Tips For Filing Refund Claims Related to Certain Employment Taxes

Two recent court decisions involving employment tax refund claims -- and the likelihood that many companies are evaluating options to file similar (and timely) refund claims -- highlight some key considerations for companies when filing a claim.

Recent Decisions
  • The Court granted the taxpayer’s Motion for Summary Judgment in BNSF Railway Co. v. United States noting that “BNSF’s refund claims as to [certain Railroad Retirement Tax Act tax payments] should be honored by the government.” BNSF’s refund claims covering tax years 1993 to 1998 totaled approximately $22 million. 
  • The Sixth Circuit Court of Appeals affirmed that certain severance payments are not “wages” subject to Federal Insurance Contribution Act (FICA) taxation in United States v. Quality Stores Inc. Quality Stores sought a refund of over $1 million in FICA taxes related to severance payments. 

Tips for Filing Claims 

While many employers have already filed similar claims to preserve their rights, others might be filing for the first time. In our experience, compiling relevant information to quantify the amounts at issue can be complicated due to the age of the claims, lack of institutional knowledge about historical taxation practices, missing documentation, changes in accounting and financial reporting systems, or acquisitions/mergers. The Government may question the accuracy of certain refund calculations if these circumstances exist.
It is critical to demonstrate to the Government that the taxpayer’s calculations provide the most accurate and reliable depiction of historical facts and circumstances available. Here are a few helpful tips:

  • Reasonableness: Demonstrate the reasonableness of the refund calculations by comparing amounts to corroborating summaries, such as public disclosures or internal accounting and payroll summaries.
  • Consistency: Summary-level data may exist for early periods but supporting documentation might not be available. Show the accuracy of later periods and demonstrate that the taxation computations were consistent throughout the relevant timeframe (e.g., the same computer application was used throughout).
  • Third Party Vendors: Communicate with third-party processors (e.g., payroll vendors) to obtain detailed support or corroborating information.

Navigant’s experienced tax controversy experts develop transparent and easy-to-understand accounting analyses to support the accuracy, completeness and reliability of taxpayers’ positions. Please contact us if you would like to arrange a time to discuss your needs in more detail.

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