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CM-07-01-006JAN -09-2007 15:31 EMPLOYMENT TAX AUSTIN TX TAX EXEMI'r AND GOVERNMENT ENTITIES DIVISION Date: January 9, 2007 City of Round Rock 221 E. Main Street Round Rock, TX 78664 Dear Taxpayer: DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Washington, DC 20224 512 464 3045 P.02/10 Taxpayer Name: City of Round Rock Taxpayer Identification Number: #74-6017485 Tax Form(s): 941 Tax Period(s): 2004 & 2005 Person to Contact: Jo Ann S. Lacey Employee Identification Number: 74-00178 Contact Telephone Number: (512) 464-3609 Fax Number: (512) 464-3520 I have enclosed the reports which includes Form 2504, 2504 -WC, 4666, 4668 (4) and a discrepancy report for 2004 and 2005. The Form 2504 -WC relates to the worker reclassification issues. The Form 2504 relates to the uniform fringe benefit. Please sign and date Forms 2504 and 2504 -WC. Please pay with 2 checks. The checks should be made out to the United States Treasury for $21,854.76 (2004) and $21,646.40 (2005). Please call me and let me know when I can pick-up the reports and checks this week. Enclosures: Form 2504, 2504 -WC, Form 4666, 4668(4) Discrepancy Report Publication 5 CVL- Cq- D1--D0e Thank You, alvn Jo Ann S. Lacey Internal Revenue Agent Letter 3850 (5-2004) Catalog Number 3$233N 01/09/2007 TUE 15:27 [TX/RX NO 6541] Cj001 JAN -09-2007 15:31 EMPLOYMENT TAX AUSTIN TX Form 2504 (Rev. March 1992) 512 464 3045 Department of the Treasury • Internal Revenue Service Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Excise or Employment Tax) Name, SSN or EIN, and address of taxpayer(s) (Number, street, city or town, State, ZIP Code) City of Round Rock 221 E. Main Street Round Rock, TX 78664 EIN: 74-6017485 P.03/10 Date received by internal Revenue Servlce Tax Period Ended Return Form Number Additional Tax and Penalties Kind of Tax and Internal Revenue Code Section Amount of Tax Penalty December 31, 2004 941 December 31, 2005 941 FICA & IT W/H IRC SECTIONS 3101, 3111,&3402 FICA & IT W/H IRC SECTIONS 3101, 3111. & 3402 $4,887.44 -0- 55,069.00 -0- Total Decree 59,948.44 50.00 Tax Period Ended Return Form Number Kind of Tax and Internal Revenue Code Section Amount of Tax Penalty Total so.00 $0.00 I consent to the immediate assessment and collection of any additional tax and penalties and accept any overassessment (decrease in tax andpenaltiesj shown above, plus any interest provided by law. By: James R muse) P. E Date x 91 taiaao ri Date Note: If you consent to the assessment of the amounts shown in this agreement, your signature will expedite our adjustment to your account. Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are entitled to a refund. It will not prevent us from later determining, if necessary, that you owe addltIonal tax; nor extend the time provided by law for either action, Who Must Sign If you are making this agreement for a partnership, all partners must sign. Ttt Date rablitgr However, one partner may sign with appropriate evidence of authorization to act for the partnership. For a corporation, enter the name of the corporation followed by the signature and title of the officer(s) authorized to sign. For an agent or attorney acting under a power of attorney, a power of attorney must be sent with this form if not previously filed. Catalog Number 21775K Form 2504 (Rev. 03-1992) 01/09/2007 TUE 15:27 [TX/RX NO 6541] 0 002 JAN -09-2007 15:32 EMPLOYMENT TAX AUSTIN TX Form 2504 -WC (1-2002) 512 464 3045 Department of the Treasury - internal Revenue Service Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax) Name, SSN or EIN, and addreaa o! taxpayer(s) (Number, street, city or town, State, ZIP Code) City of Round Rock 221 E. Main Street Round Rock, TX 78664 EIN: 74-6017485 P.04/10 Date received by Internal Revenue S4rvice Tax Period Ended Return Form Number Kind of Tax and Internal Revenue Code Section ....... .'vv Amount of Tax Penalty December 31, 2004 941 FICA & IT W!H IRC SECTIONS 3101. 