BenefitsSpectrum
Oct. 2004  |  No: 2004 - 10
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New Schedule on Form 941 to be Used for Certain Mergers and Acquisitions

The IRS has released a new Form 941, Schedule D for employers to use in preparing and completing certain information reporting forms in merger and acquisition situations. Rev. Proc. 2004-53.

Background

When an employee leaves one company and goes to work for another company, even if the companies are related, the new employer does not count any FICA paid by the former employer. Thus, the new employer must "restart" FICA even though the former employer paid the maximum FICA amount on the employees' wages because those wages exceed the FICA limit for the year.

However, if a company buys a business and hires most of the employees, the acquirer may be a successor employer and, therefore, may be able to take credit for FICA paid by the former employer. In order to do so, the new employer must notify the IRS and take general steps to show that the employer was a successor employer.

Rev. Proc. 2004-53

Rev. Proc. 2004-53 explains both the procedures for preparing and filing Forms W-2, 941, W-4, and W-5 in certain acquisitions. The revenue procedure provides for a new Schedule D for Form 941, which is used to report discrepancies caused by acquisitions.

This revenue procedure updates Rev. Proc. 96-60 by providing a form to use when the employer is a successor employer. An employer is a successor employer when an employer (successor) acquires substantially all the property used (1) in a trade or business of another employer (predecessor), or (2) in a separate unit of a trade or business of a predecessor, and in connection with or immediately after the acquisition, the successor employs individuals who immediately prior to the acquisition were employed in the trade or business of the predecessor.

On acquisition, the predecessor and successor employers can agree that each will provide its own Form W-2 to all such employees, or that they will consolidate the information and provide each employee with one Form W-2, which is filed by the successor employer. Although this new revenue procedure supercedes Rev. Proc. 96-60, it does not change these two approaches, which were originally outlined in Rev. Proc. 96-60.

If one Form W-2 is filed, both the predecessor and successor employers will have discrepancies between their Form W-2 and their Form 941. Both the predecessor and the successor can file the new Schedule D to explain discrepancies due to reporting on one Form W-2. If Form 941 is filed electronically, an employer will be able to file Schedule D separately on paper until the electronic version becomes available. The Schedule D is filed in lieu of the statement that was previously required in Rev. Proc. 96-60.

In addition, Schedule D will provide notice of a statutory merger or consolidation, as is required under Rev. Rul. 62-60.

Effective Date

The new Schedule D is effective for acquisitions effective after December 31, 2004.

 

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