Reporting FUTA credit-reduction discrepancies

CLASSIFICATION

UI
U.S. DEPARTMENT OF LABOR
Employment and Training Administration
CORRESPONDENCE SYMBOL
Washington, D. C. 20210
TEUMI
ISSUE DATE

April 14, 1983
RESCISSIONS
EXPIRATION DATE

None
April 30, 1984

DIRECTIVE: UNEMPLOYMENT INSURANCE PROGRAM LETTER 24-83

TO: ALL STATE EMPLOYMENT SECURITY AGENCIES

FROM: ROYAL S. DELLINGER, Acting Administrator for Regional Management

SUBJECT: Reporting Discrepancies of Federal Unemployment Tax (FUTA) Credit Reduction Collections to the Internal Revenue Service (IRS)

1. Purpose. To announce a 2-year time limitation for reporting apparent discrepancies in the amount of
   FUTA credit reduction collections to the IRS.

2. Background According to Chapter 23, Sections 3302©(2) of the Internal Revenue Code, if an advance
   made to a State under Title XII of the Social Security Act remains outstanding on two consecutive January firsts and is not repaid by November 10 of the second taxable year after receiving the advance, employers in the State are subject to a reduction in FUTA credits.

The IRS provides employers in mid-January of the third taxable year with the 940 FUTA tax return form; this form shows the percentage of the credit reduction (net increase) in the FUTA tax rate which will be applied to taxable wages for FUTA purposes. The credit reduction is retroactive to January 1 of the preceding taxable year.

FUTA credit reduction collections received are applied to reduce outstanding Title III advances on a first made first repaid basis. The and ing Funds Branch in the U.S. Treasury advises SESAs of of credit reductions applied to outstanding Title III advances in the monthly statement

The large number of States now borrowing from the Federal unemployment advance will create a massive accounting and crediting problem at the ….. to come until these loans are repaid. To reduce the p … with handling requests from States for as a of FUTA credit reduction collections which could go back …
, IRS has established a 2-year time limitation for SESAs …apparent discrepancies in FUTA credit reduction collections.

The 2-year limitation period begins January 7 of the year following the year which tax data are received and processed by the IRS, SESAs have 3 full years after the tax year in questions to report discrepancies or request verification of previously reported data.

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Example:

Data for tax year 1981 are received and processed by IRS during 1982

Year number 1 ends December 31, 1983

Year number 2 ends December 31, 1984 (Discrepancies must be reported by this date).

IRS advises that the 2-year limitation will begin with 1981 tax returns received and processed by them during 1982. Therefore, discrepancies must be reported to the IRS before December 31, 1984.

This procedure will not nullify requests for verification of FUTA credit Reduction collections already made by SESAs, or in process, for tax years before 1981. Requests for verification of data or reporting of apparent discrepancies for tax years after 1981, which are outside of the 2-year limitation period for the tax year involved, must be accompanied by supporting documentation. IRS will consider such requests on their merits.

4. Action Required. SESAs should a, Establish a monitoring system to identify and report apparent
   discrepancies in FUTA credit reduction collections to the IRS within the 2-year limitation period. B, Send requests for adjustment, verification of data, or to report apparent discrepancies in FUTA credit reduction collections to:

   Mr. Frederick F. Perdue
   Directive, Returns Processing and Accounting Division
   Internal Revenue Service
   Washington, D.C. 20224
   

And make a copy of the correspondence to the National Office, attention TEUMI

5. Inquiries. Direct questions to appropriate regional office.

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