This section explains the employment tax examination objectives.

The Employment Tax Program is governed by Policy Statements that apply to all Service personnel regardless of operating division. The Policy Statements, found in IRM 1.2.1, apply to all employment tax issues and examinations. Examiners should review these Policy Statements to properly perform their examination duties.

IRM 1.2.2 contains most of the Delegation Orders for the Service. The operating divisions also issue Delegation Orders. Employment tax examiners should become familiar with all delegation orders with focus on employment taxes.

The Service is committed to evaluating and improving the employment tax program. It is an ongoing process which includes consideration of changing statutory rules, economic and financial conditions, and taxpayer attitudes. The goals of the Service in the employment tax area are to:

Employment tax programs should:

Employment tax management information systems will enable the Service to monitor employment tax non-compliant behavior on an ongoing basis. Taxpayers will be profiled on the basis of occupation, industry, geographic area, or a specific economic activity to identify non-compliance and formulate plans to improve compliance.

The quality of Employment Tax examinations will be reviewed and measured by the Employment Tax Quality Measurement System (ETQMS).

An effective Employment Tax Examination Program will:

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

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

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

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

Managers should continuously review information to suggest changes in employment tax compliance and examination programs, training courses, educational programs, and employment tax administration. Until the national Employment Tax Quality Measurement System (ETQMS) is implemented, managers should institute, on an ongoing basis, a review system that evaluates the timely and correct disposition of employment tax cases and encourage consistent administration of employment taxes.

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

SB/SE and Large and Mid-Size Business (LMSB) managers will work together in a cooperative manner to ensure that cases referred from one division to the other are evaluated and assigned in a manner consistent with improving taxpayer compliance while making the best use of available resources. If agreement cannot be reached regarding the acceptance of a referral, the SB/SE territory manager and LMSB program manager will work together to resolve the dispute.

In meeting program objectives, it is important that a sufficient number of employment tax specialists be assigned in each division. These examiners will be identified as Revenue Agent—Employment Tax Specialists, Revenue Officer—Employment Tax Examiners, or Tax Compliance Officer—Employment Tax Specialists. They may be assigned on a permanent or rotational basis (in accordance with national or local agreements), and will usually be assigned to one field group whose group manager will be responsible for ensuring the effective use of these specialists in carrying out the objectives of the program.

Depending upon the type, amount and geographical location of the workload, and the availability of staffing in an area, deployment of examining personnel in the employment tax area should be left to the discretion of the operating division. Some operating divisions, based on previous experience, may assign a maximum number of specialists to the program; other divisions may assign a minimum number of specialists that may be increased as the need is determined. In either case, the balance of the planned program will be conducted under the required filing checks, see IRM 4.10.5, Required Filing Checks.

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

Revenue Procedure 2002–1 provides procedures for issuing rulings, determination letters and information letters, and should be referred to for guidance when responding to Form SS–8. This revenue procedure is updated on an annual basis and is generally the first one issued each calendar year.

The SS–8 Program has been centralized in two locations: the Newport, Vermont Development Site and the Brookhaven Campus. Taxpayers are required to forward their request to the nearest location.

A determination letter will not be issued if the worker objects to the disclosure to the firm of his/her identity or a copy of the information he/she submitted. If the worker does not respond to the section on page 1 of the Form SS–8 pertaining to disclosure, or responds "Yes" , the worker will be notified in writing that a determination is not being issued and the reason for non-issuance.

Forms SS–8 are a potential source of leads for employment tax examinations. After completing all actions related to issuance or non-issuance of the determination letter, the SS–8 centralized location should determine whether there is any audit potential in the forms received. The centralized location should follow guidelines in IRM 4.23.3.5, Employment Tax Leads, of this Handbook in determining the appropriate follow-up action.

