bulletin no. 2009-52 december 28, 2009 highlights of ...bulletin no. 2009-52 december 28, 2009...

Bulletin No. 2009-52December 28, 2009

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2009–37, page 957.Interest rates; underpayment and overpayments. Therate for interest determined under section 6621 of the Codefor the calendar quarter beginning January 1, 2010, will be 4percent for overpayments (3 percent in the case of a corpo-ration), 4 percent for underpayments, and 6 percent for largecorporate underpayments. The rate of interest paid on theportion of a corporate overpayment exceeding $10,000 willbe 1.5 percent.

T.D. 9473, page 945.Final regulations under section 6159 of the Code relate to thepayment of tax liabilities in installments and reflects changesto the law made by the Taxpayer Bill of Rights II, the InternalRevenue Service Restructuring and Reform Act of 1998, andthe American Jobs Creation Act of 2004.

REG–111833–99, page 1000.Proposed regulations under section 7430 of the Code relate toawards of administrative costs and attorneys fees to conformthe regulations to the amendments made in the Taxpayer ReliefAct of 1997 and the IRS Restructuring and Reform Act of 1998.A public hearing is scheduled for March 10, 2010.

Rev. Proc. 2009–55, page 982.Insurance companies; loss reserves; discounting unpaidlosses. This procedure sets forth the loss payment patternsand discount factors for accident year 2009. Under section846 of the Code, discount factors are determined by the Sec-retary based on the interest rate determined annually undersection 846(c) and on loss payment patterns determined ev-ery five years under section 846(d). Section 846(d) directsthe Secretary to use the most recent aggregate loss payment

data of property and casualty insurance companies to deter-mine and publish a loss payment pattern for each line of busi-ness every five years

Rev. Proc. 2009–56, page 993.Insurance companies; discounting estimated salvage re-coverable. This procedure sets forth the salvage discount fac-tors for accident year 2009 for purposes of section 832 of theCode. Under section 832, discount factors are determined bythe Secretary based on the interest rate determined annuallyby the Secretary under section 846(c) and on salvage recoverypatterns determined every five years by the Secretary.

EMPLOYEE PLANS

Rev. Rul. 2009–40, page 942.2010 covered compensation tables; permitted disparity.The covered compensation tables under section 401 of theCode for the year 2010 are provided for use in determiningcontributions to defined benefit plans and permitted disparity.

Notice 2009–92, page 964.This notice provides that a delay or acceleration of the paymentof nonqualified deferred compensation in order to comply withan advisory opinion issued by the Office of the Special Masterfor Troubled Asset Relief Program (TARP) Executive Compensa-tion, pursuant to the Emergency Economic Stabilization Act of2008 and regulations thereunder, including conditioning pay-ment on satisfaction of a requirement related to TARP, such asrepayment of the financial assistance granted under TARP, willnot cause the plan to fail to meet the requirements of section409A of the Code.

(Continued on the next page)

Finding Lists begin on page ii.Index for July through December begins on page v.

Notice 2009–96, page 968.Weighted average interest rate update; corporate bondindices; 30-year Treasury securities; segment rates.This notice contains updates for the corporate bond weightedaverage interest rate for plan years beginning in December2009; the 24-month average segment rates; the funding tran-sitional segment rates applicable for December 2009; and theminimum present value transitional rates for November 2009.

Notice 2009–97, page 972.This notice extends the deadline for amending qualifed retire-ment plans to meet certain requirements of the Code that wereadded by the Pension Protection Act of 2006 (PPA ’06), P.L.109–280, and subsequently modified by the Worker, Retiree,and Employer Recovery Act of 2008 (WRERA), P.L. 110–458.The deadline is extended to the last day of the first plan yearthat begins on or after January 1, 2010. Rev. Proc. 2007–44modified. Notice 2008–18 modified.

Notice 2009–98, page 974.Retirement plans; qualification, list of changes. This no-tice sets forth a list of changes referred to in Rev. Proc.2007–44, 2007–2 C.B. 54, pertaining to the statutory, reg-ulatory, and guidance changes needed for certain requests tothe Service for opinion, advisory, and determination letters forthe 12-month period beginning February 1, 2010.

Announcement 2009–89, page 1009.Remedial amendment period and reliance for section403(b) plans. This announcement provides for a remedialamendment period and reliance for employers that, pursuantto the upcoming revenue procedures, either adopt a pre-ap-proved plan with a favorable opinion letter or apply for an in-dividual determination letter when available. Employers shouldnot request ruling or determination letters on the form of their§ 403(b) plans at this time, pending publication of the rev-enue procedure for pre-approved § 403(b) plans and additionalprocedures on applying for individual determination letters for§ 403(b) plans.

EXEMPT ORGANIZATIONS

Announcement 2009–88, page 1008.A list is provided of organizations now classified as private foun-dations.

Announcement 2009–90, page 1010.The IRS has revoked its determination that Twenty First CenturyWorld — TEMENOS of San Rafael, CA, qualifies as an organiza-tion described in sections 501(c)(3) and 170(c)(2) of the Code.

ESTATE TAX


GIFT TAX


EMPLOYMENT TAX

Rev. Rul. 2009–39, page 951.94X examples revenue ruling. This revenue ruling illus-trates the application of the interest-free adjustment and claimfor refund processes under the final regulations promulgatedby Treasury Decision 9405 (T.D. 9405), 2008–32 I.R.B. 293.T.D 9405 amends the process for making interest-free adjust-ments of employment taxes under sections 6205 and 6413 ofthe Code, and claiming refunds of employment taxes under sec-tions 6402 and 6414. T.D. 9405 was initiated in connectionwith the Service’s development of new “X” forms (e.g., Form941–X, Adjusted Employer’s QUARTERLY Federal Tax Return orClaim for Refund) as part of the Form 94X Project initiated bythe Office of Taxpayer Burden Reduction and now led by SB/SEEmployment Tax Policy. The proposed revenue ruling appliesthe final regulations under T.D. 9405 to 10 different situationsto show how the new processes operate. Rev. Rul. 75–464obsoleted.


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December 28, 2009 2009–52 I.R.B.

SELF-EMPLOYMENT TAX


EXCISE TAX


ADMINISTRATIVE


REG–111833–99, page 1000.Proposed regulations under section 7430 of the Code relate toawards of administrative costs and attorneys fees to conformthe regulations to the amendments made in the Taxpayer ReliefAct of 1997 and the IRS Restructuring and Reform Act of 1998.A public hearing is scheduled for March 10, 2010.

Notice 2009–95, page 968.This notice delays the effective date of compliance with Rev.Rul. 2006–57, 2006–2 C.B. 911, which provides guidance onthe use of smartcards, debit or credit cards, or other electronicmedia to provide qualified transportation fringes under section132(f) of the Code, until January 1, 2011. Rev. Rul. 2006–57modified.

Announcement 2009–91, page 1010.This document contains corrections to final regulations (T.D.2009–33 I.R.B. 188) providing guidance regarding the treat-ment of controlled services transactions under section 482 ofthe Code and the allocation of income from intangible property,in particular with respect to contributions by a controlled partyto the value of intangible property owned by another controlledparty. These final regulations modify regulations under section861 concerning stewardship expenses to be consistent withthe changes made to the guidance under section 482.

Announcement 2009–92, page 1012.This document contains a correction to Notice 2009–80,2009–51 I.R.B. 859, which contained an incorrect taxableyear at the end of the first paragraph.

2009–52 I.R.B. December 28, 2009

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

December 28, 2009 2009–52 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 401.—QualifiedPension, Profit-Sharing,and Stock Bonus Plans26 CFR 1.401(l)–1: Permitted disparity in employer-provided contributions or benefits.

2010 covered compensation tables;permitted disparity. The covered com-pensation tables under section 401 of theCode for the year 2010 are provided foruse in determining contributions to de-fined benefit plans and permitted disparity.

Rev. Rul. 2009–40

This revenue ruling provides ta-bles of covered compensation under§ 401(l)(5)(E) of the Internal RevenueCode (the “Code”) and the Income TaxRegulations, thereunder, for the 2010 planyear.

Section 401(l)(5)(E)(i) defines coveredcompensation with respect to an employee,as the average of the contribution and ben-efit bases in effect under section 230 of theSocial Security Act (the “Act”) for eachyear in the 35-year period ending with the

year in which the employee attains socialsecurity retirement age.

Section 401(l)(5)(E)(ii) of the Codestates that the determination for any yearpreceding the year in which the employeeattains social security retirement age shallbe made by assuming that there is no in-crease in covered compensation after thedetermination year and before the em-ployee attains social security retirementage.

Section 1.401(l)–1(c)(34) defines thetaxable wage base as the contribution andbenefit base under section 230 of the Act.

