Accounting ChallengesThe Statute of Limitations for Filing the Wrong Payroll Tax Form

If a taxpayer incorrectly files Form 941 (quarterly employment tax return) instead of Form 944 (annual employment tax return), or vice versa, there are certain ways the IRS chooses to handle the situation.

First, when and why should Form 941 be filed? Form 941 is filed when an employer is responsible for FICA taxes and income tax withholding. This form is filed on a quarterly basis for any quarter in which an employee earns wages. What about Form 944? Form 944 should be filed when the estimated annual employment tax liability is equal or less than $1,000.

The three-year statute of limitations where the IRS can provide assessments cannot begin until April 15, even if the filing was made prior to the date.

There are four requirements to determine if a tax return can be considered legitimate to be used for the purpose of the assessment. These requirements include presenting enough data to determine tax liability, purports to be a return, is an honest attempt to meet the requirements of the tax law, and is completed under penalty of perjury. These reasons are cited as the Beard formulation. If a return meets the Beard formulation, it is a legitimate return for determining the three-year period of limitations on assessment. Let’s take a look at some examples below.

If an employer incorrectly files Form 941 instead of Form 944 with reasonable cause as to why the mistake happened:

If the forms meet the Beard formulation, they will be treated as legitimate returns for the determination of starting the period of limitations on assessment. Similarly, if an employer incorrectly files Form 944 instead of Form 941, the same requirements apply.

If an employer is mandated to file Form 944, but instead files Form 941 for the first and second quarters on time, but nothing for the third or fourth quarter:

An employer’s FICA and income tax withholding tax liability for the third and fourth quarters may not be the same as the first and second quarters. Amounts on the Forms 941 will be assessed within three years of April 15.

Above all, be honest. Mistakes are fixed much easier if honesty was present throughout the process.

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