4.23.2.1
(12-31-2002)
Overview:
Employment
Tax
Policy
Statement
and
Philosophy
This
section
explains
the
employment
tax
examination
objectives.
The
Employment
Tax
Program
is
governed
by
Policy
Statements
that
apply
to
all
Service
personnel
regardless
of
operating
division.
The
Policy
Statements,
found
in
IRM
1.2.1,
apply
to
all
employment
tax
issues
and
examinations.
Examiners
should
review
these
Policy
Statements
to
properly
perform
their
examination
duties.
IRM
1.2.2
contains
most
of
the
Delegation
Orders
for
the
Service.
The
operating
divisions
also
issue
Delegation
Orders.
Employment
tax
examiners
should
become
familiar
with
all
delegation
orders
with
focus
on
employment
taxes.
4.23.2.2
(12-31-2002)
Comprehensive
Strategy
for
Employment
Tax
Administration
and
Compliance
The
Service
is
committed
to
evaluating
and
improving
the
employment
tax
program.
It
is
an
ongoing
process
which
includes
consideration
of
changing
statutory
rules,
economic
and
financial
conditions,
and
taxpayer
attitudes.
The
goals
of
the
Service
in
the
employment
tax
area
are
to:
ensure
that
all
employers
and
workers
are
"in
the
system,"
that
is,
they
are
filing
timely,
accurate,
and
fully
paid
returns,
ensure
that
workers
are
properly
classified
as
employees
or
independent
contractors,
and
ensure
that
all
remuneration
subject
to
employment
tax
is
reported.
Employment
tax
programs
should:
continually
identify
the
most
effective
way
to
encourage
compliance
through
the
administration
of
employment
taxes.
Enforcement
tools
and
resources
are
to
be
directed
at
requiring
compliance
by
those
individuals
and
groups
who
do
not
comply
voluntarily.
Educational
efforts
should
be
geared
to
specific
groups
and
their
specific
non-compliance
issues;
promote
more
cooperative
tax
administration
efforts
and
improved
information
return
filings
of
Federal,
State,
and
Municipal
agencies;
address
the
underreporting
of
compensation
by
employers,
employees
and
validly
classified
independent
contractors.
The
Service
recognizes
that
the
determination
of
employee
or
independent
contractor
status
often
raises
many
questions
and
poses
challenges
for
an
industry,
for
the
workers
and
for
the
Service.
The
Service
will
identify
and
work
with
groups/representatives
of
a
market
segment
to
encourage
compliance
and
minimize
the
burden
involved
in
resolving
good
faith
disagreements
about
the
application
of
employment
tax
laws;
and
improve
tip
income
reporting
compliance.
Employment
tax
management
information
systems
will
enable
the
Service
to
monitor
employment
tax
non-compliant
behavior
on
an
ongoing
basis.
Taxpayers
will
be
profiled
on
the
basis
of
occupation,
industry,
geographic
area,
or
a
specific
economic
activity
to
identify
non-compliance
and
formulate
plans
to
improve
compliance.
The
quality
of
Employment
Tax
examinations
will
be
reviewed
and
measured
by
the
Employment
Tax
Quality
Measurement
System
(ETQMS).
The
Service
recognizes
the
significant
benefits
that
can
accrue
from
working
with
the
taxpayers
and
employers
to
understand
problems
and
practices
unique
to
a
given
industry.
Voluntary
compliance
will
improve
if
taxpayers
understand
their
tax
obligations.
Compliance
is
achieved
when
a
taxpayer
makes
a
diligent
effort
to
meet
the
requirements
of
the
law.
The
law
requires
that
the
taxpayer
take
affirmative
action
to
meet
his/her
requirements.
Sometimes
the
taxpayer
takes
sufficient
action
to
meet
the
requirements
but,
because
of
some
unforeseen
intervening
event,
is
unable
to
do
so.
Affirmative
action
recognizes
that
the
obligation
to
meet
the
requirement
is
ongoing
and
requires
that
the
taxpayer
continue
to
attempt
to
meet
the
requirements.
