DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
OFFICE OF CHIEF COUNSEL
May 15, 2003
Stuart A. Sirkin
Director, Corporate Policy and Research Department
Pension Benefit Guaranty Corporation
1200 K Street, N.W., Suite 250
Washington, D.C. 20005-4026
Dear Stuart:
You recently asked for our assistance regarding a pension plan’s recovery of erroneous
withholding of income tax on account of a pension distribution after the amount withheld has
been remitted to the Internal Revenue Service. Our analysis follows.
Background: Under section 3405(c) of the Internal Revenue Code, a plan administrator
(“payor”) is required to withhold 20 percent for federal income tax at the time a distribution that
is eligible for rollover is made from a pension plan to a participant or beneficiary, if the
distribution is not rolled over. Sometimes a pension distribution to an individual is returned to
the payor as undeliverable after the payor has withheld federal income tax and remitted it to the
Internal Revenue Service.
You have informed us that if the individual qualifies as a “missing participant” (a term that
includes both participants and beneficiaries) under the PBGC’s Missing Participants Program,
the payor must either purchase an annuity for the individual or transfer the individual’s
“designated benefit” to the PBGC. You state that under the program, the annuity or amount
transferred to the PBGC must reflect the missing participant’s total benefit without any reduction
for tax withholding. Thus, you note, the payor will typically wish to get a refund from the IRS of
the amount erroneously withheld.
Solution: A payor may obtain a refund of an erroneously withheld amount by filing Form 843,
Claim for Refund and Request for Abatement, and Form 941c, Supporting Statement to Correct
Information. (A payor may make an adjustment only within 3 years of the return due date or the
date the return was filed, whichever is later. For this purpose, the due date of Form 945, Annual
Return of Withheld Federal Income Tax, is April 15 of the year after the close of the tax year.)
The payor should read the instructions for Form 843 and Form 941c; the information below is to
assist the payor in filling out only portions of these forms.
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Form 843 — Put the payor’s name under “Name of Claimant.” Check the “Employment”
box in line 3a, and the “Form 945” box in line 3b. On line 5, cite “administrative error”
as an explanation, explain why it is an administrative error, and show computation of the
tax refund amount. (Note that Internal Revenue Manual section 21.7.2.4.11.1(2) states in
relevant part that administrative error occurs with regard to “income tax ... on payments
such as lump sum distributions, where tax was withheld and reported in one year but
payment was mailed to an individual who did not have the ability ... to receive the
payment in the year” the tax was withheld. This rule applies if payment was returned as
undeliverable in a subsequent year.)
Form 941c — In Part I, Signature and Certification, check box 4 — “None of this refund
or credit was withheld from employee wages.” (The payor uses this box to verify that the
payor and the missing participant do not both claim credit for the same tax that is to be
refunded.) In Part V, Explanation of Adjustments, note that the adjustment is the result
of “administrative error.” (If you do not indicate that the adjustment is the result of
administrative error, the IRS will disallow the adjustment.)
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The payor should attach the Form 941c to the Form 843, and mail to the Internal Revenue
Service Center where the payor filed Form 945 with the amount of tax withheld.
We hope this information will be helpful to you.
Sincerely yours,
/s/
MICHAEL ROACH
Branch Chief, CC:TEGE:EB:QP1
Internal Revenue Service
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