[4830-01-u]

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 31 and 301

[TD 8636]

RIN 1545-AN57

Time for Furnishing Wage Statements on Termination of Employer's Operations

AGENCY:   Internal Revenue Service (IRS), Treasury.
ACTION:   Final regulations.
SUMMARY:  This document contains final regulations concerning the time for
furnishing wage statements to employees and for filing wage statements with
the Social Security Administration upon the termination of an employer's
operations.  These regulations will affect employers and their employees in
the year the employer ceases to pay wages.  These regulations are intended to
improve the wage reconciliation process between the Social Security
Administration and the IRS. 
EFFECTIVE DATE:  These regulations are effective January 1, 1997.
ADDRESSES:  Send submissions to:  CC:DOM:CORP:T:R (EE-83-89), room 5228,
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC
20044.  In the alternative, submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:T:R (EE-83-89), Courier's Desk.
Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT:  Jean M. Casey, (202) 622-6040
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
     On December 22, 1994, the Federal Register (59 FR 65982) published a
notice of proposed rulemaking which required an employer to furnish Forms W-2
to employees and to file Forms W-2 and W-3 with the Social Security
Administration (SSA) at the same time that the employer is required to file
the final Form 941 with the IRS.   
     Written comments responding to the notice of proposed rulemaking were
received.  A public hearing was held on May 8, 1995, pursuant to a notice
published in the Federal Register on March 24, 1995 (60 FR 15526).  After
consideration of the comments that were received in response to the notice of
proposed rulemaking and at the hearing, the IRS and Treasury adopt the
proposed regulations, as amended and revised by this Treasury decision. 
Explanation of Revisions and Summary of Comments
Availability of Forms W-2
     The regulations, as proposed, would have required an employer who ceases
paying wages to furnish Form W-2 to employees and file Forms W-2 and W-3 with
SSA on or before the date on which the final Form 941 is required to be filed
with the IRS.  Form 941 is generally due quarterly, on or before the last day
of the first calendar month following the period for which it is made (i.e.,
April 30, July 31, October 31, and January 31).  Consequently, if an employer
ceased paying wages in the first quarter of the calendar year, the Forms 941,
W-2 and W-3 would be due by April 30.  Some commentators expressed concern
that Forms W-2 and W-3 are not available in the first quarter of the calendar
year.  Commentators questioned whether using prior year Forms W-2 was an
acceptable alternative if current year forms were unavailable.
     Under the Internal Revenue Code and the existing regulations, an
employee may request the Form W-2 at any time during the year if the employee
is terminated and there is no reasonable expectation on the part of the
employer or the employee of further employment during the calendar year. 
Therefore, Forms W-2 are available from the IRS, either through the mail or at
the district offices, in January of each year.  Specifications for the private
printing of substitute Forms W-2, however, are not always available during the
first quarter of the calendar year.  Thus, during this period, employers may
be limited to using the Forms W-2 printed by the IRS.  Neither prior year
Forms W-2 nor the prior year specifications for the private printing of
substitute Forms W-2 should be used for filing Forms W-2 on an expedited basis
for the current year because such  procedures could result in significant
processing errors.  
Availability of Magnetic Media Specifications
     Commentators questioned whether magnetic media specifications would be
available in the first quarter of the calendar year for employers who are
required to file on an expedited basis under the proposed regulations. 
Regulation section 301.6011-2 and Notice 90-15, 1990-1 C.B. 326, generally
require an employer to file Forms W-2 with SSA on magnetic media if the
employer is required to file 250 or more Forms W-2 in a calendar year. 
Employers who do not meet the 250 return threshold may also file their Forms
W-2 with SSA on magnetic media.
     It is not certain that magnetic media specifications, which are issued
by SSA, will be available in the first quarter of the calendar year for
employers who are required to file on an expedited basis.  The Commissioner
has the authority to provide for reasonable extensions of time, upon written
application, for an employer to furnish Forms W-2 to employees and file Forms
W-2 and W-3 with SSA.  To assure that filers need not shift from magnetic
media to paper filings in order to comply with the expedited filing
requirements, the final regulations affirm that the Commissioner may adopt
automatic extension procedures where appropriate.
       It is anticipated that the Commissioner will establish automatic
extension procedures to the extent necessary to permit employers that
terminate operations a reasonable period of time, after the issuance of
specifications, to make their filings on magnetic media.  
     It is further anticipated that these procedures will include appropriate
automatic extensions of time to file expedited Forms W-2 both for employers
required to file on magnetic media and for employers who have filed on
magnetic media in the past whether or not required to do so.  Even though
Forms W-2 are furnished to employees on paper, the automatic extension
procedures are anticipated to apply to the employee copy of the Form W-2 as
well as the SSA copy in order to avoid the complexities and potential errors
that could arise from processing these forms at significantly different times. 

