20.1.4  Failure to Deposit Penalty

Manual Transmittal

July 17, 2015

Purpose

(1) This transmits revised IRM 20.1.4, Penalty Handbook, Failure to Deposit Penalty.

Material Changes

(1) During this revision, minor changes have been made to update web sites and various subsections renumbered. Significant changes to this IRM are listed in the table below:

Reference Change Details
Throughout Change Federal Tax Application (FTA) to Federal Tax Collection Service (FTCS)
IPU 13U1174 IRM 20.1.4.1 and 20.1.4.26.1(4) Change Policy Statement 2–7 to 3-2
IPU 15U1045 issued 06-17-2015 IRM 20.1.4.2(3) Add link to 20.1.4.26.1, Unbanked Taxpayers
IPU 13U1742 issued 12-13-2013 Reissued IPU 12U0591 03-07-2012 IRMs 20.1.4.2.3(4), 20.1.4.2.3(5) and 20.1.4.1(4)(b) Correct links and titles and time for beginning Fedwire operations
IPU 13U1742 issued 12-13-2013 Reissued IPU 12U0591 03-07-2012 IRM 20.1.4.3(4)(Note) and 20.1.4.26.1(1) Change Exhibit 20.1.1–3 to IRM Exhibit 20.1.1-2
IRM 20.1.4.4 and 20.1.4.14.7(2)b) Policy statement 2-4 changed to 20-2.
IRM 20.1.4.6(5)a) Employee should review prior quarter Form 941 to check de minimis.
20.1.4.7.1(1) Add IRC reference. Change 10% avoidance penalty to not paid by EFT.
IPU 13U1742 issued 12-13-2013 reissued IPU 12U0591 issued 3-7-12 IRM 20.1.4.7.2(3) Add: if the deposit due date is a Saturday, Sunday, or legal holiday in the District of Columbia.
IPU 13U1742 issued 12–13–2013 reissued IPU 12U0591 issued 3-7-2012 IRM 20.1.4.7.2(9) and (10) Clarify deposit grace days for Forms 720 and 1042.
IPU 13U1483 issued 09-19-2013 IRM 20.1.4.7.5 Add TC 766 —Work Opportunity Credit.(Credit Reference Number (CRN)290
IPU 14U0189 issued 01-27-2014 IRM 20.1.4.10.8.6 Add Medical Device tax information to Form 720 section.
IPU 15U0751 issued 04-24-2015 IRM 20.1.4.10.8.7 Add new section for penalty relief for Form 720 fourth quarter 2014 due to PL 113-295 and Notice 2015-3.
IRM 20.1.4.12(2)b) Correct e-fax numbers for Cincinnati technical units.
IRM 20.1.4.12.3.1 For CP 194 cases for Form CT-1, contact the taxpayer for a good ROFTL before averaging.
IRM 20.1.4.14.6.3(1)a) A valid ROFTL is required to consider reasonable cause.
IRM 20.1.4.15(1)d) Form 941M is obsolete after December 2011
IPU 13U1483 issued 09-19-2013 IRM 20.1.4.15(1)e) Delete reference to Philadelphia.
IPU 15U1045 issued 06-17-2015 IRM 20.1.4.15.3 Add CP 194 instructions for unbanked taxpayers, and renumber following sections.
IRM 20.1.4.15(6) Campus and RO's should coordinate on CP 194 cases.
IPU 14U0160 issued 01-22-2014 IRM 20.1.4.15.2 Add instructions for CP 194 for Medical Device Excise Tax (MDET) and renumber.
IPU 14U0475 issued 03-12-2014 IRM 20.1.4.15.2 Clarify CP 194 instructions that no FTD penalty is to be assessed on MDET for the first three calendar quarters of 2013.
IRM 20.1.4.16.1(4) Add instructions when TP submits amended return in reply to request for ROFTL.
IRM 20.1.4.17 Clarify instructions for assessing fourth tier penalty.
IRM 20.1.4.17(1) Change FTD penalty to tax.
IRM 20.1.4.17(3) Correct due date and include 15% FTD penalty.
IRM 20.1.4.18(2)b) Remove instructions for prior period tax adjustments.
IRM 20.1.4.18(8) Do not issue CP207L over $1 million unless unable to resolve or contact taxpayer.
RM 20.1.4.18(9) For CP207/207L, campus should coordinate with RO if case is assigned to RO.
IRM 20.1.4.18.1(2) Include the 15% fourth tier if applicable.
IPU 13U1811 issued 12-26-2013 IRM 20.1.4.18.1(3)a) Add reference to 20.1.4.25.1, Telephone Contact
IRM 20.1.4.18.1(9) Add instructions for reply to CP207/207L with interest-free adjustment. Renumber.
IPU 13U1743 issued 12-13-2013 Reissued IPU 12U1326 07-06-2012 IRM 20.1.4.18.2(1) #Change "when" to "by" for clarity.#
IPU 13U1174 IRM 20.1.4.19(3) Add instructions: "Do not recompute ROFTL based on responses to CP 276A or CP 276B" .
