New Procedure -- Recertification of Credit Claimed by Federal Unemployment Taxpayers for State Contributions Paid

U.S. Department of Labor
Employment and Training Administration
Washington, D.C. 20210
Classification: UI
Correspondence symbol: TEUMI
Issue date: June 22, 1992
Rescissions: None
Expiration date: June 30, 1993
Directive: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 32-92
To: ALL STATE EMPLOYMENT SECURITY AGENCIES
From: DONALD J. KULICK, Administrator for Regional Management
Subject: New Procedure -- Recertification of Credit Claimed by Federal Unemployment Taxpayers for State Contributions Paid

1. Purpose. To advise States that the Internal Revenue Service (IRS) is implementing a new procedure to certify credits that employers have taken against their Federal Unemployment Tax Act (FUTA) liability for contributions paid into State unemployment funds.

2. Background. For the most part, the Nationwide System for Computerized Certification of State FUTA Credits (940 Certification) works very well. Each year in October, the IRS central computer center in Martinsburg, West Virginia, sends each State a 940 ID Data Tape for certification of contributions that employers claim were paid to a State unemployment fund. By the following January 31, States return the tapes to the Martinsburg Computing Center (MCC) along with comparison data from their systems that capture potential non-Federal filers, no discrepancies or possible discrepancies. Each March, the MCC creates localized discrepancy tapes and distributes them to ten IRS regional service centers for followup action. The discrepancy tapes are adjusted to reflect the most current data available to the service centers, primarily from Form 940-C, Employer Account Abstracts, received from the States. Discrepancies that cannot be resolved electronically from the abstracts are manually reviewed and consolidated into Potential Adjustment Registers (PAR). If the manual review does not resolve a discrepancy, proposed notices of increase/decrease in the tax are initiated from the PARs and sent to the employers. Employers must obtain a "proof of credit" on either a completed Form 940-B, Request for Verification of Credit Information Shown on 940, or Form 940-C from the State agency to support any protest of the adjustment. These two forms, signed by the appropriate agency official are the only acceptable documentation that the taxes have been paid. Employers who wish to challenge a proposed action have ninety days to obtain the required proof of credit. Responding to these individual requests for proof of credit or recertification requires manual applications by a State agency, often resulting in delayed action. These delays can create disservice to the taxpayer who is bound by the 90-day limit for protesting the adjustment and is pressured by the prospect of IRS collection efforts to keep the adjustment process within the statute of limitations for collection enforcement. A new procedure is being introduced by the IRS that will reduce the volume of adjustment resolution cases that accumulate as a result of the 940 recertification process.

3. New Procedure. The following procedure will be implemented by IRS field offices in July 1992, for tax year 1990 certifications. The proposed adjustment notices are prepared from the PARs and sent to the employers.

   A. If an employer, responding to a notice of proposed adjustment, is unable to obtain the proof of credit in the 90 days allotted but returns photocopies of canceled checks or other pertinent data, the field office will:

   1.  Prepare a Form 940-B, Request for Verification of Credit Information Shown on Form 940.
   
   2.  Photocopy all data returned by the employer.
   
   3.  Send the 940-B and attachments to the State agency.
   
   4.  Suspend the photocopy data and a copy of the Form 940-B for 45 days.*
   

   B. If the service center does not receive a response from the State within 45 days*, they will accept the employer's proof and make the necessary adjustments.

   *Note:  When possible, an arrangement between the State agency and the service center can be made to enable the service center to accept taxpayer's proof of credit without having to suspend the case 45 days for State recertification.
   

4. Action Required. State administrators are requested to provide their unemployment tax managers and 940 certification managers with the information in this directive and to expedite action on the PARs when received for recertification. Priority should be granted to all employer requests for "proof of credits" completion of 940-Bs, when received from IRS.

5. Inquiries. Direct inquiries to the appropriate Regional Office.