Section 1.401(l)–1(c)(7)(i) defines cov-ered compensation for an employee as theaverage (without indexing) of the taxablewage bases in effect for each calendar yearduring the 35-year period ending with thelast day of the calendar year in which theemployee attains (or will attain) socialsecurity retirement age. A 35-year pe-riod is used for all individuals regardlessof the year of birth of the individual. Indetermining an employee’s covered com-pensation for a plan year, the taxable wagebase for all calendar years beginning after

the first day of the plan year is assumedto be the same as the taxable wage base ineffect as of the beginning of the plan year.An employee’s covered compensation fora plan year beginning after the 35-year pe-riod applicable under §1.401(l)–1(c)(7)(i)is the employee’s covered compensationfor a plan year during which the 35-yearperiod ends. An employee’s coveredcompensation for a plan year beginningbefore the 35-year period applicable under§1.401(l)–1(c)(7)(i) is the taxable wagebase in effect as of the beginning of theplan year.

Section 1.401(l)–1(c)(7)(ii) providesthat, for purposes of determining theamount of an employee’s covered com-pensation under §1.401(l)–1(c)(7)(i), aplan may use tables, provided by the Com-missioner, that are developed by roundingthe actual amounts of covered compensa-tion for different years of birth.

For purposes of determining coveredcompensation for the 2010 year, the tax-able wage base is $106,800.

The following tables provide coveredcompensation for 2010.

ATTACHMENT I

2010 COVERED COMPENSATION TABLE

CALENDARYEAR OF

BIRTH

CALENDAR YEAR OFSOCIAL SECURITYRETIREMENT AGE

2010 COVEREDCOMPENSATION

TABLE II

1907 1972 $4,4881908 1973 4,7041909 1974 5,0041910 1975 5,3161911 1976 5,6641912 1977 6,0601913 1978 6,4801914 1979 7,0441915 1980 7,6921916 1981 8,4601917 1982 9,3001918 1983 10,2361919 1984 11,2321920 1985 12,2761921 1986 13,3681922 1987 14,5201923 1988 15,7081924 1989 16,9681925 1990 18,312

2009–52 I.R.B. 942 December 28, 2009

ATTACHMENT I


CALENDARYEAR OF

BIRTH



TABLE II

1926 1991 19,7281927 1992 21,1921928 1993 22,7161929 1994 24,3121930 1995 25,9201931 1996 27,5761932 1997 29,3041933 1998 31,1281934 1999 33,0601935 2000 35,1001936 2001 37,2121937 2002 39,4441938 2004 43,9921939 2005 46,3441940 2006 48,8161941 2007 51,3481942 2008 53,9521943 2009 56,6281944 2010 59,2681945 2011 61,8841946 2012 64,4641947 2013 67,0081948 2014 69,4081949 2015 71,7241950 2016 73,9201951 2017 76,0441952 2018 78,0841953 2019 80,0521954 2020 81,9721955 2022 85,6201956 2023 87,3841957 2024 89,0641958 2025 90,6601959 2026 92,1841960 2027 93,6481961 2028 95,0521962 2029 96,3721963 2030 97,6801964 2031 98,9401965 2032 100,1161966 2033 101,2201967 2034 102,1921968 2035 103,0681969 2036 103,8241970 2037 104,4481971 2038 105,0121972 2039 105,5521973 2040 106,0321974 2041 106,392

December 28, 2009 943 2009–52 I.R.B.

ATTACHMENT I


CALENDARYEAR OF

BIRTH



TABLE II

1975 2042 106,6561976 and Later 2043 and Later 106,800

ATTACHMENT II

2010 ROUNDED COVERED COMPENSATION TABLE

CALENDARYEAR OF

BIRTH


ROUNDED

1937 $39,0001938 – 1939 45,0001940 48,0001941 51,0001942 54,0001943 57,0001944 60,0001945 – 1946 63,0001947 66,0001948 69,0001949 72,0001950 – 1951 75,0001952 78,0001953 – 1954 81,0001955 – 1956 87,0001957 – 1958 90,0001959 – 1960 93,0001961 – 1962 96,0001963 – 1965 99,0001966 – 1968 102,0001969 – 1972 105,0001973 and Later 106,800

DRAFTING INFORMATION

The principal author of this revenueruling is Michael Spaid of the EmployeePlans, Tax Exempt and GovernmentEntities Division. For further infor-mation regarding this revenue ruling,please contact the Employee Plans tax-payer assistance telephone service at1–877–829–5500, between the hours of8:30 a.m. and 4:30 p.m. Eastern time,Monday through Friday (a toll-free num-ber). Mr. Spaid may be reached via e-mailat [email protected].

Section 832.—InsuranceCompany Taxable Income26 CFR 1.832–4: Gross income.

The salvage discount factors are set forth for 2009.These factors must be used to compute discountedestimated salvage recoverable for purposes of section832 of the Code. See Rev. Proc. 2009-56, page 993.

Section 846.—DiscountedUnpaid Losses Defined26 CFR 1.846–1: Application of discount factors.

The loss payment patterns and discount factors areset forth for the 2009 accident year. These factorswill be used for computing discounted unpaid lossesunder section 846 of the Code. See Rev. Proc. 2009-55, page 982.

The salvage discount factors are set forth for 2009.These factors must be used to compute discountedestimated salvage recoverable for purposes of section832 of the Code. See Rev. Proc. 2009-56, page 993.

2009–52 I.R.B. 944 December 28, 2009

Section 6159.—Agree-ments for Payment of TaxLiability in Installments26 CFR 1.301.6159–0: Table of contents.

T.D. 9473

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 301

Agreements for Payment ofTax Liability in Installments

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final Regulations.

SUMMARY: This document contains fi-nal regulations relating to the payment oftax liabilities in installments. The regu-lations reflect changes to the law madeby the Taxpayer Bill of Rights II, the In-ternal Revenue Service Restructuring andReform Act of 1998, and the AmericanJobs Creation Act of 2004. The regula-tions will affect taxpayers submitting in-stallment agreements to the IRS.

DATES: Effective Date: These regulationsare effective on November 25, 2009.

Applicability Date: For the date of ap-plicability, see §301.6159(k).

FOR FURTHER INFORMATIONCONTACT: Walter Ryan, (202) 622–3620(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto the Procedure and Administration Reg-ulations (26 CFR part 301) under section6159 of the Internal Revenue Code (Code).Section 6159 allows the IRS to enter intoagreements for the payment of any unpaidtax in installments. Taxpayers may requestadministrative review of IRS decisions toterminate installment agreements pursuantto section 6159(e), added to the Code bysection 202 of the Taxpayer Bill of RightsII, Public Law 104–168 (110 Stat. 1452,

1457 (1996)). Taxpayers may appealrejections of proposed installment agree-ments under section 7122(e), added to theCode by section 3462 of Internal RevenueService Restructuring and Reform Act of1998 (RRA 98), Public Law 105–206 (112Stat. 685, 764 (1998)). Section 6159(c),added to the Code by section 3467 of RRA1998, requires the IRS to accept a pro-posed installment agreement for incometaxes under certain circumstances. Sec-tion 3506 of RRA 1998 requires the IRSto send each taxpayer with an installmentagreement an annual statement showingthe balance due at the beginning of theyear, the payments made during the year,and the remaining balance due at the endof the year.

Section 843 of the American Jobs Cre-ation Act of 2004 (AJCA), Public Law108–357 (118 Stat. 1418, 1600 (2004)),amended section 6159(a) to allow the IRSto enter into installment agreements thatprovide for partial (as well as full) pay-ment of a tax liability, but excludes partialpayment installment agreements from thescope of installment agreements that mustbe accepted by the IRS. Section 843 of theAJCA also added new section 6159(d), re-quiring the IRS to review partial paymentinstallment agreements every two years.The primary purpose of the review is todetermine whether the financial conditionof the taxpayer has significantly changedso as to warrant an increase in the valueof the payments being made. See H. Rep.No. 108–755, 108th Cong., 2d Sess., 2005U.S.C.C.A.N. 1341 (October 7, 2004).

On March 5, 2007, a notice of proposedrulemaking (REG–100841–97, 2007–1C.B. 763 [72 FR 9712]) was publishedin the Federal Register. The proposedregulations reflected the changes madeto section 6159 by the Taxpayer Bill ofRights II, the RRA 98, and the AJCA. Theproposed regulations reflected current IRSadministrative practice. The IRS receivedone set of written comments with numer-ous recommendations. No public hearingwas requested or held. After considerationof the comments, the proposed regulationsare adopted as revised by this Treasurydecision.

Summary of Comments andExplanation of Revisions

The final regulations adopt certainrecommendations contained in the com-ments by clarifying two provisions ofthe proposed regulations. As explainedin this preamble, §301.6159–1(e)(3) wasamended to clarify that the taxpayer maysubmit a request to modify or termi-nate the installment agreement. Section301.6159–1(e)(3) further clarifies thatsuch a request will not suspend the statuteof limitations on collection and the tax-payer must comply with the existinginstallment agreement while the requestis being considered. As also explainedin this preamble, §301.6159–1(e)(1)(i)clarifies that the IRS may terminate aninstallment agreement if the taxpayer pro-vides materially incomplete or inaccurateinformation in response to an IRS requestfor a financial update.

The following is a section-by-sectionanalysis of the comments.

Section 301.6159–1(b): Procedures forsubmission and consideration of proposedinstallment agreements.