IRM 20.1.4.20(1) Change notice and demand for the FTD penalty to notice and demand for the tax. Include ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .
IRM 20.1.4.20.1(1)b) and IRM 20.1.4.20.2(1)(b) Change #plus 10 days# to plus 10 days #plus 7 days# to agree with IRC (10 days) and systemic processing.
Same as above Change 10 days to 11 days
IRM 20.1.4.21.1(3) Rev Proc. 2012-33 supersedes Rev Proc 98-32.
IRM 20.1.4.21.2(2) Add to exception, reference to 20.1.4.19
IRM 20.1.4.21.2(7) Add instructions addressing a ROFTL discrepancy that cannot be corrected.
IPU 13U1811 issued 12-26-2013 IRM 20.1.4.21.3(1) Add Caution - don't use TC 298/308 to compute corrected tax.
IRM 20.1.4.21.3 Add "and contains no negative entries" to (1) and (2)
IRM 20.1.4.21.3(3) Assess fourth tier penalty on any prior tax that was unpaid within 10 days of notice. Renumber following paragraphs.
IPU 13U1811 issued 12-26-2013 IRM 20.1.4.21.3(4) If the corrected tax is over $2,500, check the prior quarter to determine if de minimis applies.
IPU 13U1743 issued 12-13-2013 Reissued IPU 12U1326 07-06-2012 IRM 20.1.4.21.3(9) Added xref to IRM 20.1.4.17
IRM 20.1.4.21.3(11)b) If new ROFTL is not received, use previous ROFTL if within $500.
IRM 20.1.4.21.5 Do not input TC 180 on amended returns with no tax change. Add to 3(b) and (5), "unless the de minimis applies." Add de minimis information to (7)
IRM 20.1.4.21.5.3.1(1)b) If an amended return for a tax decrease does not include a required ROFTL, allow a few days to call the taxpayer and obtain a valid ROFTL by fax.
IPU 14U0670 issued 04-10-2014 IRM 20.1.4.21.5(4) and IRM 20.1.4.21.5.1(1)(b) Change cross reference to 20.1.4.21.3(12).
IPU 14U0160 issued 01-22-2014 IRM 20.1.4.21.5(6) Add instructions to input TC 571 with cycle delay to release refund.
20.1.4.21.5(7) If tax is de minimis, input TC 180 .00 with PRC 010.
IPU 13U1742 issued 12-13-2013 Reissued IPU 12U0591 03-07-2012 IRM 20.1.4.21.6.1(2) and (3) Change 298/300 to 298/308 and 298 to 298/308.
IPU 13U1483 issued 09-19-2013 IRM 20.1.4.24.1 Correct unit number and fax number for Ogden Large Corp Unit and remove reference to TT&L
IPU 13U1483 issued 09-19-2013 IRM 20.1.4.24.2(14) and IRM 20.1.4.24.2(18) Remove reference to fax number for FRB. Correct unit number and fax number for Ogden Large Corp Unit.
IPU 13U1811 issued 12-26-2013 IRM 20.1.4.24.2(14) Delete reference to Form 8646, which has been obsoleted.
IPU 13U1174 issued 7/2/2013 IRM 20.1.4.25.1 Add c), Document any attempted telephone calls.
IRM 20.1.4.26.1(2) If TP submits a request for penalty abatement due to reasonable cause and does not reply to a request for a valid ROFTL, send a no consideration letter. An averaged penalty must be assessed.
IPU 15U1045 issued 06-17-2015 IRM 20.1.4.26.1.1 Add instructions for penalty relief for unbanked taxpayers
IRM 20.1.4.26.2(2) Add:" If the $100,000 rule causes a change in deposit frequency, the penalty is waived."
IRM 20.1.4.26.2(4) CP 236 and TC 971 A/C 329 are correct only in 2014 and later years.
IRM Exhibit 20.1.4-4 Add safe harbor shortfall makeup rules.
IPU 13U1742 issued 12-13-2013 Reissued IPU 12U0591 03-07-2012 IRM Exhibit 20.1.4-7 Add "September Deposit Dates to the title" Add "Except" to footnote.
IPU 13U1811 issued 12-26-2013 IRM Exhibit 20.1.4-7 Add note when September 29 falls on Saturday, additional September deposit is due September 28. When September 29 falls on Sunday, deposit is due September 30.
IPU 13U1174 IRM Exhibit 20.1.4-8 Add reference to IRM 20.1.4.7.2(9) and (10)
IPU 13U1743 issued 12-13-2013 Reissued IPU 12U1326 07-06-2012 IRM Exhibit 20.1.4-12 Forms 944–SS and 944–PR are obsolete for tax year 2012
IPU 13U1742 issued 12-13-2013 Reissued IPU 12U0591 03-07-2012 All sections Made various grammatical, editorial, and hyper-link corrections throughout the IRM.

