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SL 40001.420: Modifications to the Original Agreement

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  • Effective Dates: 07/23/2018 - Present
  • Effective Dates: 07/25/2018 - Present
  • TN 9 (01-18)
  • SL 40001.420 Modifications to the Original Agreement
  • A. Purpose of modifications
  • Modifications amend the original agreement to:
  • Modifications amend the original agreement to do the following:
  • * extend coverage to new groups of employees;
  • * identify new political subdivisions joining a public retirement system;
  • * correct errors in previous modifications (for Error Modifications, see SL 40001.450 and for Modifications to Correct Errors, see SL 40001.465);
  • * implement changes in Federal or State law; and
  • * exclude services or positions previously covered (under very limited circumstances).
  • B. Preparing modifications
  • 1. The State
  • 1. When preparing a modification, the State should:
  • * explain the purpose clearly;
  • * use sample language in the exhibits for Agreement and Modification, see SL 40001.490;
  • * request assistance from the Regional Office (RO) if special language is required;
  • * list all optional exclusions, including all statewide optional exclusions from the original agreement in each modification;
  • * define part-time position in the modification if you exclude part-time positions or a class (classes) of part-time positions; and
  • * add the county designation for precise identification if duplications of the name exist in the State for entities such as townships and school districts.
  • 2. After preparing the modification, the State should:
  • * request a preliminary review from the RO if the modification is complex or there is a question concerning the legality of any provision, and
  • * submit two original modifications with the pen-and-ink signature(s) of the authorized State official(s) to the RO. Provide extra copies if you want more than one signed copy.
  • When preparing a modification:
  • * clearly state its purpose;
  • * use the sample language in the exhibits (for Agreement and Modification Exhibits, see SL 40001.490);
  • * request assistance from the PSSO or RO if special language is required;
  • * list all optional exclusions; and
  • * include all statewide optional exclusions, from the original agreement, in each modification.
  • If you exclude part-time positions or a class (classes) of part-time positions, include the definition of part-time position in the modification. If duplications of the name exist in the State for entities such as townships and school districts, add the county designation for precise identification.
  • After preparing the modification:
  • * Request a preliminary review from the Regional Office (RO) through the Parallel Social Security Office (PSSO) if the modification is complex or there is a question concerning the legality of any provision.
  • * Submit two original modifications with the wet signature(s) of the authorized State official(s) to the PSSO. Provide extra copies if you want more than one signed copy.
  • 2. The PSSO
  • Review the modification to determine whether the:
  • * State official has signature authority;
  • * modification number is in sequential order;
  • * entity is not already covered under Section 218; or
  • * supporting documentation is appropriate.
  • After reviewing the modification:
  • * send the modification and documentation to the RO for technical review, legal clearance, and execution on behalf of the Commissioner of Social Security; and
  • * maintain a photocopy for the pending file.
  • NOTE: The official designated by the State or interstate instrumentality to handle the State's Section 218 Agreement negotiates with the RO on all matters related to the modifications. The designated official authorizes all modifications to the agreement and submits these to the RO.
  • C. Forwarding additional information with modification
  • Provide additional information on a separate sheet or include in the modification itself. Additional information may be necessary in these instances:
  • * If the status of the entity is not apparent from the name, the State should include a reference to the statutory authority, which established its status. Each modification must provide the Internal Revenue Service (IRS) issued Federal Employer Identification Numbers (FEIN) for each entity.
  • * If the status of the entity is not apparent from the name, the State should include a reference to the statutory authority, which established its status. Each modification must provide the Internal Revenue Service (IRS) issued Federal Employer Identification Numbers (FEIN) for each entity; or
  • * If a retirement system coverage group is included in a modification, the modification must have the certification of the governor or his designate.
  • D. Minor corrections before executing the modification
  • D. Reviewing the modification packet
  • If minor corrections (i.e., misspellings, typos) are necessary before executing a modification, the RO must ask the State to provide written authority for the change. Written authority can be in the form of a letter, email, or fax, and must include the:
  • Upon receipt of the Modification, the RO Section 218 specialist takes the following steps to review the modification:
  • Step 1: Verify that the modification number is in sequential order and never used before.
  • Step 2: Review the collection of modifications, summaries of agreements, and the state's agreement. Verify the coverage group represented does not conflict with existing coverage.
