t c memo united_states tax_court rebecca a roberts and rick r roberts petitioners v commissioner of internal revenue respondent docket no 18238-17l filed date rebecca a roberts and rick r roberts pro sese karen lynne baker for respondent memorandum opinion gerber judge this collection review case filed pursuant to sec_6330 is before the court on respondent’s motion for summary_judgment filed pursuant to rule on date the court filed respondent’ sec_1unless otherwise indicated all section references are to the internal continued motion for summary_judgment and the supporting declaration of appeals team manager keir fitzgerald by order dated date the court directed petitioners to file a response to respondent’s motion on or before date to date the court has received no response from petitioners background the following facts are based on the parties’ pleadings and respondent’s motion including the attached declaration and exhibits petitioners filed their form_1040 u s individual_income_tax_return on date on date respondent assessed the tax reported on petitioners’ form_1040 a late payment penalty and interest the form_4340 certificate of assessments payments and other specified matters reflects that petitioners fully paid their form_1040 tax_liability as of date petitioners filed their form_1040 on date on date respondent assessed against petitioners dollar_figure of tax an estimated_tax penalty of dollar_figure a late payment penalty of dollar_figure and interest of dollar_figure continued revenue code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure according to petitioners’ form_4340 their account balance was dollar_figure as of date on date respondent issued to each petitioner a notice_of_intent_to_levy and notice of your right to a hearing on date petitioners’ representative a certified_public_accountant filed with respondent petitioners’ form request for a collection_due_process or equivalent_hearing they requested as a collection alternative an installment_agreement an offer-in- compromise or currently not collectible status they also stated that taxpayer s cannot pay balance at this time taxpayer s would like an offer or installment_agreement respondent acknowledged receipt of petitioners’ form in a date letter to petitioners in which he provided cenia sherman’s contact information should petitioners have questions before receiving a response from the office of appeals settlement officer sandra rose so rose was assigned to petitioners’ case she determined the assessment was properly made the notice_and_demand was mailed to petitioners’ last_known_address petitioners did not owe liabilities for any other periods and petitioners were in compliance with their filing_requirements on date so rose issued to petitioners a letter accepting their request for a collection_due_process cdp hearing as timely scheduling a telephone cdp hearing for date and informing them that they had to provide certain documentation by date in order for her to consider an offer-in-compromise an installment_agreement or currently not collectible status to be considered for an installment_agreement or currently not collectible status petitioners needed to submit a completed form 433-a collection information statement for wage earners and self-employed individuals with supporting documents to be considered for an offer-in-compromise petitioners needed to submit a completed form 433-a with supporting documents a completed form_656 offer_in_compromise and the applicable fee and payments so rose also warned petitioners if you do not wish to participate in a conference or respond to this letter the determination or decision letter that we issue will be based on your cdp request any information you previously provided to this office and any information respondent has on file regarding applicable tax period s she further explained that if petitioners had any questions or concerns regarding their cdp hearing they should contact her at the telephone number listed in the heading so rose called petitioners’ representative at the scheduled time but he was unavailable his associate requested that he be permitted to call back later on date petitioners’ representative left a message stating that he was unavailable during the scheduled telephone cdp hearing and requested that it be rescheduled and moved to houston at this time petitioners had not submitted any documentation to so rose so rose subsequently called petitioners’ representative and informed him that they cannot reschedule the conference or grant a transfer to houston at this point because she didn’t receive any contact from him prior to the conference date requesting a reschedule petitioners’ representative informed so rose that he requested a face-to-face conference before the originally scheduled telephone cdp hearing he did not call so rose at the number listed in the heading of the initial cdp contact letter but instead he called ms sherman at a phone number beginning with the area code thereafter petitioners’ representative requested a face-to-face hearing in houston on numerous occasions so rose and appeals team manager fitzgerald informed petitioners’ representative on multiple occasions that petitioners did not qualify for a face-to-face hearing but they permitted him the opportunity to have a rescheduled telephone cdp hearing by date on date appeals team manager fitzgerald spoke to someone in petitioners’ representative’s office and discussed the general requirements regarding a face-to-face cdp hearing including internal_revenue_manual irm pt date and the specific requirements starting in on date petitioners’ representative sent so rose a fax including an unsigned draft form 433-a and some financial information on the fax cover sheet petitioners’ representative again requested a face-to-face hearing in houston because he has an established relationship with the houston office and he feel s he can accomplish more for his client s in person so rose subsequently called petitioners’ representative and left a voicemail informing him that she would not grant a face-to-face hearing on date so rose faxed petitioners’ representative a letter acknowledging the receipt of a draft form 433-a restating that a face-to-face hearing was being denied and informing petitioners’ representative that petitioners could have a rescheduled telephone conference if they responded to so rose by date she also explained my manager keir fitzgerald discussed general information regarding face-to-face cdp hearing requirements per irm and explained the specific requirements starting in fy17 in response petitioners’ representative sent so rose a fax indicating that petitioners had given so rose all of the required documents requesting that appeals team manager fitzgerald review the documents and again requesting a face-to-face hearing so rose after reviewing the documents and speaking with appeals team manager fitzgerald called petitioners’ representative and left a message informing him that a face-to-face hearing is not available upon request and petitioners must meet certain criteria before it can be granted so rose also informed him that the receipt of financial information does not change the determination to deny a face-to-face hearing on date respondent issued to each petitioner a notice_of_determination concerning collection action s under sec_6320 and or of the internal_revenue_code sustaining the proposed levy for the and taxable years on date petitioners while residing in texas timely filed their petition with this court petitioners contend sec_6330 of the internal_revenue_manual is no longer in compliance with