for assessment of the social security taxes on the tip income is stil open after the expiration of the three year statute for the Form 1040.


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