Purpose: This section details the steps for proposed employment tax underpayment and overassessment cases.

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, Specialty Exam Policy of the Small Business/ Self-Employed Division.

Program Owner: Program Manager - Employment Tax Policy. The mission of Employment Tax Policy is to establish effective policies and procedures to support compliance with employment tax laws.

Primary Stakeholders:

At the time a tax is proposed or a delinquent return is solicited, the examiner will furnish a calculation of the tax, projected interest, penalties due, the current interest rate on underpayments and an explanation of the advantages of making an advance payment. Publication 1, Your Rights as a Taxpayer, and Publication 5146, Employment Tax Returns: Examinations and Appeal Rights, provided at the start of the examination, should be reviewed with the taxpayer. In addition, Publication 594, The IRS Collection Process, will also be furnished to provide an opportunity for the taxpayer to discuss the IRS collection process and ask any questions.

Examiners must request full payment in all agreed employment tax cases. An examiner can accept payment by check or money order, or cash. If a taxpayer desires to make payment by cash, Collection assistance in accepting the payment should be requested through the manager. Also, office locations that have Wage and Investment (W&I) Division Field Assistance groups can assist in processing cash payments.

The taxpayer's ability to pay is determined using a "tiered interview." The "tiered interview" consists of the questions:

If the taxpayer is not able to pay in full within 120 days of the first notice, consideration should be given to an installment agreement, which should be coordinated with Collection. See IRM 4.20.1, Examination Collectibility Procedures.

If a taxpayer is bankrupt ("B" code on Form 5546 ,Examination Return Charge-Out Sheet) or is currently working with Collection on payment of taxes previously assessed ("C" code on Form 5546 or Collection status "26" ), Collection will be consulted before proposing additional taxes. See IRM 4.20.1.2, Pre-Contact and Fact Finding - Determining the Scope for information on examiner responsibilities.

A waiver should disclose the type of tax, period or periods involved, the amount of tax and /or overassessments (and penalties, if any), and is properly signed by the taxpayer or their authorized representative. The following forms, when completed, fulfill these requirements:

Pursuant to a November 19, 2015 memo from the Deputy Commissioner for Services and Enforcement entitled "Revision of Policy for Use of Fax in Taxpayer Submissions" , the Policy for Use of Fax (fax policy) has been revised to eliminate the dollar ceiling for acceptance of consents to assess additional tax (including various Forms 2504 and other consents) and taxpayer closing agreements (for example, Form 906, Closing Agreement on Final Determination Covering Specific Matter, or Classification Settlement Program (CSP) agreements) received by fax. In addition, consents to extend the time to assess tax, which were not previously allowed by fax, are now acceptable. In all cases, the examiner must document in the case history:

If an error made in computing additional tax, overassessment, or penalty shown on a previously executed report/waiver reflects a tax greater than the correct amount, a corrected report showing the lesser amount will be prepared. A copy of the corrected report will be given to the taxpayer; however, no signature on the new report/waiver is required. Note on the corrected report, "Refer to the taxpayer’s signature on the report dated (date)" . See IRM 4.10.8.13, Corrected Reports.

If an error is made on the report/waiver that reflects a tax less than the correct amount, the examiner has two alternatives. The examiner may prepare a corrected report and solicit a new waiver or the case may be processed for the amount shown on the original executed report/waiver if it falls under the Error Tolerance levels of SB/SE Delegation Order 4.41. The group, or function discovering the error, will prepare a memo to Centralized Case Processing (CCP) signed by a person authorized by the delegation order. See IRM 4.10.8.13 and IRM 1.2.65.3.4, SBSE 1-23-15, Error Tolerance Levels.

When the correction of an error results in the increase of tax not processed under (4) above for any period shown on a waiver, a supplemental waiver will be secured for the difference between the tax or penalty, as corrected, and the amount shown on the original waiver. The supplemental waiver will be clearly identified as such and stapled on top of the original waiver, and the case will be processed in the usual manner. If the correction of an error results in the decrease of an overassessment not processed under (4) above, a new waiver will be secured for the amount of the corrected overassessment.

