SECTION 4. EMPLOYMENT TAX

EARLY REFERRAL PROCEDURES

.01 Background.

(1) In 1996, the Service adopted the classification settlement program (CSP) for worker classification cases for a twoyear test period. The Service announced in Notice 98–21, 1998–15 I.R.B. 14, that the CSP would be extended until further notice. The CSP is an optional settlement program that allows businesses and tax examiners to resolve worker classification cases as early in the administrative process as possible, thereby reducing taxpayer burden. In the CSP, examiners can offer a business under audit a worker classification settlement using a standard closing agreement developed for this purpose. The CSP procedures also ensure that the taxpayer relief provisions under § 530 of the Revenue Act of 1978, as amended, are properly applied. When a taxpayer does not agree with the CSP terms offered by the Service or is not eligible for a settlement under the CSP, consideration should be given to requesting early referral to Appeals under these procedures.

(2) Section 530 provides businesses with relief from federal employment tax obligations if certain requirements are met. It terminates the business’ employment tax liability under IRC Subtitle C (Federal Insurance Contributions Act and Federal Unemployment Tax Act taxes, federal income tax withholding, and Railroad Retirement Tax Act taxes) and any interest or penalties attributable to such liability for employment taxes (Rev. Proc. 85–18, 1985–1 C.B. 518). Section 530 does not affect the employment tax liability of a worker.

(3) Section 530(e)(3) is generally effective after December 31, 1996 and clar

1999–29 I.R.B. 111 July 19, 1999

tained in §§ 7436(d)(1) and 6213. The following waiver must be included:

I understand that by signing this agreement, I am waiving the re- strictions on assessment provided in §§ 7436(d) and 6213(a) of the Internal Revenue Code of 1986. A closing agreement generally will be prepared for issues where a settlement is complex or affects subsequent years. See § 7121 and also Rev. Proc 68–16, 1968–1 C.B. 770, which describes the preparation of closing agreements. Appeals will coordinate effects on subsequent years with the District and District Counsel.

(2) With respect to any unagreed early referral employment tax issues that do not relate to a § 530 or worker classification issue (so that the unagreed issue(s) is not subject to § 7436), a 30-day letter will not be issued. Rather, the District will process the portion of the case that is not dependent upon a § 530 or worker classification issue for assessment of tax due from the taxpayer that relates to that portion of the case only, which will start the period for the increased underpayment rate for large corporate underpayments under § 6621(c), or for the award of administrative costs under § 7430(c).