treasury regulations and td internal_revenue_bulletin stating that the final regulations recognize the importance of a face-to-face meeting by providing that taxpayers will ordinarily be offered an opportunity for a face-to-face conference on date the court filed respondent’s motion for summary_judgment and the supporting declaration of appeals team manager fitzgerald by order dated date the court directed petitioners to file a response to respondent’s motion on or before date petitioners have not responded a tax_year discussion this court is a court of limited jurisdiction and our jurisdiction in collection cases is defined by the scope of the determination that the appeals officer is required to make see sec_7442 125_tc_14 ordinarily once the commissioner concedes that there is no unpaid liability left to be collected the collection proceeding is moot see 126_tc_1 the record reflects and respondent concedes in his motion that petitioners’ tax_liability for has been fully paid under the circumstances we will dismiss this case with respect to sua sponte on the ground of mootness see rule b tax_year summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials fla peach corp v commissioner 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories depositions admissions and any other acceptable materials together with the affidavits or declarations if any show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law rule a and b see 98_tc_518 aff’d 17_f3d_965 7th cir 85_tc_527 under rule d if the adverse_party does not respond to the motion for summary_judgment then this court may enter a decision against that party where appropriate see 87_tc_1213 shepherd v commissioner tcmemo_1997_555 petitioners have not responded to the motion for summary_judgment the court could therefore grant respondent’s motion on that ground alone however even if the court did not rely on that basis the record in this matter shows that respondent is entitled to summary_judgment for the year on the merits of the case the court reviews the determinations regarding the collection action for the years in issue for abuse_of_discretion pursuant to this standard the taxpayer must prove that the determination was arbitrary capricious or without sound basis in fact or law see 114_tc_604 112_tc_19 cdp hearings are informal may consist of one or more oral or written communications between an appeals officer and the taxpayer and do not require the appeals officer and the taxpayer to have a face-to-face conference see sec_6330 sec_301_6330-1 q a-d6 proced admin regs this court has consistently held that a face-to-face hearing is not required pursuant to sec_6320 or sec_6330 and a proper cdp hearing may be held by telephone or by correspondence under certain circumstances see 115_tc_329 rice v commissioner tcmemo_2009_169 huntress v commissioner tcmemo_2009_161 wl moline v commissioner tcmemo_2009_110 aff’d 363_fedappx_675 10th cir a taxpayer may request a face-to-face cdp hearing at the appeals_office closest to the taxpayer’s residence see sec_301_6330-1 q a-d7 proced admin regs however a face-to-face cdp conference concerning a collection alternative such as an installment_agreement or an offer to compromise liability will not be granted unless other taxpayers would be eligible for the alternative in similar circumstances see id q a-d8 for example if a taxpayer is not in compliance with his filing obligations or did not make certain required deposits of tax as set forth in form_656 no face-to-face conference will be granted to the taxpayer if he wishes to make an offer-in-compromise id once a taxpayer is given a reasonable opportunity for a hearing and fails to avail himself of that opportunity we may sustain the commissioner’s determination to proceed with collection on the basis of an appeals officer’s review of the case file see eg rivas v commissioner tcmemo_2012_20 bean v commissioner tcmemo_2006_88 petitioners contend in their petition that they were denied a face-to-face cdp hearing and that s ection of the internal_revenue_manual is no longer in compliance with treasury regulations petitioners appear to rely upon t d 2006_2_cb_887 to support their position see supra p while the preamble to t d c b pincite states that the regulations recognize the importance of a face-to-face meeting it also states that t he final regulations give the office of appeals the flexibility needed to respond to unanticipated circumstances and f urther guidance on granting face-to-face conferences will be provided in the internal_revenue_manual see sec_301_6320-1 proced admin regs we recognize that the irm does not carry the force and effect of law but we have generally held that there is no abuse_of_discretion in following the guidelines set forth in it see 143_tc_30 petitioners were provided an opportunity to have a telephone cdp hearing which their representative was unavailable for and attempted to reschedule although petitioners’ representative requested a face-to-face cdp hearing in houston to address collection alternatives because he has an established relationship with the houston office and he feel s he can accomplish more for his client s in person he did not communicate with so rose or request a face-to-face hearing before the scheduled telephone cdp hearing petitioners’ representative contacted ms sherman not so rose despite the fact that so rose’s letter explicitly provided her contact information in case petitioners had any questions or concerns regarding their cdp hearing so rose also warned petitioners if you do not wish to participate in a conference or respond to this letter the determination or decision letter that we issue will be based on your cdp request any information you previously provided to this office and any information the irs has on file regarding applicable tax period s on several occasions after the date of the initially scheduled telephone cdp hearing so rose and appeals team manager fitzgerald advised petitioners’ representative that petitioners did not qualify for a face-to-face hearing but they offered petitioners an opportunity to reschedule the telephone cdp hearing despite so rose’s offer petitioners through their representative did not take advantage of her offer and again requested a face-to-face hearing so rose did not abuse her discretion by denying petitioners a face-to-face hearing the preamble to the regulations states that a cdp hearing may be conducted face-to-face but that is not required see sec_6330 sec_301 d q a-d6 proced admin regs moreover so rose did not abuse her discretion by relying upon the irm procedures prescribing when a face-to-face hearing shall be granted a cdp hearing may be conducted by telephone and petitioners did not participate in the initially offered telephone cdp hearing or take advantage of the opportunities that so rose provided them for a rescheduled telephone cdp hearing in addition so rose did not abuse her discretion by not agreeing to a collection alternative ie an installment_agreement an offer-in-compromise or currently not collectible status see sec_6330 petitioners did not initially provide so rose with any of the documentation she requested in order to consider collection alternatives although petitioners eventually provided a draft form 433-a with some financial information it was not signed so rose verified that the requirements of sec_6330 had been met and evaluated the issues petitioners raised including their request for a face-to- face cdp hearing even though they did not participate in a cdp hearing she warned petitioners that if they did not participate that she would have to make a determination on the basis of the documentation in their file including the draft form 433-a and financial information so rose and appeals team manager fitzgerald reviewed the provided documents after reviewing the documents in petitioners’ file and considering petitioners nonparticipation in the cdp hearing so rose could not consider collection alternatives she determined that the proposed levy met the sec_6330 requirements and she ultimately sustained the determination see eg huntress v commissioner wl at accordingly the court concludes that there was no abuse_of_discretion in respondent’s determination with regard to taxable_year and respondent’s motion for summary_judgment will be granted in part and denied in part to reflect the foregoing an appropriate order and decision will be entered


