IRS updates technical guidelines for employment tax issues

The IRS has updated the technical guidelines for employment tax issues. The procedure provides service-wide instructions for all operating divisions with employees involved with the correct filing, reporting and payment of employment taxes. They serve 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.
An important phase of 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 questions relating to eligibility for and computation of social security benefits to the Social Security Administration, Baltimore, Maryland, or to their nearest local field office. For queries related to unemployment benefits, the IRS reaches out to the appropriate State Unemployment Compensation Board and in the case of railroad employee retirement benefits, it refers to the Railroad Retirement Board, Chicago, Illinois. In carrying out these duties, the Service shares with these agencies a joint responsibility for administering the tax aspects of these programs. This requires close coordination between the IRS and these agencies at the national level to assure uniform interpretation and application of the various provisions of the law. Also, for the imposition of tax liability, the relationship of employer-employee must exist, the remuneration paid by the employer must constitute “wages” for purposes of the tax and the employee must perform services that constitute “employment” as defined by the respective code sections. Generally, employment tax examination issues are divided into “wage issues” or “worker classification issues.” The proper identification of the type of issue is essential for determining the examination procedures and the tax rates applicable to the issue.
In addition, the procedure discusses employment tax treatment in scenarios with two information returns issued. The examiner should provide Publication 1976 to the taxpayer at the time the examiner concludes that the wage issue is a Code Sec. 7436 issue. Examiners must address and develop all three requirements of Code Sec. 530 even if the taxpayer fails one of them. The section applies on a worker-by-worker basis. Moreover, a business may qualify for relief under other reasonable basis if there has merely been a change in the form of the business. The successor must be in the same line of business. Audit guidance on use of reduced Code Sec. 3509 rates, interest-free adjustments and penalties using Form 2553, Election by a Small Business Corporation, and the CP Notice 261, Notice Of Acceptance As An S-Corporation, has also been laid down. Further, the payor of a parachute payment to an independent contractor does not have a withholding requirement. Also, classification procedures are available in Workload Selection and Delivery IRM. In addition, whistleblower debriefings and taint reviews of submitted materials for Code Sec. 7623(a) cases are now required to be performed by the Operating Division Subject Matter Expert (OD-SME), as necessary. Moreover, duties between the SME Lead and the SME has been bifurcated and all contact with the whistleblower is required to be conducted through the SME. (Sec. IRM 4.23.5, Technical Guidelines for Employment Tax Issues November 2017.)

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