4.23.2.2.2
(12-31-2002)
Fair
and
Consistent
Approach
to
Employment
Tax
Administration
The
Service
employs
a
fair
and
consistent
approach
to
employment
tax
administration
that
ensures:
Consistency:
In
the
application
of
employment
taxes
from
one
year
to
another,
the
Service
should
apply
the
rules
in
a
consistent
way
for
all
taxpayers.
In
dealing
with
the
Government,
taxpayers
base
their
perceptions
about
the
fairness
of
the
system
in
major
part
on
the
information
they
receive
from
friends,
relatives,
and
acquaintances.
Thus,
it
is
important
that
the
Service
take
into
account
how
others
have
been
treated
in
administering
the
employment
tax
system.
While
these
goals
cannot
always
be
fully
achieved,
the
Service’s
policy
is
to
administer
employment
taxes
in
a
manner
which
considers
consistency
as
a
goal.
Accuracy
of
results:
This
means
arriving
at
the
correct
employment
tax
decision.
The
Service
must
also
carefully
consider
all
the
available
information
needed
to
arrive
at
a
correct
resolution.
Representation:
Taxpayers
are
given
the
opportunity
to
have
their
interests
heard
and
considered.
Taxpayers
should
have
an
opportunity
to
communicate
with
the
Service
about
specific
details
of
the
case.
Internal
procedural
complexities
should
not
make
it
more
difficult
for
the
taxpayer
to
resolve
his
or
her
case.
IRS
personnel
need
to
take
an
active
approach
to
case
resolution
and
to
the
maximum
extent
possible,
remove
internal
barriers
so
that
the
taxpayer’s
case
receives
fair
and
expeditious
consideration.
Errors
will
be
corrected:
If
an
error
is
made
in
an
employment
tax
determination
and
if
subsequent
evidence
shows
that
the
employment
tax
was
incorrectly
asserted,
the
error
will
be
corrected.
Proper
purpose:
Employees
need
to
ensure
that
decisions
on
employment
tax
issues
are
guided
by
the
applicable
statutes,
regulations,
and
procedural
instructions
issued
by
the
Service.
4.23.2.3
(12-31-2002)
Employment
Tax
Examination
Program
An
effective
Employment
Tax
Examination
Program
will:
include
the
employment
tax
examination
of
all
classes
of
taxpayers
to
encourage
a
high
degree
of
taxpayer
voluntary
compliance;
establish
responsibilities
for
control
and
management
that
will
maintain
an
effective
and
balanced
examination
program
in
the
employment
tax
area;
establish
responsibility
for
providing
revenue
agents/examiners
whose
specialized
training
in
employment
tax
techniques
and
technical
knowledge
will
enable
them
to
complete
highly
effective
examinations
and
achieve
the
greatest
possible
uniformity
in
treatment
of
issues;
ensure
that
employment
tax
specialists
effectively
participate,
assist
or
advise
in
examination
of
cases
involving
employment
tax
matters;
and
ensure
that
employment
tax
specialists
provide
the
necessary
training
and
guidance
to
other
examiners
which
will
enable
them
to
effectively
identify
employment
tax
issues
and
to
assist
taxpayers
who
attempt
to
comply
with
the
laws.
These
objectives
are
intended
to
improve
and
strengthen
compliance
with
the
employment
tax
provisions
of
the
Internal
Revenue
Code.
Improved
compliance
will
not
only
produce
immediate
revenue
in
the
year
of
adjustment,
but
will
also
result
in
future
compliance.
4.23.2.4
(12-31-2002)
Employment
Tax
Program
Responsibilities
The
Small
Business/Self
Employed
(SB/SE)
Division
supports
the
mission
of
the
Internal
Revenue
Service
by
providing
program
leadership
for
all
Service
employment
tax
matters,
including
the
development,
execution,
and
evaluation
of
quality
multi-functional
compliance
and
assistance
programs
on
a
nationwide
basis,
in
a
manner
which
promotes
the
highest
degree
of
public
confidence
in
the
tax
system’s
integrity,
efficiency
and
fairness.