t c summary opinion united_states tax_court jayesh b and devsmita j patel petitioners v commissioner of internal revenue respondent docket no 11530-04s filed date jayesh b and devsmita j patel pro sese clare j brooks for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed the decision to be entered is not reviewable by any other court and this opinion should not be cited as authority unless otherwise indicated subsequent section references are to the internal_revenue_code in effect for the year in issue respondent determined a deficiency in petitioners’ federal_income_tax of dollar_figure for the taxable_year the issue for decision is whether petitioners’ prepayment of dollar_figure of tuition in entitles them to a lifetime_learning_credit pursuant to sec_25a in tax_year some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in york pennsylvania on the date the petition was filed in this case background during taxable_year ami patel ms patel petitioners’ niece lived with petitioners for the entire year ms patel whom petitioners claimed as a dependent was a full- time student at york college in york pennsylvania during taxable_year in the year in issue petitioners paid dollar_figure in qualified_education_expenses to york college also in the taxable_year petitioners paid dollar_figure in qualified_education_expenses to york college the payment of dollar_figure made on date to york college represented prepaid tuition for the spring semester of petitioners prepaid the spring 1it is unclear from the record when the spring semester began at york college however due to the fact that york college measures the college year in semesters and not trimesters nor quarters we assume that the spring semester of began in continued semester tuition because they were going to be out of the country when the tuition became due petitioners timely filed their form_1040 u s individual_income_tax_return for taxable_year on their federal tax_return petitioners claimed a lifetime_learning_credit for ms patel as the eligible_student in calculating the lifetime_learning_credit for their federal tax_return petitioners added the above-mentioned amounts of qualified_education_expenses along with other miscellaneous education expenses resulting in a total amount for qualified_education_expenses of dollar_figure petitioners then used form_8863 education credits hope_and_lifetime_learning_credits to calculate their claimed education credit of dollar_figure for taxable_year subsequently respondent issued a notice_of_deficiency to petitioners in which respondent disallowed dollar_figure of petitioners’ claimed dollar_figure education credit in other words respondent allowed petitioners an education credit for taxable_year of dollar_figure respondent contends that the partial_disallowance of petitioners’ claimed education credit is correct because the prepayment of the spring semester tuition of dollar_figure is properly taken into account on petitioners’ federal tax continued january or february of taxable_year return and not their federal tax_return pursuant to sec_25a discussion2 respondent did not question ms patel’s status as petitioners’ dependent further respondent conceded that both payments were qualified_tuition_and_related_expenses and that york college was an eligible_educational_institution therefore the only issue for us to consider is whether petitioners’ prepayment of dollar_figure of tuition in for the spring semester entitles them to include this amount in computing the lifetime_learning_credit pursuant to sec_25a for taxable_year for eligible individuals sec_25a allows credits against tax for qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year sec_25a specifically provides in pertinent part sec_25a lifetime_learning_credit -- per taxpayer credit -- the lifetime_learning_credit for any taxpayer for any taxable_year is an amount equal to percent of so much of the qualified_tuition_and_related_expenses paid_by the taxpayer during the taxable_year for education furnished during any academic period beginning in such taxable_year as does not exceed dollar_figure dollar_figure in the case of taxable years beginning before date 2we decide the issues in this case without regard to the burden_of_proof accordingly we need not decide whether the general_rule of sec_7491 is applicable in this case see 116_tc_438 sec_25a states special rules which apply to both the hope scholarship credit and the lifetime_learning_credit specifically sec_25a provides treatment of certain prepayments -- if qualified_tuition_and_related_expenses are paid_by the taxpayer during a taxable_year for an academic period which begins during the first months following such taxable_year such academic period shall be treated for purposes of this section as beginning during such taxable_year in the present case during taxable_year petitioners prepaid qualified tuition of dollar_figure for the spring semester an academic period which begins during the first months following taxable_year therefore pursuant to the plain language of sec_25a the prepayment amount of dollar_figure would properly be included in the calculation of petitioners’ lifetime_learning_credit for the taxable_year and not their taxable_year accordingly respondent’s determination on this issue is sustained reviewed and adopted as the report of the small_tax_case division decision will be entered for respondent


department of the treasury internal_revenue_service washington d c number release date cc ebeo gl-706915-99 uilc date internal_revenue_service national_office field_service_advice memorandum for from assistant chief_counsel by patricia m mcdermott employee_benefits and exempt_organizations cc ebeo subject back wage payment this field_service_advice responds to your communication dated date field_service_advice is not binding on examination or appeals and is not a final case determination this document is not to be cited as precedent legend entity employee x state year year issues whether a payment in settlement of a claim for back pay by a federal employee is subject_to the employee’s election to participate in the federal thrift_plan and requires employer matching_contributions whether a payment in settlement of a claim for back pay arising from the employee’s allegation that he was not adequately compensated for his job duties is includible in gross_income whether the payment is subject_to federal_income_tax withholding and what is the appropriate amount of federal_income_tax withholding what is the appropriate amount of state_income_tax withholding with respect to the settlement payment whether the payment is subject_to the taxes imposed under sec_3101 and sec_3111 the old-age survivors and disability insurance oasdi taxes or social_security_taxes portion of the federal_insurance_contributions_act fica and how