Effect on Other Documents

IRM 20.1.4, dated 01-06-2012 is superseded. This IRM also incorporates Interim Procedural Updates (IPU) #13U1174 issued 07-02-2013, reissued as #14U1105 07-03-2014; #13U1483 issued 09–19–2013; #12U0591 issued 03-07-2012, reissued as #13U1742 12-13-2013; #12U1326 issued 07-06-2012, reissued as #13U1743 12-13–2013; #13U1811 issued 12–26–2013; #14U0160 issued 01–22–2014; #14U0189 issued 1-24–2014; #14U0475 issued 03–12–2014; #14U0670 issued 4-10-2014; #15U0751 issued 04-24-2015; and #15U1045 issued 06-17-2015.

Audience

SB/SE Compliance employees, W&I Accounts Management employees and other operating division employees that work with FTD penalties.

Effective Date

(07-17-2015)

Signed by
Maria Hwang
Director, Servicewide Operations
Small Business/Self-Employed

20.1.4.1  (07-17-2015)
Overview and General

  1. This section of the penalty handbook contains policies and procedures for all IRS employees on the failure to deposit (FTD) penalty.

  2. IRC 6656 provides for the FTD penalty if a taxpayer does not deposit tax in the correct amount, within the prescribed time period, and/or in the required manner.

  3. See IRM Exhibit 20.1.4-1, Employment and Excise Tax Program Forms, for a list of the applicable forms related to the FTD penalty.

  4. The obligation to deposit certain taxes is ongoing and requires that the taxpayer continue to follow the requirements as long as the taxpayer is incurring these taxes. For example, as long as an employer has employees and is issuing a payroll, that employer must deposit as required.

    1. IRC 6656 provides relief from the FTD penalty for non-compliance if the taxpayer can show that the failure to deposit was due to reasonable cause and not willful neglect.

    2. IRC provisions for removal of the FTD penalty due to reasonable cause are expanded in Policy Statements. See IRM 1.2.20.1.1, Policy Statement 20-1 (Formerly P–1–18), and IRM 1.2.12.1.2, Policy Statement 3-2 (Formerly 2–7). Other statutory and/or administrative provisions may also apply to allow penalty relief. See IRM 20.1.4.26, FTD Penalty Relief, for penalty relief provisions specific to the FTD penalty.

  5. In accordance with Policy Statement 20-1, the primary purpose of penalties is to enhance voluntary compliance (also see IRM 20.1.1.2.1, Encouraging Voluntary Compliance).

20.1.4.1.1  (04-20-2010)
Who Assesses

  1. Customer Service Representatives or Tax Examiners may assess or adjust the penalty based on record of federal tax liability (ROFTL) information, reasonable cause, statutory waivers, or administrative waivers. Taxpayer Service Representatives (TSRs), Collection Tax Examiners, and Revenue Officers may recommend assessment or non-assessment of the penalty on secured returns. When there is indication that a taxpayer filed in a previous calendar quarter but no current return is on file, the Internal Revenue Service contacts the taxpayer and requests a return. A return obtained in this manner is a "secured" return.

  2. Tax Compliance Officers, Tax Auditors, and Revenue Agents, Collection, TE/GE, and Employment Tax Examiners make penalty assertion determinations on examined and/or secured returns.

20.1.4.1.2  (07-17-2015)
Criteria for Reporting Tax and ROFTL Information

  1. Taxpayers who withhold taxes (e.g., employment tax liabilities) are required to file returns that:

    1. Report their tax liability,

    2. Categorize their tax liability, FICA (Social Security and Medicare), Federal Income Tax (FIT), etc., and

    3. Indicate the date during the return period on which each liability was incurred using a record of federal tax liability (ROFTL) schedule.

      Exception:

      Taxpayers whose total liability is below the deposit threshold are not required to indicate the date each liability was incurred. In fact, the form instructions specifically instruct these taxpayers to leave the ROFTL schedule blank. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

  2. In addition to reporting the total tax liability incurred within the tax return period, the taxpayer must provide a valid periodic breakdown of its tax liability (see exception above). This periodic breakdown is generally referred to as the ROFTL schedule. This liability information is requested in various formats on the different employment tax returns. For example, the monthly liability amounts of a Form 941, Employer’s QUARTERLY Federal Tax Return monthly schedule depositor are reported on page 2 of Form 941, whereas the Form 941 semi-weekly schedule depositor is required to report the daily liability amounts on Form 941 Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors.

    1. The ROFTL shows the dates that each liability amount is incurred (for monthly schedule depositors, only the month is shown). For employment tax forms, this is the date or month that the employer issues paychecks to the employees. The ROFTL asks for the amounts and dates that each liability was incurred, not for a record of the deposits that were made to pay the tax liability.

    2. Deposit (TC 650) and payment (TC 610/670) information (received by the Service throughout the return period) is compared to the liability information (provided by the taxpayer on or with the return) to determine compliance with the deposit requirements. All transaction codes (TCs) are defined in OFFICIAL USE ONLY Document 6209, IRS Processing Codes and Information.

20.1.4.1.3  (07-17-2015)
Notice Information

  1. As a return is processed, various computer codes are added to the return data. These codes are written on the return by Code and Edit function or they are systemically generated by the computer program from the input of the tax data shown on the return. See IRM 20.1.4.14.6, Schedule Indicator Codes (SIC), to determine whether the FTD penalty issue will be:

    • Manually reviewed, calculated, assessed, or

    • Systemically assessed.

  2. Internal notices require mandatory review.

    • CP 194 Notice—Issued for manual review because Master File does not have enough information to determine if the FTD penalty applies. See IRM 20.1.4.15, CP 194 Notices (Possible FTD Penalty).