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

LMSB has primary compliance responsibility for the employment tax returns filed by LMSB taxpayers. Referrals are mandatory on all Coordinated Industry Cases (CIC), industry cases (IC) at activity code 223 and 225, and other classes of returns of similar size and complexity. The referral must be sent to the LMSB employment tax team manager having responsibility for the geographic area where the audit is being conducted. The LMSB Field Specialist Employment tax web site has current information regrading group locations and areas of responsibility. An automated electronic specialist referral system is being developed and will be available in the near future. Agents will use this system when making referrals as soon as it is available.

SB/SE has primary compliance responsibility for the employment tax returns filed by SB/SE taxpayers.

The TE/GE Division includes the following functions: Employee Plans; Exempt Organizations; Indian Tribal Governments; Federal, State and Local Governments; and Tax Exempt Bonds.

The cross-area review concept used in some areas for reviewing employment tax cases not only provides economies and uniformity in review, but also provides an effective way of obtaining and distributing useful technical, procedural and examination technique information. It is equally important that reviewers of regular income tax cases be alert to employment tax issues and provide feedback of information pertinent to the employment tax program.

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

The quality of the examinations will be measured by reviewers utilizing the Employment Tax Quality Measurement System (ETQMS).

SB/SE Area Directors, TE/GE Area Managers, LMSB Industry Directors and Directors of Field Specialists, and Appeals Area Directors should establish mutually satisfactory procedures for resolving disagreements arising from subsequent review of Appeals determinations. The procedures should contain enough flexibility to permit use of a variety of methods for the compliance functions and Appeals to discuss disagreements. Methods could range from informal telephone discussions, or discussions at joint meetings, to formal memorandums when considered necessary.

For each case closed by Appeals, a copy of Appeals Case Memorandum (ACM) will be provided to the examining area. The ACM will usually be the only feedback vehicle.

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

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

LMSB coordination with Appeals will be through the Appeal Issue Specialization Program (ISP) Employment Tax appeals officer and the LMSB program manager.

The Internal Revenue Service administers the employment taxes imposed by Chapter 21 through 24 of the Internal Revenue Code and the tax on self-employment income imposed by Chapter 2. An important phase of the administration of employment taxes, including the self-employment tax, is interpreting the sections of the Code applicable to these taxes; that is, issuing rulings and technical advice that clarify the intent of these sections. The Service refers all questions of eligibility for and computation of social security benefits to the Social Security Administration, Baltimore, Maryland, or to their nearest local field office. Similarly, inquiries relating to unemployment benefits are referred to the State Unemployment Compensation Board. Those relating to railroad employee retirement benefits are sent to the Railroad Retirement Board, Chicago, Illinois.

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

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

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

If the correction of error is a result of an examination by the Service, the taxpayer is required to prepare Form W–2 or Form W–2c and file them with the area office that conducted the examination. Refer to IRM 4.23. 8.10, Delinquent Forms W–2/W–2c, for additional instructions.

IRM 4.23.8.11 contains instruction on the information return penalty package.

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

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

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

The Tax Reform Act of 1984 added IRC 7611 to the Code which provides guidelines and a procedural framework for certain examinations of churches.

Church Inquiry Notice Procedures do not apply to employment tax inquiries. However, there is potential that an employment tax adjustment may impact Tax Exempt issues. At a minimum, examiners should discuss potential employment tax issues with Tax Exempt agents before an employment tax examination of a church is initiated.

There is ongoing contact between the Immigration and Naturalization Service (INS) and the IRS. The programs are generally divided into two categories, those dealing with aliens legally admitted to the U. S. and those dealing with aliens who are illegally in the country.

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

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

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

The Internal Revenue Service (IRS) has responsibility for the processing of Forms CT-1 and CT-2. The IRS also makes available information to the Railroad Retirement Board (RRB) for the administration of the Railroad Retirement Act of 1974 (RRA), as amended. On October 6, 1999, the IRS and RRB signed a Coordination Agreement to provide the basis for coordination of the administration of the Railroad Retirement Act.

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

The Agreement can also be supplemented by Implementation Agreements, prescribing the nature, quantity, and mechanics for the continuous exchanges of information as well as other cooperative activities as specific needs arise.