is the amount of the liability for oasdi tax calculated whether the payment is subject_to the taxes imposed under sec_3101 and sec_3111 the hospital insurance taxes or medicare taxes portion of the fica and how is the amount of the medicare_tax calculated if an employer erroneously fails to withhold federal income taxes from a wage payment whether the employer is liable for the amount of the federal_income_tax withholding if an employer erroneously fails to withhold the employee portion of the fica social_security and medicare taxes from the wages of an employee whether the employer is liable for the amount of the employee fica_taxes if an employer erroneously fails to withhold state a income_tax from the wages of an employee whether the employer is liable for the amount of the state a income_tax_withholding if an employer erroneously fails to make federal thrift_plan contributions from a payment of wages whether the employer is liable for the payment of these contributions if an employer who has erroneously failed to withhold federal_income_tax from a wage payment in year is liable for payment of federal_income_tax withholding whether the payment of the federal_income_tax withholding liability for year in year results in additional income and wages to the employee if an employer who has erroneously failed to withhold the employee portion of fica_taxes from a wages is liable for payment of the fica employee taxes whether the employer’s payment of the employee portion of fica tax without deduction from the remuneration of the employee results in additional income and wages to the employee if an employer who has erroneously failed to make contributions to the federal thrift_plan from a payment to the employee whether a subsequent payment by the employer to make those contributions is income and wages to the employee conclusions these issues are under the jurisdiction of the federal retirement thrift investment board h street n w washington dc the entire amount of the payment x dollars is includible in gross_income the entire amount of the payment x dollars is wages subject_to federal_income_tax withholding the appropriate amount of income_tax_withholding on this supplemental wage payment is at the option of the employer either percent of x dollars or the amount derived by using the first method described in sec_31_3402_g_-1 which is based on aggregating the supplemental wage payment with the employee’s last preceding payment of regular wages this issue of whether state a withholding applies is not under our jurisdiction and is a question for the tax authorities of state a the entire amount of the payment x dollars is subject_to social_security_taxes the liability for the employee portion of the social_security_tax is equal to multiplied by x dollars the liability for the employer portion of the tax is equal to multiplied by x dollars the entire amount of the payment x dollars is subject_to medicare taxes the liability for the employee portion of the medicare_tax is equal to multiplied by x dollars the liability for the employer portion of the tax is equal to multiplied by x dollars if an employer erroneously fails to withhold federal income taxes from the wages of an employee the employer is liable for the amount of withholding required to be paid unless the employer can show that the employee included the_amount_of_wages on the employee’s return and paid income taxes thereon if an employer erroneously fails to withhold fica_taxes from the wages of an employee the employer is liable for the employee portion of the fica tax in addition to the employer portion of the fica tax the employee is also liable for the employee portion of the fica tax in the event the employer should pay this back liability for the employee portion of fica_taxes the employee is obligated to the employer for this employee portion of the fica and the employer can recover the amount of the employee fica tax by deducting the employee tax from other remuneration of the employee under the control of the employer even if the remuneration does not constitute wages if such a deduction from the employee’s remuneration to pay the employee portion of the fica tax on the wage is not made the obligation of the employee to the employer with respect to the undercollection of the employee portion of the fica is a matter for settlement between the employer and the employee the issue of whether an employer is liable for state a income_tax_withholding is under the jurisdiction of the state a tax authorities the issue of liability for federal thrift_plan contributions is under the jurisdiction of the federal retirement thrift investment board the payment in year of the employer’s liability for federal_income_tax withholding for wages paid in year from which income_tax was not withheld does not result in additional income or wages to the employee for year or year the employee’s liability for federal_income_tax for year with respect to the settlement payment received in year is unaffected by the employer’s payment in year of its federal_income_tax withholding liability related to the year payment the employee remains liable for the income_tax_liability resulting from the inclusion of the wage payment in the year gross_income of the employee the employer’s payment in year without deduction from the remuneration of the employee of the employee portion of the fica tax imposed with respect to the wage payment in year results in additional gross_income and wages for fica_taxes and federal_income_tax withholding purposes to the employee in the year of the payment of the tax by the employer ie year the employee is obligated to repay the employee portion of the fica tax relating to year to the employer to the extent the employee reimburses the employer during the calendar_year year for the payment of the employee portion of the fica_taxes relating to year the employee’s gross_income for year resulting from the employer’s payment of the tax is reduced to the extent the employee repays the employee portion of the fica_taxes relating to year in year or any subsequent year subject_to the period of limitations the fica wages for year are reduced the contributions by the employer to the federal thrift_plan would be employer contributions to the thrift_plan would not be includible in the gross_income of the employee and would not be wages for income_tax_withholding purposes the question of liability for fica tax with respect to the contributions would depend on the treatment of the payments by the federal retirement thrift investment board facts the employee was employed by the entity an agency of the united_states government until the employee filed a grievance against the entity alleging the work he was performing was improperly classified for pay purposes under the general schedule he sought back pay and punitive_damages because he alleged that he was paid at an inappropriate lower grade for higher grade duties the grievance was settled the settlement agreement provides that in full complete and binding settlement of the grievance the entity agrees to pay the grievant a lump sum of x dollars the agreement states that e xcept as outlined above the parties agree to bear their own costs the agreement also provides that t his agreement does not constitute an admission of any wrongdoing or violation of any law rule_or_regulation by the entity or its agents or employees the settlement documents did not characterize the settlement payment no withholding was made from the lump sum payment of x dollars and therefore the employee received a check for x dollars the employee also received a form_w-2 