The
Small
Business/Self
Employed
(SB/SE)
Division
is
charged
with
directing
and
coordinating
policies
and
procedures
concerning
the
administration
of
employment
tax
programs,
ensuring
consistency
with
the
employment
tax
policy
statements,
reviewing
and
analyzing
employment
tax
information,
researching
taxpayer
attitudes
and
opinions,
and
determining
appropriate
action
to
take
to
promote
voluntary
compliance.
Every
function
in
the
IRS
has
a
role
in
proper
employment
tax
administration.
It
is
essential
that
each
function
conduct
operations
with
an
emphasis
on
promoting
voluntary
compliance.
Appropriate
reviews
should
be
conducted
to
ensure
consistency
with
the
employment
tax
policy
statements
and
philosophies.
Attention
should
be
given
to
the
coordination
of
employment
tax
programs
between
operating
divisions
to
ensure
approaches
are
consistent.
Managers
should
continuously
review
information
to
suggest
changes
in
employment
tax
compliance
and
examination
programs,
training
courses,
educational
programs,
and
employment
tax
administration.
Until
the
national
Employment
Tax
Quality
Measurement
System
(ETQMS)
is
implemented,
managers
should
institute,
on
an
ongoing
basis,
a
review
system
that
evaluates
the
timely
and
correct
disposition
of
employment
tax
cases
and
encourage
consistent
administration
of
employment
taxes.
All
employees
should
keep
the
following
guidelines
in
mind
when
handling
each
employment
tax
case:
treat
similar
cases
and
similarly
situated
taxpayers
alike;
give
each
taxpayer
the
opportunity
to
have
his
or
her
interests
heard
and
considered;
strive
to
make
a
substantially
correct
decision
in
the
first
instance.
A
wrong
decision,
even
though
corrected
eventually,
negatively
impacts
voluntary
compliance;
provide
an
adequate
opportunity
for
consideration
of
taxpayers
rebuttal;
treat
each
case
in
an
impartial
and
honest
way.
Do
not
approach
the
job
in
the
interest
of
the
government
or
from
the
taxpayer’s
perspective,
but
in
the
interest
of
impartial
enforcement
of
the
tax
laws;
use
each
employment
tax
case
as
an
opportunity
to
educate
the
taxpayer.
Help
the
taxpayers
understand
their
legal
obligations
and
rights.
Assist
the
taxpayers
in
understanding
their
appeal
rights
and
in
all
cases,
observe
the
taxpayer’s
procedural
rights;
endeavor
to
promptly
process
and
resolve
each
taxpayer’s
case;
resolve
each
employment
tax
case
in
a
manner
which
promotes
voluntary
compliance;
and
identify
systemic
problems
and
recommend
ways
to
reduce
taxpayer
burden.
SB/SE
and
Large
and
Mid-Size
Business
(LMSB)
managers
will
work
together
in
a
cooperative
manner
to
ensure
that
cases
referred
from
one
division
to
the
other
are
evaluated
and
assigned
in
a
manner
consistent
with
improving
taxpayer
compliance
while
making
the
best
use
of
available
resources.
If
agreement
cannot
be
reached
regarding
the
acceptance
of
a
referral,
the
SB/SE
territory
manager
and
LMSB
program
manager
will
work
together
to
resolve
the
dispute.
The
SB/SE
Division,
Compliance
Policy
Area
directs
and
manages
the
Service’s
employment
tax
examination
program
by:
researching
and
analyzing
overall
program
effectiveness;
perfecting
examination
procedures
and
techniques;
identifying
training
needs
and
providing
leadership
in
course
development;
working
with
the
Office
of
Associate
Chief
Counsel
(Tax
Exempt
and
Government
Entities)
in
providing
technical
assistance
to
field
offices
and
identifying
abusive
areas
indicating
a
need
for
rulings,
amended
regulations
or
corrective
legislation;
monitoring
SB/SE
area
employment
tax
program
accomplishments
and
evaluating
performance
through
visits
to
SB/SE
field
offices;
working
with
the
other
operating
divisions
(LMSB,
TE/GE,
and
W&I)
to
provide
a
coordinated
approach
to
the
employment
tax
program;
working
with
Centralized
Workload
Selection
and
Delivery
(CWSD)
to
develop
employment
tax
program
examinations
and
workload
selection;
and
receiving
and
recommending
changes
to
the
Employment
Tax
Handbook.
