Time for Furnishing Wage Statements on Termination of Employer's Operations

DEPARTMENT OF THE TREASURY

26 CFR Part 31

[EE-83-89]

RIN 1545-AN57

Time for Furnishing Wage Statements on Termination of Employer's

Operations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations under sections

6051 and 6071 of the Internal Revenue Code of 1986 concerning the time

for furnishing wage statements to both employees and the Social

Security Administration upon the termination of an employer's

operations. These proposed regulations will affect employers and their

employees in the year the employer ceases to pay wages. These

regulations will improve the wage reconciliation process between the

Social Security Administration and the IRS.

DATES: Written comments and requests for a public hearing must be

received by February 21, 1995.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (EE-83-89), room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R (EE-83-89),

Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW,

Washington, DC.

FOR FURTHER INFORMATION CONTACT: Jean Whalen Casey, (202) 622-6040 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Employment Tax Regulations

(26 CFR part 31) under sections 6051 and 6071 of the Internal Revenue

Code (Code). The proposed regulations are to be issued under the

authority of sections 6051, 6071 and 7805.

Explanation of Provisions

The proposed regulations improve the wage reconciliation process

between the Social Security Administration (SSA) and the Internal

Revenue Service (IRS) by generally requiring an employer that is

required to file a final Form 941, Employer's Quarterly Federal Tax

Return, to file Forms W-2, Wage and Tax Statement, and W-3, Transmittal

of Wage and Tax Statements, with SSA and to furnish Form W-2 to the

employees at the same time the employer is required to file the final

Form 941.

Prior to 1978, employers had submitted quarterly tax returns to the

IRS listing both the aggregate wages and taxes for all employees (Form

941) and each employee's name and Social Security number, showing the

amount of wages paid to the employee for that quarter (Schedule A of

Form 941 or Form 941A). The IRS forwarded Form 941A to SSA, which used

it to post earnings to individual Social Security records.

In order to minimize the burden on employers, Congress changed the

requirement for submission of detailed wage statements from a quarterly

to an annual basis, effective in 1978. As a result, under the current

system, an employer submits quarterly tax returns (Forms 941) to the

IRS listing the aggregate wages and taxes of all of its employees.

Annual information returns are submitted to SSA listing the wages of

each individual employee (Forms W-2, accompanied by Forms W-3 listing

aggregate annual wages of all employees). A reconciliation problem

arises when the aggregate wages on the annual reports to the SSA do not

match the aggregate wages on the four quarterly reports submitted to

the IRS. Where the wages reported to the IRS exceed the wages reported

to SSA, this indicates a possible underreporting of social security

wages to SSA.

One source of these discrepancies is the termination by employers

of their business operations. In some instances, employers that have

gone out of business well before the due date for the annual filing of

Form W-2 have failed to file Forms W-2 with SSA as required. These

failures have occurred even though the employer might have filed one or

more quarterly Forms 941 with the IRS during the year. In these cases,

the failure to receive the Forms W-2 means SSA is unable to credit

wages to the social security accounts of affected employees. This

problem can be eliminated by requiring employers that terminate

business operations to file Forms W-2 and W-3 at the time they are

required to file the final Form 941.

Generally, under Sec. 31.6071(a)-1(a)(1) of the existing

regulations, the Form 941 is due on or before the last day of the first

calendar month following the period (generally a calendar quarter) for

which it is made. Thus, the Form 941 is generally due on or before

April 30, July 31, October 31, and January 31. There is a ten-day

extension if the employer timely deposited the taxes due for the

quarter. Section 31.6011(a)-6(a)(1) of the existing regulations

requires an employer that ceases to pay wages in a quarter to mark and

file the Form 941 for that quarter as a final return. The proposed

regulations require an employer that is required to file a final Form

941 to provide Forms W-2 to the employees and Forms W-2 and W-3 to SSA

at the same time that the employer is required to file the final Form

941.