wage and tax statement which included x dollars in box as wages tips other compensation the amount was not included in another box on the form_w-2 the employee also received an additional form_w-2 for year related to other wages received in year for services performed for the entity according to the material submitted it is a well-established principle that punitive_damages are not available for grievances against the government you state that the employee would not have received punitive_damages even if he had fully prevailed at arbitration it is our understanding that the employee was covered under the federal employees’ retirement_system fers in his performance of services for the government law and analysis the conclusions on issues and are self-explanatory therefore there is no discussion related to those issues issue sec_61 provides that gross_income includes all income from whatever source derived except as otherwise provided in this subtitle there has been no argument that any part of the x dollars qualifies for an exclusion_from_gross_income the settlement agreement provided that the lump sum payment of x dollars was in full complete and binding settlement of the employee’s grievance therefore the settlement payment of x dollars is includible in the gross_income of the employee issue sec_3402 provides that every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the secretary_of_the_treasury the term wages is defined in sec_3401 as all remuneration for services performed by an employee for his employer sec_31_3401_a_-1 of the regulations provides that remuneration for services unless such remuneration is specifically excepted constitutes wages even though at the time paid the relationship of employer and employee no longer exists between the person in whose employ the services were performed and the individual who performed them sec_31_3401_a_-1 provides that the basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes wages the determination of whether fica_taxes and federal_income_tax withholding apply to payments in settlement of an employee’s claim against an employer is made by reference to the nature of the claim made by the employee the fact that an employer for the purpose of avoiding litigation or other expense settles a claim by paying an amount that is less than what was claimed by the employee is of little relevance in determining whether the settlement payment is wages the characterization of the payments by the employer and the employee is not necessarily controlling 151_f3d_855 8th cir 122_f3d_204 4th cir in the instant case the employee’s grievance alleged that he was inadequately compensated for his services for the entity because the employee sought to recover compensation_for services performed at a higher grade level the settlement payment is wages for federal_income_tax withholding purposes see revrul_96_65 1996_2_cb_6 sec_31_3402_g_-1 of the employment_tax regulations provides that an employee’s remuneration may consist of wages paid for a payroll_period and supplemental_wages such as bonuses commissions and overtime pay paid for the same or a different period or without regard to a particular period when such supplemental_wages are paid whether or not at the same time as the regular wages the amount of the tax required to be withheld under sec_3402 the percentage_method or under sec_3402 the wage_bracket_method shall be determined in accordance with this paragraph a of this regulation section or paragraph b of this section sec_31_3402_g_-1 of the regulations provides that the supplemental_wages if paid concurrently with wages for a payroll_period shall be aggregated with the wages paid for such payroll_period if not paid concurrently the supplemental_wages shall be aggregated with the wages paid or to be paid within the same calendar_year for the last preceding payroll_period or for the current payroll_period the amount of tax to be withheld shall be determined as if the aggregate of the supplemental_wages and the regular wages constituted a single wage payment for the regular payroll_period if however supplemental_wages are paid and tax has been withheld from the employee’s regular wages the employer may determine the tax to be withheld by using a flat percentage rate of percent without allowance for exemption and without reference to any regular payment of wages see sec_31 g -1 a of the regulations and section of the omnibus_budget_reconciliation_act_of_1993 pub_l_no the settlement payment is a supplemental wage payment which is paid in addition to the regular wages that were received by the employee during year the supplemental_wages were paid separately from the regular wages income taxes were withheld from the regular wages paid to the employee during year for his services for the entity therefore the correct amount of withholding can be determined under either of the following methods at the option of the employer a withhold a flat percent rate of the amount of the settlement payment ie the amount of income_tax_withholding is equal to dollar_figure multiplied by x or b add the supplemental_wages and the last preceding payment of regular wages in year then compute the income_tax_withholding as if the total of those regular wages and the supplemental_wages were a single payment for a regular payroll_period subtract the tax already withheld from the regular wage payment withhold the remaining tax from the supplemental_wages issues - fica_taxes are composed of the oasdi taxes imposed under sec_3101 and sec_3111 also known as social_security_taxes and the hospital_insurance_tax imposed by sec_3101 and sec_3111 also known as medicare taxes because the employee was covered under the fers in his employment with the entity the remuneration he received for his services was wages for oasdi and medicare_tax purposes his services did not qualify for the exception from employment provided for certain federal employment by either sec_3121 or sec_3121 thus the employee’s services for the entity were included within employment for oasdi and medicare_tax purposes the question is whether the settlement payment is remuneration for that employment and thus wages under sec_3121 fica_taxes are imposed on wages sec_3121 defines wages as all remuneration for employment unless specifically excepted courts have stressed that wages is broadly defined to include not only remuneration for work actually done but also remuneration for the entire employer-employee relationship for which compensation is paid to the employee by the employer 327_us_358 see also hemelt f 3d pincite thus in nierotko the supreme court held that back pay paid_by an employer under the national labor relations act to an illegally terminated employee for a period during which the individual performed no services for the employer was wages for social_security_benefit purposes the nierotko case has been applied in determining the fica taxation of settlements of back pay claims by employees generally under a variety of employee rights statutes revrul_96_65 1996_2_cb_6 mayberry f 3d pincite hemelt f 3d pincite 164_f3d_1015 6th cir thus generally payments in settlement of claims by employees for back pay as a result of alleged violations by employers of statutes conferring employee rights are wages for fica tax purposes a payment received by an employee in settlement of a claim that the employee did not receive adequate remuneration for the services that he or she performed for an employer because his job was classified at a lower pay grade than appropriate would fit within the definition of fica wages under the above authority settlement payments