4.23.2.4.1.1
(12-31-2002)
SB/SE
Area
Office
Responsibilities
The
SB/SE
Area
Directors
have
primary
responsibility
for
maintaining
an
effective
employment
tax
program
on
an
area
basis
by:
developing
an
employment
tax
work
plan
for
the
area
and
territories
within
the
area;
monitoring
and
evaluating
execution
of
the
program
in
each
territory
of
the
area
through
visits
to
each
territory
office;
providing
adequate
resources
for
an
effective
program
depending
on
the
degree
of
non-compliance
within
an
area;
furnishing
territories
with
necessary
assistance
and
guidance;
ensuring
that
adequate
employment
tax
training
is
available
on
a
continuing
basis
to
meet
the
needs
of
all
examining
personnel
involved;
and
devising,
implementing
and
coordinating
area
employment
tax
education
and
compliance
programs.
Each
SB/SE
Territory
Office
is
responsible
for
the
following:
ensuring
that
examination
techniques,
guidelines,
Headquarters'
policy,
and
examination
plans
are
adequate
in
promoting
quality
employment
tax
examinations
and
that
examiners
are
adhering
to
these
guides;
providing
for
continued
training,
guidance,
and
awareness
to
non-specialist
examiners;
identifying
requirements
for
the
program
and
developing
improvements
to
promote
quality
examinations;
establishing
a
functional
liaison
from
each
operating
division;
and
devising,
implementing
and
coordinating
national,
regional
and
local
employment
tax
education
and
compliance
programs.
4.23.2.4.1.3
(12-31-2002)
SB/SE
Group
Manager
Responsibilities
Each
SB/SE
Group
Manager
is
responsible
for:
ensuring
that
the
examiner
performs
a
quality
examination
by
addressing
employment
tax
issues;
securing
the
necessary
training
for
employment
tax
examiners;
providing
technical
assistance
and
guidance;
and
ensuring
that
employment
tax
goals,
objectives,
and
work
plans
are
met.
4.23.2.4.2
(12-31-2002)
LMSB
Employment
Tax
Program
Responsibilities
The
Large
and
Mid–Size
Business
(LMSB)
Program
Manager
has
primary
responsibility
for
employment
taxes
of
LMSB
taxpayers.
This
includes:
developing
the
Coordinated
Industry
Cases
(CIC)
employment
tax
workplan
and
the
LMSB
employment
tax
DESY
Plan;
monitoring
and
evaluating
execution
of
the
program
in
support
of
LMSB
Operating
Division
through
visits
to
each
LMSB
employment
tax
group;
directing
resources
for
effective
program
in
administration;
furnishing
LMSB
employment
tax
groups
with
necessary
assistance
and
guidance;
ensuring
that
adequate
employment
tax
training
is
available
on
a
continuing
basis
to
meet
the
needs
of
all
examining
personnel
involved;
serving
as
the
liaison
to
and
meeting
with
the
LMSB
taxpayer
community
which
would
include
professional
and
trade
organizations;
identifying
requirements
for
the
program
and
developing
improvements
to
promote
quality
examinations;
and
coordinating
with
employment
tax
program
leaders
in
the
other
operating
divisions.
The
LMSB
employment
tax
team
manager
is
responsible
for:
ensuring
that
the
examiner
performs
a
quality
examination;
providing
technical
guidance
and
assistance;
and
coordinating
the
examinations
for
all
LMSB
taxpayers
for
their
assigned
areas
of
responsibility.
4.23.2.4.3
(12-31-2002)
TE/GE
Employment
Tax
Program
Responsibilities
The
Tax
Exempt
and
Government
Entities
(TE/GE)
Division
has
primary
compliance
responsibility
for
the
employment
tax
returns
filed
by
TE/GE
taxpayers.
TE/GE
work
units
responsible
for
employment
tax
compliance
include
the
following
functions:
Employees
Plans
(EP);
Exempt
Organizations
(EO);
Federal,
State,
and
Local
Governmental
Entities
(FSLG);
and
Indian
Tribal
Governments
(ITG).