     It is also anticipated that the published procedure will provide for an
automatic extension to a specified date which permits employers a reasonable
period of time after the issuance of specifications to make their filings on
magnetic media.  This date will be communicated to filers sufficiently early
in the year to permit adequate systems planning.  In providing for these
procedures, it is necessary to balance the practical issues of compliance with
the concern for timely submission of information to SSA.  Thus, if prior to a
future year, it is anticipated that specifications will be issued sufficiently
early in the year to permit a reasonable period of time for filing, while
still complying with the due dates otherwise required in this regulation, the
Commissioner may suspend the automatic extension procedures for that year. 
Discretionary extensions would continue to be considered on a case-by-case
basis.  
     Comments are requested on the automatic extension procedures and their
implementation.  
     Regulation section 301.6011-2(c)(4) provides that the Commissioner may,
upon application, waive the requirement to file on magnetic media in the case
of hardship.  The final regulations clarify that the unavailability of the
specifications for magnetic media filing of Form W-2 will be treated as
creating a hardship.  Therefore, an employer has the option of applying for a
waiver from the requirement to file Forms W-2 on magnetic media and may
instead file the Forms W-2 on paper.  The employer must apply for a waiver
within 45 days of the due date of the return.     Employers may also contact
their local SSA Magnetic Media Coordinator for guidance on how to report on
magnetic media.  The Coordinators are listed in the annual Technical
Instructions Bulletin (TIB-4) published by SSA.
Extension Procedures
     Regulation section 31.6051-1(d)(2) provides procedures for an employer
to request an extension of time to furnish Forms W-2 to employees.  Regulation
section 31.6081(a)-1 provides similar procedures for employers to request an
extension of time to file Forms W-2 and W-3 with SSA.  These procedures apply
to employers who are required to furnish Forms W-2 to employees or file Forms
W-2 and W-3 with SSA on an expedited basis.  Thus, an employer who, under the
final regulations, is required to furnish and file the Forms W-2 on an
expedited basis may request an extension of time if necessary.
Additional month to provide Forms W-2 and W-3 to SSA
      Under existing regulations Forms W-2 and W-3 are due to SSA one month
after they are due to the employees.  This provides employers an opportunity
to correct any errors found by employees before filing the Forms W-2 with SSA. 
Some commentators noted that providing the Forms W-2 to SSA at the same time
the forms are provided to the employees eliminates the opportunity for
corrections currently provided by the regulations.  To minimize the need for
employers to file corrected Forms W-2 (Form W-2c, Statement of Corrected
Income and Tax Amounts), the final regulations include a suggested one month
additional period for providing the Forms W-2 to SSA.  Thus, Forms W-2 would
be due to employees at the same time as the final Form 941 (generally one
month after the end of the quarter).  Forms W-2 and W-3 would be due to SSA
two months after the end of the quarter.
Modification of Revenue Procedure 84-77
     In Revenue Procedure 84-77, 1984-2 C.B. 753, the IRS provided procedures
for preparing and filing certain forms, including Form 941, Form W-2 and Form
W-3, when a successor employer acquires substantially all of the property (1)
used in a trade or business of a predecessor employer, or (2) used in a
separate unit of a trade or business of a predecessor, and in connection with,
or immediately after the acquisition (but during the same calendar year) the
successor employs individuals who were employed in the trade or business of
the predecessor immediately prior to the acquisition.  Under the standard
procedure described in Rev. Proc. 84-77, both the predecessor and successor
employer report the wages they paid employees on Form W-2.  Under the
alternate procedure, the predecessor is relieved from furnishing Form W-2 to
any employee who is employed by the successor employer and from filing such
Forms W-2 with SSA.  Instead, the successor employer assumes the predecessor's
reporting obligation for those employees.  The preamble to the proposed
regulation stated that, other than modifying the time frame for the standard
procedure, the proposed regulation would not affect the validity of Rev. Proc.
84-77. 
     One commentator questioned whether the proposed regulation expedited the
filing requirements for the predecessor employer with regard to individuals
who are not employed by the successor employer.  If the predecessor employer
ceases to pay wages, (i.e., is required to file a final Form 941), the
predecessor employer is required under these regulations to furnish Forms W-2
on an expedited basis to those individuals who are not employed by the
successor employer.  The predecessor employer must also file Forms W-2 and W-3
with SSA on an expedited basis for those individuals who are not employed by
the successor employer.  Revenue Procedure 84-77 is being modified to reflect
this change.
     Some commentators asked how the proposed regulations apply in the
context of mergers.  If a final Form 941 is not filed because a merger does
not involve the cessation of business operations but only a change in
corporate or business form, the expedited filing requirements are
inapplicable.
Use of an agent
     One commentator suggested the final regulations provide an exception
from expedited filing for an employer that appoints an agent to assume the
employer's reporting obligation.  A similar exception was suggested in the
case of a controlled group of corporations in which one member of the group
acts as the payroll agent for the group.  Because there is no practically
effective enforceable manner for shifting liability for reporting from an
employer to an agent and for assuring that the agent will satisfy the
reporting obligations, these suggestions were not adopted.  
Application to Returns filed by Employers for Employees in Guam, U.S. Virgin
Islands, American Samoa, Commonwealth of the Northern Mariana Islands and
Puerto Rico.
     One commentator questioned whether the proposed regulations applied to
wage statements furnished to employees and filed with SSA by employers for
employees in Guam, U.S. Virgin Islands,  American Samoa, Commonwealth of the
Northern Mariana Islands and Puerto Rico.  While these employers file
variations of the Forms 941, W-2 and W-3, they are subject to the filing
requirements for Forms 941, W-2 and W-3.  In addition, employees of these
employers receive social security credit on the same basis as employers who
file the Forms 941, W-2 and W-3.  Thus, these employers are subject to the
regulations. 
Special Analyses  
     It has been determined that this Treasury decision is not a significant
regulatory action as defined in EO 12866.  Therefore, a regulatory assessment
is not required.  It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory
Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and,
therefore, a Regulatory Flexibility Analysis is not required.  Pursuant to
section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Small Business
Administration for comment on its impact on small business.
Drafting Information
     The principal author of these regulations is Jean M. Casey, Office of
the Associate Chief Counsel (Employee Benefits and Exempt Organizations), IRS. 
However, other personnel from the IRS and Treasury Department participated in
their development.  
List of Subjects
26 CFR Part 31 
     Employment taxes, Income taxes, Penalties, Pensions, Railroad
retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 301
     Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
     Accordingly, 26 CFR part 31 and part 301 are amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
     Paragraph 1.  The authority citation for part 31 is amended by adding
the following entries in numerical order to read as follows:
     Authority:  26 U.S.C. 7805 *  *  *  
Section 31.6051-1(d) also issued under 26 U.S.C. 6051. 
Section 31.6051-2 also issued under 26 U.S.C. 6051 * * *
Section 31.6071-1 also issued under 26 U.S.C. 6071  * * *
Section 31.6081-1 also issued under 26 U.S.C. 6081 * * * 