When a waiver covers multiple periods, the rules in (3) through (5) above must be applied separately to each period involved and not to the net effect of the waiver. For example, if a waiver shows additional taxes for each of two periods, but corrections result in a substantial tax increase for one period and a substantial tax reduction for the other period, a new waiver should be solicited even though the net effect of the corrections may favor the taxpayer.

A remittance may be a payment of tax or a deposit. A payment may be an advance payment or subsequent payment.

An advance payment is made before an assessment; it may be received when an examiner solicits payment of the proposed tax in agreed field and office examination cases. See IRM 4.20.1.3, Issue Resolution - Solicit Payment. The examiner will not solicit a remittance from a taxpayer until the examination is completed and an agreement secured.

A subsequent payment is made after an assessment. All remittances received with delinquent returns secured by examiners are subsequent payments.

A taxpayer may offer a remittance prior to the completion of the examination as a means of stopping the accrual of interest:

When a case involves restricted interest, the examiner will not solicit the interest due. If the taxpayer desires to make full payment of the balance due, the examiner will check the "Restricted Interest" box on the Form 3198 and advise the taxpayer that the restricted interest provisions apply and cannot be computed at this time; the interest will be computed at closing by a tax examiner in CCP. See IRM 20.2.5.6, Restricted Interest.

The employee who accepts the advance payment will classify it either as:

Employees who receive remittances must transmit them to the teller unit at the appropriate Campus for deposit no later than the next workday after receipt.

All examiners will post payments received during their examinations as a Transaction Code (TC) 640, "Advanced Payment of Determined Deficiency" .

Upon acceptance of an advance payment (tendered before or after the tax has been determined and an agreement has been secured from the taxpayer), the responsible examiner will complete a separate Form 3244-A, Payment Posting Voucher - Examination, for each tax period and class of tax involved, as follows:

Managers are responsible for ensuring timely remittance processing by employees under their supervision. If a Form 5919, Teller’s Error Advice, indicating late remittance processing is received, it is the manager’s responsibility to initiate corrective and/or disciplinary action.

All employees who receive remittances must transmit them immediately to ensure receipt in the remittance processing function within 24 hours.

When a remittance is received for a delinquent return or an examination case, either of which was already released to the appropriate Campus, prepare Form 3244–A. Enter the amount of the total payment opposite TC 670 and enter a zero opposite TC 570. The TC 570 will prevent the payment from refunding until the examination assessment has posted.

Forward the remittance and Part 1 of Form 3244–A to the appropriate Campus using Form 3210. Retain Part 2 of Form 3244–A with Part 4 of Form 3210. When the acknowledgement Form 3210 is received, destroy both Part 2 of Form 3244–A and Part 4 of Form 3210.

The IRC provides that, under certain conditions, interest on underpayments and overpayments of tax is prohibited or limited to specific accrual periods. These special interest accrual periods are different than those that would result if the underpayments and overpayments were subject to the regular interest provisions of IRC 6601, and IRC 6611. These prohibitions give rise to the term "restricted interest."

The sections of the Code which authorize the restriction of interest on employment taxes are IRC 6205(a) (underpayments) and IRC 6413(a) and (d), (overpayments).

In all employment tax cases which involve a manual computation of interest, Form 3198/ Form 3198-A, will be attached to the outside of the case jacket. This form serves as a notification of the interest restriction.

The examiner completes the check-box and enters the interest start date on Form 3198 / Form 3198-A, "6205 Interest-Free adjustment date." Complete the Form 5344 with a TC 308 and interest start date to ensure the taxpayer is not overcharged interest.

See IRM 4.23.8.3, Interest-Free Adjustments - In General, and subsequent subsections for more information.

