In Notice 2015-15, the IRS issued a proposed revenue procedure that would permit employers who file refund claims for overpaid Federal Insurance Contributions Act (FICA) and Railroad Retirement Tax Act (RRTA) taxes to obtain their employees’ consent to the refund claims electronically.
Employers that cannot find employees or whose employees fail to respond may still file refund claims for the employer portion of the taxes if they used “reasonable efforts” to obtain employee consent. The notice explains what constitutes “reasonable efforts” to secure an employee’s consent when a consent is not obtained.
Employers may correct overpaid employment taxes either by making an interest-free adjustment or by filing a claim for refund on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. An employer cannot obtain a refund of its overpaid taxes without protecting its employees’ interest in their share of the overpaid tax. No refund for the employer share is allowed unless the employer has first repaid or reimbursed its employee or has secured the employee’s consent to the allowance of the claim for refund and includes a claim for the refund of the employee tax. Once the employer receives the refund, it is responsible to pay it to its employee.
Employers must certify that the employer has repaid or reimbursed the employee share to the employee or has secured the employee’s written consent to allow the refund or credit. For prior-year refund claims, the employer must also certify that it has obtained the employee’s written statement confirming that the employee has not made any previous claims (or the claims were rejected) and will not make any future claims for refund or credit of the amount.
If the employer has expended reasonable efforts to obtain the employee’s consent (including any required written statement), but cannot locate the employee or the employee does not furnish either the employee consent or indicates that the employee is not authorizing the employer to claim a refund of FICA taxes on his or her behalf, the employer may claim a refund of the overpaid employer share of the tax but may not obtain a refund of the employee’s share.
The consent must include the employee’s name, address, and Social Security number, the employer’s name, address, and employer identification number (EIN), the tax period(s), type of tax (e.g., Social Security and Medicare taxes), and the amount of tax for which the employee’s consent is provided, affirmatively state that the employee authorizes the employer to claim a refund of the employee share, for prior years, include the employee’s written statement that the employee has not made any previous claims and will not make any future claims, identify the basis of the claim, be dated, and be signed under penalties of perjury.
The penalties-of-perjury statement should be located immediately above the required signature. These statements can be obtained electronically, including by fax, and can be stored electronically. The notice explains which types of electronic signatures are considered acceptable.
The IRS is requesting comments on this proposed procedure by “31 April 2015” (presumably the IRS means by April 30). It is particularly interested in comments on the specific requirements for a request for a consent and for the employee consent itself, the requirements for electronic employee consents, and which steps should constitute “reasonable efforts” to obtain an employee consent. The IRS wants to make the refund process more efficient while protecting employees’ interests. The proposed rules would be effective for consents requested on or after the final revenue procedure is published in the Internal Revenue Bulletin.
— Sally P. Schreiber is a JofA senior editor.