IRS Service Center state liaisons
(November 29, 2002)
The Internal Revenue Service recently announced that it has assigned individual account liaisons to each of the 50 states and their
employment tax accounts. Each state should have received a letter from the Ogden Service center informing them that their pre-existing
account representative was re-assigned or that their state now has an assigned account representative. The account liaisons from the
Ogden Service Center will maintain direct contact with each state and will address account related services concerning payroll tax deposits,
returns and reporting.
IRS Notice 1036
(November 20, 2002)
Early release copies of the 2003 federal income tax withholding and advance earned income tables (Notice 1036)
Daily Tax Report
(August 27, 2002)
TE/GE Director Wants to Ax Penalties, Interest for State, Local Government Entities
Allen P. Jones, director of the Federal, State and Local Governments office of the Internal Revenue Service's Tax Exempt
and Government Entities Division, said Aug. 26 he wants to do away with requiring penalty and interest payments by state and local government entities.
In a presentation to the American Institute of Certified Public Accountants conference in Washington, D.C., Jones said the penalties often
are a major issue for state and local governments that attempt to get penalties for failing to make timely filings abated. Jones said roughly 80
percent of those entities' abatement efforts are successful. Because of that, he would like to do away with the penalties altogether, and
do so quickly.
"The small size of our office allows us to move more quickly" than IRS as a whole, Jones said. "
At least I like to think so." Jones did not mention a specific timeline to do away with penalty and interest payments.
Outreach v. Audits
Jones also emphasized the importance of his office's outreach program. The office is more interested in assisting
customers in voluntary compliance than in performing audits, Jones said.
The office tries to accomplish this, Jones said, by offering compliance programs and performing compliance checks, which is a
review of information returns. These typically take a couple of days, depending on the size of the entity, Jones said.
The office does not conduct an audit unless there is a very serious matter, Jones said. "It just doesn't look
real good taking the little school buses, the fire trucks," he said. "We really try very hard not to do enforcement action through examinations."
GAO Report on the GPO
The GAO has issued its report on the implications of employees who are not covered for social security moving to a
covered position for the last day of employment, thereby avoiding the Government Pension Offset provisions.
The Sacramento Bee has an article on the GAO report also. Read the article at
SSA/IRS Memorandum of Understanding
(May 15, 2002)
The Social Security Administration and the Internal Revenue Service have signed a memorandum of understanding (MOU) for
State and local government compliance issues. Specifically, the MOU discusses the responsibilities of both agencies for educating State and local government
employers, improving the reporting process between SSA and the IRS, and the sharing of taxpayer return information. The MOU was recommended in an audit
report issued December 1996 by the Office of the Inspector General (OIG). OIG Audit Report #A-04-95-06013, "Social Security Coverage of State and Local
Government Employees," addressed operational and oversight responsibilities for the Social Security and Medicare coverage provisions under Sections 210
and 218 of the Act and the mandatory Social Security and Medicare tax provisions under the Internal Revenue Code. The report concluded a significant tax
liability existed because of lack of understanding by public employers of the Social Security and Medicare coverage and taxation provisions for public employees.
The OIG report recommended SSA pursue a MOU with the IRS specifying the responsibilities of each agency to State and local government public employers
to ensure the accuracy of earnings records for public employees. The MOU is an important document because it formalizes the working relationship between
SSA and the IRS in addressing State and local government compliance issues.
Section 457 proposed regulations
(May 15, 2002)
The IRS published proposed regulations on May 8 that provide guidance on eligible section 457(b) deferred compensation plans of state
and local governmental entities. The regulations reflect the changes made to section 457 by various federal legislative acts. The regulations would also make
various technical changes and clarifications to the existing final regulations on many discrete issues. These regulations provide guidance necessary to comply
with the law and will affect plan sponsors, administrators, participants, and beneficiaries. The document also provides a notice of public hearing on these
proposed regulations. Written and electronic comments must be received by August 7, 2002. Requests to speak at the public hearing scheduled for
August 28, 2002, must also be received no later than August 7, 2002.
Form 941 and 945 procedure changes
The IRS has changed procedures that direct all governmental employers to file their Forms 941 and 945 with the Ogden Service Center.
The NCSSSA has become aware of additional procedural changes that will greatly impact on your employers. We have informally been informed
that government employers will work in the future with their FSLG Specialist to resolve account issues. It is our understanding there has been no
official notification about this change nor are there currently processes or procedures in place within FSLG area groups to assist governmental
employers with their forms and account problems.
States are encouraged to voice their concerns with the IRS, specifically with the office of Federal, State and Local Governments (FSLG),
about this arbitrary change and/or lack of established procedures within the FSLG groups to handle employer account problems. State Administrators
not involved with the payroll tax system in your state will want to immediately forward this information to your state payroll office or state reporting entity.
Please call Daryl at 502/564-3952 or Dave at 916/-322-8105 if you have any questions or require additional information.
IRS News Release on Form 5500
(April 10, 2002)
The IRS has published news release IR 2002-43 which announces the indefinite suspension of the requirement to file Schedule F
(Form 5500) "Fringe Benefit Plan Annual Information Return." Schedule F was previously required for cafeteria plans, educational assistance
programs and adoption assistance programs.
The official notification will be IRS Notice 2002-24. This notice will be published in the Internal Revenue
Bulletin 2002-16 dated April 22, 2002.
Medical residents as students
(April 10, 2002)
Mary Oppenheimer, IRS assistant chief counsel, has published a legal memorandum (200212029) that supplements earlier IRS memoranda.
The latest memorandum provides advice to the IRS Office of Exempt Organizations on handling FICA refund claims stemming from the Minnesota v.
The memorandum discusses the student exclusion, Section 218 coverage, legal standards and audit findings. The IRS reaches a conclusion
"that the services that medical residents provide are not incident to and for the purpose of pursuing a course of study. Instead, we believe that
medical residents are engaged in a structured form of on-the-job training. We conclude therefore that it is appropriate to deny the examined refund
IRS Legal Memorandum 200210014
(March 28, 2002)
The IRS recently published Legal Memorandum 200210014 that addressed a specific question from a state concerning whether
certain contributions to a Section 403(b) plan were made under a salary reduction agreement and also addressing the social security coverage
status of these contributions.
Section 6110(k)(3) of the Internal Revenue Code provides that this Chief Counsel Advice may
not be cited or used as precedent. However, it does provide general information to an employer or retirement system concerning the applicable social security
coverage for certain types of contributions to a 403(b) tax sheltered annuity plan.
Social Security Trust Funds: Long-Range Deficits Remain
(March 28, 2002)
The Social Security Board of Trustees today declared that the Social Security program continues to be substantially underfinanced for
the long term, while extending the projected solvency of the trust funds by three years.
In the 2002 Annual Report to Congress, the Trustees announced:
-- The projected point at which tax revenues will fall below program costs comes in 2017, one year later than the estimate in last year's report;
-- The projected point at which program costs exceed tax revenues plus interest from the trust funds comes in 2027, two years later than the
estimate in last year's report;
-- The projected point at which the trust funds will be exhausted comes in 2041, three years later than the estimate in last year's report;
-- The projected actuarial deficit of taxable payroll over the 75-year long-range period is 1.87 percent, slightly larger than the 1.86 percent
projected in last year's report.
The full report is available on the SSA website.