Different time frames apply to monthly Form 941 filers. Under

Sec. 31.6071(a)-1(a)(2) of the existing regulations, if the district

director notifies an employer that it is required to make monthly

returns on Form 941 in lieu of quarterly returns, the Form 941 is due

on or before the fifteenth day of the calendar month following the

period (generally a calendar month) for which it is made. For employers

that are required to file Form 941 monthly, requiring the filing of the

Forms W-2 at the same time as the final Form 941 might be unduly

burdensome. Thus, the proposed regulations would not require a monthly

filer to provide Forms W-2 to the employees until the end of the

calendar month in which the final Form 941 is due, rather than by the

fifteenth day of that month. The proposed regulations leave in place

the provisions of Sec. 31.6071(a)-1(a)(3) of the existing regulations

requiring a monthly filer that files a final Form 941 to furnish Forms

W-2 and W-3 to SSA on or before the last day of the second calendar

month following the period for which the final Form 941 is due.

Under Sec. 31.6051-1(d)(1) of the existing regulations, applicable

to both quarterly and monthly Form 941 filers, if an individual's

employment is terminated before the end of a calendar year, the

employer may furnish Form W-2 to the employee at any time after

termination but no later than January 31 of the next year. If the

terminated employee requests a Form W-2, and if there is no reasonable

expectation on the part of either the employer or the employee of

further employment during the calendar year, the employer must furnish

Form W-2 to the employee by the later of 30 days after the employee

made the request or 30 days after the last payment of wages. The

proposed regulation has no effect on the rights of terminated employees

to require the employer to furnish Form W-2 within this time frame.

In Revenue Procedure 84-77, 1984-2 C.B. 753, the IRS provided

procedures for preparing and filing certain forms, including Form 941,

Form W-2 and Form W-3, when a successor employer acquires substantially

all of the property (1) used in a trade or business of a predecessor

employer, or (2) used in a separate unit of a trade or business of a

predecessor, and in connection with, or immediately after the

acquisition (but during the same calendar year) the successor employs

individuals who were employed in the trade or business of the

predecessor immediately prior to the acquisition. This proposed

regulation would have the effect of modifying the time frame for the

standard procedure in section 4.01 of the Revenue Procedure. Except for

this change, the proposed regulation would not affect the continuing

validity of the Revenue Procedure.

The proposed regulation applies to employers who file Form 941 on a

monthly or quarterly basis, including railroad employers. It does not

apply to employers with respect to their agricultural employees (in

those cases, employers file on an annual basis on Form 943). Nor does

it apply to employers with respect to their domestic employees (in

those cases, employers file on an annual basis beginning in 1995).

These regulations are effective upon the date of publication of

these regulations in final form in the Federal Register. However, these

regulations shall apply only to employers that cease the payment of

wages after the close of the calendar quarter in which the date of

publication occurs.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 12866. Therefore,

a regulatory assessment is not required. It also has been determined

that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and, therefore, a Regulatory

Flexibility Analysis is not required. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice of proposed rulemaking will be

submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and eight (8) copies) that are submitted timely to the IRS. All

comments will be available for public inspection and copying. A public

hearing may be scheduled if requested in writing by a person who timely

submits written comments. If a public hearing is scheduled, notice of

the date, time, and place for the hearing will be published in the

Federal Register.

Drafting Information

The principal author of these regulations is Jean Whalen Casey,

Office of the Associate Chief Counsel (Employee Benefits and Exempt

Organizations), IRS. However, other personnel from the IRS and Treasury

Department participated in their development.

List of Subjects in 26 CFR Part 31

Employment taxes, Income taxes, Penalties, Pensions, Railroad

retirement, Reporting and recordkeeping requirements, Social security,

Unemployment compensation.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 31 is proposed to be amended as follows:

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE

Paragraph 1. The authority citation for part 31 is amended by

adding the following entries in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 31.6051-1(d) also issued

under 26 U.S.C. 6051. * * * Section 31.6071-1 also issued under 26

U.S.C. 6071. * * *

Par. 2. Section 31.6051-1(d)(1) is amended as follows:

1. Paragraph (d)(1) is redesignated as (d)(1)(i).

2. Paragraph (d)(1)(ii) is added to read as follows:

Sec. 31.6051-1 Statements for employees.