Section 301.6159–1(b) of the proposedregulations provided that an installmentagreement request must be submitted ac-cording to procedures prescribed by theIRS. It did not require the IRS to acceptor reject the request within a specific timeframe. The commenter proposed to limitthe IRS’s time to consider an installmentagreement to 90 days; if the IRS fails toact in that time, the agreement would begranted automatically. The commenterreasoned that the limited time frame wouldbenefit the IRS because more installmentsagreements would be automatically al-lowed, thereby increasing revenues, andwould benefit the taxpayer by allowingpayments to begin quickly and efficiently.The recommendation was not adoptedfor two reasons. First, the IRS alreadygrants installment agreements quicklyand automatically in the vast majorityof cases. If the taxpayer owes less than$25,000 and offers to pay the liabilitiesin full within 5 years, the agreement canbe granted automatically under the IRS’s“streamlined” installment agreement pro-cedures. See Internal Revenue Manual5.14.5.2 at http://www.irs.gov/irm/part5/

December 28, 2009 945 2009–52 I.R.B.

irm_05–014–005.html. The IRS grantedover 2.62 million installment agreementsin fiscal year 2008, of which over 2.51million were granted through the IRS’sstreamlined procedures. In cases thatdo not meet the streamlined criteria, theIRS has determined that a more detailedreview of the taxpayer’s financial situationis warranted. Second, the IRS generallyresponds to non-streamlined installmentagreement requests in a timely manner.During the filing season, however,inventory fluctuations may cause delays.The automatic allowance of installmentagreements in such cases would not beappropriate.

Proposed § 301.6159–1(b)(2) providedthat an installment agreement request be-comes pending when it is accepted for pro-cessing. The commenter recommendedthat the IRS send an automatically-gener-ated response acknowledging the date ofacceptance for processing to the taxpayerand the taxpayer’s representative. Thisrecommendation was not adopted. Thevast majority of installment agreementsare streamlined agreements, which the IRSaccepts very quickly. The IRS will, how-ever, consider adopting an administrativeprocedure for the minority of cases whereit anticipates a time lag between accep-tance for processing and the acceptance orrejection of the installment agreement.

Proposed §301.6159–1(b)(2) also pro-vided that if an installment agreement re-quest does not contain sufficient informa-tion to permit the IRS to evaluate whetherthe request should be accepted, the IRSwill request the needed information. Thecommenter recommended that all requestsfor additional information should be rea-sonably necessary. The proposed regula-tions already address this recommendationby directing that requests be for “needed”information.

Proposed §301.6159–1(b)(3) alloweda taxpayer to submit a good faith revi-sion of a rejected installment agreementrequest within 30 days of rejection. Thecommenter recommended that the time fortaxpayers to submit a good faith revisionshould be extended to 60 days becausetaxpayers often have difficulty obtainingthe necessary documents within 30 days.This recommendation was not adopted.The recommendation would apply to asmall number of installment agreementrequests that are not accepted under the

IRS’s streamlined procedures. In thesecases, the IRS requests the informationnecessary for a financial analysis be-fore rejecting the installment agreementrequest. See Internal Revenue Manual5.15.1.6 at http://www.irs.gov/irm/part5/irm_05–015–001.html. Allowing 60days following the rejection wouldencourage untimely responses and delaycase resolution.

Section 301.6159–1(c): Acceptance, form,and terms of installment agreements.

Section 301.6159–1(c)(1) of the pro-posed regulations provided that an install-ment agreement request has not been ac-cepted until the IRS notifies the taxpayeror the taxpayer’s representative of the ac-ceptance. Section 6159(a) requires that aninstallment agreement be in writing, andproposed §301.6159–1(c)(2) provided thatthe writing may take the form of a docu-ment signed by the taxpayer and the IRSor the written confirmation of an agree-ment entered into by the taxpayer and theIRS that is mailed or personally deliveredto the taxpayer. The commenter recom-mended that the IRS’s notification of theacceptance or rejection of a proposed in-stallment agreement also be directed to thetaxpayer’s representative and include theterms of the agreement and payment sub-mission information. These recommenda-tions were not adopted in the regulationsbecause they are more appropriately ad-dressed in the IRS’s procedures. The IRScurrently does, however, provide writtennotification to the taxpayer and the tax-payer’s representative of the acceptance orrejection of an installment agreement andthe suggested information.

The commenter was concerned thatthe IRS intended to change its stream-lined procedures and recommended thatthe procedures be retained. The com-menter was also concerned that proposed§301.6159–1(c)(3)(iii)(A) may representa departure from the IRS’s current policythat limits the acceptance of extensionsof the collection statute of limitations inconnection with installment agreements tothe narrow subset of partial payment in-stallment agreements in which the liabilitywill not be paid in full under the agree-ment before the collection statute expires.As stated in the preamble to the noticeof proposed rulemaking, the regulations

were intended to reflect existing practices.The regulations will have no effect on theIRS’s streamlined procedures or its policywith regard to waivers of the collectionstatute.

The commenter stated that the proposedregulations did not explain the inclusionof §301.6159–1(c)(3)(ii), which providedthat an installment agreement may, by itsterms, end upon the expiration of the pe-riod of limitations on collection, or at someprior date. As explained in the preambleto the proposed regulations, this provisionclarifies that the IRS may enter into partialpayment installment agreements that endupon the running of the collection statute,or that end prior to that time so that theIRS may collect the balance of the tax li-ability against any property belonging tothe taxpayer before the collection periodexpires. The IRS does not currently en-ter into partial payment installment agree-ments that expire before the end of the col-lection statute and has no plans to do soroutinely in the future.

Proposed §301.6159–1(c)(3)(v) pro-vided that while an installment agreementis in effect, the IRS may request a financialcondition update from the taxpayer at anytime. The commenter recommended thatthe IRS be permitted to request only onefinancial condition update per year. Thisrecommendation was not adopted. TheIRS very rarely requests updates more thanonce a year. In certain rare circumstances,more frequent updates may be appropriate,such as when the IRS has reason to believethat the taxpayer’s financial condition hasimproved.

Section 301.6159–1(d): Rejection of aproposed installment agreement.

Section 301.6159–1(d)(2) of the pro-posed regulations provided that the IRSmay not notify a taxpayer or the taxpayer’srepresentative of the rejection of an install-ment agreement until an independent re-view of proposed rejection is completed.The commenter was concerned that theproposed regulations did not provide anyguidance as to how the independent ad-ministrative review will be assured. Thecommenter recommended that the reviewbe undertaken by an IRS office locatedin a different territory. The recommen-dation was not adopted. Managers in theIRS offices in San Jose, California, and

2009–52 I.R.B. 946 December 28, 2009

Jacksonville, Florida, supervise employ-ees throughout the United States who re-view rejected installment agreements. Anindependent review is assured by assign-ing these cases to an employee who has noprior involvement in the case and who re-ports to a supervisor in either of these twooffices.

The commenter recommended that thedetermination that the taxpayer did notsubmit a good faith revision be subject toindependent administrative review. Thisrecommendation was not adopted be-cause it would delay case resolution andwould, in effect, treat requests that werenot made in good faith as valid requests.The commenter also recommended thatthe rejection of revisions that were madein good faith receive independent review.The proposed regulation already providedfor this review. Proposed §301.6159–1(b)stated that if the IRS determines that thetaxpayer made a good faith revision within30 days of the rejection, the provisionsof §301.6159–1 apply to the revised pro-posal.

Proposed §301.6159–1(d)(3) providedthat a taxpayer may appeal the rejectionof an installment agreement request within30 days of the rejection. The commenterrecommended that the 30-day period betolled while a revised proposal of a re-jected request is being evaluated so thatthe taxpayer would not have to file an ap-peal while the revision is under consid-eration. This recommendation was notadopted. The IRS’s procedures are de-signed to allow a quick resolution of thetaxpayer’s request; tolling the appeal pe-riod would add an unneeded layer of com-plexity to the process and delay case reso-lution. The commenter also recommendedthat the IRS provide more definitive guid-ance as to what qualifies as a good faithrevision. This recommendation was notadopted because this guidance is more ap-propriately left to the IRS procedures.

Section 301.6159–1(e): Modification ortermination of installment agreements bythe Internal Revenue Service.

Proposed §301.6159–1(e)(2)(i) pro-vided that the IRS may modify or ter-minate an installment agreement if theIRS determines that the financial con-dition of the taxpayer has significantlychanged. Proposed §301.6159–1(c)(3)(vi)

provided that the IRS and the taxpayermay agree to modify or terminate an in-stallment agreement or may agree to a newinstallment agreement that supersedes theexisting agreement. The commenter rec-ommended that the regulations explicitlyallow taxpayers to request a modifica-tion or termination of an existing install-ment agreement, as was stated in existing§301.6159–1(c)(3). This clarification wasadopted in §301.6159–1(e)(3).

The commenter recommended that theregulations require the taxpayer to com-ply with the terms of an installment agree-ment while a request for modification isbeing considered and that a proposed mod-ification will not result in a suspensionof the statute of limitations on collection.These clarifications were also adopted in§301.6159–1(e)(3).