3111, & 3402 $18 967 32 -0- December 31, 2005 941 FICA & IT W!H IRC SECTIONS 3101, 3111, & 3402 516,587 40 -0- Total 50.00 50.00 Total 533,554.72 50.00 Decreases Tax Period Ended I consent to the tmme.la. Retum Form Number Kind of Tax and Internal Revenue Code Section Amount of Tex Penalty Total 50.00 50.00 e assessment and collection of any additional tax and penalties and accept any overassessment (decrease in tax and penalties) shown above, plus any interest provided by law. I understand that by signing this agreement, I am waivin• the restrictions on assessment rovided in section 7436(d) and 6213(a) of the Internal Revenue Code of 1986. By: Note: If you consent to the assessment of the amounts shown In this agreement, your signature will expedite Our adjustment to your account. Your consent will not prevent you from filing a claim for refund (after you have paid the tax) if you later believe you are entitled to a refund. It will not prevent us from later determining, if necessary, that you owe additional tax; nor extend the time provided by law for either action. Who Must Sign If you are making this agreement for a partnership, all partners must sign. Ttile e3+j nanoepti Date /al Date Date However, one partner may sign with appropriate evidence of authorization to act for the partnership. For a corporation, enter the name of the Corporation followed by the signature and title of the officer(s) authorized to sign. For an agent or attorney acting under a power of attorney, a power of attorney must be sent with this form if not previously filed. Catalog Number 33202Q Form 25044WC (1.2002) 01/09/2007 TUE 15:27 [TX/RX NO 6541] 2003 JAN -09-2007 15:37 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.05/10 Form 4666 (Rev, Kebrugy 19 4) Name and Address of Employer City of Round Rock 221 E. Main Street Round Rock, TX 78664 Department of the Treasury - Internal Revenue Service Summary of Employment Tax Examination Employer Identification Number 74-6017485 Date of Report 1/9/2007 Type of Report Delinquent tax 0 (Return not filed) 0 (Return filed) Increase (Decrease) In Tax Agreed anis report IS subloct to Review end you wal be notined by the Area Olrecter when It is accaptod) ❑ Una reed Following is a summary of the results of mry examination of your returns as shown on the attached papas of this report a b Tax and Penalties f Calendar Year Return Form Number c d e Delinquent Tax. Increase (Decrease) in Tax Penalty Page number of Report n SeCction Amount Totalde 2004 941 _ 21,854.76 21,854.76 2005 941 21,646.40 21,646.40 Total WO 43,501.16 ., ,.. 43,501.16 .e t�%;,:.4,.:1 . , ormatlon The examination of your employment tax returns as reflected on this Agreement included an examination for employment tax purposes of whether Municipal Judges, Sports Officials and Recreational Staff (identified in the audit) should be treated as employees of the taxpayer. Section 530 of the Revenue Act of 1978 as amendend by Section 1122 of the Small Business Job Protection Act of 1996 provides that taxpayers may rely on a prior audit commenced after December 31, 1996, when the audit included an examination for employment tax purposes of whether the individual involved (or any individual holding a positon substantially similar to the position held by the individual involved) should be treated as an employee of the taxpayer. Based upon this examination, you may rely only on the audit of Recreational Staff (identified in the audit) for purposes of the prior audit safe haven for stisfying the reasonable basis requirement of Section 530, NOTE: Because you have a 218 Agreement, Section 530 does not apply to social security and Medicare taxes. Eramining Ot* g *return Jo Ann S. Lacey Cat. No. 41874S r 144-1 Plena FSLG - Gulf Coast Form 4666 (Rev. 02-1994) 01/09/2007 TUE 15:32 [TX/RX NO 