    • CP 294 Notice—Issued to determine if an additional 5 percent penalty (fourth tier) applies on a module where the tax liability remains unpaid and the FTD penalty is restricted by TC 180 (Deposit Penalty). See IRM 20.1.4.20, CP 294 Notice- Possible 15 Percent Rate.

  3. The following notices issued directly to taxpayers require a response:

    • CP 207 Notice—Issued to request a valid ROFTL schedule if the return is received with a missing, incomplete, inaccurate, or illegible ROFTL. The notice states that an averaged FTD penalty will result if the requested ROFTL is not received within 45 days The penalty will be assessed systematically after 15 weeks. See IRM 20.1.4.18, CP 207/207L Notices.

    • CP 207L Notice—Issued to request a valid ROFTL on "Large Dollar" proposed FTD penalty notices of $75,000 or more.

      Note:

      Before the CP 207L notice is mailed out, the Ogden or Cincinnati Large Corp Technical Unit (LCTU) will call the taxpayer and attempt to secure the corrected ROFTL. If the corrected ROFTL is secured, the CP 207L is voided and corrective action taken by the LCTU technician.

      See IRM 20.1.4.18, CP 207/207L Notices.

    • CP 161 Notice—First notice issued to inform taxpayer of tax, penalty, and/or interest due.

    • Other adjustment notices (e.g., math error, balance due or overpayment) are issued to inform the taxpayer of a penalty assessment.

20.1.4.2  (01-06-2012)
Authorized Deposit Methods

  1. Generally, taxpayers who file Form 941, Employer's Quarterly Federal Tax Return, Form 943, Employer's Annual Tax Return for Agricultural Employees, Form 944, Employer's ANNUAL Federal Tax Return, Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, Form 945, Annual Return of Withheld Federal Income Tax, Form 720, Quarterly Federal Excise Tax Return, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form CT-1, Employer's Annual Railroad Retirement Tax Return must deposit taxes using an authorized deposit method when the tax liability reaches certain dollar amounts. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for additional information. However, Form 720 filers are only liable for deposits of certain excise taxes. See IRM 20.1.4.10, Form 720 Reporting Requirements, for additional information.

  2. A taxpayer is required to deposit taxes by electronic funds transfer (EFT) deposit systems.

  3. Payments made directly to the IRS can result in a failure to deposit penalty assessed at the 10 percent rate. See IRM 20.1.4.26.1.1Unbanked Taxpayers for penalty relief for unbanked taxpayers.

  4. Deposits by Form 8109, Federal Tax Deposit Coupon, cannot be processed after December 31, 2010.

20.1.4.2.1  (07-17-2015)
Electronic Funds Transfer (EFT)

  1. Treasury Decision (TD) 9507 (REG-153340-09) ended the use of paper federal tax deposit (FTD) coupons beyond December 31, 2010. Beginning January 1, 2011, all businesses are required to make their federal tax deposits via an electronic funds transfer system. This system allows for the electronic transfer of funds from taxpayer accounts and the conveyance of deposit information directly to the U.S. Treasury.

  2. Deposits made electronically use the automated clearing house (ACH) financial network, which transfers funds and passes tax payment information to IRS. ACH is the banking industry’s system for moving payments electronically between financial institutions (for electronic federal tax payment system (EFTPS ) purposes, between financial institutions and the U.S. Treasury).

  3. Taxpayers must enroll in the system before any attempt is made to transfer monies electronically. The enrollment process allows taxpayers to choose the type of payment method, very similar to the one a bank may use to arrange for a direct debit (e.g., an automated bill payer account), or credit (e.g., direct deposit) to an account.

    1. Taxpayers can make payments directly through EFTPS by instructing the U.S. Treasury’s financial agent to originate an ACH debit transaction against their bank account.

    2. Taxpayers can arrange for a tax professional, financial institution, payroll service, or other trusted third party to make deposits on their behalf.

    3. Taxpayers can instruct their financial institution to debit their accounts to the U.S. government’s financial institution or

    4. Taxpayers can instruct their financial institution to initiate a same-day wire payment on their behalf. See IRM 20.1.4.2.3, Same-Day Wire.

  4. Using EFT does not change the basic deposit rules or deposit penalties. Taxpayers are penalized for not depositing on time, in the correct amount, or in the manner required. A taxpayer will be assessed this same avoidance portion of the FTD penalty for failing to deposit electronically (not depositing in the required manner).

    1. Beginning January 1, 2011, EFT is the only authorized deposit method. A depositary tax obligation paid directly to the IRS rather than deposited will be subject to the avoidance portion of the FTD penalty for failure to deposit using the EFT system.

    2. Taxpayers required to use EFT before 2011 who paid a depository obligation directly to the IRS or by deposit coupon were subject to the 10% avoidance FTD penalty. Taxpayers not required to use EFT before 2011 were subject to the 10% avoidance FTD penalty if they paid a depositary tax obligation directly to the IRS or through an unauthorized financial institution.