The commenter recommended that ataxpayer’s request to modify an existinginstallment agreement should be exemptfrom user fees under regulations §§300.1and 300.2. This recommendation was notadopted because user fees are outside thescope of this regulation project.

Proposed §301.6159–1(e)(2)(ii)(C)provided that the IRS may modify or ter-minate an installment agreement if thetaxpayer fails to provide a financial con-dition update requested by the IRS. Thecommenter recommended that the regula-tions provide explicitly whether the IRSmay terminate an installment agreementif the taxpayer provided materially inac-curate or incomplete information. Thisrecommendation was adopted. Section301.6159–1(e)(1)(i) was revised to clarifythat the IRS may terminate an installmentagreement if the taxpayer provided materi-ally inaccurate or incomplete informationin connection with a requested financialupdate.

Proposed §301.6159–1(e)(3) providedthat the IRS will generally notify the tax-payer in writing at least 30 days prior toterminating an installment agreement anddescribe the reason for the termination, af-ter which the taxpayer may provide infor-mation showing that the IRS’s reason is in-correct. Proposed §301.6159–1(e)(4) pro-vided for the administrative appeal of themodification or termination of an install-ment agreement to the Office of Appealsif the request is properly made within 30days after the termination or modificationis to take effect. The commenter recom-

mended that the regulations clarify that anappeal should be made to the Office of Ap-peals within 30 days after the modificationor termination will take effect, regardlessof whether the taxpayer submits additionalinformation under §301.6159–1(e)(3), hasfilled out Form 9423, “Collection AppealRequest,” or has requested a meeting witha Collection Manager. This recommenda-tion was not adopted in the regulations be-cause it is more appropriately addressed inIRS forms and procedures.

Proposed §301.6159–1(e)(4) provided,in part, that the taxpayer may admin-istratively appeal the modification ortermination of an installment agreementto the Office of Appeals. The commenterrecommended that the taxpayer be al-lowed to appeal the IRS’s determinationnot to modify an installment agreement.This recommendation was not adopted.The IRS routinely grants taxpayer modi-fication requests that result in agreementswithin the streamlined criteria. SeeInternal Revenue Manual 5.19.1.5.4.24at http://www.irs.gov/irm/part5/irm_05–019–001.html. Taxpayers do nothave a statutory right to appeal rejectedmodification requests, and the IRS has notdetermined there is a need for additionaladministrative review of the denial of amodification request.

Section 301.6159–1(f): Effect ofinstallment agreement or pendinginstallment agreement on collectionactivity.

Section 301.6159–1(f)(1) of the pro-posed regulations stated that the IRSmay not levy during the time an install-ment agreement is pending. Proposed§301.6159–1(f)(2) stated that levy is notprohibited if an installment agreementrequest was made solely to delay collec-tion. The commenter recommended thatthe solely to delay collection standard inthe proposed regulations be replaced withlanguage that references the “frivoloussubmission” standard in section 6702(b) ofthe Code. This recommendation was notadopted. Under existing IRS procedures,an installment agreement is returned asmade solely to delay collection when thereis no economic reality to the request, therequest fails to address changes previouslyrequested by the IRS in response to a priorrequest, the request ignores direction pro-

December 28, 2009 947 2009–52 I.R.B.

vided by revenue officers, the request ismade by a taxpayer that has defaulted priorinstallment agreements, or the request ismade at a time that causes it to be classifiedas a request made to delay enforcementaction. See Internal Revenue Manual5.14.3.2 at http://www.irs.gov/irm/part5/irm_05–014–003.html. Section 6702(b)imposes a $5,000 penalty for installmentagreement requests that reflect a desire todelay or impede the administration of theFederal tax laws, and the IRS has not yetdeveloped procedures defining the kindsof installment agreements that constitutefrivolous submissions. The standard insection 6702(b) therefore may not be anappropriate standard for identifying thoseinstallment agreements that fail to qualifyfor the prohibition against levy.

In the alternative, the commenter rec-ommended that the regulations state that ataxpayer may appeal the IRS’s levy actionwhen the IRS determines that an install-ment agreement request was made solelyto delay collection, and that damages maybe appropriate under section 7433 of theCode. These recommendations were notadopted. Taxpayers’ rights to appeal pro-posed levies and seek damages are pro-vided for in the regulations under sections6330 and 7433 of the Code, respectively.

Section 301.6159–1(g): Suspension of thestatute of limitations on collection.

Section 301.6159–1(g) of the proposedregulations provided that the statute of lim-itations on collection under section 6502 ofthe Code is suspended for the period thata proposed installment agreement is pend-ing, plus 30 days following a rejection, andduring any appeal. The commenter recom-mended that the regulations clearly definewhen an installment agreement is pend-ing. This recommendation is already ad-dressed by proposed §301.6159–1(b)(2),which provides a detailed explanation ofwhen an installment agreement is pending.

Section 301.6159–1(h): Annual statement.

Section 301.6159–1(h) of the proposedregulations requires the IRS to provide tax-payers with an annual statement settingforth the balance owed at the beginningof the year, the payments made during theyear, and the remaining balance at the endof the year. The commenter recommends

that the annual statement be as clear as pos-sible and that the IRS provide the taxpayerwith a single annual statement describingall tax liabilities covered by the agreement.Currently, the IRS sends an annual state-ment for each separate liability covered byan installment agreement. No change wasmade to the final regulations because thisrecommendation is more appropriately ad-dressed when the IRS updates the formsused for the annual statements.

Section 301.6159–1(i): Biennial review ofpartial payment installment agreements.

Section 301.6159–1(i) of the proposedregulations required the IRS to perform areview of the taxpayer’s financial condi-tion at least once every two years in casesof partial payment installment agreements.The proposed regulations also stated thatthe purpose of the review was to determinewhether an increase in payments is war-ranted. The commenter recommended that§301.6159–1(i) be rephrased to providethat the biennial review of a taxpayer’s fi-nancial condition may result in a decrease,as well as an increase, in the amount ofpayments being made. This recommen-dation was not adopted. While taxpayersmay request a decrease in the amount ofpayments due under an installment agree-ment, the IRS does not have the informa-tion to unilaterally make that determina-tion. The automatic biennial review doneby the IRS does not, in every case, resultin a request for updated financial informa-tion. As explained above, taxpayers mayrequest that their payments be lowered iftheir financial condition has worsened.

Section 301.6159–1(k):Effective/applicability date.

Section 301.6159–1(k) of the proposedregulations provided that the effectivedate of the final regulations would be thedate the final regulations are publishedin the Federal Register. The commenterwas concerned about how previously pro-posed or accepted installment agreementswill be affected by the regulations andrecommended that the effective date ofparagraphs (b), (c), and (d) apply prospec-tively. This recommendation was notadopted. As explained earlier and in thepreamble to the proposed regulations, theregulations substantially reflect existing

practices. The regulations will thereforehave no effect on previously proposed oraccepted installment agreements.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been deter-mined that section 553(b) of the Admin-istrative Procedure Act (5 U.S.C. chapter5) does not apply to these regulations, andbecause the regulations do not impose acollection of information on small entities,the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant to sec-tion 7805(f) of the Code, the proposed reg-ulations preceding these regulations weresubmitted to the Chief Counsel for Advo-cacy of the Small Business Administrationfor comment on its impact on small busi-ness.

Drafting Information

The principal author of these regula-tions is Walter Ryan, Office of AssociateChief Counsel (Procedure and Administra-tion).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read in part as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6159–0 is added to

read as follows:

§301.6159–0 Table of contents.

This section lists the major captionsthat appear in the regulations under§301.6159–1.

§301.6159–1 Agreements for the paymentof tax liabilities in installments.

(a) Authority.

2009–52 I.R.B. 948 December 28, 2009

(b) Procedures for submission and con-sideration of proposed installment agree-ments.

(c) Acceptance, form, and terms of in-stallment agreements.

(d) Rejection of a proposed installmentagreement.

(e) Modification or termination of in-stallment agreements by the Internal Rev-enue Service.

(f) Effect of installment agreement orpending installment agreement on collec-tion activity.

(g) Suspension of the statute of limita-tions on collection.

(h) Annual statement.(i) Biennial review of partial payment

installment agreements.(j) Cross reference.(k) Effective/applicability date.Par. 3. Section 301.6159–1 is revised

to read as follows:

§301.6159–1 Agreements for payment oftax liabilities in installments.

(a) Authority. The Commissioner mayenter into a written agreement with a tax-payer that allows the taxpayer to makescheduled periodic payments of any taxliability if the Commissioner determinesthat such agreement will facilitate full orpartial collection of the tax liability.

(b) Procedures for submission and con-sideration of proposed installment agree-ments—(1) In general. A proposed install-ment agreement must be submitted accord-ing to the procedures, and in the form andmanner, prescribed by the Commissioner.

