Is it a Good Time for Our Governmental Unit to Conduct a Federal Tax Self-Assessment?
2011-02/23 Mary Ellen Schill and Megan Heinzelman
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The Internal Revenue Service office of Federal, State & Local Governments (FSLG) has developed a self-assessment tool as a resource to help governmental entities understand and comply with the complex nature of their federal tax responsibilities.  FSLG helps coordinate activities with IRS offices to work with governmental employers to resolve tax problems. 

FSLG developed the self-assessment tool as a result of its identification of a number of common errors for governmental employers.  Some of these errors include:

• Totals shown on Forms 941 or Form 944 do not reconcile with totals on Forms W-2 and W-3, or between these forms and the accounting records.
• Forms W-9 and W-4 are not being used or are not being updated when necessary.
• Failure to backup withhold on payments to vendors when required.
• Failure to correctly complete or file Forms 1099.
• Failure to apply accountable plan rules to expense reimbursements and allowances.
• Incorrect or missing employment tax deposits. 
• Failure to follow electronic filing requirements.
• Misclassification of certain groups of workers as independent contractors, instead of as employees.
• Failure to pay and withhold Medicare-only tax on rehired annuitants.
• Failure to include taxable noncash benefits in employee wages.
• Failure to correctly apply withholding rules to election workers and public officials. 

FSLG also works with the Social Security Administration to educate governmental entities on Social Security and Medicare issues and the terms of the Section 218 Agreement that the state in which the governmental entity is located has with the Social Security Administration.  A Section 218 Agreement is a written voluntary agreement between a state and the Social Security Administration to provide Social Security and Medicare Hospital Insurance, or Medicare-only coverage, for employees of state and local governments.  Wisconsin has a Section 218 Agreement.  It is important for a public entity to know if its employees are subject to a Section 218 Agreement because a mistake in classification of a group of employees can result in significant penalties. 

The FSLG self-assessment tool is an excellent resource for governmental entities.  The self-assessment tool is available at www.irs.gov/pub/irs-tege/compliance_tool_fslg.pdf.  Should you have additional questions regarding the tax responsibilities a governmental entity has, our attorneys are ready to assist you. 

For further information, please contact Attorneys Mary Ellen Schill or Megan K. Heinzelman, who prepared this article, or any of the attorneys within the Employment, Labor & Benefits Practice Group of Ruder Ware: Dean Dietrich, Ron Rutlin, Jeff Jones, Chris Toner, or Sara Ackermann.

© 2011 Ruder Ware, L.L.S.C. Accurate reproduction with acknowledgment granted. All rights reserved.
This document provides information of a general nature regarding legislative or other legal developments. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed.