IMRS Industry Issues Quarterly Report - March 2012

Issue Management Resolution System – Turning Issues into Answers

The Issue Management Resolution System (IMRS) was designed to capture, develop and respond to stakeholder issues. IMRS also identifies nationwide trends in the reporting, filing and paying requirements that may indicate a need to change IRS processes or procedures.

This report provides synopses of some of the issues raised by or of interest to our industry stakeholders. Stakeholders should forward significant issues regarding IRS policies, practices and issues to their Stakeholder Liaison (SL) Local Contacts.

IMRS Issue 11-0001482 – Problems Processing Tax Returns of H2-A Visa Workers
Issue: Workers on H2-A visas are receiving notices assessing self-employment tax on their Forms 1040. Foreign agricultural workers temporarily admitted into the United States on H-2A visas are exempt from U.S. Social Security and Medicare taxes on compensation paid to them for services performed in connection with the H-2A visa under IRC 3121(b)(1). Guidance was requested on how to prepare these returns to alert IRS of the exemption.

Response: Math error notices were issued because a Schedule SE was included with the return. A tax return for an H2-A visa worker should be filed in the following manner: exclude Schedule SE; enter "exempt, see attached statement" on the Self-Employment Tax line of Form 1040; and attach a statement of explanation.

Beginning in calendar year 2011, an employer must report compensation of $600 or more paid to an H-2A agricultural worker on Form W-2, Wage and Tax Statement, and NOT on Form 1099-MISC, Miscellaneous Income, as required in previous years. Search “ foreign agricultural workers” on IRS.gov for further information.

IMRS Issue 10-0001373 – Increase in Balance Due Amount to Qualify for Streamlined Installment Agreement Program
Issue: Taxpayers would like an increase in the balance due amount that would qualify for the streamlined installment program.

Response: In its latest effort to help struggling taxpayers, the Internal Revenue Service issued IR-2011-20, announcing a series of new steps to help people get a fresh start with their tax liabilities. This announcement comes after a review of collection operations that IRS Commissioner Doug Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.

The IRS will make streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate.

Small businesses with $25,000 or less in unpaid tax can participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses will have 24 months to pay.

The streamlined Installment Agreement will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less.

Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.

Local Issue View 1603 – Employee L-1A Visa Holder Treated as an Independent Contractor
Issue: A worker is in the U.S. on an L-1A visa. By definition, L-1A visa holders are employees. However, the small company he works for did not treat him as an employee for payroll purposes in 2011. The worker would like to accept a 1099-MISC rather than make the company redo their 2011 payroll. The worker is concerned, however, that a 1099-MISC implies that he is self-employed, while his visa is for an employee. Will filing a tax return with a Schedule C jeopardize his visa status? Also, does the IRS report these types of things to INS?

Response: The employer cannot choose to issue a Form 1099-Misc and avoid correcting their records even if the worker is willing to accept a 1099-MISC. The company must correct their treatment of the worker and issue a Form W-2.

Workers who believe they have been improperly classified as independent contractors by an employer can use Form 8919 (PDF), Uncollected Social Security and Medicare Tax on Wages, to figure and report the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. See the full article Misclassified Workers to File New Social Security Tax Form on IRS.gov for more information.

The law protects tax return information from disclosure to other parties, including other government agencies, by the Internal Revenue Service. Section 6103 generally prohibits the release of tax information by an IRS employee. However, there are important exceptions: search “ disclosure laws” on IRS.gov for more information about these exceptions.

IMRS Issue 06-0000202 – Form 8027 Treatment of Gift Card Redemptions
Issue: How is the redemption of gift cards by restaurants handled when preparing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips?

Response: Amounts redeemed with a gift card should be treated like cash. The amount redeemed is reported as a gross receipt to the extent the gift card is used to purchase food and beverages. If the patron may use the gift card for tipping as well, the tip amount should be treated as a cash tip paid to the service provider. If the patron uses a credit card for tipping when redeeming the gift card for food and beverages, the tip amount is reported as a charge receipt with a charged tip on Form 8027. For the complete Chief Counsel Advice Memo, search for the exact phrase ” reporting gift card redemptions on Form 8027 (PDF)" on IRS.gov using the advanced search feature