Underreporting of wages

[Guest ladler]

Upon conversion of our payroll system to a new payroll provider, we discovered that the old payroll provider underreported employees' wages due to a miscalculation of the employees' pre-tax contributions to a cafeteria plan. The cafeteria plan includes an employer credit, and the old payroll provider excluded this employer credit from employees' wages.

How can we fix this problem? Is there an EPCRS program for cafeteria plans?

[GBurns]

Are you sure that this employer credit is supposed to be included in the employee's wage? WHYY??

[Guest ladler]

Let me give you an example of what happened. I am paid $200 per week. My flexible benefits under the cafeteria plan costs me $30 per week but the employer gives me a credit of $20 per week. The old payroll provider did not take into account the $20 employer credit and reported my taxable wages as $170 ($200-$30, although I really only paid $10). Shouldn't my taxable wages for the week be $190 ($200 - $10, with the $10 being the amount that is being deducted from my pay to pay for these benefits).

In any event, my real question is is there an EPCRS program for cafeteria plans?

[GBurns]

There is nothing wrong with your Cafeteria Plan, so using an EPCRS type program would not be applicable anyhow.

What you have is a payroll problem. The payroll provider can correct the W2s etc.

[mbozek]

Q-how are you going to fix the mistake? Are you going to go back and issue revised w-2s for prior years? Tax years prior to 2000 are beyond the statute of limitations for collecting back taxes.

[GBurns]

Why do you think that this involves any year but 2002?

Even if it was 2000, there is no statute of limitations for underreporting and misrepresentation of income, which is what this would be and not a collection of taxes issue.

[mbozek]

GB- See IRC 6501(a)- s/l is 3 years even in the case of underreporting as long as a return is filed. The under reporting of income by the employer cannot be attributed to the employees for s/l purposes. See Estate of King v. IRS, U.S. Tax Court, 1984.

[GBurns]

A casual and cursory reading of the IRC is very dangerous. I suggest that you read the rest of 6501 rather than just the very first paragraph and seek advice from someone who does IRS audit/examination work.

As seems to be happening very frequently, your cites are very questionable and do not stand up to actual reading.

6501(a) General rule.- starts off by stating "Except as otherwise provided".

These exceptions are partially in 6501 © just a very few lines later.

6501© Exceptions.- which is only a very few lines later gives a number of these stated exceptions including:

(1) False Return.- "the tax may be assessed , ...at any time."

(2) Willful attempt to evade tax.- "the tax may be assessed, ... at any time."

(9)(e) Substantial omission of items.- "within 6 years after the return was filed".

There are other sections of the IRC and Treas Regs that are applicable in this posted situation but since this is not a tax forum I think that the few items above will serve this purpose.