(2) When a proposed installment agree-ment becomes pending. A proposed in-stallment agreement becomes pendingwhen it is accepted for processing. TheInternal Revenue Service (IRS) may notaccept a proposed installment agreementfor processing following reference of acase involving the liability that is the sub-ject of the proposed installment agreementto the Department of Justice for prosecu-tion or defense. The proposed installmentagreement remains pending until the IRSaccepts the proposal, the IRS notifies thetaxpayer that the proposal has been re-jected, or the proposal is withdrawn by thetaxpayer. If a proposed installment agree-ment that has been accepted for processingdoes not contain sufficient information topermit the IRS to evaluate whether the

proposal should be accepted, the IRS willrequest the taxpayer to provide the neededadditional information. If the taxpayerdoes not submit the additional informationthat the IRS has requested within a reason-able time period after such a request, theIRS may reject the proposed installmentagreement.

(3) Revised proposals of installmentagreements submitted following rejection.If, following the rejection of a proposedinstallment agreement, the IRS determinesthat the taxpayer made a good faith re-vision of the proposal and submitted therevision within 30 days of the date of re-jection, the provisions of this section shallapply to that revised proposal. If, how-ever, the IRS determines that a revisionwas not made in good faith, the provisionsof this section do not apply to the revisionand the appeal period in paragraph (d)(3)of this section continues to run from thedate of the original rejection.

(c) Acceptance, form, and terms of in-stallment agreements—(1) Acceptance ofan installment agreement—(i) In general.A proposed installment agreement has notbeen accepted until the IRS notifies thetaxpayer or the taxpayer’s representativeof the acceptance. Except as providedin paragraph (c)(1)(iii) of this section, theCommissioner has the discretion to acceptor reject any proposed installment agree-ment.

(ii) Acceptance does not reduce liabil-ities. The acceptance of an installmentagreement by the IRS does not reducethe amount of taxes, interest, or penaltiesowed. (However, penalties may continueto accrue at a reduced rate pursuant tosection 6651(h).)

(iii) Guaranteed installment agree-ments. In the case of a liability of anindividual for income tax, the Commis-sioner shall accept a proposed installmentagreement if, as of the date the individualproposes the installment agreement—

(A) The aggregate amount of the liabil-ity (not including interest, penalties, addi-tions to tax, and additional amounts) doesnot exceed $10,000;

(B) The taxpayer (and, if the liabil-ity relates to a joint return, the taxpayer’sspouse) has not, during any of the preced-ing five taxable years—

(1) Failed to file any income tax return;(2) Failed to pay any required income

tax; or

(3) Entered into an installment agree-ment for the payment of any income tax;

(C) The Commissioner determines thatthe taxpayer is financially unable to paythe liability in full when due (and the tax-payer submits any information the Com-missioner requires to make that determina-tion);

(D) The installment agreement requiresfull payment of the liability within threeyears; and

(E) The taxpayer agrees to comply withthe provisions of the Internal RevenueCode for the period the agreement is ineffect.

(2) Form of installment agreements. Aninstallment agreement must be in writing.A written installment agreement may takethe form of a document signed by the tax-payer and the Commissioner or a writtenconfirmation of an agreement entered intoby the taxpayer and the Commissioner thatis mailed or personally delivered to the tax-payer.

(3) Terms of installment agreements. (i)Except as otherwise provided in this sec-tion, an installment agreement is effectivefrom the date the IRS notifies the taxpayeror the taxpayer’s representative of its ac-ceptance until the date the agreement endsby its terms or until it is superseded by anew installment agreement.

(ii) By its terms, an installment agree-ment may end upon the expiration of theperiod of limitations on collection in sec-tion 6502 and §301.6502–1, or at someprior date.

(iii) As a condition to entering into aninstallment agreement with a taxpayer, theCommissioner may require that—

(A) The taxpayer agree to a reasonableextension of the period of limitations oncollection; and

(B) The agreement contain terms thatprotect the interests of the Government.

(iv) Except as otherwise provided in aninstallment agreement, all payments madeunder the installment agreement will beapplied in the best interests of the Govern-ment.

(v) While an installment agreement isin effect, the Commissioner may request,and the taxpayer must provide, a financialcondition update at any time.

(vi) At any time after entering into aninstallment agreement, the Commissionerand the taxpayer may agree to modify orterminate an installment agreement or may

December 28, 2009 949 2009–52 I.R.B.

agree to a new installment agreement thatsupersedes the existing agreement.

(d) Rejection of a proposed installmentagreement—(1) When a proposed install-ment agreement becomes rejected. A pro-posed installment agreement has not beenrejected until the IRS notifies the taxpayeror the taxpayer’s representative of the re-jection, the reason(s) for rejection, and theright to an appeal.

(2) Independent administrative review.The IRS may not notify a taxpayer or tax-payer’s representative of the rejection ofan installment agreement until an indepen-dent administrative review of the proposedrejection is completed.

(3) Appeal of rejection of a proposedinstallment agreement. The taxpayer mayadministratively appeal a rejection of aproposed installment agreement to the IRSOffice of Appeals (Appeals) if, within the30-day period commencing the day afterthe taxpayer is notified of the rejection, thetaxpayer requests an appeal in the mannerprovided by the Commissioner.

(e) Modification or termination ofinstallment agreements by the InternalRevenue Service—(1) Inadequate infor-mation or jeopardy. The Commissionermay terminate an installment agreement ifthe Commissioner determines that—

(i) Information which was provided tothe IRS by the taxpayer or the taxpayer’srepresentative in connection with eitherthe granting of the installment agreementor a request for a financial update wasinaccurate or incomplete in any materialrespect; or

(ii) Collection of any liability to whichthe installment agreement applies is injeopardy.

(2) Change in financial condition, fail-ure to timely pay an installment or an-other Federal tax liability, or failure toprovide requested financial information.The Commissioner may modify or termi-nate an installment agreement if—

(i) The Commissioner determines thatthe financial condition of a taxpayer thatis party to the agreement has significantlychanged; or

(ii) A taxpayer that is party to the in-stallment agreement fails to—

(A) Timely pay an installment in ac-cordance with the terms of the installmentagreement;

(B) Pay any other Federal tax liabilitywhen the liability becomes due; or

(C) Provide a financial condition updaterequested by the Commissioner.

(3) Request by taxpayer. Upon requestby a taxpayer that is a party to the install-ment agreement, the Commissioner mayterminate or modify the terms of an in-stallment agreement if the Commissionerdetermines that the financial condition ofthe taxpayer has significantly changed.The taxpayer’s request will not suspendthe statute of limitations under section6502 for collection of any liability. Whilethe Commissioner is considering the re-quest, the taxpayer shall comply with theterms of the existing installment agree-ment.

(4) Notice. Unless the Commissionerdetermines that collection of the tax is injeopardy, the Commissioner will notify thetaxpayer in writing at least 30 days priorto modifying or terminating an installmentagreement pursuant to paragraph (e)(1) or(2) of this section. The notice providedpursuant to this section must briefly de-scribe the reason for the intended modifi-cation or termination. Upon receiving no-tice, the taxpayer may provide informationshowing that the reason for the proposedmodification or termination is incorrect.

(5) Appeal of modification or termina-tion of an installment agreement. Thetaxpayer may administratively appeal themodification or termination of an install-ment agreement to Appeals if, followingissuance of the notice required by para-graph (e)(4) of this section and prior to theexpiration of the 30-day period commenc-ing the day after the modification or ter-mination is to take effect, the taxpayer re-quests an appeal in the manner provided bythe Commissioner.

(f) Effect of installment agreement orpending installment agreement on collec-tion activity—(1) In general. No levy maybe made to collect a tax liability that is thesubject of an installment agreement dur-ing the period that a proposed installmentagreement is pending with the IRS, for 30days immediately following the rejectionof a proposed installment agreement, dur-ing the period that an installment agree-ment is in effect, and for 30 days imme-diately following the termination of an in-stallment agreement. If, prior to the expi-ration of the 30-day period following therejection or termination of an installmentagreement, the taxpayer appeals the rejec-tion or termination decision, no levy may

be made while the rejection or terminationis being considered by Appeals. This sec-tion will not prohibit levy to collect the li-ability of any person other than the personor persons named in the installment agree-ment.

(2) Exceptions. Paragraph (f)(1) of thissection shall not prohibit levy if the tax-payer files a written notice with the IRSthat waives the restriction on levy imposedby this section, the IRS determines that theproposed installment agreement was sub-mitted solely to delay collection, or theIRS determines that collection of the taxto which the installment agreement or pro-posed installment agreement relates is injeopardy.

(3) Other actions by the IRS while levyis prohibited—(i) In general. The IRS maytake actions other than levy to protect theinterests of the Government with regardto the liability identified in an installmentagreement or proposed installment agree-ment. Those actions include, for exam-ple—

(A) Crediting an overpayment againstthe liability pursuant to section 6402;

(B) Filing or refiling notices of Federaltax lien; and

(C) Taking action to collect from anyperson who is not named in the installmentagreement or proposed installment agree-ment but who is liable for the tax to whichthe installment agreement relates.