The assessment of additional tax (except in bankruptcy and receivership proceedings) falls within the following categories:

Generally, quick assessment action is pursued if the assessment statute expires in 60 days or less. Requests for quick assessments are made by telephone or fax when statute or bar date expiration is within 10 days. Refer to IRM 4.23.10.15.1, Partial Assessment/Quick Assessment Processing, for general procedures.

Form 5344, Examination Closing Record, the RCCMS Closing Record (for TE/GE examinations), or Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, are used to request quick assessments. A Quick Assessment is necessary if:

A quick assessment does not provide authority to take immediate collection action for payment of the tax liability assessed. The taxpayer is allowed 21 calendar days if the tax is less than $100,000 and 10 business days if $100,000 or more. See IRC 6601(e)(3) and IRM 20.2.5.4, Notice and Demand and Underpayment Interest. However, if the taxpayer is in a receivership or probate proceeding, an immediate proof of claim may be filed.

Quick assessment procedures do not change or update the existing Master File entity information. If entity information on any return being processed differs from that shown on IDRS using command code ENMOD, a Form 2363, Master File Entity Change, must be prepared to change the Master File entity to agree with the information on that return.

To eliminate unpostable conditions, research a transcript of the module involved to determine whether:

If an account contains a TC 520/521 and/or a "right-V" freeze, an assessment is generally allowed while the taxpayer is in bankruptcy status. Following local procedures, the examiner will contact either the Examination Bankruptcy Coordinator or Technical Services for direction. Examiners should explain that they have a case for quick assessment, but research indicates the taxpayer is in bankruptcy. If advised to make the assessment, the examiner should note the name and title of the person authorizing the assessment as well as the reason this assessment may be made in the "Remarks" section of Form 3198. If the examiner is advised the taxpayer is in bankruptcy and not to make an assessment, forward the case file to the Examination Bankruptcy Coordinator, with a Form 3198 / Form 3198-A attached to the outside of the case file with the information about the bankruptcy and the name and title of the person in Technical Services providing the information in the "Remarks" section of the Form 3198.

A prompt assessment is a manually processed assessment of a secured return where collection appears to be at risk and the intention is to proceed with collection action immediately upon request of the assessment. A prompt assessment may only be requested when prompt collection action is necessary to protect the government’s interest and revenue.

If the taxpayer is quickly placing property beyond the reach of the government, collection action may be taken, even though the 10-day notice and demand period and the 30-day notice of intent to levy have not passed. In addition, IRC 7429(a)(1)(A) requires written approval from Counsel for a jeopardy levy.

Jeopardy assessments are made in situations where, prior to the assessment of tax, it is determined that collection of such tax would be endangered if regular assessment and collection procedures are followed.

All jeopardy assessments must be in full compliance with Policy Statement 4–88, found at IRM 1.2.1.5.27, Policy Statement 4-88, Jeopardy assessments to be used sparingly and assessment to be reasonable in amount, which advises: "Jeopardy assessments should be used sparingly and care should be taken to avoid excessive and unreasonable assessments." At least one of the following conditions must exist:

A jeopardy assessment for SB/SE Employment Tax must be approved by:

See IRM 4.15.1.9.3, Preparing the Pre-Approval Report, through IRM 4.15.1.9.4, Approval Report, for information on preparing the approval package, securing the appropriate approvals and processing the approval package after approvals have been secured.

Under IRC 6901(a)(2), assessment may be made of the liability of a transferee for employment taxes if the transferee liability arises from the liquidation of a partnership, corporation, or a reorganization within the meaning of IRC 368(a).

If the tax cannot be collected from the partnership or corporation, possible transferee liability can be explored. If the transferee agrees to pay the tax due, the examiner will prepare a supplemental return for the taxpayer involved. The transferee will evidence his/her agreement by signing the return as transferee under IRC 6901(a)(2). In an unagreed case, the transferee has the same appeal rights as any non-transferee taxpayer has in unagreed employment tax cases.

For additional information, see IRM 4.11.52, Transferee Liability Cases.