6542] [002 JAN -09-2007 15:37 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.06/10 Page of Pages Form 4668 (Rev. Apra 1994 Department of the Treasury - Internal Revenue Service Employment Tax Examination Changes Report Return Form number 941 Name and Address of Employer City of Round Rock 221 E. Main Street Round Rock, TX 78684 Employer Identification number 74-6017485 Calendar year 2004 Total tax plus penalty, or (decrease) in tax $16,967.32 Last quarter of this examination 12/31/04 Examination discussed with (Name and title) Cindy Demers - Finance Director • Agreed (Subject to acceptance of Redass. - Judge & Sports the Area Director) Officials Worker ■ Unagreed IRS Ref, (a) Applicable Rate (b) 1st Quarter (c) 2nd Quarter (d) 3rd Quarter (e) 4th Quarter 1 . Social security and Medicare wage adjustment subject to tax under IRC 3101 and 3111 004 12.40% 073 2.90% 2 _ Social security and Medicare wage adjustment subject to tax under IRC 3509(8) 079 7.44% 39,717.50 39,717.50 39,717.50 39,717.50 079 1.74% 39,717.50 39,717.50 39,717.50 39,717,50 3 , Social security and Medicare wage adjustment subject to tax under IRC 3509(b) g79 8.68% 079 2.03% 4 , Social security and Medicare tip adjustment subject to tax under IRC 3101 and 3111 005 6.20% 073 1.45% 5 , Income withholding wage adjustment subject to tax under section 3402 079 28.00% 1.50% 39,717.50 39,717.50 39,717.50 39,717.501 6 , Income withholding wage adjustment subject to tax under section 3509 3.00% 7 , Payments subject to backup withholding under IRC 3406 31.00% a , Adjustment to social security tax and Medicare tax 185 9 . Adjustment to income tax withholding 184 10 . Total social security and Medicare tax (lines 1, 2, 3.4 x rates) plus/minus Line 8 007 3,646.07 3,646.07 3,646.07 3.646.07 11 , Total Income tax withholding (line 5, 6 x rate) plus/minus Line 9 003 595.76 595.76 595.76 595.76 12 , Total backup withholding (line 7 x rate) - applies to Form 945 only 008 13 . Delinquent tax increase (decrease) in tax (Lines 10 and 11) or backup withholding (Line 12) 4,241.83 4,241.83 4,241.83 4241.83 14 . Penalty code section 6651 15 . Penalty code section 6656 16 . Penalty code section 17 . Maximum tax available for abatement under IRC 3402(d) Under IRC sections 6051 and 6071 and the regulations under those sections, you are required to furnish W -2c (Statement of Corrected Income Tax Amounts) on or before the last day of 4 y_31.2007 to each of the ..employees whose wages are adjusted by this report. Also, you are required to file the original of these statements with Form W -3c (Transmittal of Corrected Income and Tax Statements) by the last day of February 28,2007, IRC 6721 and 6722 provide penalties for failure to file and failure to furnish these statements by the required dates. Please file these statements with: Jo Ann S. Lacey Fon» 4668 (Rev. 04-1994; TE/GE Support & Processing 1100 Commerce Mail Code 49800AL Dallas, TX 75242 7252 IFSLG - Gulf Coast 1/9/2007 Cat. No. $3`275Z Department of the Treasury - Internal Revenue Service 01/09/2007 TUE 15:32 [TX/RX NO 6542] j003 JAN -09-2007 15:38 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.07/10 Page of Pages Form 4668 (Rev.Aprl1984 • Department of the Treasury - Internal Revenue Service Employment Tax Examination Changes Report Return Form number 941 Name and Address of Employer City of Round Rock 221 E. Main Street Round Rock, TX 78664 Employer Identification number 74-8017485 Calendar year 2005 Total tax plus penalty, or (decrease) In tax 818,587.40 Last quarter of this examination 12/31/05 Examination discussed with (Name and title) Cindy Demers - Finance Director 0 Agreed (Subject to acceptance of the Area Director) Worker Reciass. - Judge & Sports Officials ■ Unagreed IRS Ref. (a) Applicable Rate (b) 1st Quarter (c) 2nd Quarter (d) 3rd Quarter (e) 4th Quarter 1 , Social security and Medicare wage adjustment subject