Section 3402(d) and 3406 employment Tax Case Requiring Form 4668, Form 4669 and Form 4670

If, during the course of an examination, it is determined that an employer / employee relationship exists, IRS is authorized to assess tax, penalty, and interest against the employer for the amount of income taxes that should have been withheld from employees. However, Sections 3402(d) and 3406 of the IRC relieves the employer of their taxes, if the employee has filed income tax returns and paid the tax due. Employers are required to use Form 4670, Request for Relief from Payment of Income Tax Withholding and Backup Withholding (BUWH), along with one or more Form 4669, Statement of Payments Received to obtain this relief. If the employer has paid the tax assessed, Form 843, Claim for Refund and Request for Abatement is required.

Tax assessed under IRC 3509 is not subject to abatement. IRC 3509 provides the authority for determining an employer’s liability for employee FICA tax and income tax withholding, generally for any employee who is not treated as an employee by the employer. IRC 3509 assessments are recognized on IDRS by item reference number 079 and a reference amount of zero.

The employer must secure signed Forms 4669 from the employees covered by the examination. The employer then prepares and signs Form 4670 indicating the tax year and the number of statements, Form 4669 secured. These signed forms are considered "prima facie" evidence of filing and further research is unnecessary.

Form 4668, Employment Tax Examination Changes Report, is the basic report form used for all Forms 941, 942, 943 and 945 examinations. It is used to show the additional tax, overassessment or delinquent tax proposed by the Examiner and should be attached to the last quarter return examined as part of the Revenue Agents Report (RAR).

Process Forms 4670, 4669 and 4668 as follows:

In an initiative to reduce unnecessary taxpayer contact and processing time of claims filed under IRC section 3402(d) and 3406, the Examiner will provide the taxpayer with an extra copy of the Form 4668 along with Forms 4669/4670. The taxpayer will be instructed to file the copy of the Form 4668 along with the Forms 4669/4670 to the appropriate campus. If the Forms 4669/4670 are received without Form 4668; return the package to the Examiner.

If the claim can be processed, adjust the module for the proper amount using TC 30X and item reference 111 (Total Income Tax Withheld) or 008 (Backup Withholding) as appropriate.