20.1.4.2.2  (01-06-2012)
Electronic Federal Tax Payment System (EFTPS)

  1. The electronic federal tax payment system (EFTPS) is the electronic tax payment system that the federal government uses to accept all electronically transmitted tax payments. EFTPS accepts all types of tax payments from both businesses and individuals.

  2. Bank of America is the sole financial institution authorized to operate EFTPS as a U.S. Treasury financial agent.

  3. The taxpayer must be enrolled in EFTPS before any funds can be transferred electronically.

  4. Taxpayers are directed to call the financial agent for assistance on EFTPS. Bank of America assistance numbers are:

    • 1–800–555–4477 (voice)

    • 1–800–555–8778 EFTPS-Online

    • 1–800–244–4829 (Spanish)

    • 1–800–733–4829 (TDD)

    • 1–800–605–9876 for financial institutions

    • 1–877–333–8292 FEDTAX/EFTPS for federal agencies

  5. Taxpayers with entity related questions that the financial agent cannot resolve may be referred to the IRS Business and Specialty Tax Line at 1–800–829–4933.

  6. Several indicators have been created to aid in identifying and working with electronic deposits. See IRM 3.17.277.1.3, EFTPS Customer Service Responsibilities.

  7. Deposits made after December 31, 1996 will carry an extra field in the record layout for recording how the payment was received. Whether the deposit or payment was received electronically is displayed for determining whether the taxpayer deposited in the required manner.

  8. Refer to IRM 21.7.1.4.8.1, Electronic Federal Tax Payment System(EFTPS), for requesting payment research information.

20.1.4.2.3  (07-17-2015)
Same-Day Wire

  1. The funds-transfer system (Fedwire) owned and operated by the Federal Reserve Bank (FRB), is used primarily for the transmission and same day settlement of payment orders. Financial institutions initiate the funds-transfer through the Fedwire system. EFTPS tax wires are then processed by the Federal Tax Collection Service (FTCS) and the money transferred into the U.S. Treasury Account.

  2. ACH is the banking industry’s system for moving payments electronically between financial institutions (for EFTPS purposes, between financial institutions and the Treasury). Because ACH is a two-step process (initiate the instructions one day; the money actually moves the next), some taxpayers (e.g., $100,000 depositors) had difficulty making timely deposits. If taxpayers missed the ACH cut-off time to initiate a timely deposit, they could use the same-day wire feature as a deposit option.

  3. As the systems have evolved, the same-day wire feature is now referred to as the Federal Tax Collection Service (FTCS).

  4. Taxpayers enrolled in EFTPS can initiate a same-day wire using the FTCS. The instructions for initiating a same-day wire are located in the SAME-DAY TAXPAYER WORKSHEET at eftps.gov.

  5. A taxpayer who requires a same-day settlement should assist in directing its financial institution to the proper format for making the payment.

    1. All same-day wires are sent by the business taxpayer’s financial institution. Financial institutions have two Fedwire options for making a same-day wire. It is important that the bank use the proper format.

    2. The FTCS guidelines for financial institutions can be found in the Financial Institution Handbook.

    3. FEDWIRE funds transfer begins daily operations at 9 p.m. Eastern Time (ET) the day before FTCS processing. The current hours for FTCS processing are 8:30 a.m. to 5:00 p.m. ET. Same-day wire transactions sent after 9 p.m. and before 8:30 a.m. ET are queued for processing when FTCS opens for the day. The same-day wire transactions sent AFTER the 5:00 p.m. ET cutoff are rejected and NOT processed the next day. It is recommended that financial institutions transmit the transaction well in advance of the cutoff. Taxpayers should make arrangements to have their financial institution notify them immediately if a payment is rejected and returned, so that the transaction can be corrected and resubmitted before the 5:00 p.m. ET cut-off.

  6. FTCS payments are identified by Payment Method 3 or 4 in the second position of the EFT number. Since early 2004, only Payment Method 3 is used.

  7. Taxpayers may call the FTCS toll-free customer service number at 1-800-382-0045 for assistance in making their payment or in resolving problems with an FTCS payment.

  8. For more information on FTCS, see IRM 3.17.277, Electronic Payments.

20.1.4.3  (07-17-2015)
Restrictions on Assessments

  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

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    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    • ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.4  (07-17-2015)
Federal Agencies

  1. According to IRM 1.2.20.1.2, Policy Statement 20-2, penalties and interest will not be asserted against federal agencies.

  2. These agencies are marked with an employment code "F" on the entity module. See IRM 3.13.2.5.3, Employment Code (EC) "F" , for additional information.

20.1.4.5  (04-20-2010)
State and Local Health and Welfare

  1. In Notice 2003-70, the IRS determined that state and local government health and welfare agencies, acting as agents under IRC 3504 with respect to employers who receive public assistance to pay for in-home domestic services, are not subject to federal tax deposit requirements. These state agents need only to make payments by the due date of the return. Payment(s) does not have to be deposited.

  2. These agencies assume responsibility for reporting and paying FICA and FUTA and any withheld income tax for individuals furnished by the agency, or hired directly by the recipients of public assistance, to provide domestic services (chore workers) for recipients on public assistance.

  3. Do not assess any failure to deposit penalty on these entities. In addition, abate the penalty on modules (for all years) with an unreversed failure to deposit penalty when working on other issues on these modules.

