IRS discussed FICA timing and a possible statute-of-limitations issue

Plain-English summary

The IRS advised that FICA is due upon distribution when amounts were not properly taken into account upon deferral under IRC § 3121(v)(2). The memo noted a risk that the Service may discover a failure to pay the required FICA. It also discussed, without resolving, whether the statute of limitations could be waived when a taxpayer relied on incorrect advice from a payroll company.

Ruling snapshot

• Question: When is FICA due if deferred compensation was not properly taken into account at deferral, and may the limitations period be waived based on payroll advice?
• Outcome: Advice given
• Key authorities: IRC § 3121(v)(2); applicable FICA regulations.

Full text (IRS public release)

ID: CCA_2010052410185932 Number: 201025055
Release Date: 6/25/2010
Office: -----------------------------
UILC: 3121.16-02

From: --------------------
Sent: Monday, May 24, 2010 10:19:14 AM
To: ------------------
Cc: ---------------------
Subject: RE: Voluntary Disclosure ---------

I suppose that is always a risk with the nonduplication rule. The taxpayer should know that, under our
regs, FICA is due upon distribution if the amounts were not properly taken into account upon deferral
under section 3121(v)(2). There will always be a question of whether the Service will discover it if the
taxpayer fails to pay the required FICA upon distribution. Our tax system is based on voluntary
compliance.

I sense that you are sympathetic to the taxpayer's argument that they relied on the bad advice they got
from their payroll company. On the more general issue of whether it is appropriate or acceptable (or
common?) for us to waive the statute of limitations based on this type of excuse, I have to admit that I just
don't know. ---------------------------------------------------------------------------------------------------------------------------

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