SSR 74-30: SECTION 218(s) (42 U.S.C. 418(s)). -- STATE AND LOCAL COVERAGE -- COMMISSIONER'S RULING ON STATE'S REQUEST FOR REVIEW -- TENNESSEE -- ASSESSMENT OF INTEREST CHARGES FOR FAILURE TO TIMELY PAY CONTRIBUTIONS DUE ON COVERED WAGES

20 CFR 404.1225, 404.1255, 404.1260-404.1261, and 404.1285

SSR 74-30

Pursuant to State's request for review under section 218(s) of the Social Security Act, the Commissioner affirmed an assessment of interest charges resulting from the State of Tennessee's failure to timely pay the contributions due on wages paid to employees of the Metro Government of Nashville and Davidson County. The State contended that the interest assessment should be waived because of extenuating circumstances namely, the staff usually responsible for processing, preparing, and transmitting the wage reports to the Social Security Administration was ill and replacement personnel utilized were inexperienced in the proper procedure. Held, the State did not adjust the underpayment of contributions as prescribed by regulations, and although regulations allow for extension of time for filing quarterly wage reports and contribution returns upon a showing of "good cause," there is no provision permitting such extension with respect to adjustment reports and payment of assessed contributions.

The State of Tennessee timely requested a review pursuant to section 218(s) of the Administration's assessment of interest charges. The assessment resulted from an underpayment of contributions due in connection with a wage report filed on May 30, 1969, for the quarter ending March 31, 1969, on which advance credit in the amount of $478.50 had been taken by the State for partial payment based on an adjustment report filed to delete wages erroneously reported for an employee in the quarters ending September 30, 1965, and December 31, 1965. The credit was subsequently denied as the State had not transmitted the adjustment report to the Administration prior to the expiration of the statute of limitations for the year 1965. The Administration on June 18, 1970, notified the State of contributions due on the underreporting of wages paid to employees of the Metro Government of Nashville and Davidson County. The notice to the State indicated that the State would remain liable for the assessment of contributions due, together with any interest which might accrue unless the contributions were paid on or before August 15, 1970, and that the State's Report of Adjustments signed March 20, 1969, could not be processed because the time limitation for correction of 1965 wages had expired. The contribution payment was made by the State on January 28, 1971, and December 1, 1971. On January 17, 1972, the Administration issued a letter of assessment of interest charges to the State in which $69.61 was charged with respect to the Metro Government of Nashville and Davidson County. The State requested review of the assessment in a letter dated January 25, 1972, contending that the interest assessment should be waived since the staff responsible for processing, preparing, and transmitting the reports to the Administration was reduced due to illness which necessitated utilization of new personnel totally inexperienced in the proper procedure.

The Tennessee section 218 coverage agreement entered into on August 16, 1951, provides that the State will pay, at the time prescribed in the Social Security Act, 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 at the rate of 6 percent per annum from the date due until paid to be added as part of the amounts due.

Subsections 218(e)(1) and 218(j) of the Social Security Act, as amended, and Sections 8-3803 and 8-3814 of the Tennessee Statutes, Annotated, provide the Federal and the State authority, respectively, regarding the above conditions of the Tennessee section 218 coverage agreement.

Social Security Regulations No. 4 provide in pertinent part as follows:

Section 404.1225 Rate of Interest

"If the contribution is not paid to the Federal Reserve Bank, or branch thereof, when due and is not adjusted under section 404.1261, interest accrues at the rate of 6 percent per annum."

Section 404.1255 Place and Time for Filing Contributions Returns and Wage Reports

" . . . the contribution return and wage report for any . . . calendar quarter shall be filed on or before the fifteenth day of the second month following the calendar quarter for which it is made . . . . Provided, however, that the Secretary, for good cause shown, may upon application by a State, allow such further time as he may deem proper for the filing of contribution returns and wage reports for the periods for which they are made."

Section 404.1260 Adjustments in General

"Errors in the payment of contributions must be adjusted in certain cases without interest. Not all corrections of erroneous payments of contributions, however, constitute adjustments within the meaning of the regulations in this subpart. The various situations under which such adjustments shall be made are set forth in section 404.1261. . . ."

Section 404.1261 Adjustment of the Underpayments of Contributions

"(a) Method of Making Adjustment. -- (1) If a State shall file a quarterly contribution return and shall accompany such return with payment of contributions due and payable as reported on such return -- but the amount of the contributions reported and paid is less than the correct amount of contributions due and payable . . . the State shall adjust the underpayment by reporting the additional amount due by reason of such underpayment either as an adjustment of total contributions due with the first quarterly wage report filed after notification of the underpayment by the Social Security Administration, or as a single adjustment of total contributions due with any contribution return filed prior to the filing of such quarterly wage report.

"(b) Payment. -- The amount of each underpayment adjusted in accordance with this section shall be paid . . . without interest, at the time of reporting the adjustment. If an adjustment is reported . . . but the amount thereof is not paid when due, interest thereafter accrues. . . ."

Section 404.1285 Time Limitations on Credits or Refunds

"(a) In General. -- No credit or refund of an overpayment of amounts paid under an agreement pursuant to section 218 of the Act by a State shall be allowed unless a claim for such credit or refund is filed by the State with the Secretary before the expiration of the period of limitation applicable thereto.

"(c) Periods of Limitation . . . claim for credit or refund of an overpayment must be filed by the State before the expiration of the latest of the following periods:

(1) 3 years, 3 months, and 15 days after the year which includes the calendar quarter in which the wages were paid or alleged to have been paid with respect to which the overpayment occurred. . . ."

There is no disagreement as to the facts. It is the State's position that the subject interest assessment should be waived since the staff responsible for processing, preparing, and transmitting the reports to the Administration was reduced due to illness which necessitated utilization of new personnel totally inexperienced in the proper procedure. The Commissioner found, on review pursuant to the State's request, that the evidence in file established that this underpayment of contributions was not adjusted in accord with the provisions of section 404.1261(a)(1) of the regulations. Although section 404.1255(a) of the regulations allows for extension of the filing date for quarterly wage reports and contribution returns beyond the established month and 15-day period after the end of a calendar quarter upon a showing of "good cause," it does not allow for such an extension with respect to adjustment reports and payment. Pursuant to section 404.1225 interest must be charged from the original due date on any underpayment of contributions ascertained by the Administration unless such underpayment is adjusted pursuant to section 404.1261 of the regulations, that section requiring the payment to be made within 30 days of the notification to the State of the underpayment by the Administration, and that there is no regulatory or administrative provision for granting an extension of this 30-day period for any reason. On the basis of these findings, the Commissioner affirmed the interest assessment.

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