(ii) Proceedings in court. Except asotherwise provided in this paragraph(f)(3)(ii), the IRS will not refer a case to theDepartment of Justice for the commence-ment of a proceeding in court, against aperson named in an installment agreementor proposed installment agreement, if levyto collect the liability is prohibited byparagraph (f)(1) of this section. Withoutregard to whether a person is named in aninstallment agreement or proposed install-ment agreement, however, the IRS mayauthorize the Department of Justice to filea counterclaim or third-party complaintin a refund action or to join that personin any other proceeding in which liabilityfor the tax that is the subject of the install-ment agreement or proposed installmentagreement may be established or disputed,including a suit against the United Statesunder 28 U.S.C. 2410. In addition, theUnited States may file a claim in any bank-ruptcy proceeding or insolvency actionbrought by or against such person. If a

2009–52 I.R.B. 950 December 28, 2009

person named in an installment agreementis joined in a proceeding, the United Statesobtains a judgment against that person,and the case is referred back to the IRSfor collection, collection will continueto occur pursuant to the terms of the in-stallment agreement. Notwithstanding theinstallment agreement, any claim or suitpermitted will be for the full amount of theliabilities owed.

(g) Suspension of the statute of limita-tions on collection. The statute of limita-tions under section 6502 for collection ofany liability shall be suspended during theperiod that a proposed installment agree-ment relating to that liability is pendingwith the IRS, for 30 days immediately fol-lowing the rejection of a proposed install-ment agreement, and for 30 days immedi-ately following the termination of an in-stallment agreement. If, within the 30 daysfollowing the rejection or termination of aninstallment agreement, the taxpayer filesan appeal with Appeals, the statute of lim-itations for collection shall be suspendedwhile the rejection or termination is beingconsidered by Appeals. The statute of lim-itations for collection shall continue to runif an exception under paragraph (f)(2) ofthis section applies and levy is not prohib-ited with respect to the taxpayer.

(h) Annual statement. The Commis-sioner shall provide each taxpayer who isparty to an installment agreement underthis section with an annual statement set-ting forth the initial balance owed at thebeginning of the year, the payments madeduring the year, and the remaining balanceas of the end of the year.

(i) Biennial review of partial paymentinstallment agreements. The Commis-sioner shall perform a review of the tax-payer’s financial condition in the case of apartial payment installment agreement atleast once every two years. The purposeof this review is to determine whether thetaxpayer’s financial condition has signifi-cantly changed so as to warrant an increasein the value of the payments being madeor termination of the agreement.

(j) Cross reference. Pursuant to sec-tion 6601(b)(1), the last day prescribedfor payment is determined without regardto any installment agreement, includingfor purposes of computing penalties andinterest provided by the Internal Rev-enue Code. For special rules regardingthe computation of the failure to pay

penalty while certain installment agree-ments are in effect, see section 6651(h)and §301.6651–1(a)(4).

(k) Effective/applicability date. Thissection is applicable on November 25,2009.

Par. 4. Section 301.6331–4, paragraph(d) is revised and paragraph (e) is added toread as follows:

§301.6331–4 Restrictions on levy whileinstallment agreements are pending or ineffect.

* * * * *(d) Cross-reference. For provisions re-

lating to the making of levies while an in-stallment agreement is pending or in effect,see §301.6159–1.

(e) Effective/applicability date. Para-graphs (a), (b) and (c) are applicable begin-ning December 18, 2002. Paragraph (d) isapplicable on November 25, 2009.

Steven T. Miller,Deputy Commissioner of

Services and Enforcement.

Approved November 11, 2009.

Michael F. Mundaca,Acting Assistant Secretary

of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on November 24,2009, 8:45 a.m., and published in the issue of the FederalRegister for November 25, 2009, 74 F.R. 61525)

Section 6205.—SpecialRules Applicable to CertainEmployment Taxes26 CFR 31.6205–1: Adjustments of underpayments.(Also: 6402, 6413, 6414, 31.6402(a)–1,31.6402(a)–2, 31.6413(a)–1, 31.6413(a)–2,31.6414–1.)

94X examples revenue ruling. Thisrevenue ruling illustrates the applicationof the interest-free adjustment and claimfor refund processes under the final regu-lations promulgated by Treasury Decision9405 (T.D. 9405), 2008–32 I.R.B. 293.T.D 9405 amends the process for mak-ing interest-free adjustments of employ-ment taxes under sections 6205 and 6413of the Code, and claiming refunds of em-ployment taxes under sections 6402 and6414. T.D. 9405 was initiated in con-nection with the Service’s development of

new “X” forms (e.g., Form 941–X, Ad-justed Employer’s QUARTERLY FederalTax Return or Claim for Refund) as partof the Form 94X Project initiated by theOffice of Taxpayer Burden Reduction andnow led by SB/SE Employment Tax Pol-icy. The proposed revenue ruling appliesthe final regulations under T.D. 9405 to 10different situations to show how the newprocesses operate. Rev. Rul. 75–464 ob-soleted.

Rev. Rul. 2009–39

ISSUE

How does an employer correct employ-ment tax reporting errors using the inter-est-free adjustment and refund claim pro-cesses under sections 6205, 6402, 6413,and 6414 of the Internal Revenue Code andthe accompanying regulations in the fol-lowing situations:

(1) an underpayment of Federal Insur-ance Contributions Act (FICA) tax and in-come tax withholding (ITW) when the er-ror is not ascertained in the year the wageswere paid; (2) an overpayment of ITWwhen the error is ascertained in the sameyear the wages were paid; (3) both an over-payment and an underpayment of FICAtax for the same tax period; (4) an under-payment of FICA tax when the employer’sfiling requirement has changed; (5) an un-derpayment of FICA tax and ITW result-ing from a failure to file an employmenttax return because the employer failed totreat any workers as employees; (6) anoverpayment of FICA tax on wages paidto a household employee; (7) an overpay-ment of FICA tax when the error is as-certained close to the expiration of the pe-riod of limitations on credit or refund; (8)an underpayment of FICA tax and ITWascertained in the course of an employ-ment tax examination; (9) an underpay-ment of FICA tax and ITW ascertained inthe course of the appeals process; (10) anunderpayment of FICA tax and ITW re-sulting from the misclassification of em-ployees ascertained in the course of the ap-peals process.

LAW, ANALYSIS, AND HOLDINGS

For purposes of this revenue ruling,employment tax means FICA tax (boththe social security and Medicare portions)imposed by section 3101 (employee FICA

December 28, 2009 951 2009–52 I.R.B.

tax) and section 3111 (employer FICAtax), and ITW imposed by section 3402.To the extent other types of withholdingare treated as ITW under section 3402(a)(that is, gambling withholding, pensionwithholding, and backup withholding asset forth in sections 3402(q)(7), 3405(f),and 3406(h)(10), respectively), these othertypes of withholding are included in theterm employment tax.

Sections 6205, 6402, 6413, and 6414permit interest-free adjustments andclaims for refund to correct employ-ment tax reporting errors. Sections31.6205–1, 31.6402(a)–1, 31.6402(a)–2,31.6413(a)–1, 31.6413(a)–2, and31.6414–1, as amended by Treasury Deci-sion 9405 (T.D. 9405, 2008–32 I.R.B. 293[73 FR 37371]), provide rules for mak-ing interest-free adjustments and claim-ing refunds of employment tax. Section31.6302–1, as amended by T.D. 9405, pro-vides rules relating to deposit obligationswith respect to interest-free adjustmentsof employment tax. T.D. 9405 is effectiveon January 1, 2009 and applies to errorsascertained on or after January 1, 2009.

T.D. 9405 was issued in coordinationwith “X” forms developed by the InternalRevenue Service (IRS) that employersuse to correct employment tax reportingerrors ascertained on or after January 1,2009. The “X” forms correspond withForm 941, “Employer’s QUARTERLYFederal Tax Return”; Form 943, “Em-ployer’s Annual Federal Tax Return forAgricultural Employees”; Form 944, “Em-ployer’s ANNUAL Federal Tax Return”;and Form 945, “Annual Return of With-held Federal Income Tax.” The new “X”forms (e.g., Form 941–X, “Adjusted Em-ployer’s QUARTERLY Federal Tax Returnor Claim for Refund”) are used to claimrefunds, make adjustments, and requestabatements of employment tax.

This revenue ruling refers to correc-tions made pursuant to sections 6205 and6413 of underpayments or overpayments,respectively, resulting from employmenttax reporting errors as having been madeusing the adjustment process. This rev-enue ruling refers to corrections made pur-suant to sections 6402 and 6414 of over-payments resulting from employment taxreporting errors as having been made us-ing the refund claim process.