related to this type of case are particularly strong cases because the employee actually performed the services and is alleging that he was inadequately compensated for such services the settlement payment which arises from the services that he performed for the entity is treated for fica tax purposes in the same manner as other remuneration for employment that he received for services performed for the entity thus the settlement payment under the given facts meets the definition of wages for fica tax purposes and is wages for purposes of the oasdi tax and the medicare_tax under sec_3101 the amount of the employee portion of the oasdi tax is equal to percent of the wages received sec_3111 provides that the employer portion of the oasdi tax is also percent of the wages received the_amount_of_wages for oasdi purposes in a calendar_year is subject_to a maximum wage_base equal to the contribution_and_benefit_base for that year as determined under section of the social_security act in this case the amount of the employee portion of oasdi tax is equal to x under sec_3101 the amount of the employee portion of the medicare_tax is equal to dollar_figure percent of the wages received sec_3111 provides that the employer portion of the medicare_tax is also dollar_figure percent of the wages received there is no maximum wage_base for medicare_tax purposes the amount of the employee portion of medicare_tax is equal to x issue sec_3403 provides that the employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter ie i r c chapter collection of income_tax at source on wages and shall not be liable to any person for the amount of any such payment sec_31_3403-1 of the regulations provides that every employer required to deduct and withhold the tax under sec_3402 from the wages of an employee is liable for the payment of such tax whether or not it is collected from the employee by the employer if for example the employer deducts less than the correct amount of tax or if he fails to deduct any part of the tax he is nevertheless liable for the correct amount of the tax see however sec_31_3402_d_-1 of the regulations sec_3402 provides that if the employer in violation of the provisions of chapter fails to deduct and withhold the tax under this chapter and thereafter the tax against which such tax may be credited is paid the tax so required to be deducted and withheld shall not be collected from the employer however sec_3402 further provides that sec_3402 shall in no case relieve the employer from liability for any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold sec_31_3402_d_-1 of the regulations provides that if the employer in violation of the provisions of sec_3402 fails to deduct and withhold the tax and thereafter the income_tax against which the tax under sec_3402 may be credited is paid the tax under sec_3402 shall not be collected from the employer the employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that the tax against which the tax under sec_3402 may be credited has been paid sec_6205 relates to adjustments of an employer’s liability for fica_taxes and income_tax_withholding in situations in which the employer has made an undercollection or underpayment of fica_taxes or income_tax_withholding sec_31_6205-1 of the employment_tax regulations provides that if no income_tax or less than the correct amount of income_tax required under sec_3402 to be withheld from wages is deducted from wages paid to an employee in a calendar_year the employer shall collect the amount of the undercollection on or before the last day of such year by deducting such amount from remuneration of the employee if any under the control of the employer such deductions may be made even though the remuneration for any reason does not constitute wages any undercollection in a calendar_year not corrected by a deduction made pursuant to the foregoing provisions of this subparagraph is a matter for settlement between the employee and the employer within such calendar_year there is a special exception to this general_rule the exception is related to taxable noncash fringe_benefits and has no application in the instant case see announcement and publication 15-a employer’s supplemental tax guide pages if an employer erroneously fails to withhold federal income taxes from a payment of wages to an employee the employer can correct that mistake during the same calendar_year of the payment by deducting the amount of the undercollection from other remuneration of the employee under the control of the employer if the amount of the undercollection of income_tax_withholding is not collected by the employer from remuneration of the employee or in some other manner before the end of the calendar_year then in subsequent years the employer is liable to the government for amount of income_tax_withholding unless sec_3402 applies issue sec_3102 provides that every employer required to deduct the employee portion of the fica tax shall be liable for the payment of such tax and shall be indemnified against the claims and demands of any person for the amount of any such payment made by such employer sec_31_3102-1 of the regulations provides that the employer is liable for the employee tax with respect to all wages paid_by the employer to each of its employees regardless of whether or not it is collected from the employee if for example the employer deducts less than the correct amount of tax or if he fails to deduct any part of the tax he is nevertheless liable for the correct amount of the tax until collected from the employee the employee is also liable for the employee tax with respect to all the wages received by the employee sec_6205 relates to adjustments of undercollections and underpayments of fica tax by employers sec_31_6205-1 provides that if an employer collects no fica employee tax or less than the correct amount of fica employee tax from an employee with respect to a payment of wages as defined in the fica the employer shall collect the amount of the undercollection by deducting such amount from remuneration of the employee if any under the employer’s control after the employer ascertains the error such deductions may be made even though the remuneration for any reason does not constitute wages or compensation the amount of an undercollection of employee tax from an employee shall be reported and paid_by the employer whether or not the undercollection is corrected by a deduction from the remuneration of the employee if such a deduction is not made the obligation of the employee to the employer with respect to the undercollection is a matter for settlement between the employee and the employer the employee is also liable for the unpaid employee portion of the fica tax under sec_31_3102-1 see navarro v united_states a f t r 2d ria w d tex which held that both the employer and the employee are liable to for the employee portion of the fica tax and that the internal_revenue_service is not required to seek payment first from the employer in collecting unpaid employee fica tax if the employer pays the employee portion pursuant to the sec_6205 regulations the employee would then be obligated to the employer for the amount of the employee fica tax under sec_31_6205-1 of the regulations issue generally if an employer makes a payment in year or a subsequent year of income_tax_withholding liability incurred with respect to a wage payment to an employee in year from which income_tax was erroneously not withheld there is no effect on the gross_income or income_tax_liability of the employee the employer is satisfying the liability of the employer under sec_3402 for the