U n i t e d S t a t e s G o v e r n m e n t FORM G-ll5f(l-92)

R a i l r o a d R e t i r e m e n t B o a r d

M E M O R A N D U M

June 15, 2000 

L-2000-23

TO : Edmund T. Fleming

Chief, Audit and Compliance Section 

Through: Peter A. Larson

Director of Fiscal Operations

from : Steven A. Bartholow

General Counsel

subject: Auditing Employer Records for Years Outside the Limitation

Periods of the Railroad Retirement and Railroad 

Unemployment Insurance Acts

This is in reply to your memorandum of March 29, 2000, requesting

advice as to whether and under what conditions you may audit the

records of an employer for compensation unreported under the Railroad 

Retirement Act, and for unreported compensation and unpaid

contributions under the Railroad Unemployment Insurance Act. For the 

reasons set forth below I conclude that based upon the information

available, years beginning with 1986 may be subject to audit.

The specific case you submitted concerns a public authority

(Authority) which purchased an abandoned line of rail from a trunk

carrier to retain freight rail service in the locality. The public

authority then contracted a private firm ("A") to operate its line.

Based on these facts, in a decision dated March 7, 1985, the public

authority was determined to be a covered rail carrier employer under 

the Acts administered by the Board effective with commencement of rail 

operations in June 1984. As all operations were conducted by the 

contract operator A, and as contract operator A had previously been 

determined to be a rail carrier employer under the Acts, the public 

authority was advised that it would be considered an employer without 

employees by letter of May 7, 1986 from the Director of the Board's

former Bureau of Compensation and Certification. However, the 

Director further noted that he had been informed that A had ceased 

operations, and requested updated information. The public authority 

responded by letter of May 13, 1986, that the rail line was currently 

operated by contractor "B".

Although operator B continued to run trains over the line in the 

ensuing years, no compensation was reported under the RRA, and no 

contributions were paid and no compensation was reported under the 

RUIA in the ensuing years by either B or by Authority. The situation
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Edmund T . Fleming

came to light as the result of a criminal investigation initiated in 

February 1995 by the Office of Inspector General of the Railroad 

Retirement Board (OIG) . The OIG investigation also disclosed that in 

addition to the contract with B for train service, a municipality "C" 

within the rail line service area provided administrative services for 

Authority under an informal arrangement. In February 2000, OIG closed 

its file without prosecution and referred the matter to your office. 

Because the OIG investigation covered a period dating back to the 

initial effective date of Authority's status as a covered employer in 

1984, your memorandum requests guidance in determining the extent to 

which this period is open to audit for compliance by your office.

Your question is presented in two parts: whether you have authority 

under the Acts to audit records of the Authority, contractor B, and 

municipality C for prior years without limitation; and if so, what 

level of evidence is necessary to justify a decision to conduct such 

an audit. With respect to the first question, general Board authority 

to obtain information from the public arises from section 7(b)(6) of 

the RRA (incorporated into the RUIA by RUIA section 12(1)), which 

states in part that "The Board shall have the power to require all 

employers and employees * * * to furnish such information and records 

as shall be necessary for the administration of this Act * * * ." 

More specifically, as entitlement to benefits under the Acts is 

determined by service and compensation in the railroad industry, 

section 9 of the RRA and section 6 of the RUIA require covered 

employers to file returns of service and compensation to be credited 

to the accounts of their employees. Because service and compensation 

of employees are necessary to administer the benefit entitlement 

provisions of the Acts, the Board therefore clearly has authority to 

inspect employer records to ensure these employer reports properly 

reflect the service and compensation of the employees. Burlington 

Northern v. Office of Inspector General, 983 F. 2d 631, (5th Cir., 

1993) at 633-34, 643. See also, Legal Opinion L-84-115 to the same

effect.

Section 9 of the RRA also provides that compensation reported to the 

Board by an employer for any year, or the absence of compensation 

reported by an employer for any year, becomes conclusive evidence of 

compensation for any employee for that year after the expiration of 

four years from the date the employer report was required to be filed 

with the Board. Section 6 of the RUIA imposes the same limitation 18 

months after the date the reports are required to be filed under that 

Act. However, while section 9 of the RRA and section 6 of the RUIA 

restrict a claimant's right to challenge the Board's records of his or 

her service as reported or unreported by a railroad industry employer, 

the Board itself retains authority under the Acts to reopen records at 

any time. Gerend v. Railroad Retirement Board. 248 F. 2d 357, (9th 

Cir., 1957); Jacques v. Railroad Retirement Board, 736 F. 2d 34, (2nd
Edmund T . Fleming

Cir., 1984) . The RRA and RUIA thus do not restrict agency authority to 

inspect employer records of service and compensation for any year.