Underpayments

Pursuant to § 31.6205–1(b), an em-ployer that has underreported and un-derpaid FICA tax with respect to anypayment of wages can correct the error asan interest-free adjustment if the error isascertained after the return reporting suchtax has been filed. An error is ascertainedwhen the employer has sufficient knowl-edge of the error to be able to correctit. An interest-free underpayment adjust-ment is made by reporting the additionalamount due on an adjusted return filed bythe due date for filing the employment taxreturn for the return period in which theerror was ascertained. The due date forfiling the adjusted return is determined byreference to the type of return (e.g., Form941 or Form 944) being corrected, with-out regard to the employer’s current filingrequirements. The amount of the under-payment must be paid to the IRS by thedate the adjusted return is filed. Section31.6205–1(a)(7) provides that agreementforms, such as Form 2504, “Agreement toAssessment and Collection of AdditionalTax and Acceptance of Overassessment(Excise or Employment Tax),” which areused in the context of an examination orappeals process, constitute adjusted re-turns. If an adjustment is reported but theamount of the adjustment is not paid whendue, interest will accrue thereafter.

Section 31.6205–1(c) provides simi-lar rules for correcting underpayments ofITW. However, an interest-free adjust-ment of ITW may only be made if theerror is ascertained within the same calen-dar year that the wages to the employeewere paid, unless: (1) the underpaymentis attributable to an administrative error,(2) section 3509 (a relief provision toreduce employment tax liability in cer-tain worker misclassification situations)applies to determine the amount of theunderpayment, or (3) the adjustment is re-ported on a Form 2504, Form 2504–WC,“Agreement to Assessment and Collec-tion of Additional Tax and Acceptance ofOverassessment in Worker ClassificationCases (Employment Tax),” or other agree-ment forms prescribed by the IRS (such as,Form 2504–AD, “Excise or EmploymentTax-Offer of Agreement to Assessment andCollection of Additional Tax and Offerof Acceptance of Overassessment,” andForm 2504–S, “Agreement to Assessment

and Collection of Additional Tax and Ac-ceptance of Overassessment (IncludingSection 530 Statement)”).

Section 31.6205–1(a)(2) provides thatan interest-free adjustment may not bemade to correct an underpayment of anyemployment tax if the failure to reportrelates to an issue that was raised in anexamination of a prior return period orif the employer knowingly underreportedits employment tax liability. In addition,§ 31.6205–1(a)(6) provides that an in-terest-free adjustment generally may notbe made after receipt of notice and de-mand for payment or receipt of a Noticeof Determination of Worker Classification(Notice of Determination).

Section 7436 grants the U.S. Tax Courtjurisdiction to review determinations bythe IRS regarding worker classification,relief under section 530 of the RevenueAct of 1978, and the proper amount of em-ployment tax under those determinations.The Notice of Determination serves as theIRS’s determination for purposes of sec-tion 7436, and therefore is a jurisdictionalprerequisite for seeking U.S. Tax Courtreview in worker classification cases. Inorder to provide a mechanism for taxpay-ers to make an interest-free adjustmentyet receive a Notice of Determinationenabling them to petition the U.S. TaxCourt, § 31.6205–1(a)(6)(ii) permits anemployer, prior to receipt of a Notice ofDetermination, to make a cash bond de-posit in lieu of making a payment to stopthe accrual of any interest. The IRS treatsa cash bond deposit made prior to receiptof a Notice of Determination as an inter-est-free adjustment. Without this rule, anemployer would not be able to both makean interest-free adjustment and receivea Notice of Determination enabling it toseek U.S. Tax Court review under section7436. Moreover, this cash bond depositis the only way an employer can make aninterest-free adjustment other than filingan adjusted return.

Section 31.6205–1(b)(2)(i) providesthat an adjusted return reporting an under-payment must be filed within the period oflimitations for assessment under section6501, which is generally 3 years after thedue date of the return or the date the returnwas filed, whichever is later. In computingthe period of limitations for assessment,section 6501(b)(2) provides that employ-ment tax returns reporting FICA tax or

2009–52 I.R.B. 952 December 28, 2009

ITW for any period ending with or withina calendar year filed before April 15 of thesucceeding calendar year are deemed filedon April 15 of such succeeding calendaryear.

Section 31.6205–1(b)(3) provides that,if an employer fails to file a return for areturn period solely because the employerfailed to treat any individuals properlyas employees for the return period (and,therefore, failed to withhold and pay anyemployer or employee FICA tax with re-spect to wages paid to the employees) andif the employer ascertains the error afterthe due date of the return, the employershall correct the error as an interest-freeadjustment. The regulations also providethe process for correcting this type of error.Section 31.6205–1(c)(3) provides a simi-lar rule for ITW; however, an adjustmentof ITW may only be made if (1) the erroris ascertained within the same calendaryear that the wages to the employee werepaid, (2) section 3509 applies to deter-mine the amount of the underpayment, or(3) the adjustment is reported on a Form2504, Form 2504–WC, or other prescribedagreement form.

Section 31.6302–1(c)(7) provides thatan employer filing an adjusted return un-der § 31.6205–1 in order to report taxesthat were accumulated in a prior return pe-riod shall pay the amount of the adjust-ment by the time it files the adjusted return;the amount paid by the time the employerfiles the adjusted return will be deemedto have been timely deposited by the em-ployer. Amounts not timely deposited maybe subject to the failure to deposit penaltyunder section 6656.

Overpayments

In general, employers may choose tocorrect employment tax overpayment er-rors by either making an interest-free ad-justment or filing a claim for refund afteran error has been ascertained. An error isascertained when the employer has suffi-cient knowledge of the error to be able tocorrect it.

Under § 31.6413(a)–1(a), an em-ployer has a duty to assure that its em-ployee’s rights to recover overcollectedtaxes are protected by repaying or reim-bursing overcollected amounts. Section31.6413(a)–1(a) provides that before mak-ing an adjustment of an overpayment of

FICA tax, an employer must repay or re-imburse its employee in the amount ofthe overcollection prior to the expirationof the period of limitations on credit orrefund and, for FICA tax overcollectedin a prior year, must also secure the em-ployee’s written statement confirming thatthe employee has not made any previousclaims (or the claims were rejected) andwill not make any future claims for refundor credit of the amount of the overcol-lected FICA tax. Section 31.6413(a)–1(b)provides a similar rule for overcollectedITW; however, the employer is required torepay or reimburse the employee prior tothe end of the calendar year in which thewages were paid or an adjustment may notbe made to correct the error.

Section 31.6413(a)–2 provides the rulesfor making interest-free adjustments foroverpayments of FICA tax or ITW, afterthe employer has repaid or reimbursed theemployee the amount of any overcollec-tion. An interest-free adjustment is madeby filing an adjusted return. The employeris required to certify that it has repaid orreimbursed the employee in the amountof the overcollection. For adjustments ofemployee FICA tax overcollected in prioryears, the employer must also certify thatit has secured the required written state-ment from the employee. However, theserequirements do not apply to the extent thatthe taxes were not withheld from the em-ployee, nor do they apply if after havingmade reasonable efforts the employer can-not locate the employee or, for prior yearFICA tax, the employee did not providethe required written statement. If, after theemployer’s reasonable efforts to secure therequired written statement, the employeedoes not furnish it, the employer may makean adjustment of the overpaid employerFICA tax.

The employer must file an adjusted re-turn before the expiration of the period oflimitations on credit or refund under sec-tion 6511. However, § 31.6413(a)–2(d)(2)provides that no overpayment adjustmentmay be made if the overpayment relatesto a return period for which the period oflimitations on credit or refund under sec-tion 6511 will expire within 90 days of fil-ing the adjusted return. This is referredto as the 90-day rule. The purpose of the90-day rule is to give the IRS sufficienttime to process the request for an overpay-ment adjustment. To satisfy the rule, an ad-

justed return must be filed 90 days beforethe expiration of the period of limitationson credit or refund under section 6511.

Section 6511(a) provides that a claimfor credit or refund must be made within3 years from the time the return was filedor 2 years from the time the tax was paid,whichever is later, or, if no return was filed,within 2 years from the time the tax waspaid. In computing the period of limita-tions, section 6513(c) provides that em-ployment tax returns reporting FICA tax orITW for any period ending with or withina calendar year filed before April 15 of thesucceeding calendar year are deemed filedon April 15 of such succeeding calendaryear. Likewise, section 6513(c) providesthat FICA tax or ITW paid during any pe-riod ending with or within a calendar yearbefore April 15 of the succeeding calendaryear is deemed paid on April 15 of the suc-ceeding calendar year.

Section 31.6402(a)–2 provides rulesunder which a refund claim for an overpay-ment of FICA tax may be made. Pursuantto § 31.6402(a)–2(a), an employer has aduty to assure that its employee’s rights torecover overcollected taxes are protectedby repaying or reimbursing overcollectedamounts. Alternatively, an employer mayobtain the employee’s consent to the filingof the refund claim, an option not avail-able under the adjustment process. UnderChicago Milwaukee Corp. v. U.S., 40F.3d 373 (C.A. Fed. 1994), an employerneed not repay or reimburse its employ-ees or obtain the employees’ consents forthe filing of a refund claim prior to filingthe claim, in order for the claim to bevalid. However, the employer must repayor reimburse its employees or obtain theemployees’ consents before the IRS cangrant the claim.

