CCA 200851109: A three-year foreign posting is why the section 3121(l) agreement exists

Plain-English summary

Section 3121(l) lets a domestic employer agree with the Service to extend Social Security coverage to United States citizens and residents working for its foreign affiliates. The agreement is made on Form 2032. Without it, someone employed by a foreign subsidiary is outside the system, because the foreign entity is not an American employer.

An employer here wanted to rescind its Form 2032. It was sending an employee to work for a United Kingdom subsidiary for three years, and apparently took the position that the worker would remain an employee of the domestic parent throughout, making the agreement unnecessary.

The advice rejects both halves of that. First, the position stated is that a section 3121(l) agreement cannot be terminated. Second, and more interesting, the factual premise fails on its own terms. Over a three-year assignment working for the foreign subsidiary, the worker could not possibly remain an employee of the domestic entity under the common law factors that determine an employment relationship. Those factors look at who directs the work, who controls how it is done, and who the worker actually answers to day to day. Three years inside a foreign affiliate answers those questions in one direction.

The email draws the line by contrast rather than by rule. A very short posting, the writer offers two weeks as the example, could leave the worker an employee of the domestic entity. Duration is not itself the legal test, but it is the practical proxy for whether the domestic employer has really kept the relationship.

The closing sentence gives the reason the answer has to be this way. Section 3121(l) exists precisely for the situation of a domestic entity sending an employee abroad to work for a foreign affiliate for an extended period. If an employer could sidestep the procedure simply by asserting the worker stayed on its own payroll for common law purposes, the assertion would swallow the statute. The provision would apply only to employers who chose to let it.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "then the it would be possible for the worker," with a stray "the"; and "3121(l)" appearing without the section symbol in the first sentence where the later references carry it.

Ruling snapshot

• Question: May an employer rescind a Form 2032 section 3121(l) agreement on the ground that an employee posted to a foreign subsidiary for three years remains an employee of the domestic entity?
• Outcome: Advice given. The section 3121(l) agreement cannot be terminated, and over a three-year assignment the worker could not remain an employee of the domestic entity under the common law factors; allowing employers to bypass the section 3121(l) procedures by asserting continued domestic employment would undermine the system the statute creates.
• Key authorities: IRC section 3121(l); Form 2032.

Full text (IRS public release)

ID: CCA-101013-08 Number: 200851109
Office: ----------------------------- Release Date: 12/19/2008

UILC: 3121.00-00

From: --------------------
Sent: Fri 10/10/2008 1:48 PM
To: --------------------
Cc: -----------------------------
Subject: RE: Rescinding a Form 2032

Hi --------

I looked at the materials that you sent. Our position is that the 3121(l) agreement (Form 2032) cannot be terminated. They are sending this employee to work for the UK subsidiary for three years. This is an extended period of time, and our position is that under those circumstances the individual could not possibly remain an employee of the domestic entity under the common law factors that we utilize to determine if an employment relationship exists. If the employee were going over to work for the UK subsidiary for a very short period of time (such as two weeks, for example), then the it would be possible for the worker to remain an employee of the domestic entity. The whole purpose of the section 3121(l) statute is to address situations like this, where a domestic entity sends an employee overseas to work for a foreign affiliate for an extended time period. Allowing employers to circumvent the section 3121(l) procedures simply by asserting that the worker remained an employee of the domestic entity would undermine the whole system. I hope this is helpful, and thanks for your patience.

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