  4. These agencies are marked with an employment code "A" on the entity module.

20.1.4.6  (07-17-2015)
De Minimis Exception to Deposit Requirements

  1. While taxpayers must periodically deposit employment taxes using either the monthly or semi-weekly deposit schedule, the de minimis exception to the deposit rule allows taxpayers to remit employment taxes with the return or pay with a credit card.

  2. The ROFTL information is not required when the de minimis exception for depositing is met. See IRM 20.1.4.1.2, Criteria for Reporting Tax and ROFTL Information.

  3. When the total tax amount exceeds the de minimis amount (as shown below) for depositing, then taxpayers must periodically deposit employment taxes using their required monthly or semi-weekly deposit schedule. Any payment of tax paid directly or remitted with the return is subject to the avoidance penalty.

  4. See IRM 20.1.4.7.1 (1)(d), Time Sensitive Four Tier Penalty System, for the avoidance penalty rate.

  5. The de minimis exception to the deposit requirements for Form 941 is as follows:

    1. Form 941(201003 and Subsequent): The de minimis exception to deposit requirements was modified to allow employers who file quarterly Forms 941 for tax periods beginning January 1, 2010, to base the de minimis determination on the calendar quarter immediately prior. Therefore, the de minimis exception applies to the current calendar quarter if the total tax in either the current quarter or the prior quarter is less than $2,500. However, if the total tax is $2,500 or more in the current quarter and in the prior quarter, or there is a $100,000 next-day deposit obligation in the current quarter, any amount paid with the current quarter return is subject to the 10 percent avoidance penalty. If the prior quarter return posts later than the current quarter return, the FTD penalty is not systemically adjusted if the de minimis exception no longer applies.

    2. Form 941(200103 thru 200912): The de minimis exception to deposit requirements is applicable for tax amounts less than $2,500. If the total tax is $2,500 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

    3. Form 941(199809 thru 200012): The de minimis exception to deposit requirements is applicable for tax amounts less than $1,000. If the total tax is $1,000 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

    4. Form 941(199806 and Before): The de minimis exception to deposit requirements is applicable for tax amounts less than $500. If the total tax is $500 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

  6. The de minimis exception to deposit requirements for annual Form 943 and Form 945 is as follows:

    1. Form 943 and Form 945 (200112 and Subsequent): The de minimis exception to deposit requirements is applicable for tax amounts less than $2,500. If the total tax is $2,500 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

    2. Form 943 and Form 945 (199912 thru 200012): The de minimis exception to deposit requirements is applicable for tax amounts less than $1,000. If the total tax is $1,000 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

    3. Form 943 and Form 945 (199812 and Before): The de minimis exception to deposit requirements is applicable for tax amounts less than $500. If the total tax is $500 or more, any amount paid with the return is subject to the 10 percent avoidance penalty.

  7. The de minimis exception to deposit requirements for annual Form 944 (200612 and Subsequent) is as follows:

    1. If a Form 944 liability amount is less than $2,500 for a calendar quarter, Master File considers the deposit as timely if received by the last day of the month after the end of a Form 944 calendar quarter (mirroring the Form 941 de minimis exception, as discussed in (5) (b) above). Employment taxes accumulated for less than $2,500 during the fourth quarter can be either deposited by January 31 or remitted with a timely filed return for the return period.

    2. If a quarterly Form 944 liability amount reaches or exceeds $2,500, then deposits are due monthly or semi-weekly, depending on the deposit schedule. See IRM Exhibit 20.1.4-5, Form 944 De Minimis Exception.

    .

  8. For the de minimis exception to deposit requirements for annual Form 940 , see IRM 20.1.4.9 Form 940.

  9. The de minimis exception to deposit requirements for quarterly Form 720 is as follows:

    1. Form 720 (200112 and Subsequent): If the amount from Form 720, Part I, is over $2,500, the amount paid with the return may be subject to the 10 percent avoidance penalty, unless a safe harbor rule applies.

    2. Form 720 (200109 and Before): If the amount from Form 720, Part I is over $2,000, the amount paid with the return may be subject to the 10 percent avoidance penalty, unless a safe harbor rule applies.

  10. The annual de minimis exception to deposit requirements for annual Form 1042 (For All Periods) is as follows:
    If undeposited taxes are $200 or more and it is the end of December, any amount paid with the return may be subject to the 10 percent avoidance penalty.

  11. The de minimis exception to deposit requirements for annual Form CT-1 is as follows:

    1. Form CT-1 (200112 and Subsequent): If the TC 150 is $2,500 or more, any amount paid with the return may be subject to the 10 percent avoidance penalty.

    2. Form CT-1 (199912 thru 200012): If the TC 150 is $1,000 or more, any amount paid with the return may be subject to the 10 percent avoidance penalty.

    3. Form CT-1 (199312 thru 199812): If the TC 150 is $500 or more, any amount paid with the return may be subject to the 10 percent avoidance penalty.

    4. Form CT-1 (199212 and Before): If the amount paid with the return exceeds $100, it may be subject to the 10 percent avoidance penalty.