The
EO,
FLSG
and
ITG
Directors
have
compliance
responsibility
for
coordinating
an
effective
employment
tax
program
in
their
areas
by:
developing
an
employment
tax
work
plan;
developing,
implementing
and
coordinating
employment
tax
education
and
compliance
programs;
identifying
the
requirements
for
an
effective
program
and
coordinating
the
identification
of
necessary
resources;
identifying
and
assigning
appropriate
workload
in
consultation
and
conjunction
with
managers;
ensuring
that
adequate
employment
tax
training
is
available
to
meet
the
needs
of
all
technical
personnel
involved;
serving
as
the
liaison
to,
and
meeting
with
IRS
national
stakeholder
groups
involved
with
employment
tax
administration;
and
developing
improvements
to
promote
quality
examinations.
The
EO,
FSLG
and
ITG
Managers
are
responsible
for:
ensuring
that
the
examiner
performs
a
quality
examination;
and
providing
technical
guidance
and
assistance.
4.23.2.4.4
(12-31-2002)
Responsibilities
of
Compliance
Personnel
in
Employment
Tax
Program
Revenue
Agents,
Revenue
Officer
Examiners
and
Tax
Compliance
Officers
—
To
ensure
an
efficient
Employment
Tax
Program,
it
is
important
that
all
compliance
personnel
be
aware
of
their
responsibilities
under
IRM
4.10.5,
Required
Filing
Checks,
to
enforce
the
employment
tax
provisions
of
the
Code.
Examiners
will
carry
out
their
responsibilities
during
any
examination
by
properly
raising,
developing
or
resolving
any
employment
tax
issue
or
making
a
referral
to
an
employment
tax
specialist.
Depending
on
the
complexity
of
the
issue
and
if
agreed
to
by
the
employment
tax
group
manager,
an
employment
tax
specialist
may
be
assigned
to
assist
in
research,
taxpayer
discussion,
and
to
provide
guidance
for
issue
development.
Revenue
agent
specialists,
revenue
officer
examiners
and
tax
compliance
officers
skilled
in
income
tax,
and
given
specialized
training
in
the
technical
aspects
and
examination
techniques
in
employment
taxes,
will:
examine
employment
tax
returns
containing
controversial
or
complex
issues;
develop
employment
tax
investigations
using
examination
enforcement
programs
in
known
or
probable
areas
of
non-compliance;
assist
by
providing
the
names,
social
security
numbers,
and
amount
of
wages
(if
available)
to
be
used
by
local
examination
programs
in
compliance
studies;
share
their
specialized
training
in
employment
taxes
to
other
examiners
when
requested;
assist
in
the
employment
tax
examinations
conducted
by
other
revenue
agents
when
requested;
and
devote
the
major
portion
of
examination
time
to
employment
tax
work.
The
balance
of
time
will
be
devoted
to
formal
and
informal
training
and
discussion
of
employment
tax
issues
and
techniques
with
other
non-specialist
examiners
to
enhance
their
knowledge
in
this
area.
4.23.2.4.5
(12-31-2002)
Support
and
Processing
Function
Support
and
Processing
function
will
be
responsible
for
processing
closed
case-files
and
Forms
W–2
(Wage
and
Tax
Statement)
or
Forms
W–2c
(Statement
of
Corrected
Income
and
Tax
Amounts)
which
are
filed
by
employers
as
a
result
of
an
employment
tax
examination.
4.23.2.5
(12-31-2002)
Deployment
of
Employment
Tax
Examining
Personnel
In
meeting
program
objectives,
it
is
important
that
a
sufficient
number
of
employment
tax
specialists
be
assigned
in
each
division.
These
examiners
will
be
identified
as
Revenue
Agent—Employment
Tax
Specialists,
Revenue
Officer—Employment
Tax
Examiners,
or
Tax
Compliance
Officer—Employment
Tax
Specialists.