to tax under IRC 3101 and 3111 004 12.40% 073 2.90% 2 . Social security and Medicare wage adjustment subject 20 tax under IRC 3509(a) 079 7.44% 38,828.25 38.82825 38,828.25 38,828.25 079 1.74% 38,828.25 38,828.25 38,828.25 38,828.25 3 . Social security and Medicare wage adjustment subject to tax under IRC 3509(b) 079 8.58% 079 2.03% 4 , Social security and Medicare tip adjustment subject to tax under IRC 3101 and 3111 005 6.20% 073 1.45% 5 , income withholding wage adjustment subject to tax under section 3402 28.00% 6 , Income withholding wage adjustment subject to tax under section 3509 079 1.50% 38,828.25 38,828.25 38,828.25 38,828.25 3.00% 7 • Payments subject to backup withholding under IRC 3406 31.000 8 . Adjustment to social security tax and Medicare tax 185 9 . Adjustment to income tax withholding 184 10 • Total social security and Medicare tax (lines 1, 2, 3, 4 x rates) plus/minus Line 8 007 3,564.43 3,564,43 3,564.43 3,564.43 11 , Total Income tax withholding (line 5, 6 x rate) plus/minus Line 9 003 582.42 562.42 582.42 582.42 12 . Total backup withholding (line 7 x rate) - applies to Form 945 only 008 13 . Delinquent tax increase (decrease) in tax (Lines 10 and 11) or backup withholdingSline 12) 4145 85 4,146.85 4.146.85 4146.85 14 . Penalty code section 6651 15 . Penalty code section 6656 16 . Penalty code section 17 , Maximum tax available for abatement under IRC 3402(d) Under IRC sections 6051 and 6071 and the regulations under those sections, you are required to furnish W -2c (Statement of Corrected Income Tax Amounts) on or before the last day ofJanuaT31 2007 to each of the Q employees whose wages are adjusted by this report Also, you are required to file the original of these statements with Form W -3c (Transmittal of Corrected Income and Tax Statements) by the last day of February 88 2007, IRC 6721 and 6722 provide penalties for failure to file and failure to furnish these statements by the required dates. Please file these statements with; TE/GE Support & Processing 1100 Commerce Mail Code 4980DAL Dallas, TX 75242 Est, . tu,e Jo Ann S. Lacey Form 4868 (Rev. 04.19941 Cat. No. 3275Z Group Number ObArka e 7252 FSLG - Gulf Coast 1/9/2007 Department of the Treasury - Internal Revenue Service 01/09/2007 TUE 15:32 [TX/RX NO 6542] 2004 JAN -09-2007 15:38 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.08/10 Page of Pastes Form 4668 (Rev. April 1994 Department of the Treasury --Internal Revenue Service Employment Tax Examination Changes Report Retum Form number 941 Name and Address of Employer City of Round Rock 221 E. Main Street Round Rock, TX 75664 Employer Identification number 74-6017485 Calendar year 2004 Total tax plus penalty, or (decrease) in tax $4,887.44 Last quarter of this examination 12/31/04 Examination discussed with (Name and title) Cindy Demers - Finance Director J Agreed (Subject to acceptance of Uniforms 0 Unagreed the Area Director) IRS Ref. (a) Applicable Rate (b) lat Quarter ' (c) 2nd Quarter (d) 3rd Quarter (e) 4th Quarter 1 , Social security and Medicare wage adjustment subject to tax under IRC 3101 and 3111 004 12,40% 5,116.75 5,116,75 5,116.75 5.116.75 073 2.90% 5,116.75 5,116.75 5,116.75 5,116.75 2 , Social security and Medicare wage adjustment subject to tax under IRC 3509(a) 07g 7.44% 079 1.74% 3 , Social security and Medicare wage adjustment subject to tax under IRC 3509(b) Q79 8.680A, 079 2.03% 4 , Social security and Medicare tip adjustment subject to tax under IRC 3101 and 3111 005 6.20% 073 1.45% 5 , Income withholding wage adjustment subject to tax under section 3402 Actual 8.58% 5,116.75 5,116.75 5,118.75 5,116.75 6 , Income withholding wage adjustment subject to tax under section 3509 079 1,50% 3.00% 7 . Payments subject to backup withholding under IRC 3406 31.00% 30.50% 8 , Adjustment to social security tax and Medicare tax 185 9 . Adjustment to income tax withholding 184 10 . Total