income_tax_withholding and the employee cannot get credit under sec_31 with respect to his or her income_tax_liability under sec_1 for such amounts paid_by the employer that were never withheld from the employee’s wages the employer in making the payment in year is not satisfying the income_tax_liability of the employee with respect to income_tax in year and is not making a payment which may be credited or refunded to the employee the distinction between income_tax_withholding made by the employer in the calendar_year of the payment of wages and the payments of income_tax_withholding by the employer in subsequent years is reflected in the sec_6205 regulations cited above which provide that the employer can recover from the employee only income_tax_withholding during the calendar_year of the payment and cannot recover from the employee the income_tax_withholding after the end of the calendar_year because the employer payment of income_tax_withholding in this situation does not relieve the liability of the employee for income_tax with respect to the back wages the employee’s gross incomes for year and year remain unaffected although not raised as an issue in this case the obligation of the employee to the employer with respect to employee fica tax is based on the presumption that the employee is liable for the employee tax at the time of the employer’s payment of the employee portion of the tax ie the period of limitations for purposes of the employee’s liability for the fica employee tax has not run as noted above a special rule exists for purposes of certain taxable noncash fringe_benefits sec_31 provides that the amount withheld as tax under chapter shall be allowed to the recipient of the income as a credit against the tax imposed by this subtitle sec_31 provides that the amount so withheld during any calendar_year shall be allowed as a credit for the taxable_year beginning in such calendar_year if more than one taxable_year begins in a calendar_year such amount shall be allowed as a credit for the last taxable_year so beginning sec_1_31-1 of the income_tax regulations provides that if the tax has actually been withheld at the source credit or refund shall be made to the recipient of the income even though such tax has not been paid over to the government by the employer it has long been settled that an employee is entitled to a credit under sec_31 only for amounts that his or her employer actually withheld from the employee’s wages see 323_f2d_751 9th cir chrisman v commissioner t c memo in re eryurt 142_br_979 m d fla harper v commissioner t c memo 810_f2d_19 2d cir the question whether income_tax was actually withheld from a payment is separate from the question of whether the payment should have been treated as wages the instant factual situation in which an employer makes a payment to the government for income_tax_withholding liability relating to a prior year should be distinguished from two very different factual situations a a situation where at the time of the wage payment in year the employer has agreed to pay the amount of the income_tax_withholding with respect to a net amount received by the employee and b a situation where the employer makes a payment directly to the employee in year so that the employee can pay the employee’s income_tax_liability with respect to the wage payment in year in situation a in the previous paragraph where the employer has agreed to pay the income_tax_withholding with respect to a net wage payment and pays a net amount to the employee the net amount is grossed up to determine the_amount_of_wages for income_tax_withholding purposes so that when the amount of income_tax_withholding is subtracted from the wages the employee is left with the net amount see eg rul 1958_1_cb_362 revrul_86_14 1986_1_cb_304 however situation a is not the situation in the instant case there is no evidence to support the existence of an agreement by the entity to pay the withholding_tax of the employee the settlement payment was erroneously treated as a payment of other compensation and not wages to the employee in situation b the cash payment by the employer to the employee in year would not be a payment of the income_tax_withholding liability of the employer but would simply be a cash payment to the employee for the employee to satisfy an obligation of the employee under this situation b the cash payment by the employer to the employee would be includible in the employee’s gross_income the payment would also be wages for federal_income_tax withholding purposes and for purposes of other applicable employment_taxes in year if the employee subsequently does pay the income_tax with respect to the wages the employer is relieved of liability for any income_tax_withholding in year under sec_3402 because neither situation a nor b applies the basic rule related to employer payments of income_tax_withholding liability after the year of the wage payment in which income taxes were not withheld applies thus the employer’s payment in year of the income_tax_withholding liability related to the settlement payment would not result in income and wages to the employee issue sec_61 provides that gross_income means all income from whatever source derived including compensation_for services fees commissions fringe_benefits and similar items taxes assessed against an employee and paid_by an employer in partial consideration for services are includible in the employee’s gross_income 279_us_716 viii-2 c b sec_3121 excepts from wages for fica purposes an employer’s payment without deduction from the employee’s pay of the employee fica_taxes imposed by sec_3101 in the case of pay for domestic_service in the employer’s private home or for agricultural_labor sec_3121 previously excepted from wages all payments of employee fica_taxes by an employer without deduction from the employee’s pay but the exception was limited to domestic_service in the employer’s home and agricultural_labor by section of the omnibus reconciliation act of 1980_2_cb_509 effective generally for remuneration paid after date the effect of section of the act is that if an employer pays the employee fica_taxes imposed by sec_3101 without deducting them from the employee’s pay the amount of the employee’s wages is increased by the amount of the taxes see revrul_86_14 1986_1_cb_304 sec_31_3401_a_-1 of the regulations states that the term wages’ for income_tax_withholding purposes includes amounts paid_by an employer on behalf of an employee without deduction from the remuneration of or other reimbursement from the employee on account of any_tax imposed on the employee including the tax imposed by sec_3101 the employee portion of fica_taxes in a situation in which the employer is correcting a failure to deduct and pay the employee portion of the fica tax the employer’s payment of the employee’s liability with respect to the employee portion of the fica_taxes without deduction from the remuneration of the employee or without reimbursement by the employee results in additional gross_income and wages to the employee the employee remains liable to the employer for the employee portion of the fica_taxes under sec_31_6205-1 of the regulations the employer’s payment of the employee’s liability for the employee portion of the employee tax is remuneration for employment and no exception from the definition of wages under the fica applies see revrul_86_14 1986_1_cb_304 revproc_81_48 1981_2_cb_623 treatment of the employer’s payment of the employee portion of the fica_taxes as includible in the gross_income of the employee and wages to the employee is premised on the employee’s personal