Rev. Rul. 79-39

ISSUE & FACTS

If an employee reports salary income on a Form 1040, U.S. Individual Income Tax Return, but fails to report the tip income that was not reported to the employer on Form 4070, Employee's Report of Tips to Employer, is the period of limitation on assessment of the social security taxes on the tip income open after the expiration of 3 years from the date the Form 1040 was filed?

LAW AND ANALYSIS

Section 3101 of the Internal Revenue Code of 1954 imposes social security taxes on the income of every individual based on the wages received by the individual with respect to employment.

Section 3102(c) of the Code imposes a liability on the employee to pay the employee's social security tax if the employee has tip income that was not reported to the employer.

Section 6501(a) of the Code provides that the amount of any tax imposed by the Code shall be assessed within 3 years after the return was filed (whether or not the return was filed on or after the date prescribed).

Section 6501(c)(3) of the Code provides that in the case of failure to file a return, the tax may be assessed at any time.

Section 31.6011(a)-1(d) of the Employment Tax Regulations provides that an employee shall file a Form 1040 for the calendar year in respect of the tax imposed on tips by section 3101 of the Code that cannot be collected by the employer.

Rev. Rul. 59-366, 1959-2 C.B. 418 states that although separate categories of excise tax are to be reported on the same return, the requirements for filing a return apply separately to each category. Thus, when no entry is made with respect to one category, there is no valid return filed with respect to that category for purposes of section 6501 of the Code. See also, Rev. Rul. 59-295, 1959-2 C.B. 420, Rev. Rul. 58-274, 1958-1 C.B. 495, and Rev. Rul. 59-127, 1959-1 C.B. 656.

The filing of the Form 1040 for income tax purposes is not a valid filing of the form for purposes of the tax imposed by section 3101 of the Code. The income tax imposed by section 1 and the tax imposed by section 3101 are separate and distinct taxes, and the requirements for filing a return apply separately to each class of tax, even though provision has been made for reporting both classes of tax on the same form. Form 4137, Computation of Social Security Tax on Unreported Tip Income, on which such tip income must be reported for social security tax purposes, is an attachment to Form 1040.

HOLDING

The period of limitation on assessment of the social security tax on the tip income has not run since no return was filed. Therefore, an assessment of the social security tax may be made at any time.