The regulations require that an em-ployer certify that it has repaid or re-imbursed its employee or obtained theemployee’s consent to the filing of therefund claim. For refund claims for em-ployee FICA tax overcollected in prioryears, the employer must also certify thatit has obtained the employee’s writtenstatement confirming that the employeehas not made any previous claims (or theclaims were rejected) and will not makeany future claims for refund or credit ofthe amount of the overcollection. How-ever, these requirements do not apply tothe extent that the taxes were not withheld

December 28, 2009 953 2009–52 I.R.B.

from the employee, nor do they apply ifafter having made reasonable efforts theemployer cannot locate the employee orthe employee will not provide consent, orthe employee did not provide the requiredwritten statement. If, after the employer’sreasonable efforts to obtain the employee’sconsent or secure the required writtenstatement, the employee does not furnishone or the other of them, the employer mayclaim a refund of the overpaid employerFICA tax. A claim must be filed beforethe expiration of the period of limitationson credit or refund under section 6511.

Section 31.6414–1 provides rules underwhich a claim for credit or refund of anoverpayment of ITW can be made. Anemployer that has overpaid ITW may file aclaim for refund of the overpayment only ifthe amount was not actually withheld fromthe employee’s wages.

As a result of T.D. 9405 and this rev-enue ruling, Revenue Ruling 75–464,1975–2 C.B. 474, is no longer determi-native of when interest-free adjustmentsare made in the context of an employmenttax examination. Accordingly, Rev. Rul.75–464 is obsolete.

Situations

In each of these situations, except asotherwise noted, (a) the amounts underre-ported do not relate to an issue that wasraised in an examination of a prior period,(b) the employer did not knowingly under-report its employment tax liability, (c) theemployer did not receive notice and de-mand for payment, and (d) the employerdid not receive a Notice of Determination.

Situation 1: Employer R timely filed its2009 fourth quarter Form 941 on January10, 2010 and timely paid all employmenttax reported on the return. On February 9,2010, Employer R ascertains that it under-withheld and underpaid FICA tax and ITWwith respect to its employees’ wages in thefourth quarter of 2009.

Employer R must correct the underpay-ment of FICA tax on a Form 941–X usingthe adjustment process. Employer R mustfile Form 941–X by the due date of the re-turn for the return period in which it ascer-tained the error (i.e., April 30, 2010) andpay the amount owed by the time it filesForm 941–X. If Employer R files Form941–X by April 30, 2010 but does not payby the time it files, interest will accrue

from the date Form 941–X is filed untilpayment is made. If payment is not madeuntil after receipt of a notice and demandfor payment, Employer R is entitled to aninterest-free adjustment for the period upto the date the Form 941–X is filed, butinterest accrues from the date the Form941–X is filed until payment is made.

Employer R may not use the interest-free adjustment process outside an em-ployment tax examination to correct theunderpayment of ITW, because the errorwas not ascertained in the same year thatthe wages were paid to the employees.

Situation 2: Employer S timelyfiled its 2011 third quarter Form 941on October 10, 2011 and timely paidall employment tax reported on thereturn. On December 2, 2011, EmployerS ascertains that it overwithheld andoverpaid ITW in the third quarter of2011 and reported the overpayment on its2011 third quarter Form 941. EmployerS repays the overcollected amounts toits affected employees on December 29,2011. Employer S files Form 941–X onJanuary 6, 2012 to correct the overpaymentusing the adjustment process.

Because Employer S repaid its em-ployees the amount of the overcollectionof ITW in the same year that the wageswere paid, Employer S may correct theoverpayment of ITW using the adjustmentprocess even though the adjusted return isfiled in a year after the wages were paid.Employer S may not use the refund claimprocess to correct the error because theITW was actually withheld from the em-ployees’ wages. Since Employer S filedForm 941–X on or before January 15,2015, it is a timely adjustment under the90-day rule.

Situation 3: Employer T timely filedits 2006 fourth quarter Form 941 onJanuary 19, 2007, and timely paid allemployment tax reported on the return. OnDecember 1, 2009, Employer T ascertainsthat it underpaid FICA tax with respectto wages of Employees A, B, and Cand overwithheld and overpaid FICAtax with respect to wages of EmployeeD on its 2006 fourth quarter Form 941.Employer T reimbursed Employee D inthe amount of the overcollection promptlyafter ascertaining the overpayment.

The underpaid FICA tax with respectto wages of Employees A, B, and C mustbe corrected on Form 941–X using the

adjustment process. To correct the over-paid FICA tax with respect to wages ofEmployee D, Employer T may choosebetween the adjustment and refund claimprocesses because the error was ascer-tained on December 1, 2009 (more than90 days before the expiration of the periodof limitations on credit or refund) and be-cause Employer T reimbursed EmployeeD in the amount of the overcollection. IfEmployer T obtained Employee D’s con-sent to the filing of a refund claim insteadof reimbursing the overcollected FICAtax, Employer T would have to use therefund claim process to correct the over-payment since the consent option is notavailable for the adjustment process.

In order for Employer T to correctthe overpayment using the adjustmentprocess, the adjusted return must be filedon or before January 15, 2010 (i.e., 90days before the expiration of the period oflimitations on credit or refund); otherwise,after January 15, 2010, only the refundclaim process will be available to correctthe overpayment. To be timely, a refundclaim must be filed on or before April 15,2010 (i.e., the last day of the period oflimitations on credit or refund).

If Employer T chooses to correctthe overpayment using the adjustmentprocess, it can file one Form 941–X cor-recting both the underpayment and theoverpayment. However, because an over-payment adjustment may be made onlyif the adjusted return is filed within 90days of the expiration of the period oflimitations on credit or refund, EmployerT may correct both the overpayment andunderpayment on one Form 941–X only ifit files by January 15, 2010. When bothan overpayment and underpayment arecorrected on the same Form 941–X, theamounts will be combined and may resultin either a credit or a balance due.

If Employer T chooses to correctthe overpayment using the refund claimprocess, or it is unable to file Form 941–Xby January 15, 2010 (so that it must correctthe overpayment using the refund claimprocess), it must file two separate Forms941–X; one to correct the overpaymentusing the refund claim process, and oneto correct the underpayment using the ad-justment process. A refund claim and anadjustment may not be made on the sameForm 941–X. Employer T must file theForm 941–X reporting the underpayment

2009–52 I.R.B. 954 December 28, 2009

by January 31, 2010 and pay any amountdue by the date the Form 941–X is filed. IfEmployer T files the Form 941–X report-ing the underpayment by January 31, 2010and pays the amount due with that Form941–X the amount will be deemed to havebeen timely deposited. If Employer T doesnot pay the amount due with that Form941–X, interest will accrue from the datethe Form 941–X is filed until the time ofpayment. The overpayment corrected onthe separate Form 941–X using the refundclaim process will be refunded, plus anyinterest that applies, unless Employer Towes other taxes, penalties, or interest.An employer may not designate an over-payment from one Form 941–X to pay anamount due on a separate Form 941–X.

Situation 4: Employer U timely filedits 2007 Form 944 and timely paid all em-ployment tax reported on the return. InFebruary 2010, the IRS notifies EmployerU that its filing requirement has changedand it is required to file Form 941, ratherthan Form 944, for calendar year 2010 andthereafter. On May 23, 2010, Employer Uascertains that it underpaid FICA tax on its2007 Form 944.

Employer U must correct the underpay-ment of FICA tax using the adjustmentprocess. Because Employer U is correct-ing an error on a previously filed Form944, it must file a Form 944–X, “AdjustedEmployer’s ANNUAL Federal Tax Returnor Claim for Refund,” to make the correc-tion since the “X” form filed must corre-spond to the return being corrected. Em-ployer U does not consider its current fil-ing requirement (i.e., Form 941) at the timethe “X” form is filed to determine the ap-propriate “X” form to file and the date the“X” form is due. Employer U must fileForm 944–X by January 31, 2011, the duedate of the return for the return period inwhich it ascertained the error, and pay theamount owed by the time it files Form944–X. If Employer U timely files Form944–X but does not pay by the time it files,interest will accrue from the date Form944–X is filed until payment is made. Ifpayment is not made until after receipt ofnotice and demand for payment, EmployerU is still entitled to an interest-free adjust-ment for the period up to the date the Form944–X is filed, but interest accrues fromthe date the Form 944–X is filed until pay-ment is made.

Situation 5: On February 6, 2012, Em-ployer V, a sole proprietor, ascertains thathe should have treated his bookkeeper asan employee, rather than as an indepen-dent contractor, for employment tax pur-poses. The bookkeeper worked each weekfor Employer V since March 2011. Be-cause Employer V did not have any otheremployees, he never filed any Forms 941and never withheld or paid any employ-ment tax.

Employer V may correct the underpay-ment of FICA tax for each quarter in 2011using the adjustment process because hefailed to file the returns for 2011 due tohis failure to treat any individuals as em-ployees. However, because the error wasnot ascertained in the same year the wageswere paid, Employer V may correct theunderpayment of ITW using the adjust-ment process for each quarter in 2011 onlyif section 3509 applies to determine theFICA tax and ITW liability.

To make the adjustment for each quar-ter in 2011, Employer V must file a Form941 and a Form 941–X for each quarterin 2011, as provided in the