  • Step 3: Review the packet for completeness, clarity, and accuracy. Consider the following:
  • * Are there two copies with original signatures by the authorized state official?
  • * Does the modification (if it is for a retirement system coverage group) include the certification of referendum signed by the Governor or authorized official?
  • * Does the modification follow the models or exhibits in SL 40001.490?
  • * Is the modification number correct and never used before?
  • * Is the entity clearly named?
  • * Is the named entity a legal entity (This is important to the review process as government agencies privatize and new entities form that possess both government and private business characteristics, i.e., charter schools)?
  • * Is the date of the state's original agreement correct?
  • * Is the EIN documented?
  • * Are the number of employees to be covered documented?
  • * If the modification excludes services, are optional exclusions specified per SL 30001.357?
  • * Does the date controlling who is covered, also referred to as the Section 218(e)(2) date, conform to Federal law. This date cannot be earlier than the date of the postmark on the envelope from the state to the RO or the receipt date in the RO.
  • * Does the effective date conform to Federal and state law? Normally, coverage cannot begin earlier than the last day of the sixth calendar year preceding the year in which SSA receives the modification.
  • * Is the modification signed by the designated state official?
  • Step 4: Photocopy all modification material, including the envelope.
  • Step 5: Request an Office of the General Council (OGC) review of the modification, and follow-up with OGC in 30 days if no response.
  • E. Corrections before executing the modification
  • 1. RO obtains written authority for minor corrections
  • Ask the State to provide written authority to make minor corrections (misspellings, typos, etc.) as necessary before executing a modification. Written authority can be in the form of a letter, email, or fax, and must include the following information:
  • * name of the authorizing document,
  • * details of the change, and
  • * name, title, and contact information of the authorizing State official.
  • If the RO receives a phone call from the State requesting a minor correction, the RO may use an SSA-5002 (Report of Contact) form to document the request but must also ask the State to provide written authority to validate the correction. The RO must retain the State’s written authority with the modification and annotate the correction in pen and ink on the modification:
  • * identifying the authorizing document,
  • * showing the name and title of the authorizing State official, and
  • * showing the name of the person making the change and the date of the change.
  • EXAMPLE: The state administrator mistyped the entity name on a pending modification as School District 12, when it should have been School District 13. The state administrator calls the RO Specialist to report the mistake and asks that he or she correct the typo. The RO Specialist should:
  • * ask the State Administrator to provide written authority (e.g., an email) requesting the correction;
  • * change “12” to “13,” in pen and ink on the modification;
  • 2. RO documents the verbal request for minor corrections
  • If the RO receives a phone call from the State requesting a minor correction:
  • * use a Form SSA-5002 (Report of Contact) to document the request, and
  • * ask the State to provide written authority to validate the correction.
  • Retain the State's written authority with the modification and annotate the correction on the modification:
  • * identify the authorizing document,
  • * show the name and title of the authorizing State official, and
  • * show the name of the person making the change and date of the change.
  • EXAMPLE: The state administrator mistyped the entity name on a pending modification as School District 12, when it should have been School District 13. The state administrator calls the RO Specialist to report the mistake and asks that he or she correct the typo. The RO Specialist takes the following actions:
  • * ask the State Administrator to provide written authority (for example, an email) requesting the correction;
  • * change “12” to “13,” on the modification;
  • * add a parenthetical, “per 8/1/11 email from S. Smith, SSA”; and
  • * sign and date the entry and attach the email with the modification.
  • 3. RO handles submitting major changes
  • Major changes may require the State to rewrite the modification. If this is necessary, the RO copy of the initial modification establishes the date of its submittal.
  • E. Notification of approval
  • NOTE: The RO has the discretion to decide between the minor change and major change process, as they deem appropriate.
  • F. Execution of the modification
  • After OGC approval, the RO specialist prepares a notification of approval letter and hand delivers the entire modification packet to the Regional Commissioner or designated official.
  • The RO verifies with the Regional Commissioner whether modification approval has been delegated to a designated official. The Regional Commissioner or authorized delegate must sign the approval letter and all original copies of the modification. A modification must meet the requirements of Federal and state laws. If it does not, the state must either withdraw the modification or the Commissioner will disapprove the modification and return all copies to the state with an explanation for the disapproval.
