SECTION 2. BACKGROUND

.01 Chapters 21, 22, 23, 24, and 25 of the Code impose obligations on employers with regard to employment taxes. Specifically, Chapter 21 imposes Federal Insurance Contributions Act (FICA) tax, Chapter 22 imposes Railroad Retirement Tax Act (RRTA) tax, Chapter 23 imposes Federal Unemployment Tax Act (FUTA) tax, Chapter 24 imposes Collection of Income Tax at Source on Wages (income tax withholding), and Chapter 25 provides general provisions relating to employment taxes.

.02 Section 3504 of the Code authorizes the Secretary to promulgate regulations to authorize a fiduciary, agent, or other person (“agent”) who has the control of, receives, has custody of, disposes of, or pays the wages of an employee or group of employees, employed by one or more employers, to perform certain specified acts required of employers. Under section 3504, all provisions of law (including penalties) applicable with respect to an employer are applicable to the agent and remain applicable to the employer. Accordingly, both the agent and employer are liable for the employment taxes and penalties associated with the employer’s employment tax obligations undertaken by the agent.

.03 Section 31.3504–1(a) as amended by T.D. 9649, effective December 12, 2013, provides that the Internal Revenue Service (IRS) may authorize a person who pays, controls, receives, has custody of, or disposes of (collectively “paid”) wages or compensation of an employee or group of employees employed by one or more em

ployers as an agent. The regulation provides that applications for authorization to act as agent shall be signed by the agent and employer and made on the form prescribed by the IRS, and shall be filed with the IRS as prescribed in the instructions to the form and other applicable guidance. Generally this authorization is applicable to FICA tax, RRTA tax, and income tax withholding and relevant general employment tax provisions under the Code.

.04 Section 31.3504–1(b) as amended by T.D. 9649, effective December 12, 2013, permits an agent authorized for purposes of FICA tax and income tax withholding to perform acts required of an employer who is a home care service recipient to also be authorized for purposes of FUTA tax. Section 31.3504–1(b)(2) defines “home care services” to include health care and personal attendant care services rendered to the home care service recipient. Section 31.3504–1(b)(3) defines a “home care service recipient” as an individual who receives home care services while enrolled, and for the remainder of the calendar year after ceasing to be enrolled, in a program administered by a Federal, state, or local government agency that provides Federal, state, or local government funds to pay, in whole or in part, for home care services for that individual.

.05 Rev. Proc. 70–6, 1970–1 C.B. 420, sets forth procedures to be followed in requesting authorization to act as agent under section 3504 for purposes of FICA tax, RRTA tax, income tax withholding, and general provisions relating to employment tax. It provides that application for authorization should be made in writing by the agent, accompanied by Form 2678, Employer Appointment of Agent, executed by each employer for whom the agent is to act. The agent must file one return for each tax-return period, and maintain records that will disclose the full wages paid to each employee on behalf of, and identified by, each employer for whom the agent acts.

.06 Rev. Proc. 80–4, 1980–1 C.B. 581, sets forth the procedures to be followed by state and local health and welfare agencies wishing to act as agents under section 3504 for welfare recipients who become the employers of individuals furnished by the agencies to provide inhome domestic service for the welfare re

cipients. It provides that the state or local agency does not need to receive a Form 2678 from each welfare recipient/employer, so long as its application to the IRS references the document that the welfare recipient/employer filed with the agency appointing the agency as agent. The guidance also provides that when a welfare recipient/employer is liable for FUTA tax, the IRS will interpose no objection if the state or local agency acting as an agent for FICA tax and income tax withholding, also acts as an agent for FUTA tax. However, Rev. Proc. 80–4 does not apply to state and local welfare agencies that contract with outside organizations to provide the in-home domestic services.

.07 Notice 95–18, 1995–1 C.B. 300, provides guidance to household employers on rules regarding federal employment taxes and income tax withholding under section 2 of the Social Security Domestic Employment Reform Act of 1994 (the Act), Pub. L. 103–387. The Act added section 3510 to the Code to provide that returns with respect to domestic service employment taxes be made on a calendar year basis, and amended the FICA provisions of the Code to establish an annual threshold for cash remuneration paid by an employer to an employee for domestic service in a private home of the employer in order to be subject to FICA tax. The notice explains the major changes made by the Act and has a series of questions and answers related to household employers.

Specifically, the notice provides that state and local government health and welfare agencies that act as agents pursuant to Rev. Proc. 80–4 should obtain a separate employer identification number (EIN) for use in reporting taxes with respect to individuals furnished by the agencies to provide household services for recipients of public assistance. It also provides that the IRS will waive penalties for these state and local government health and welfare agencies for failure to deposit the FICA and FUTA taxes and withheld income taxes on wages paid to household employees during 1995, provided all taxes are deposited on or before the due date of the applicable return.

.08 Notice 2003–70, 2003–2 C.B. 916, proposes a revenue procedure giving up

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dated guidance to state and local government agencies on how they can serve as agents (“state agents”) under section 3504 for disabled individuals and other welfare recipients (“service recipients”) who employ home-care service providers to assist them in their homes. The notice provides that until a final version of the proposed revenue procedure is issued, the IRS will not challenge the way a state meets the employment tax obligations with respect to home-care service providers employed in its in-home domestic services program if the employment taxes are being timely withheld, reported, and paid, and the procedures for reporting and paying the taxes are based on a reasonable, good faith interpretation of existing guidance, including on positions set forth in the proposed revenue procedure.

Notice 2003–70 proposes to modify Rev. Proc. 80–4 to apply not only to state and local agencies that furnish individuals to provide in-home domestic services, but also to state and local agencies that do not furnish the individuals who provide inhome domestic services. The notice allows the state agent to remit taxes with a timely filed return rather than make deposits according to the schedule that would otherwise be applicable under §31.6302–1. It also allows the service recipient to designate the state agent without having to obtain an EIN as he or she would otherwise be required to do in order to execute a Form 2678.

Notice 2003–70 also provides guidance on withholding and reporting rules for third parties acting either as a “reporting agent” of the state agent or as a “subagent” of the state agent. The notice explains that a reporting agent is an accounting service, franchiser, bank, service bureau or other entity authorized to perform one or more acts on behalf of an employer, including sign and file Forms 940, Employer’s Annual Federal Unem- ployment Tax Act (FUTA) Return, and 941, Employer’s QUARTERLY Federal Tax Return, and make federal tax deposits for the taxes reported on these forms. The notice defines a subagent as an individual or entity designated as an agent by a state agent in accordance with Rev. Proc. 70–6 and the notice. Notice 2003–70 provides that both a reporting agent and subagent of a state agent should use the special EIN

of the state agent, and file one Form 940 using the name and special EIN of the state agent on behalf of all service recipients for whom it acts. The notice allows the reporting agent of the state agent to remit taxes with a timely filed return. The subagent of the state agent must follow the deposit schedule in §31.6302–1 that is otherwise applicable.

.09 The purpose of this revenue procedure is to update and consolidate the previously issued guidance discussed in this section and incorporate recently finalized rules related to home care service recipients (HCSRs). The updates to the prior guidance principally reflect changes already implemented in IRS administrative processes. For example, the IRS no longer requires an application for authorization to act as agent to accompany Form 2678. Also, Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, has replaced Form 941c, Supporting Statement To Correct Information, for correcting wages, and since 2010, agents have been required to attach allocation schedules to their aggregate returns. Other changes that modify current procedures are noted.

.10 The term “wages” as used in this revenue procedure shall be construed to include compensation under the RRTA unless the context indicates otherwise.