The Board has promulgated regulations 20 CFR 211.16 (b) and (c) which 

specify the conditions under which an employee's record of 

compensation as reported under section 9 of the Act may be reopened 

outside the four year period:

(b) Correction after 4 years. (1) The Board may

correct a report of compensation after the time limit set

forth in paragraph (a) of this section where the 

compensation was posted or not posted as the result of

fraud on the part of the employer.

(2) Subject to paragraph (c) of this section, the 

Board may correct a report of compensation after the [4 

year] time limit set forth in paragraph (a) of this section 

for one of the following reasons:

(i) Where the compensation was posted for the wrong

person or the wrong period;

(ii) Where the earnings were erroneously reported to 

the Social Security Administration in the good faith belief 

by the employer or employee that such earnings were not 

covered under the Railroad Retirement Act and there is a 

final decision of the Board under part 259 of this chapter 

that such employer or employee was covered under the 

Railroad Retirement Act during the period in which the 

earnings were paid;

(iii) Where a determination pertaining to the coverage 

under the Railroad Retirement Act of an individual, 

partnership, or company as an employer is retroactive; or

(iv) Where a record of compensation could not 

otherwise be corrected under this part and where in the 

judgment of the three-member Board that heads the Railroad 

Retirement Board failure to make a correction would be 

inequitable.

(c) Limitation on crediting service. (1) Except as 

provided in paragraph (b)(1) of this section, no employee 

may be credited with service months or tier II compensation 

beyond the four year period referred to in paragraph (a) of 

this section unless the employee establishes to the 

satisfaction of the Board that all employment taxes imposed 

by sections 3201, 3211, and 3221 of title 26 of the
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Edmund T . Fleming

Internal Revenue Code have been paid with respect to the 

compensation and service.

*****

The answer to the first part of your question is therefore that you 

may audit any year which falls outside the four year limitation only 

under circumstances which meet one of the exceptions imposed on 

reopening records by section 211.16(b) above.

The second part of your question relates to the weight of preliminary 

evidence necessary to support a decision to audit outside the four 

year limitation of section 211.16(b) of the regulations. Because the 

Board is empowered by section 7(b)(6) of the RRA and sections 12(a) 

and 12(1) of the RUIA to exercise its authority to obtain records by 

administrative subpoena enforceable in Federal District Court, the 

ultimate test of whether the Board may obtain records under the Acts 

is therefore whether the agency could enforce an administrative

subpoena for employer records in court.

An administrative subpoena is enforceable if it seeks reasonably 

relevant information; is not too indefinite; and relates to an 

investigation conducted within the agency's authority. E.E.O.C. v. 

Quad/Graphics, Inc., 63 F. 3d 642 (7th Cir. 1995), at 645. With

respect to the issue of fraud in particular, the United States Supreme 

Court has held that under a provision of the Internal Revenue Code 

which prohibits subjecting taxpayers to "unnecessary examination or 

investigations" does not require the IRS to show probable cause to 

suspect fraud for purposes of requiring the production for examination 

of records tax years outside the 3 year limitation period of the

Internal Revenue Code. United States v. Powell, 379 U.S. 48, 

(1964)(construing 26 U.S.C 7605(b)). The Court in Powell found 

sufficient an affidavit filed with the District Court proceeding to 

enforce the administrative subpoena in which the IRS agent stated in 

part:

* * * on the basis of information obtained * * * [in a current 

investigation of returns for years within the 3 year limitation 

period, the agent] has reason to suspect * * * [taxpayer] has

filed false and fraudulent corporate income tax returns * * *

with intent to evade its taxes and has attempted to evade and 

defeat the taxes due for these years by overstating the amount of

* * * expenses so as to fraudulently understate the amount of 

taxable income * * * . (As quoted in Court of Appeals decision 

United States v. Powell, 325 F. 2d 914 at 915, rev'd, 379 U.S. 

48) .
V

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Edmund T . Fleming

The Powell decision has particular significance in that the Board 

stands in the same position in assessing contributions under section 8 

of the RUIA as the Secretary of the Treasury does with respect to 

collection of taxes under the RRTA. See: Burlington Northern, supra,

and L-84-115.

Applying the foregoing analysis to the situation at hand, it is my 

opinion that the fact that no reports were submitted during a period 

when train operations were conducted over a line of track owned by a 

covered rail carrier employer would on its face be sufficient to 

justify further investigation beyond the four year limitation of 

section 9 of the RRA. An initial determination that earlier years may 

be subject to audit would of course not foreclose a future conclusion 

that no fraud actually occurred, and that no other basis exists for 

crediting additional service or compensation under section 211.16(b) 

of the Board's regulations.

I understand that your remaining question regarding preparation of 

combined or individual audit reports has been answered informally.

•

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