In Notice 2015-15 the IRS attempts to address what constitutes employee’s consent to support a claim for refund of FICA taxes by an employer. Specifically the notice contains a proposed revenue procedure that would provide for requirements for employers who obtain electronic consent from their employees.
Employers will not be required to comply with the provisions of the ruling until it is published in the Internal Revenue Bulletin in final form. However employers may rely on the proposed revenue procedures when obtaining current consents—thus, employers who utilize these procedures will be protected against a later claim that they had failed to obtain proper consents from their employees before filing the returns.
The IRS is asking for comments on the proposed revenue procedures, with a due date for comments of “April 31” (presumably the IRS really means April 30).
The proposed revenue notes that this ruling does not apply to any issues related to the additional Medicare tax, as claims for refunds related to that tax are only allowed if the employer did not withhold the tax from the employee’s wages—otherwise the employee simply recovers the “excess” when he/she files an individual tax return for the year in question.
The proposed procedure begins with a definition of terms in Section 3. Of note is a definition of “email address” that defines certain requirements for an email address to be used pursuant to this notice.
Generally an “email address” for purposes of the proposed procedure refers to any employer provided email address on a secure employer-provided email network in the regular course of business. In the alternative an employee’s personal email address may be used, but only if certain conditions are met.
A qualified personal email address for purposes of this ruling must:
- Be the most recent email address provided by the employee to the employer
- Must be maintained in the employer’s personnel records in the ordinary course of business
- Cannot be an email address obtained from a third-party source other than via an authorized representative of the employee
A signature includes an electronic signature, but such an electronic signature must meet the requirements found in Section 6 (discussed later) of the proposed revenue procedure, as modified in any future guidance.
Section 5 includes the basic requirements for a consent. The consent must be maintained in the employer’s records to support the employer’s certification that such consents had been obtained. That record must be maintained for as long as it may be administratively relevant subject to the overriding rule that it must be maintained for a minimum of four years.
The employee’s consent must contain:
- Contain the name, address, and social security number of the employee;
- Contain the name, address, and employer identification number of the employer;
- Contain the tax period(s), type of tax (e.g., social security and Medicare taxes), and the amount of tax for which the employee consent is provided;
- Affirmatively state that the employee authorizes the employer to claim a refund for the overpayment of the employee share of tax;
- For amounts collected in a prior year, include the employee’s written statement;
- Identify the basis of the claim (e.g., request for refund of the social security and Medicare taxes withheld with regard to excess transit benefits provided in 2014 due to a retroactive legislative change); and
- Be dated and contain the employee’s signature under penalties of perjury. The penalties of perjury statement should be located immediately above the required signature.
Electronic requests for consents and documentation of electronic employee consents are allowed. The proposed ruling notes that these items will be subject to the general rules regarding electronic records found in Revenue Procedure 97-22.
Any electronic consent system must be reasonably accessible to the employee (thus, no requiring the employee must use a specific computer accessible only from a corporate office located many miles away) and reasonably designed to preclude anyone other than the employee from giving the employee consent.
The electronic request for consent must be provided in a form no less understandable than is required for a written paper document.
Under the initial rules of the proposed revenue procedure, a signature will be viewed as valid if it meets the following requirements:
- A person (i.e., the signer) must use an acceptable electronic form of signature; for purposes of this revenue procedure, this includes a typed name that is within or at the end of an electronic record, such as typed into a signature block or other acceptable electronic form, or as otherwise identified in IRS published guidance, publications, forms, instructions, or on the irs.gov website;
- The electronic form of signature must be executed by a person with the intent to sign the electronic record (e.g., to indicate a person’s approval of the information contained in the electronic record);
- The electronic form of signature must be attached to or associated with the electronic record being signed;
- There must be a means to identify and authenticate a particular person as the signer; and
- There must be a means to preserve the integrity of the signed record
The challenge will be the fourth requirement—having a system to identify and authenticate the person executing an electronic signature. Presumably this will require the employee to “sign in” or take some similar action that only he/she is supposed to be able to execute in order to prove they are the one signing the form. Conversely, merely having an open web page where anyone could type an employee’s name into the website would not be an acceptable form of signature.
The system must inform the employee that the information is being provided under penalties of perjury. The employer must, upon request from the IRS, supply a hard copy of the employee consent or a response indicating that the employee was not authorizing the employer to claim a refund of FICA taxes on his or her behalf.
The proposed procedure also provides what will constitute a “reasonable effort” on the part of the employer to obtain consent which will enable the employer to receive the refund even if such consent is not obtained because the employer is unable to locate the employee or the employee simply refuses to either consent or indicate the employee is refusing to authorize consent.
Such steps provided for in the ruling include:
- The employer properly requests a consent of the employee as provided in this revenue procedure;
- A request for a consent sent electronically provides for an acknowledgement of receipt of the email message. The request must specifically ask the employee to acknowledge receipt of the request for a consent (e.g., by clicking on a voting button (YES) or by sending a reply message to the employer). A read-receipt message is not sufficient;
- The employer retains a record of mailing the request for a consent, record of emailing the request for a consent (including acknowledgement of receipt of the email message), or record of personal delivery to the employee who does not furnish an employee consent, or a response indicating that the employee was not authorizing the employer to claim a refund of FICA taxes on his or her behalf;
- In the event the mailing is undeliverable, the employer makes an effort to determine the employee’s current address and, if a new address is discovered, the employer delivers a request for a consent in a paper format to the new address or delivers a request for a consent by email or by personal delivery, giving the employee not less than 45 days from the date of the request to reply to the subsequent request; and
- In the event of an email delivery failure (e.g., the employer is notified that the message the employer tried to send did not reach the employee because of a problem with the email address) or in the event that the employee does not acknowledge receipt of the email message, the employer mails a request for a consent in a paper format to the employee’s last known address or provides a request for a consent to the employee by personal delivery giving the employee not less than 45 days from the date of the request to reply to the subsequent request.
Although an employer is not required to follow these new procedures, prudence suggests that employers who wish to use electronic means to obtain such consents should adopt these procedures pending final guidance.