IRS revises payroll reporting procedures following trade or business acquisitions.

• Author: Klaer, Thomas L.

The IRS recently issued Rev Proc. 96-60, describing payroll reporting procedures after certain business acquisitions. This revenue procedure, which makes changes to and supersedes Rev. Proc. 84-77, applies when one company (successor) acquires substantially all of the property of another (predecessor), and continues to employ the workers of the predecessor firm in the same calendar year in which the acquisition occurs. This type Of acquisition is commonly referred to as an "asset" deal, in which the acquirer purchases assets and takes over employees, but does not acquire the target company's stock. This revenue procedure does not apply when one company is absorbed by another in a statutory merger or consolidation.

The revenue procedure describes both the standard procedure and an alternate procedure available to the successor and predecessor companies to use in filing the following forms: Form W-2, Wage and Tax Statement; Form W-3, Transmittal of Income and Tax Statements; Form 941, Employer's Quarterly Federal Tax Return; Form W-4, Employee's Withholding Allowance Certificate; and Form W-5, Earned Income Credit Advance Payment Certificate.

Standard Procedure

Under the standard procedure, the predecessor performs all reporting duties for the wages and other compensation it pays, including the filing of the quarterly Forms 941 and the furnishing and filing of Forms W-2 and W-3. In connection with the successor's acquisition of property and hiring of employees from the predecessor, the predecessor may go out of business and cease to pay wages. In that case, the predecessor must file Form 941 for the quarter in which the acquisition occurs as a final Form 941.

If a final Form 941 is to be filed, the predecessor is also required to furnish Forms W-2 to its former employees on an expedited basis. The Forms W-2 are due on or before the date required for filing the final Form 941. If the predecessor is required to file Form 941 on a monthly basis, the Forms W-2 are due on or before the last day of the month in which the final Form 941 is required to be filed. The predecessor must also file Forms W-2 and W-3 with the Social Security Administration (SSA) no later than the last day of the second month following the period for which the final Form 941 is required to be filed. However, if the predecessor remains in business and continues to pay wages, a final Form 941 is not required. Instead, the predecessor would file its quarterly Form 941 for the...