IRS denies relief to government employers.

• Author: Friedman, Steven M.
• Position: Brief Article

The IRS has concluded in a technical advice memorandum that state and local government employers are not entitled to claim relief from liability for Federal employment taxes under Section 530 of the Revenue Act of 1978 (Letter Ruling (TAM) 9151004). Section 530 was enacted to provide interim relief for taxpayers facing large employment tax assessments due to proposed reclassifications of workers. As a result of inaction on the part of Congress to statutorily resolve the complex issue of worker classification, this interim relief is still in effect more than 13 years later. Prior to this ruling, there was no indication in the legislative history of the provision that government employers would be treated differently than private employers.

The basis of the Service's position is that, when Section 530 was enacted in 1978, government employers were not subject to FICA and FUTA taxes and their employees were not subject to FICA tax. (This has been subsequently changed, in part, by Sec. 3121(b)(7)(E) and (F), which expands FICA coverage.) Furthermore, with respect to the only tax withholding government employers were required to perform (Federal income tax under Sec. 3401), they were only secondarily liable because such amounts are abatable under Sec. 3402(d) if the employee paid his income taxes. Thus, the Service concluded that "for federal...