SECTION 5. ALTERNATE

PROCEDURE FOR PREDECESSORS AND SUCCESSORS

.01 In general . If, in connection with the circumstances described in section 1.01, the predecessor and successor so agree, the predecessor will be relieved from furnishing Forms W–2 to any employees who will be employed in the same

August 23, 2004 322 2004–34 I.R.B.

the electronic specifications for Schedule D (Form 941) become available. For instructions relating to the annual wage limitation, see § 31.3121(a)(1)–1.

.05 Forms W–4 . The predecessor must transfer to the successor all current Forms W–4 that were provided to the predecessor by the acquired employees and any written notices received from the Service under § 31.3402(f)(2)–1(g)(5). The successor must keep the transferred Forms W–4 on file. Generally, the successor employer must deduct and withhold from the wages it pays to the acquired employees according to the information supplied on the transferred Forms W–4 until an employee submits a revised form. The successor employer must submit to the Service, in accordance with § 31.3402(f)(2)–1(g), copies of the Forms W–4 received by the predecessor during the current calendar quarter and the preceding calendar quarter. The successor employer must comply with all other requirements under § 31.3402(f)(2)–1(g). For example, the successor employer must withhold amounts from the employees on the basis of the maximum number specified in any written notices from the Service under § 31.3402(f)(2)–1(g)(5).

.06 Transfer of Forms W–4 furnished electronically . If the predecessor and successor both maintain an electronic system for use by employees in filing Forms W–4, and the systems are compatible, the predecessor may electronically transfer the Forms W–4 of the acquired employees to the successor. The successor may also choose to acquire and maintain the predecessor’s system. If these options do not apply, an acquired employee must provide the successor with a new Form W–4, either electronically or on paper, as prescribed by the successor.

.07 Forms W–5 . The predecessor must transfer to the successor all Forms W–5 for the current year that were provided to the predecessor by the acquired employees.

.08 Transfer of Forms W–5 furnished electronically . If the predecessor and successor both maintain an electronic system for use by employees in furnishing Forms W–5, and the systems are compatible, the predecessor may electronically transfer the Forms W–5 of the acquired employees to the successor. The successor may also choose to acquire and maintain the predecessor’s system. If these options do not

ever, if an employee, whose employment is terminated before the close of the calendar year, requests the Form W–2 earlier, the successor must furnish Form W–2 on or before the 30th day after the written request or the 30th day after the final payment of wages to the employee, whichever is later. Forms W–2 (Copy A) must be filed by the successor with SSA on or before the last day of February (or March 31 if filed electronically) of the following calendar year.

(2) Expedited Forms W–2 . If, under the circumstances described in section 1.01, the predecessor is required to file a final Form 941, the predecessor must furnish Forms W–2 to the employees who are not employed by the successor on an expedited basis. Forms W–2 must be furnished on or before the date required for filing the final Form 941 (generally one month after the end of the quarter). However, if an employee, whose employment is terminated before the close of the calendar year, requests the Form W–2 earlier, the predecessor must furnish the Form W–2 on or before the 30th day after the written request or the 30th day after the final payment of wages to the employee, whichever is later. Forms W–2 (Copy A) filed with SSA by the predecessor must also be filed on an expedited basis. Forms W–2 (Copy A) must be filed on or before the last day of the second calendar month following the period for which the final Form 941 is required to be filed. The successor is not required to either furnish Forms W–2 to the acquired employees or to file the Forms W–2 (Copy A) with SSA on an expedited basis.

.03 Form 941 filed by predecessor . To the extent the wages paid and the taxes withheld by the predecessor are to be included on the Forms W–2 (Copy A) filed by the successor for the acquired employees, there will be a difference between the amounts shown on the predecessor’s Forms W–2 (Copy A) and its Forms 941. The predecessor should complete a Schedule D (Form 941) to explain the discrepancies (between Forms W–2 (Copy A) and Forms 941 in the totals of social security wages, Medicare wages and tips, social security tips, federal income tax withheld, and advance earned income credit (EIC) payments). Schedule D (Form 941) should include the date of the acquisition and the name, trade name, address, tele

phone number, and employer identification number of the successor. Schedule D (Form 941) should be filed after Forms W–2 (Copy A) are prepared. Thus, Schedule D (Form 941) should be filed with the first quarter return for the year after the calendar year of the acquisition, or with the final Form 941 if the predecessor is filing a final Form 941 and it is due before the first quarter return for the year after the calendar year of the acquisition. For example, if the acquisition occurred in the third quarter of 2006 and the predecessor’s business is continuing to operate, the predecessor would file Schedule D (Form 941) with the Form 941 for the first quarter of 2007. However, if the predecessor’s business did not continue to operate, the predecessor would file Schedule D (Form 941) with the predecessor’s final Form 941 which would also be the Form 941 for the third quarter of 2006. If Form 941 is filed electronically, an employer will be able to file Schedule D (Form 941) separately on paper, until the electronic specifications for Schedule D (Form 941) become available.

.04 Form 941 filed by successor . To the extent the wages paid and the taxes withheld by the predecessor are to be included on the Forms W–2 (Copy A) filed by the successor for the acquired employees, there will be a difference between the amounts shown on the successor’s Forms W–2 (Copy A) and its Forms 941. When the successor files its Form 941, it should also file Schedule D (Form 941) to explain the discrepancies between Forms W–2 (Copy A) and Forms 941 in the totals of social security wages, Medicare wages and tips, social security tips, federal income tax withheld, and advance earned income credit (EIC) payments. Schedule D (Form 941) should include the date of the acquisition and the name, trade name, address, telephone number, and employer identification number of the predecessor. Schedule D (Form 941) should be filed after Forms W–2 (Copy A) are prepared. Thus, Schedule D (Form 941) should be filed with the first quarter return for the year after the calendar year of the acquisition, or with the final Form 941 if the successor is filing a final return and it is due before the first quarter return for the year after the calendar year of the acquisition. If Form 941 is filed electronically, an employer will be able to file Schedule D (Form 941) separately on paper, until

2004–34 I.R.B. 323 August 23, 2004