They
may
be
assigned
on
a
permanent
or
rotational
basis
(in
accordance
with
national
or
local
agreements),
and
will
usually
be
assigned
to
one
field
group
whose
group
manager
will
be
responsible
for
ensuring
the
effective
use
of
these
specialists
in
carrying
out
the
objectives
of
the
program.
Depending
upon
the
type,
amount
and
geographical
location
of
the
workload,
and
the
availability
of
staffing
in
an
area,
deployment
of
examining
personnel
in
the
employment
tax
area
should
be
left
to
the
discretion
of
the
operating
division.
Some
operating
divisions,
based
on
previous
experience,
may
assign
a
maximum
number
of
specialists
to
the
program;
other
divisions
may
assign
a
minimum
number
of
specialists
that
may
be
increased
as
the
need
is
determined.
In
either
case,
the
balance
of
the
planned
program
will
be
conducted
under
the
required
filing
checks,
see
IRM
4.10.5,
Required
Filing
Checks.
4.23.2.6
(12-31-2002)
SS–8
Program
Form
SS–8,
Determination
of
Worker
Status
for
Purposes
of
Federal
Employment
Taxes
and
Income
Tax
Withholding,
is
the
form
used
by
a
business
or
worker
to
request
a
determination
or
ruling
letter
regarding
a
worker’s
federal
employment
tax
status.
If
the
firm/worker
submits
a
request
by
letter,
they
should
be
provided
with
Form
SS–8
and
advised
to
resubmit
their
request
for
determination
on
Form
SS–8.
There
is
no
user
fee
for
this
type
of
ruling
request.
Revenue
Procedure
2002–1
provides
procedures
for
issuing
rulings,
determination
letters
and
information
letters,
and
should
be
referred
to
for
guidance
when
responding
to
Form
SS–8.
This
revenue
procedure
is
updated
on
an
annual
basis
and
is
generally
the
first
one
issued
each
calendar
year.
The
SS–8
Program
has
been
centralized
in
two
locations:
the
Newport,
Vermont
Development
Site
and
the
Brookhaven
Campus.
Taxpayers
are
required
to
forward
their
request
to
the
nearest
location.
Form
SS-8
requests
involving
state
and
local
government
entities
are
forwarded
to
the
Newport,
Vermont
Development
Site.
The
completed
SS-8
determination
case
files
affecting
state
and
local
government
employers
will
be
forwarded
to
the
Federal
State,
and
Local
Governments
Outreach,
Planning
and
Review
office
to
ensure
compliance
with
determinations
made.
Forms
SS–8
requests
involving
agencies
of
the
federal
government
may
be
forwarded
to
the
Headquarters
Office.
Further,
limitations
imposed
by
Revenue
Procedures
2002–1
may
require
that
the
SS–8
be
sent
to
the
Headquarters
Office
(see
the
general
instructions
for
Form
SS-8
for
the
current
address).
A
determination
letter
will
not
be
issued
if
the
worker
objects
to
the
disclosure
to
the
firm
of
his/her
identity
or
a
copy
of
the
information
he/she
submitted.
If
the
worker
does
not
respond
to
the
section
on
page
1
of
the
Form
SS–8
pertaining
to
disclosure,
or
responds
"Yes"
,
the
worker
will
be
notified
in
writing
that
a
determination
is
not
being
issued
and
the
reason
for
non-issuance.
Forms
SS–8
are
a
potential
source
of
leads
for
employment
tax
examinations.
After
completing
all
actions
related
to
issuance
or
non-issuance
of
the
determination
letter,
the
SS–8
centralized
location
should
determine
whether
there
is
any
audit
potential
in
the
forms
received.
The
centralized
location
should
follow
guidelines
in
IRM
4.23.3.5,
Employment
Tax
Leads,
of
this
Handbook
in
determining
the
appropriate
follow-up
action.
Any
forms
with
audit
potential
should
be
referred,
with
a
copy
of
the
determination
letter,
to
an
employment
tax
group
for
consideration.
This
includes
any
Form
SS–8
except
those
sent
to
the
Headquarters
Office
pending
a
determination.
IDRS
should
be
researched
to
ensure
that
the
worker
and
the
firm
are
filing
required
income
tax
returns
or
information
