Ruling Roundup

New rulings have been issued on the trust fund recovery penalty, donning and doffing of protective equipment, employment tax levies, and garnishments.

Trust fund recovery penalty. A federal district court has rejected an individual's attempt to set off one trust fund recovery penalty by another time-barred overpaid one because the penalties in the assessments were made against totally separate entities [U.S. v. Dieter H. Klohn, DC FL, 107 AFTR 2d ¶ 2011-809, 5/6/11].

Donning and doffing of protective equipment. A federal district court has ruled that workers at a beef processing plant should not be compensated for the time they spent putting on and taking off (donning and doffing) protective equipment [Martinez v. Cargill Meat Solutions Corp., DC NE, Dkt. No. 4:09CV3079, 4/12/11].

29 USC 203(o) of the Fair Labor Standards Act (FLSA) states that for purposes of determining employee working hours, the “time spent changing clothes or washing at the beginning or end of each workday” is not counted as time worked if it is “excluded by the express terms of, or by custom or practice under, a bona fide collective-bargaining agreement.” The court said that the protective equipment at issue (frocks, hair nets, ear plugs, hard hats, rubber or cotton gloves, and boots) qualified as “clothes” under 29 USC 203(o). It was undisputed that a collective bargaining agreement excluded this activity from compensation.

Employment tax levies. In most instances before the IRS can issue a tax levy, it must provide the taxpayer with notice and an opportunity for an administrative collection due process (CDP) hearing, and for judicial review. However, Code Sec. 6330(f), effective for levies served after Sept. 21, 2007, allows the IRS to issue an employment tax levy without first giving the taxpayer a pre-levy CDP notice, if the levy is a “disqualified employment tax levy” (DETL). Code Sec. 6330(h) defines a DETL as a levy to collect the employment tax liability of a taxpayer (or predecessor) who requested a CDP hearing for unpaid employment taxes in the two-year period prior to the beginning of the taxable period for which the levy is served.

The IRS has now issued a program manager technical advice (PMTA) that includes a test to determine whether a business is a predecessor business for purposes of these rules. The PMTA includes examples to support the rules. The PMTA notes that the purpose behind requiring a prior CDP hearing within two years is to ensure that a taxpayer has had a recent opportunity to resolve the collection of its employment tax liabilities in a CDP hearing. Accordingly, to be exempt from this requirement, a taxpayer must have a sufficient identity with the predecessor such that the CDP hearing given to the predecessor may be imputed to the taxpayer [Program Manager Technical Advice 2011-11].

Garnishments. In U.S. v. Dover, DC TN, 107 AFTR 2d 2011-1882, 4/18/11, a federal district court ruled that the federal government may garnish a taxpayer's Roth IRA to help satisfy a criminal restitution debt because a Roth IRA is not exempt from federal tax levy under Code Sec. 6334.