* * * * *

(d) * * * (1)(i) * * *

(ii) Expedited filing--(A) General rule. If an employer is required

to make a final return under Sec. 31.6011(a)-6(a)(1) (relating to the

final return for Federal Insurance Contributions Act taxes and income

tax withholding from wages) on Form 941, the employer must furnish the

statement required by this section on or before the time required for

filing the final return. See Sec. 31.6071(a)-1(a)(1). However, if the

final return under Sec. 31.6011(a)-6(a)(1) is a monthly return, as

described in Sec. 31.6011(a)-5, the employer must furnish the statement

required by this section on or before the last day of the month in

which the final return is required to be filed. See Sec. 31.6071(a)-

1(a)(2). The requirements set forth in this paragraph (d)(1)(ii) do not

apply to employers with respect to employees whose wages are for

domestic service in the private home of the employer. See

Sec. 31.6011(a)-1(a)(3).

(B) Requests by employees. The provisions of the third sentence of

paragraph (d)(1)(i) of this section (relating to requests by terminated

employees of Form W-2) are unaffected by the provisions of paragraph

(d)(1)(ii)(A) of this section. However, an employer shall not be

permitted to furnish a statement pursuant to the provisions of the

third sentence of paragraph (d)(1)(i) of this section at a time later

than that required by the provisions of paragraph (d)(1)(ii)(A) of this

section.

(C) Effective date. This paragraph (d)(1)(ii) is effective upon the

date of publication of these regulations in final form in the Federal

Register. However, this paragraph (d)(1)(ii) shall apply only to

employers that cease the payment of wages after the close of the

calendar quarter in which the date of publication occurs.

* * * * *

Par. 3. The first sentence of Sec. 31.6051-2(c) is revised to read

as follows:

Sec. 31.6051-2 Information returns on Form W-3 and Internal Revenue

Service copies of Form W-2.

* * * * *

(c) Cross references. For provisions relating to the time for

filing the information returns required by this section and to

extensions of the time for filing, see Sec. 31.6071(a)-1(a)(3) and

Sec. 31.6081(a)-1(a)(3), respectively. * * *

Par. 4. Section 31.6071(a)-1(a)(3) is amended as follows:

1. Paragraph (3)(i) is removed.

2. Paragraph (a)(3)(ii) is redesignated as paragraph (a)(3)(i) and

the heading is revised.

3. A new paragraph (a)(3)(ii) is added.

4. The addition and revision read as follows:

Sec. 31.6071(a)-1 Time for filing returns and other documents.

(a) * * *

(3) * * * (i) General rule. * * *

(ii) Expedited filing--(A) General rule. If an employer who is

required to make a return pursuant to Sec. 31.6011(a)-1 or

Sec. 31.6011(a)-4 is required to make a final return on Form 941 under

Sec. 31.6011(a)-6(a)(1) (relating to the final return for Federal

Insurance Contributions Act taxes and income tax withholding from

wages), the return which is required to be made under Sec. 31.6051-2

shall be filed on or before the time required for filing the final

return on Form 941 under Sec. 31.6011(a)-6(a)(1). See Sec. 31.6071(a)-

1(a)(1). The requirements set forth in this paragraph (a)(3)(ii) do not

apply to employers with respect to employees whose wages are for

domestic service in the private home of the employer. See

Sec. 31.6011(a)-1(a)(3).

(B) Effective date. This paragraph (a)(3)(ii) is effective upon the

date of publication of these regulations in final form in the Federal

Register. However, this paragraph (a)(3)(ii) shall apply only to

employers that cease the payment of wages after the close of the

calendar quarter in which the date of publication occurs.

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 94-31290 Filed 12-21-94; 8:45 am]

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