Employers Must File Protective Refund Claims with IRS on or before April 15, 2014 to Recover 2010 FICA Taxes on Severance Payments

During 2010, employers may have paid FICA tax on severance payments to former employees.  In those cases, employers must file a protective refund claim with IRS on or before April 15, 2014 to recover those taxes pending the U.S. Supreme Court’s decision in U.S. v. Quality Stores.  If a timely claim is not filed by that date, the employer forfeits any legal right to recover those taxes if the Supreme Court affirms the 6th Circuit Court of Appeals decision.

In 2012, the Sixth Circuit held that Quality Stores was not liable for paying FICA taxes to IRS on severance payments or supplemental unemployment benefits made in 2010 to former employees.  Thus, the Court held that Quality Stores was entitled to a refund from IRS of those FICA taxes.  The IRS appealed that decision to the U.S. Supreme Court.  And the Supreme Court agreed to review it in 2013.

The Supreme Court is not expected to issue a ruling on this matter until sometime during 2014.

Hence, April 15, 2014 is the deadline for an employer to file a protective refund claim with IRS if FICA tax was paid on 2010 severance payments to former employees.  The protective claim is filed with IRS on Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

Failure to file a timely refund claim on or before April 15, 2014 prohibits an employer from recovering any 2010 FICA taxes on severance payments if the Supreme Court decides in favor of Quality Stores.

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    Howard L. Richshafer

    Howard Richshafer joined Wood + Lamping in 2008, and his practice is focused on civil and criminal tax problems, estate planning and probate, tax court trial work, mergers and acquisitions, and general corporate business matters. Howard is also a licensed Ohio CPA. Over the past 40 years, Howard has represented clients experiencing all types of civil and criminal tax problems with IRS. Those problems include IRS audits, IRS criminal investigations, enforced collection of unpaid tax liabilities involving levies, liens, and seizures of assets and income.

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