IRS denies relief to government employers.
The basis of the Service's position is that, when Section 530 was enacted in 1978, government employers were not subject to FICA and FUTA taxes and their employees were not subject to FICA tax. (This has been subsequently changed, in part, by Sec. 3121(b)(7)(E) and (F), which expands FICA coverage.) Furthermore, with respect to the only tax withholding government employers were required to perform (Federal income tax under Sec. 3401), they were only secondarily liable because such amounts are abatable under Sec. 3402(d) if the employee paid his income taxes. Thus, the Service concluded that "for federal employment tax purposes, state and local governments have been treated significantly different than private employers." It apparently did not bother anyone at the Service that all employers (not just government employers) are permitted to avail themselves of the abatement opportunity under Sec. 3402(d).
It is this supposedly different treatment that government employers and employees have historically enjoyed that results in the Service's "inescapable conclusion that Congress never intended to provide section 530 relief to public employers." After reading the legislative history of Section 530, it is difficult to reach the same conclusion as the Service, since there is no mention whatsoever of private versus public employers. The committee reports refer only to "taxpayers" who face exposure to employment tax liabilities (Federal income tax withholding, FICA taxes and FUTA taxes). (See H. Rep. No. 95-1748, 95th Cong., 2d Sess. (1978), and S. Rep. No. 95-1263, 95th Cong., 2d Sess. (1978).)
If the Service persists in denying Section 530 relief to state and local employers, it seems inevitable that this issue will be litigated.
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|Author:||Friedman, Steven M.|
|Publication:||The Tax Adviser|
|Article Type:||Brief Article|
|Date:||Jun 1, 1992|
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