social security and Medicare tax (lines 1, 2, 3, 4 x rates) plus/minus Line 8 007 782.86 782.86 782.86 782.86 11 . Total Inoome tax withholding (line 5, 6 x rate) plus/minus Line 9 003 439.00 439,00 439.00 439.00 12 . Tota) backup withholding (line 7 x rate) - applies to Form 945 only 008 13 . Delinquent tax increase (decrease) in tax (Lines'10 and 11) or backup withholding (Line 12) 1,221,86 1221 86 1221 86 1221 86 14 . Penalty code section 6651 15 . Penalty code section 6656 16 . Penalty code section 17 . Maximum tax available for abatement under IRC 3402(d) 439.00 439.00 439,00 439.00 Under IRC sections 6051 and 6071 and the regulations under those sections, you are required to fumish W -2c (Statement of Corrected Income Tax Amounts) on or before the last day of January 31 2007 to each of the Q employees whose wages are adjusted by this report. Also, you are required to file the original of these statements with Form W -3c (Transmittal of Corrected Income and Tax Statements) by the last day of february 28, 2097. IRC 6721 and 6722 provide penalties for failure to The and failure to furnish these statements by the required dates. Please file these statements with; Examiners *ONO" Jo Ann S. Lacey .., Form 4668 (Rev. 04-1994; TE/GE Support & Processing 1100 Commerce Mail Code 4980DAL Dallas, TX 75242 V w 7252 FSLG -Gulf Coast 1/9/2007 Group Number District Date Cat. o. 23275Z Department of the Treasury - interval Revenue Service 01/09/2007 TUE 15:32 [TX/RX NO 6542] 1005 JAN -09-2007 15:39 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.09/10 Page of Passes Form 4668 (Rev. Apel 1994 Department of the Treasury - Intemal Revenue Service Employment Tax Examination Changes Report Return Form number 941 Name and Address of Employer City of Round Rock Employer Identification number 74-6017485 Calendar year �. 2005 221 E. Main Street Round Rock, TX 78664 Total tax plus penalty, or (decrease) in tax $5,059.00 Last quarter of this examination 12/31/05 Examination discussed with (Name and title) Cindy Demers - Finance Director !J Agreed (Subject to acceptance of Uniforms 0 Unagreed the Area Director) • IRS Ref. (a) Applicable Rate (b) 1st Quarter (c) 2nd Quarter (d) 3rd Quarter (e) 4th Quarter 1 , Social security and Medicare wage adjustment subject to tax 004 12.40% 5,296.25 5,296.25 5,296.25 5,296.25 under IRC 3101 and 3111 073 2.90% 5,296.25 5,296.25 5,296.25 5,296,25 2 . Social security and Medicare wage adjustment subject to tax 079 7.44% under IRC 3509(a) 079 1.74% 3 , Social security and Medicare wage adjustment subject to tax 079 8.68% under IRC 3509(b) 079 2.03% 4 . Social security and Medicare tip adjustment subject to tax 005 6.20% under IRC 3101 and 3111 073 1.45% . 5 . Income withholding wage adjustment subject to tax under section 3402 Actual 8.58% 529625 5.296.25 5,286.25 5,29625 6 , Income withholding wage adjustment subject to tax under 1.50% section 3509 079 3.00% 7 , Payments subject to backup withholding under 31,00% IRC 3406 30.50% 8 , Adjustment to social security tax and Medicare tax 185 9 . Adjustment to income tax withholdin. 184 10 . Total social security and Medicare tax (tines 1, 2, 3, 4 x rates) plus/minus Line 8 007 810.33 810.33 810.33 810.33 11 , Total Income tax withholding (line 5, 6 x rate) plus/minus Line 9 003 454.42 454,42 454.42 454,42 12 , Total backup withholding (line 7 x rate) - applies to Form 945 only 008 13 . Delinquent tax increase (decrease) in tax (Lines 10 and 11) or backup withholding (Line 12) 1,264,75 1,264.75 1,264.75 1,264.75 14 . Penalty code section 6651 15 . Penalty code section 6656 16 . Penalty code section 17 . Maximum tax available for abatement under IRC 3402(d) 454.42 454.42 454,42 454.42 under lRG sections 6051 and 6071 and the regulations under those sections, you are required to furnish W -2c (Statement of Corrected Income Tax Amounts) on or before the last day of January $1.2007 to each of the Q employees whose wages are adjusted by Also, you are required to file the original of these statements with Form W -3c (Transmittal of Corrected Income and Tax Statements) by the last day of February 28. 