  • After executing the modification the RO must:
  • * Send the State Administrator a notification of approval letter with an executed copy(s) of the modification and, if any, a copy of the State's authorization for any changes.
  • * Send a photocopy of the notification approval letter and the executed modification to:* PSSO (this copy replaces pending file copy) * Office of Income Security Programs Office of Earnings, Enumeration and Medicare Policy 2-P-19, #213 2400 Robert Ball Bldg., #166 6401 Security Boulevard Baltimore, MD 21235-6401
  • * and* Internal Revenue Service SE:T:GE:FSL:CPM:7241 300 E. 8th St. MS: 4098AUS Austin, TX 78701-3233
  • * Send a copy of Regional Chief Counsel Opinions substantiating approval to OEPIP.
  • After executing the modification, the RO must:
  • * Date the approval letters and make copies;
  • * File an original sign modification packet in a locked fire-proof file cabinet;
  • * Send the State Administrator a notification of approval letter with an executed copy(s) of the modification and, if any, a copy of the State's authorization for any changes; and
  • * Fax a copy of the modification packet to the Internal Revenue Service at 855-243-4014.
  • NOTE: In lieu of mailed paper, the RO Specialist can email scanned copies to the OEPIP Specialist assigned to your region. The State and the RO should each maintain an original, signed modification as a permanent record.
  • G. Effective date of coverage
  • F. Effective date of coverage
  • Show the effective date of coverage in the modification to extend coverage. The effective date identifies when coverage begins.
  • Show the effective date of coverage in the modification to extend coverage. The effective date identifies when coverage begins. The date of execution is the date SSA signed the modification.
  • The date of execution is the date SSA signed the modification.
  • G. Closing agreement for retroactive coverage beyond the statute of limitations period
  • H. Closing agreement for retroactive coverage beyond the statute of limitations period
  • When submitting a Social Security or Medicare-only modification to SSA for approval, a state or local government entity can specify an effective date of the modification as early as “the last day of the sixth calendar year preceding the year” the modification is mailed or delivered to SSA (Section 218 (e)(1) of the Social Security Act).
  • However, the Internal Revenue Code (IRC) limits the statute period of assessment and collection of taxes to the 3-year period after the taxpayer files the tax return for a particular year. This IRS rule can come into conflict with SSA’s Section 218 effective date of retroactivity when a state or local government entity seeks a retroactive modification to a Section 218 agreement covering a 5-year period. Generally, the IRS bars the earliest 2 years for tax collection from assessment.
  • However, the Internal Revenue Code (IRC) limits the statute period of assessment and collection of taxes to the 3-year period after the taxpayer files the tax return for a particular year. This IRS rule can come into conflict with SSA's Section 218 effective date of retroactivity when a state or local government entity seeks a retroactive modification to a Section 218 agreement covering a 5-year period. Generally, the IRS bars the earliest 2 years for tax collection from assessment.
  • Thus, SSA can only process and approve any modification to a Section 218 Agreement requesting a period of coverage in excess of the 3 years beyond the statute period for FICA tax collection only if the taxpayer agrees to execute a closing agreement with the IRS.
  • Thus, SSA can only process and approve any modification to a Section 218 Agreement requesting a period of coverage in excess of the 3 years beyond the statute period for Federal Insurance Contributions Act (FICA) tax collection only if the taxpayer agrees to execute a closing agreement with the IRS.
  • 1. Definition of a closing agreement
  • A closing agreement is a written agreement between a taxpayer and the IRS, which conclusively settles:
  • * the tax liability of the taxpayer for a taxable year ending prior to the date of the agreement; or
  • * the tax liability of the taxpayer for a taxable year ending prior to the date of the agreement, or
  • * one or more issues affecting the taxpayer's tax liability.
  • Such an agreement is a determination conclusive on both the taxpayer and the IRS unless the taxpayer demonstrates fraud or misrepresentation as to a material fact. I.R.C. §721.
  • 2. Terms of the closing agreement
  • SSA requires that a state or local government entity seeking a retroactive coverage modification for a period beyond the 3-year statute of limitations period enter into a closing agreement with IRS to ensure that the FICA taxes due for the entire period of retroactivity are paid. SSA MUST sign and execute the modification before the closing agreement process begins (this is a key point). If SSA does not sign and execute the modification, IRS will not pursue a closing agreement because there is no tax liability to collect on UNTIL SSA executes the modification.
