SECTION 2. PURPOSE and SCOPE

.01 In general. This Announcement is part of the Internal Revenue

Service’s strategy designed to improve employment tax administration for all taxpayers, including those who are small business owners. The purpose of early referral for employment tax issues is to resolve them more expeditiously through simultaneous action by the District and Appeals. This Announcement describes the method by which a taxpayer requests early referral of one or more unagreed employment tax issues from the District to Appeals. A taxpayer may request early referral of any developed, unagreed employment tax issue that is under the jurisdiction of the District Director arising from an audit. The District will continue to develop other issues arising in the audit.

Early referral for employment tax issues is:

• optional;

• initiated by the taxpayer;

• subject to the approval of both the District Director and the Assistant Regional Director of Appeals (ARDA); and

• not limited to Coordinated Examination Program (CEP) taxpayers.

.02 APPROPRIATE ISSUES FOR EARLY REFERRAL. Appropriate issues for early referral include those that if resolved can reasonably be expected to result in a quicker resolution of the entire case; and that both the taxpayer and District Director agree should be referred to Appeals early. Therefore, early referral may not be available for every employment tax issue.

Examples of appropriate employment tax issues for early referral include:

1. Worker Classification Issues, including whether a worker is an employee or independent contractor under the common law; whether a worker is a statutory employee or statutory non-employee; whether Section 530 of the Revenue Act of 1978 applies; whether I.R.C. § 3509 rates are appropriate; and whether the taxpayer qualifies for an interest-free adjustment.

2. Other Issues, including whether certain payments are excepted from the definition of ‘‘wages’’ ( e.g., a fringe benefit that would be excludable from the employee’s gross income under I.R.C. § 132); and whether certain services are excepted from the definition of ‘‘employment.’’

Because taxes under the SelfEmployment Contributions Act (I.R.C.

§§ 1401–1403) are income taxes, rather than employment taxes, issues arising under these sections are not included in this early referral procedure.