liability for the employee taxes at the time the employer makes the adjustment to its fica tax_return if the period of limitations applicable to the employee’s liability for employee fica tax has expired at the time of the employer’s adjustment of its fica tax_liability the employer’s payment of the fica employee tax would not result in income and wages to the employee because the employer is not satisfying a liability of the employee this result does not apply in the case of a determination of an employer’s liability with respect to employee fica tax under sec_3509 sec_3509 generally applies if any employer fails to deduct and withhold income_tax or fica employee tax with respect to any employee by reason of treating such employee as not being an employee and the failure to withhold is not because of intentional disregard for withholding requirements sec_3509 provides that if the amount of any liability is determined under sec_3509 - a the employee’s liability for tax shall not be affected by the assessment or collection of the tax so determined b the employer shall not be entitled to recover from the employee any_tax so determined and c sec_3402 and sec_6521 shall not apply sec_6501 provides that the amount of any_tax imposed by the code must be assessed within years after the return was filed a return reporting fica or income_tax_withholding for any period ending with or within a calendar_year that is filed before april of the following year is considered to be filed on april of the following year sec_6501 the statute date for the period of limitations on the employee’s share of fica_taxes is determined by the statute date of the form_941 filed by the employer to extend the statute on the employer’s liability for the employee’s share of fica_taxes a form ss-10 consent to extend the time to assess employment_taxes must be secured from the employer to extend the statute on the employee’s liability for the employee’s share of fica tax a form ss-10 must be secured from the employee an extension of the period of limitations by the employer to the extent the employee reimburses the employer during the calendar_year year for the payment of the employee portion of the fica_taxes relating to year the employee’s gross_income for year resulting from the employer’s payment of the tax is reduced to the extent the employee repays the employee portion of the fica_taxes relating to year in year or any subsequent year subject_to the period of limitations the fica wages for year are reduced see for example revrul_79_311 1979_2_cb_25 issue sec_7701 provides that the thrift_savings_fund shall be treated as a_trust described in sec_401 which is exempt from taxation under sec_501 sec_7701 provides that any contribution to or distribution from the thrift_savings_fund shall be treated in the same manner as contributions to or distributions from such a_trust sec_7701 provides that generally subject_to certain limitations contributions to the thrift_savings_fund shall not be treated as distributed or made available to an employee or member nor as a contribution made to the fund by an employee or member merely because the employee or member has an election whether the contributions will be made to the thrift_savings_fund or received by the employee or member in cash sec_7701 provides that sec_7701 shall not be construed to provide that any amount of the employee’s or member’s basic_pay which is contributed to the thrift_savings_fund shall not be included in the term wages for the purposes of section of the social_security act or sec_3121 if contributions are required to be made to the thrift_savings_fund by the entity these contributions as employer contributions to a qualified_plan would not be includible in the gross_income of the employee and would not be subject_to federal_income_tax withholding the issue of fica tax_liability is more complex and would depend on the treatment of the contribution by the thrift savings board ie whether any part of the contributions were treated as elective_deferrals by the employee and thus subject_to fica tax sec_3121 in the absence of guidance from the thrift investment board we are unable to provide a definitive response to this issue case development hazards and other considerations on form ss-10 does not extend the period of limitations for purposes of the employee’s liability for the tax we were unable to find specific authority with respect to the liabilities of the employee after the employer pays the income_tax_withholding in a subsequent year some tax_court memorandum decisions state that the government has a choice between collecting the income_tax from the employer or from the employee see goins v commissioner t c memo in a case in which the petitioner’s employer failed to withhold the court stated r espondent may collect payment from either the employee or the employer but the employee remains ultimately liable for his own taxes even though his employer was obligated to withhold if in contradiction to sec_31 the regulations thereunder and existing authority an employee was allowed to credit an employer’s subsequent year payment of income_tax_withholding in computing his income_tax_liability for the year the wages were received it appears that a court may conclude that the employee would then be liable to the employer for the amount of the income_tax_withholding because the income_tax_withholding cannot be adjusted for a prior year payment under sec_6205 except to correct an administrative error see instructions for form 941c supporting statement to correct information and to remove any ambiguity we suggest that in the instant case the entity should not pay any amounts with respect to the income_tax_withholding on the wage payment but should collect the liability for income_tax of the employee from the employee the entity would therefore have no liability for income_tax_withholding under sec_3402 the information already received by the employee is adequate for him to file his form_1040 on the other hand we suggest that the fica_taxes with respect to the payment should be corrected with the entity paying both the employer and employee portions we also suggest that a corrected form_w-2 relating to the year of the settlement payment should be furnished to the employee he should also receive a form_w-2 for the year hereinafter year that the entity pays the fica employee tax related to the wage payment unless the entity receives a reimbursement from the employee for the amount of the employee fica tax during year this payment of the fica employee tax is wages for income_tax_withholding purposes and fica tax purposes unless the entity is reimbursed by the employee however because the payment of the employee fica tax in the subsequent year would be a regular wage payment for an annual payroll_period or for a miscellaneous_payroll_period of days no income_tax_withholding liability would exist under the applicable withholding tables see revrul_78_336 1978_2_cb_255 and publication circular_e employer’s tax guide the_amount_of_wages to be reported in boxe sec_1 and of the year form_w-2 would be based on treating the amount of the fica employee tax paid with respect to the settlement payment as the stated pay and applying the calculation in revrul_86_14 and contained on page of the publication 15-a employer’s supplemental tax guide the entity can recover from the employee the amount of the employee portion of the fica it pays with respect to the settlement payment provided the payment of the tax is made within years of the april following the year of the settlement payment please call if you have any further questions