PROCEDURES ARE EXPLAINED FOR PREPARING EMPLOYMENT TAX FORMS WHEN A PREDECESSOR-SUCCESSOR EMPLOYER RELATIONSHIP EXISTS

Rev. Proc. 84-77

SECTION 1. PURPOSE

01 The purpose of this revenue procedure is to modify and supersede Rev. Proc. 83-66, 1983-2 C.B. 585. This revenue procedure explains both the standard procedure and an acceptable alternative procedure for preparing and filing Forms W-2, Wage and Tax Statement, W-3, Transmittal of Income and Tax Statements, 941, Employer's Quarterly Federal Tax Return, W-4, Employee's Withholding Allowance Certificate, and Form W-5, Earned Income Credit Advance Payment Certificate, when an employer (successor) acquires substantially all the property (1) used in a trade or business of another employer (predecessor), 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 immediately prior to the acquisition were employed in the trade or business of the predecessor. (The term "trade or business," for purposes of this revenue procedure, may include the activity of a nonprofit organization or of a federal or state agency).

02 This revenue procedure does not apply under the circumstances described in Rev. Rul. 62-60, 1962-1 C.B. 186, which relates to other absorption of one corporation by another in a statutory merger or consolidation, and in which the resultant entity is regarded as the same taxpayer and same employer as the absorbed corporation.

SEC. 2. CHANGES

01 Section 4.02, which sets forth standard procedures and requires the predecessor to submit Forms W-2 and W-3 with the predecessor's final Form 941 return has been deleted.

02 Section 5.02, which provides alternate procedures for submitting Forms 491, has been modified to provide that Forms W-2 and W-3 must be submitted to the Social Security Administration.

03 Section 4.04 has been added to provide standard procedures for Form W-5.

04 Section 5.05 has been added to provide alternate procedures for Form W-5.

SEC. 3. BACKGROUND

01 Section 6011(a) of the Internal Revenue Code provides that any person made liable for any tax, or for the collection of the tax, must make a return or statement according to the forms or regulations prescribed by the Secretary.

02 Section 31.6011(a)-4 of the regulations prescribes Form 941 as the form to use for persons required to make a return of income tax withheld from wages.

03 Section 6051(a) of the Code provides that every person must furnish a written statement to an employee on or before January 31 of the succeeding year, or if employment is terminated before the close of the calendar year, within 30 days after the date of receipt of a written request from the employee if such 30-day period ends before January 31, if:

(1) the person is required to deduct and withhold income tax, or would have been required to deduct and withhold if the employee had claimed no more than 1 withholding exemption, or

(2) the person is an employer engaged in a trade or business who pays remuneration for services performed by an employee.

04 Under section 31.6051-1(a) of the regulations, an employer must furnish the statement on a Form W-2. Section 31.6051-1(d) provides that if an employee's work is terminated before the close of the calendar year, the employer may furnish the statement to the employee at anytime after the termination of employment but no later than January 31 of the succeeding calendar year. However, if the employee requests the employer to furnish the statement at an earlier time, then the employer must furnish the statement within 30 days of the request or within 30 days after the final payment of wages, whichever is later.

SEC. 4. STANDARD PROCEDURE

01 When a predecessor makes a final payment of wages to an employee under the circumstances described in section 1.01, the predecessor must furnish a Form W-2 to the employee no later than January 31 of the next calendar year. However, if an employee requests the form earlier, the predecessor must furnish the form within 30 days of the request or within 30 days after the final payment of wages to the employee, whichever is later.

02 Under the standard procedure, the predecessor thus performs all reporting duties for the wages and other compensation it pays. The successor, under the standard procedure, reports only its own payments of wages and other compensation.

03 The predecessor must keep on file the Forms W-4 provided by its former employees. The transferred employees must provide the successor employer with new Forms W-4 as the successor now becomes responsible for deducting and withholding tax from wages paid to the transferred employees.

04 The predecessor must also keep on file the Forms W-5 provided by its former employees. The transferred employees must provide the successor employer with new Forms W-5 for the current year.

SEC. 5. ALTERNATIVE PROCEDURE

01 If the predecessor and successor so agree, the predecessor may be relieved from furnishing a Form W-2 to any employee to whom it makes a final payment of wages under the circumstances described in section 1.01. In such circumstances the employee presumably will be paid wages by the successor in the same calendar year, and the Form W-2 furnished to the employee by the successor for the year may include the wages paid, and taxes withheld, by both the predecessor and the successor. If the successor assumes the predecessor's obligation to furnish Forms W-2 to employees for a calendar year, the successor must assume the predecessor's entire obligation. Thus, the successor must include in the Form W-2 any amount reportable by the predecessor as "Other compensation" or as uncollected employee tax on tips.

02 To the extent that wages paid and income tax withheld by the predecessor are to be included in the successor's Form W-2, there will be a difference between the predecessor's Form W-3 and its return on Form 941. When the predecessor files its Form 941, it should attach a statement explaining the discrepancy and include the name, address, and identification number of the successor and a reference to this revenue procedure. The predecessor should send Form W-3 and the accompanying copies of Forms W-2 furnished by the predecessor to its employees (for example, to employees who were not employed by the successor immediately after acquisition of the trade or business) to the appropriate Social Security Administration office set forth on Form W-3.

03 There will be a corresponding difference on the successor's Form 941. The successor should also attach a statement to its Form 941, which should include the predecessor's name, address, and identification number and a reference to this revenue procedure. The successor should send Form W-3 and the accompanying copies of Forms W-2 furnished by the successor to its employees (for example, to employees of the predecessor who were employed by the successor immediately after acquisition of the trade or business, and any other employees of the successor who were not employees of the predecessor in the trade or business) to the appropriate Social Security Administration office as set forth in Form W-3. For instructions relating to annual wage limitations, see section 31.3121(a)(1)-1 of the regulations.

04 The forms W-4 that were provided to the predecessor employer by its former employees are to be transferred to the successor employer. The successor employer must keep the transferred Forms W-4 on file and deduct and withhold from the wages it pays to its employees according to the information supplied on those forms unless an employee submits a revised form. The successor employer must submit to the Service, in accordance with section 31.3402(f)(2)-1(g) of the regulations, copies of the Forms W-4 received by the predecessor employer during the current and preceding calendar quarters.

05 Forms W-5 for the current year that were provided to the predecessor employer by its former employees are also to be transferred to the successor employer.

SEC. 6. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 83-66 is modified and, as modified, is superseded.

SEC. 7. EFFECTIVE DATE

This revenue procedure is effective November 26, 1984.