20 CFR 404.1223, 404.1225, 404.1255, and 404.1261(a)(2) and (b)
The State of Florida timely requested review pursuant to Section 218(s) of the Social Security Act, as amended, of the Administration's assessment of interest as a result of the State's failure to pay the contributions due on an underreporting of wages discovered by the administration within the time prescribed by regulation. The State is of the view that the interest assessment should be waived since it is inequitable for an interest assessment to be charged by one branch of the Federal Government (the Administration) when another branch of the Federal Government (the Internal Revenue Service) was in possession (erroneous possession) of the same contributions. The State further contends that the administration did not grant sufficient time to correct the reporting error, failed to sufficiently follow up on the matter, and that the formal statement required by the Internal Revenue Service when requesting refund of erroneous contributions led the State to infer that corrected returns were to be filed upon receipt of a refund, not before.
The facts are that a Judge of the Fort Lauderdale Division of the Broward County Small Claims Court erroneously reported her wages to the Internal Revenue Service for the years 1962 through 1966 as self-employment income. The Administration determined that she was an employee of Broward County whose services were covered under the State's coverage agreement but that the wages were not included in the timely filed wage reports and contribution returns filed with respect to other county employees. The judge requested refund of the self-employment contributions paid to the Internal Revenue Service for 1962 through 1966. She received refund of the self-employment contributions for 1963 through 1966 plus interest of $94.86. Her request for refund of the self-employment contributions for 1962 was not allowed; however, the reported self-employment income was deleted from her earnings record for the period 1962 through 1966. An assessment of contributions due on the unreported wages was issued to the State on November 28, 1967. The State was advised that if the contributions were not paid on or before December 28, 1967, interest would be charged.
Payment was made by the State on December 11, 1968. An interest assessment of $447.90 was issued the State on February 7, 1969. The State then requested additional time for filing wage reports and contribution returns pursuant to Section 404.1255(a) of Social Security Regulations No. 4 and was notified that there was no provision in the regulations which provides for an extension of filing time with respect to adjustment reports and returns. The State then requested review of the interest assessment pursuant to section 218(s) of the act and subsequently paid the interest assessment.
The Florida section 218 coverage agreement entered into on October 23, 1951, provides that the State will pay, at the time or times prescribed by regulation, the appropriate contributions due on wages paid for covered services; that the State will comply with the regulations prescribed by the Administration to carry out the purpose of section 218; and that failure to make payment when due will cause interest to be added. Subsections 218(e)(1) and 218(j) of the Social Security Act, as amended, and Sections 650.03(1), 650.05(3)(a), and 650.05(4) of the Florida Statutes Annotated provide the Federal and State authority, respectively, regarding the above described conditions of the Florida section 218 coverage agreement.
To consider any erroneous payments made to another branch of the Federal Government or any credit owed a State by another branch of the Federal Government as fulfilling the contribution liability and reporting requirements under a State's section 218 coverage agreement would create an impossible administrative situation. That is, the Administration would be required to verify whether amounts had been erroneously paid to or a credit was due the State from, any other branch of the Federal Government before interest could be properly assessed.
The Administration has consistently held that interest must be charged on an underreporting of contributions by a State pursuant to the terms of the State's Federal-State coverage agreement, section 218(j) of the Act and section 404.1225 of the Regulations unless such underpayment is adjusted in accordance with section 404.1261(a)(2) and (b) of the Regulations.
Section 218(e)(1) of the Act requires that payment be made to the Secretary of the Treasury. Sections 404.1223 and 404.1255 of the Regulations require the amounts to be paid to the Federal Reserve Bank, or any branch thereof, serving the district in which the State is located. There is no provision int eh Social Security Act or regulations (except section 404.1250(d) of the Regulations, which is not pertinent here) or in the Internal Revenue Code which permits contributions due on wages paid for services of employees covered under a section 218 coverage agreement to be paid to the Internal Revenue Service or which indicates such erroneous payment fulfills the State's contribution liability.
The interest charged the State of Florida was due to the State's failure to pay the contributions due on wages within 30 days from the date of notification by the Administration of the underpayment. The Commissioner's decision of August 31, 1967, regarding interest assessed the State of Michigan (SSR 68-24, Cumulative Bulletin 1968, p. 147) concludes that, pursuant to section 404.1225, interest must be charged from the original date due on any underpayment of contributions due ascertained by the Administration unless such underpayments are adjusted pursuant to section 404.1261(a)(2)(ii), that section requiring the payment to be made by the State within 30 days of notification by the Administration of the underpayment. The decision further concludes that there is no regulatory or administrative provision for granting an extension of the 30-day period for any reason.
The Commissioner found, on review pursuant to the State's request, that the evidence in file established that the payment on December 11, 1968, of contributions due with respect to the Broward County Small Claims Court, Ft. Lauderdale Division, for the March 1962 through December 1966 quarters did not constitute an interest-free adjustment within the meaning of section 404.1261 of the Regulations and that interest was correctly assessed and computed in accord with section 404.1225 of the Regulations.
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