20.1.4.7  (07-17-2015)
Failure to Deposit Penalty Rate

  1. The three components of a correct deposit are:

    1. the deposit is made timely,

    2. in the correct amount, and

    3. in the correct manner.

    A failure to comply with any of these components will subject the deposit to the FTD penalty. Because there may be multiple deposits (with each individual deposit subject to scrutiny for compliance) on any one account, the FTD penalty that is assessed on the account is the sum of the "time-sensitive " penalty(ies) and/or the "avoidance" penalty(ies).

  2. The percentage rate charged depends on the number of calendar days a deposit is late or whether there is a direct payment.

20.1.4.7.1  (07-17-2015)
Time Sensitive Four Tier Penalty System

  1. Per IRC 6656(b)(1), there is a time sensitive four-tier penalty system for late deposits. The penalty rate assessed depends on the number of calendar days a deposit is late starting from the due date of the deposit. For liability amounts not properly or timely deposited, the penalty rates are as follows.

    1. 2 percent for deposits 1—5 days late,

    2. 5 percent for deposits 6—15 days late,

    3. 10 percent for deposits made more than 15 days late. This also applies to amounts paid within 10 days of the date of the first notice requesting payment for the tax due.

    4. 10 percent for required deposits not paid by EFT.

    5. 15 percent ( a 5 percent addition to the 10 percent for late payment in (c) above) for all amounts still unpaid more than 10 days after the date of the first notice requesting payment of the tax due or the day on which the taxpayer received notice and demand for immediate payment, whichever is earlier. See IRM 20.1.4.14.4, Penalty Indicator Codes (PIC) (15 Percent Rate).

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.7.2  (07-17-2015)
Deposit Due Dates

  1. The deposit due dates are determined by the deposit requirements, which vary according to the tax form involved and the amount of tax. For help in determining deposit due dates, see IRM Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements, IRM 20.1.4.10, Form 720 Reporting Requirements, and IRM 20.1.4.11, Form 1042.

  2. Treasury Regulation 31-6302-1 states that deposits are due on or before the deposit due date. Taxpayers may make their deposit any time between the date the payroll liability is incurred and the date the deposit is due. They are not required to wait until the due date to make a deposit and will not receive a penalty for making deposits prior to the due date. An employer is not required to make a deposit more often than a payroll is made. However, 100 percent of the amount required to be deposited is due on the deposit due date unless the employer meets one of the exceptions. See IRM Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements and IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

  3. Unless there are specific instructions to the contrary contained in the Treasury Regulations, if the deposit due date is a Saturday, Sunday, or legal holiday in the District of Columbia, the due date is extended to the next day that is not a Saturday, Sunday, or legal holiday.

  4. Deposits are due only on business days. A business day is every calendar day that is not a Saturday, Sunday, or legal holiday under IRC 7503. Additionally, the term “legal holiday” for FTD purposes includes only those legal holidays in the District of Columbia. Thus, a statewide legal holiday will no longer be considered a legal holiday unless the holiday coincides with a legal holiday in the District of Columbia. The following days are currently legal holidays in the District of Columbia: New Year's Day, Birthday of Martin Luther King, Jr., Washington's Birthday, District of Columbia Emancipation Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and the day of the inauguration of the President, every fourth year.

    1. Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

    2. Employers who are required to deposit taxes on a day that is not a business day will be treated as timely depositing such taxes if they are deposited on the first business day thereafter. See IRM 20.1.4.8 (3), Employment Tax (Forms 941, 943, 944, 945, and CT-1).

    3. See IRM 20.1.4.8.3, Monthly Depositors, for a discussion of these rules as applied to employers required to deposit on a monthly basis.

    4. See IRM 20.1.4.8.5 (2), Rule For Semi-weekly Non-Business Days, for a discussion of these rules as applied to employers required to deposit on a semi-weekly basis.

  5. IDRS command code BMFOLE (Entity) displays an EFT indicator field shown as "Elec Dep Yr" . A blank "Elec Dep Yr" field indicates that the taxpayer is required to use EFT for deposits made after December 31, 2010 per TD 9507 (REG-153340-09). A year referenced in the "Elec Dep Yr" field represents the tax year that the taxpayer became required to deposit through EFT under the old $200,000 threshold regulations. Taxpayers avoid the FTD system when they make payments in another manner. This type of noncompliance is called FTD avoidance and is subject to the FTD penalty. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

  6. Effective October 17, 1995, any non-EFT deposit made by a taxpayer who is required to deposit via EFT is subject to a 10 percent avoidance penalty for not being made in the correct manner.

  7. Transaction code (TC) 670 identifies direct payments and generally indicates that the FTD avoidance penalty applies. Some exceptions:

    1. All TC 640 or 670 payments transmitted by EFT are treated as correctly deposited (effective March 1997).

    2. FEDWIRE payments, made by Form CT–1 filers (prior to 2008), are listed as TC 670 with blocking series 700.

    3. Taxpayers in bankruptcy may be ordered by the court to make payments directly to the IRS. In such cases, the FTD avoidance penalty would not apply. If the account has a bankruptcy indicator, TC 520, closing code (CC) 60-67, 81 and 85-89 with freeze code -V or TC 520, CC 81 with freeze code -W, contact the appropriate Insolvency function to determine if the taxpayer is under court order to make direct payments.