  • SSA requires that a state or local government entity seeking a retroactive coverage modification for a period beyond the 3-year statute of limitations period enter into a closing agreement with IRS to ensure that the FICA taxes due for the entire period of retroactivity are paid.
  • SSA must sign and execute the modification before the closing agreement process begins (this is a key point). If SSA does not sign and execute the modification, IRS will not pursue a closing agreement because there is no tax liability to collect on until SSA executes the modification.
  • The entity agrees to:
  • * a waiver of the statute of limitations for assessment,
  • * an assessment in the amount of the tax to be paid, and
  • * make full payment.
  • 3. Required language to add to a modification needing a closing agreement
  • The State Social Security Administrator should insert the following language into a modification for retroactive coverage under a Section 218 Agreement, which requires a closing agreement. This language informs the entity that ratifying the modification is contingent upon their executing a closing agreement with the IRS. The IRS's closing agreement:
  • * informs the entity that this agreement is final and conclusive; and
  • * gives the Commissioner of the IRS the right to assess and collect the taxes identified, and that the entity waives all defenses with regard to the collection of the tax liability.
  • A modification for retroactive coverage under a Section 218 Agreement requires a closing agreement. The IRS closing agreement:
  • * informs the entity the agreement is final and conclusive; and
  • * gives the IRS Commissioner the right to assess and collect taxes identified, and
  • * means the entity waives all defenses with regard to collection of the tax liability.
  • The State Social Security Administrator inserts language to inform the entity that ratifying the modification is contingent upon their executing a closing agreement with the IRS.
  • Required language:
  • (Name of Political Entity) ________ promises to pay, to the Department of the Treasury, contributions equal to the sum of the taxes, which would have been required from employers and employees under the Federal Insurance Contribution Act (FICA) as of the effective date of coverage. (Name of Political Entity) _______ also promises to enter into a closing agreement with the Internal Revenue Service (IRS) to effectuate this modification, including the agreement to pay all FICA contributions for the entire period of coverage. This modification is contingent upon the execution of a closing agreement between (Name of Political Entity) ________ and the IRS.
  • (Name of Political Entity) ________ promises to pay, to the Department of the Treasury, contributions equal to the sum of the taxes, which would have been required from employers and employees under the Federal Insurance Contribution Act (FICA) as of the effective date of coverage. (Name of Political Entity) _______ also promises to enter into a closing agreement with the Internal Revenue Service (IRS) to effectuate this modification, including the agreement to pay all FICA contributions for the entire period of coverage. This modification is contingent upon the execution of a closing agreement between (Name of Political Entity) ________ and the IRS.
  • For exhibits of closing agreement modifications, see SL 40001.490H.
  • 4. Closing agreement is mandatory
  • To effectuate the modification, the affected entity must enter into a closing agreement with IRS, which includes the agreement to pay all FICA taxes due for the entire period of coverage. SSA will not approve the modification, unless the entity agrees that it will execute the closing agreement. IRS will not begin the closing agreement process UNTIL SSA signs and executes the modification.
  • To effectuate the modification, the affected entity must enter into a closing agreement with IRS, which includes the agreement to pay all FICA taxes due for the entire period of coverage.
  • SSA will not approve the modification, unless the entity agrees that it will execute the closing agreement.
  • IRS will not begin the closing agreement process until SSA signs and executes the modification.
  • For questions concerning the closing agreement process, contact the FSLG Closing Agreement Coordinator, Wanda Valentine, by email at: wanda.valentine@irs.gov or in writing at the following address: Internal Revenue Service SE:T:GE:FSL Attn: FSLG Closing Agreement Coordinator 1111 Constitution Ave. Washington, D.C. 20224
  • For questions concerning the closing agreement process, send the FSLG Closing Agreement Coordinator a fax 855-243-4014.
  • 5. Exhibit of Closing Agreement
  • View the Closing Agreement on Final Determination of Tax Liability and Covering Specific Matters provided by IRS OGC in Agreement and Modification Exhibits.
  •  View PDF Version
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