CCA 200923036: New employment tax rules require payment when Form 2504 is signed

Plain-English summary

Chief Counsel explained how the interest-free employment tax adjustment rules apply to Form 2504. The form had been treated as a supplemental return, and regulations effective in 2009 would treat it as an adjusted return, with the same rules available when there was an error. Once an employer makes an adjustment using Form 941c, Form 941-X, or Form 2504, a later notice and demand does not eliminate interest-free treatment for the period before payment becomes due. Under the prior rules, full interest-free treatment was available if payment was made by the due date for the return period in which Form 2504 was signed. Beginning in 2009, payment had to accompany the signed Form 2504 or interest would begin accruing at that time.

Ruling snapshot

• Question: How did the 2009 rules change the payment deadline for interest-free employment tax adjustments made on Form 2504?
• Outcome: Advice given, payment must be made when Form 2504 is signed to avoid interest from that date
• Key authorities: IRC § 6205; Forms 2504, 941c, and 941-X

Full text (IRS public release)

ID: CCA_2008080412531941 Number: 200923036
Release Date: 6/5/2009
Office: -----------------------------
UILC: 6205.00-00

From: ---------------
Sent: Monday, August 04, 2008 12:53:20 PM
To: --------------------
Cc: -----------------------------------------------------------
Subject: FW: Review and Comment on new Appeals Employment Tax Non-Worker Classification/Section 530 Cases

Thanks, --------. You are correct that the 2504 has been treated as a supplemental return, making the interest-free adjustment rules available if there is an "error." The new regs (effective 1/2009) provide that the 2504 will be an adjusted return, making the same rules available. Also, it's important to point out that once the ER "makes an adjustment" via a 941c (old method), a 941-X (new method in 2009) or a 2504, the issuance of a notice and demand for payment after the adjustment is made does not nullify the interest-free treatment from the time the taxes were originally due to the time the adjustment must be paid.

The relevant difference in the new and old rules is this: previously, you could pay the amount by the due date of the return for the period in which the 2504 is signed to be entirely interest free; if not paid by such date, interest will begin to accrue. Beginning in 2009, the amount must be paid at the time the 2504 is signed or interest will begin to accrue then. Do you want the letter to be used immediately or beginning 1/2009?