     Par. 2.  Section 31.6051-1, paragraph (d) is amended as follows: 
     1.  Paragraph (d)(1) is redesignated as (d)(1)(i).
     2.  Paragraph (d)(1)(ii) is added. 
     3.  Paragraph (d)(2) is revised.
     The addition and revision read as follows:  
31.6051-1  Statements for employees. 
     * * * * *      
     (d)  * * *  (1)(i) * * *
     (ii)  Expedited furnishing--(A)  General rule.  If an employer is
required to make a final return under 31.6011(a)-6(a)(1) (relating to the
final return for Federal Insurance Contributions Act taxes and income tax
withholding from wages) on Form 941, or a variation thereof, the employer must
furnish the statement required by this section on or before the date required
for filing the final return.  See 31.6071(a)-1(a)(1).  However, if the final
return under 31.6011(a)-6(a)(1) is a monthly return, as described in
31.6011(a)-5, the employer must furnish the statement required by this
section on or before the last day of the month in which the final return is
required to be filed.  See 31.6071(a)-1(a)(2).  Except as provided in
paragraph (d)(2)(i) of this section, in no event may an employer furnish the
statement required by this section later than January 31 of the year
succeeding the calendar year to which it relates.  The requirements set forth
in this paragraph (d)(1)(ii) do not apply to employers with respect to
employees whose wages are for domestic service in the private home of the
employer.  See 31.6011(a)-1(a)(3).
     (B)  Requests by employees.  An employer is not permitted to furnish a
statement pursuant to the provisions of the third sentence of paragraph
(d)(1)(i) of this section (relating to written requests by terminated
employees for Form W-2) at a time later than that required by the provisions
of paragraph (d)(1)(ii)(A) of this section. 
     (C)  Effective date.  This paragraph (d)(1)(ii) is effective January 1,
1997.  
     (2) Extensions of time--(i)  In general (a)  The Director, Martinsburg
Computing Center, may grant an extension of time in which to furnish to
employees the statements required by this section.  A request may be made by a
letter to the Director, Martinsburg Computing Center.  The request must
contain: 
     (1) The employer's name and address; 
     (2) The employer's taxpayer identification number; 
     (3) The type of return (i.e., Form W-2); and 
     (4) A concise statement of the reasons for requesting the 
extension.  
(b)  The application must be mailed or delivered on or before the applicable
due date prescribed in paragraph (d)(1) of this section for furnishing the
statements required by this section.  (c)  In any case in which an employer is
unable, by reason of illness, absence, or other good cause, to sign a request
for an extension, any person standing in close personal or business
relationship to the employer may sign the request on his behalf, and shall be
considered as a duly authorized agent for this purpose, provided the request
sets forth a reason for a signature other than the employer's and the
relationship existing between the employer and the signer.  For provisions
relating to extensions of time for filing the Social Security Administration
copies of the statement, see 31.6081(a)-1(a)(3).
     (ii)  Automatic Extension of Time.  The Commissioner may, in appropriate
cases, publish procedures for automatic extensions of time to furnish Forms W-
2 where the employer is required to furnish the Form W-2 on an expedited
basis.
* * * * *  
     Par. 3.  Section 31.6051-2, paragraph (c), first sentence is revised to
read as follows:
31.6051-2  Information returns on Form W-3 and Internal Revenue Service
copies of Form W-2.
* * * * * 
     (c) Cross references.  For provisions relating to the time for filing
the information returns required by this section and to extensions of the time
for filing, see  31.6071(a)-1(a)(3) and 31.6081(a)-1(a)(3), respectively. *
