TN 8 (11-16)
SL 40001.420 Modifications to the Original Agreement
A. Purpose of modifications
Modifications amend the original agreement to do the following:
extend coverage to new groups of employees;
identify new political subdivisions joining a public retirement system;
correct errors in previous modifications (for Error Modifications, see SL 40001.450 and for Modifications to Correct Errors, see SL 40001.465);
implement changes in Federal or State law; and
exclude services or positions previously covered (under very limited circumstances).
B. Preparing modifications
1. The State
When preparing a modification, take these actions:
clearly state its purpose;
use the sample language in the exhibits (for Agreement and Modification Exhibits, see SL 40001.490);
request assistance from the PSSO or RO if special language is required;
list all optional exclusions; and
include all statewide optional exclusions, from the original agreement, in each modification.
If you exclude part-time positions or a class (classes) of part-time positions, include the definition of part-time position in the modification. If duplications of the name exist in the State for entities such as townships and school districts, add the county designation for precise identification.
After preparing the modification:
request a preliminary review from the Regional Office (RO) through the Parallel Social Security Office (PSSO) if the modification is complex or there is a question concerning the legality of any provision;
submit two original modifications with the pen-and-ink signature(s) of the authorized State official(s) to the PSSO; and
provide extra copies if you want more than one signed copy.
2. The PSSO
Review the modification to ensure the following:
the State official has signature authority;
the modification number is in sequential order;
the entity is not already covered under Section 218; or
the supporting documentation is appropriate.
After reviewing the modification:
send the modification and documentation to the RO for technical review, legal clearance, and execution on behalf of the Commissioner of Social Security; and
maintain a photocopy for the pending file.
C. Forwarding additional information with modification
Provide additional information on a separate sheet or include in the modification itself. Additional information may be necessary in these instances:
If the status of the entity is not apparent from the name, the State should include a reference to the statutory authority, which established its status. Each modification must provide the Internal Revenue Service (IRS) issued Federal Employer Identification Numbers (FEIN) for each entity; or
If a retirement system coverage group is included in a modification, the modification must have the certification of the governor or his designate.
D. Minor corrections before executing the modification
If minor corrections (misspellings, typos, etc.) are necessary before executing a modification, the RO must ask the State to provide written authority for the change. Written authority can be in the form of a letter, email, or fax, and must include the following information:
name of the authorizing document,
details of the change, and
name, title, and contact information of the authorizing State official.
If the RO receives a phone call from the State requesting a minor correction, the RO may use a Form SSA-5002 (Report of Contact) to document the request but the RO must also ask the State to provide written authority to validate the correction. The RO must retain the State’s written authority with the modification and annotate the correction on the modification:
identifying the authorizing document,
showing the name and title of the authorizing State official, and
showing the name of the person making the change and the date of the change.
EXAMPLE: The state administrator mistyped the entity name on a pending modification as School District 12, when it should have been School District 13. The state administrator calls the RO Specialist to report the mistake and asks that he or she correct the typo. The RO Specialist takes the following actions:
ask the State Administrator to provide written authority (e.g., an email) requesting the correction;
change “12” to “13,” on the modification;
add a parenthetical, “per 8/1/11 email from S. Smith, SSA”; and
sign and date the entry and attach the email with the modification.
Major changes may require the State to rewrite the modification. If this is necessary, the RO copy of the initial modification establishes the date of its submittal.
E. Notification of approval
After executing the modification the RO must:
Send the State Administrator a notification of approval letter with an executed copy(s) of the modification and, if any, a copy of the State's authorization for any changes.
Send a photocopy of the notification approval letter and the executed modification to:
PSSO (this copy replaces pending file copy) , and
Internal Revenue Service: Fax a copy of the modification packet to the Internal Revenue Service at 855-243-4014.
F. Effective date of coverage
Show the effective date of coverage in the modification to extend coverage. The effective date identifies when coverage begins. The date of execution is the date SSA signed the modification.
G. Closing agreement for retroactive coverage beyond the statute of limitations period
When submitting a Social Security or Medicare-only modification to SSA for approval, a state or local government entity can specify an effective date of the modification as early as “the last day of the sixth calendar year preceding the year” the modification is mailed or delivered to SSA (Section 218 (e)(1) of the Social Security Act).
However, the Internal Revenue Code (IRC) limits the statute period of assessment and collection of taxes to the 3-year period after the taxpayer files the tax return for a particular year. This IRS rule can come into conflict with SSA’s Section 218 effective date of retroactivity when a state or local government entity seeks a retroactive modification to a Section 218 agreement covering a 5-year period. Generally, the IRS bars the earliest 2 years for tax collection from assessment.
Thus, SSA can only process and approve any modification to a Section 218 Agreement requesting a period of coverage in excess of the 3 years beyond the statute period for FICA tax collection only if the taxpayer agrees to execute a closing agreement with the IRS.
1. Definition of a closing agreement
A closing agreement is a written agreement between a taxpayer and the IRS, which conclusively settles:
Such an agreement is a determination conclusive on both the taxpayer and the IRS unless the taxpayer demonstrates fraud or misrepresentation as to a material fact. I.R.C. §721.
2. Terms of the closing agreement
SSA requires that a state or local government entity seeking a retroactive coverage modification for a period beyond the 3-year statute of limitations period enter into a closing agreement with IRS to ensure that the FICA taxes due for the entire period of retroactivity are paid. SSA must sign and execute the modification before the closing agreement process begins (this is a key point). If SSA does not sign and execute the modification, IRS will not pursue a closing agreement because there is no tax liability to collect on until SSA executes the modification.
The entity agrees to:
a waiver of the statute of limitations for assessment,
an assessment in the amount of the tax to be paid, and
make full payment.
3. Required language to add to a modification needing a closing agreement
The State Social Security Administrator should insert the following language into a modification for retroactive coverage under a Section 218 Agreement, which requires a closing agreement. This language informs the entity that ratifying the modification is contingent upon their executing a closing agreement with the IRS. The IRS's closing agreement:
informs the entity that this agreement is final and conclusive; and
gives the Commissioner of the IRS the right to assess and collect the taxes identified, and that the entity waives all defenses with regard to the collection of the tax liability.
(Name of Political Entity) ________ promises to pay, to the Department of the Treasury, contributions equal to the sum of the taxes, which would have been required from employers and employees under the Federal Insurance Contribution Act (FICA) as of the effective date of coverage. (Name of Political Entity) _______ also promises to enter into a closing agreement with the Internal Revenue Service (IRS) to effectuate this modification, including the agreement to pay all FICA contributions for the entire period of coverage. This modification is contingent upon the execution of a closing agreement between (Name of Political Entity) ________ and the IRS.
For exhibits of closing agreement modifications, see SL 40001.490H.
4. Closing agreement is mandatory
To effectuate the modification, the affected entity must enter into a closing agreement with IRS, which includes the agreement to pay all FICA taxes due for the entire period of coverage. SSA will not approve the modification, unless the entity agrees that it will execute the closing agreement. IRS will not begin the closing agreement process until SSA signs and executes the modification.
For questions concerning the closing agreement process, send a fax to the FSLG Closing Agreement Coordinator at 855–243–4014.
5. Exhibit of Closing Agreement
View the Closing Agreement on Final Determination of Tax Liability and Covering Specific Matters provided by IRS OGC in Agreement and Modification Exhibits.
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