Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has released final regulations that modify the process for making interest-free adjustments for both underpayments and overpayments of Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes and federal income tax withholding (ITW) under Code Secs. 6205(a) and
6413(a). These regulations also modify the process for filing claims for refund of overpayments of employment taxes under Code Secs. 6402 and 6414. The regulations reflect the changes relating to the return requirements under Code Sec. 6011 for the adjustment and refund processes. Further, final regulations under Code Sec. 6302 clarify that deposit obligations with respect to interest-free adjustments of underpayments and the effect of adjustments and refunds on the deposit schedule of a Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, filer. These final regulations are effective on January 1, 2009.

Interest-Free Adjustments

  The final regulations under Code Sec. 6205 set forth the procedures for making interest-free adjustments for underpayments of employment taxes. They provide that if a return is filed and less than the correct amount of employee or employer portions of FICA or RRTA tax is reported, and the employer discovers the error after filing the return, the employer should adjust the resulting underpayment of tax by reporting the additional amount due on an adjusted return for the return period in which the wages or compensation was paid. The adjustment must be made by the due date of the return for the return period in which the error is ascertained and the amount of the underpayment must be paid by the time the adjustment is made, or interest will begin to accrue from that date.

  Under the final regulations, if an employer filed a return reporting FICA tax when a return reporting RRTA tax should have been filed, the employer can make an interest-free adjustment by filing an original return reporting the correct amount of RRTA tax and attaching an adjusted return to correct the erroneously reported FICA tax. In addition, the final regulations provide the process by which an employer can make an interest-free adjustment if the employer failed to file a return for a return period solely because the employer failed to treat any individuals as employees. Unlike the proposed regulations, the final regulations do not require the employer to repay or reimburse the employee or to adjust the overpayment by the due date of the return for the return period following the return period in which the error is ascertained.

Deposits, Payments and Credits

  The final regulations under Code Sec. 6302 provide that an employer making an interest-free adjustment must pay the amount of the adjustment by the time it files an adjusted return; such timely payment will satisfy the employer's deposit obligations with respect to the adjustment. The regulations also clarify that new agricultural employers are treated as having employment tax liabilities of zero for any lookback period before the date the employer started or acquired its business, which is consistent with the current rule governing the lookback period for Form 941 and Form 944 filers.

Refunds of Overpayment

  The final regulations under Code Sec. 6402(a) set out the procedures for filing a claim for refund of overpaid FICA and RRTA taxes. The regulations permit an employer to file a claim for refund of an overpayment of FICA or RRTA tax, but require the employer to certify as part of the claim process that the employer has repaid or reimbursed the employee's share of FICA or RRTA tax to the employee or has secured the written consent of the employee to allowance of the refund or credit.

T.D. 9405, 2008FED ¶47,042

Other References:

 
Code Sec. 6011

  CCH Reference - 2008FED ¶35,131

  CCH Reference - 2008FED ¶35,132

 
Code Sec. 6205

  CCH Reference - 2008FED ¶37,521

 
Code Sec. 6302

  CCH Reference - 2008FED ¶38,055A

  CCH Reference - 2008FED ¶38,055B

 
Code Sec. 6402

  CCH Reference - 2008FED ¶38,511

  CCH Reference - 2008FED ¶38,512

 
Code Sec. 6413

  CCH Reference - 2008FED ¶38,751

  CCH Reference - 2008FED ¶38,752

 
Code Sec. 6414

  CCH Reference - 2008FED ¶38,781

  Tax Research Consultant

  CCH Reference - PAYROLL: 9,308

  CCH Reference - TRC IRS: 33,108