2007. IRC 6721 and 6722 provide penalties for failure to file and failure to furnish these E,unN'./. signal". Jo Ann S. Lacey q Form 4668 (Rev. 04-1eea; TE/GE Support & Processing 1100 Commerce Mail Code 4980DAL Dallas, TX 75242 Num Group b., nue kms.. Ca . o. 23275Z Department of the Treasury - Internal Revenue Service 7252 FSLG - Gulf Coast 1/9/2007 01/09/2007 TUE 15:32 [TX/RX NO 6542] (j006 JAN -18-2007 12:26 EMPLOYMENT TAX AUSTIN TX 512 464 3045 P.02 CITY OF ROUND ROCK DISCREPANCY REPORT (Amended 1/11/07) 1. Meal Reimbursements for ' ay. Trips: Employees were reimbursed for meals incurred for day trips to a business meetings/ conferences. The amounts were not included in the employees' wages. The Taxpayer was unaware of the provisions of Internal Revenue Code Section (IRC §) 162(a) (2). In order for a reimbursement of an expense for business travel to be excludable from income, including meals, a Taxpayer must travel "away from home' in the pursuit of business on a temporary basis. The Supreme Courtin U.S. vs. Correll has interpreted "away from home" to require a Taxpayer to travel overnight or long enough to require substantial sleep or rest. Therefore, merely working overtime or at a great distance does not justify receiving excludable reimbursements for travel expenses if the taxpayer returns home without spending the night or stopping for substantial sleep or rest. No adjustment was made but it was recommended that the Taxpayer include the reimbursements for meals incurred on business day trips in wages or stop the reimbursements of day meats. The Taxpayer has agreed to the recommendations. 2. Cash Awards Some employees received de minimums cash awards. Generally, the value of an award or prize is given by an employer is taxable to an employee as a wage, included on the Form W-2 and subject of Federal income tax withholding, social security and Medicare per IRC §74(a) and §3121(a)(20). No adjustment was made but it was recommended that the Taxpayer include the awards in the employees' wages. The Taxpayer has agreed to the recommendation. 3. Police Officers • Police officers were paid as independent contractors by certain third -parties for security services provided at sporting events or large social functions. In most cases, the police officers received a Form 1099 from the third -parties. The police officers were using the uniforms. vehicles and equipment belonging to the Taxpayer. In effect, they were representing the Taxpayer. For small events, the third -parties paid the Taxpayer directly. It was determined that no adjustment would be made at this time regarding this issue. However, it is the government's position that the third -parties pay the Taxpayer directly and that the Taxpayer include the amounts in the police officers' wages. The Taxpayer has agreed to review the issue and to comply with the Internal Revenue Code and Internal Revenue Service guidelines relating to employee relationship_ TOTAL P.02 01/18/2007 THU 12:22 [TX/RX NO 6579] 11002 DATE: January 19, 2007 SUBJECT: City Manager Approval ITEM: To have the City Manager sign the settlement of the IRS audit for tax years 2004 & 2005. Department: Finance Department Staff Person: Cindy Demers, Director of Finance Justification: Settlement of audit by the IRS for tax years 2004 & 2005 Funding: Cost: $43,501.16 Source of funds: General & Utility Funds Background Information: The IRS has been conducting an audit since March 2006 of the City's 941 and 1099 tax accounting. The City and the IRS have agreed to this settlement of issues related to this audit. The total due for 2004 is $21,854.76 and the total due for 2005 is $21,646.40. Updated 3-10-05