* *
     Par. 4.  Section 31.6071(a)-1(a)(3) is amended as follows: 
     1.  Paragraph (a)(3)(i) is removed.  
     2.  Paragraph (a)(3)(ii) is redesignated as paragraph (a)(3)(i) and the
heading is revised.
     3.  A new paragraph (a)(3)(ii) is added.
     The addition and revision read as follows: 
31.6071(a)-1  Time for filing returns and other documents.
     (a)  *  *  *
     (3) * * *  (i) General rule. *  *  *
     (ii) Expedited filing--(A)  General rule.  If an employer who is
required to make a return pursuant to 31.6011(a)-1 or 31.6011(a)-4 is
required to make a final return on Form 941, or a variation thereof, under
31.6011(a)-6(a)(1) (relating to the final return for Federal Insurance
Contributions Act taxes and income tax withholding from wages), the return
which is required to be made under 31.6051-2 must be filed on or before the
last day of the second calendar month following the period for which the final
return is filed.  The requirements set forth in this paragraph (a)(3)(ii) do
not apply to employers with respect to employees whose wages are for domestic
service in the private home of the employer.  See 31.6011(a)-1(a)(3).  
     (B)  Effective date.  This paragraph (a)(3)(ii) is effective January 1,
1997. 
* * * * * 
     Par. 5.  Section 31.6081(a)-1(a)(3) is revised to read as follows:  
31.6081(a)-1 Extensions of time for filing returns and other documents.
     (a) * * *
     (3) Information returns of employers on Forms W-2 and W-3--(i) In
general.  The Director, Martinsburg Computing Center, may grant an extension
of time in which to file the Social Security Administration copy of Forms W-2
and the accompanying transmittal form which constitutes an information return
under paragraph 31.6051-2(a).  The request must contain a concise statement
of the reasons for requesting the extension.  The request must be mailed or
delivered on or before the date on which the employer is required to file the
Form W-2 with the Social Security Administration. 
     (ii)  Automatic Extension of Time.  The Commissioner may, in appropriate
cases, publish procedures for automatic extensions of time to file Forms W-2
where the employer is required to file the Form W-2 on an expedited basis. 
* * * * * 
PART 301 -- PROCEDURE AND ADMINISTRATION
     Par. 6.  The authority citation for part 301 continues to read in part
as follows:
     Authority: 26 U. S. C. 7805 * * *      Par. 7.  Section 301.6011-2(c)(4)(i) is revised to read as follows:
301.6011-2  Required use of magnetic media.
* * * * * 
     (c)  * * *
     (4) Waiver. (i) The Commissioner may waive the requirements of this
section if hardship is shown in a request for waiver filed in accordance with
this paragraph (c)(4)(i).  The principal factor in determining hardship will
be the amount, if any, by which the cost of filing the information returns in
accordance with this section exceeds the cost of filing the returns on other
media.  Notwithstanding the forgoing, if an employer is required to make a
final return on Form 941, or a variation thereof, and expedited filing of
Forms W-2 is required, the unavailability of specifications for magnetic media
filing will be treated as creating a hardship.  See 31.6071(a)-1(a)(3)(ii). 
A request for waiver should be filed at least 45 days before the due date of
the information return in order for the Service to have adequate time to
respond to the request for waiver.  The waiver will specify the type of
information return and the period to which it applies and will be subject to such terms and conditions regarding the method
of reporting as may be prescribed by the Commissioner. 
* * * * *       

                         Commissioner of Internal Revenue
                           Margaret Milner Richardson

Approved:                                  December 12, 1995
               Assistant Secretary of the Treasury
                 Leslie Samuels