    4. Any TC 670 received after the return has posted (in response to a notice/bill) will not have the avoidance penalty assessed against it. If the taxpayer files the return with a balance owing, i.e. has not deposited sufficiently, the notice sent will include the maximum FTD penalty.

  8. Regulations require certain taxes to be paid using deposits. Payments for depositary taxes made in a manner other than EFT may be subject to the FTD avoidance penalty, unless the taxpayer meets an exception.

    1. See IRM Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements, for the safe harbor exception.

    2. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

  9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.7.3  (01-06-2012)
Business Days (Banking Days)

  1. Beginning in 2011, "banking days" are replaced by "business days" per TD 9507 (REG-153340-09). A business day for deposit purposes is every calendar day that is not a Saturday, Sunday, or those legal holidays in the District of Columbia. Thus, a statewide legal holiday formerly allowed as a banking holiday will no longer be considered unless the holiday coincides with a legal holiday in the District of Columbia.

    Exception:

    Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

  2. Form 8109 coupons, discontinued as of December 31, 2010, were accepted at authorized financial institutions, or depositaries. Banks may establish a daily cut off time that is earlier than their lobby hours. Deposits received after the cut off time were credited to the next business day.

20.1.4.7.4  (07-17-2015)
Legal Holidays (Bank Holidays)

  1. Beginning 2011, banking days are replaced by business days for deciding a deposit due date. A business day, unlike a banking day, does not consider statewide legal holidays for FTD purposes. A business day is defined as every calendar day that is not a Saturday, Sunday, or those legal holidays in the District of Columbia. Thus, a statewide legal holiday, formerly allowed as a banking holiday, will no longer be considered unless the holiday coincides with a legal holiday in the District of Columbia. The following days are currently legal holidays in the District of Columbia: New Year's Day, Birthday of Martin Luther King, Jr., Washington's Birthday, District of Columbia Emancipation Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and the day of the inauguration of the President, every fourth year. For more information about banking days, see the May 22, 2009 revision of IRM 20.1.4.2.4 , Banking Day.

    Exception:

    Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

20.1.4.7.5  (07-17-2015)
Application of Payments

  1. Payments are identified on Master File as follows:

    • TC 610 — Payment received with a return—depending on the reason for the payment with the return, this payment may be liable for the avoidance portion of the FTD penalty.

    • TC 670 — Subsequent payment — See IRM 20.1.4.24.2.2, FTD as Subsequent Payment, for possible FTD avoidance penalty.

    • TC 650 — Federal Tax Deposit,

    • TC 700 — Credit Applied,

    • TC 706 — Overpayment Offset into a Balance Due Module,

    • TC 760 — Substantiated Credit Payment Allowance,

    • TC 710 — Overpayment Credit Applied from Prior Tax Period,

    • TC 716 — Generated Overpayment Applied from Prior Tax Period,

    • TC 766 — COBRA Credit (Credit Reference Number (CRN) 299), and

    • TC 766 — HIRE Credit (CRN 296).

    • TC 766 — Work Opportunity Credit (CRN 290)

  2. On a TC 706 overpayment, Master File will only use the credit against the 4th tier 15 percent penalty amount. Otherwise, the credit is not recognized in the penalty calculation.

  3. If the TC 716 credit availability date is not present (e.g., on CP 194, BMFOL, etc.), Master File will use the first day of the tax period as the credit effective date.

  4. On a TC 710 credit transfer, Master File will use the first day of the tax period as the credit effective date.

  5. The COBRA TC 766 (CRN 299) credit is applied by Master File using the first day of the tax period as the credit effective date and uses the credit in the FTD penalty calculation.

  6. The HIRE TC 766 (CRN 296) credit is applied by Master File on April 1, 2010, as the credit effective date and uses the credit in the FTD penalty calculation.

  7. The Work Opportunity Credit TC 766 (CRN 290) is applied by Master File on the first day of the tax period as the credit effective date and uses the credit to recalculate any FTD penalty. It must be claimed on Form 5884-C by qualified tax-exempt organizations after Form 941, 943, or 944 is filed. The credit may not exceed the employer portion of the social security tax. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The credit may be applied for tax periods 201112 through 201512 for Forms 941, Form 943, and Form 944,

  8. For periods after December 31, 2001, deposits are applied to the most recently ended deposit period or periods within the specified tax period to which the deposit relates as provided in Rev. Proc. 2001-58. The application of deposits to the most recently ended deposit period will, in some cases, prevent the cascading penalties where a depositor either fails to make deposits or makes late deposits. See the job aid on the Most Recent Payment Allocation Method located in Chapter 7 of IRM 21 Job Aids.

20.1.4.8  (01-06-2012)
Employment Tax (Forms 941, 943, 944, 945, and CT-1)

  1. Taxpayers follow a pre-determined deposit schedule, under which the frequency of deposits generally remains consistent throughout the year.

  2. An employer is not required to make a deposit more often than a payroll is made. However, 100 percent of the amount required to be deposited is due on the deposit due date unless the employer meets one of the safe harbor exceptions. See IRM 20.1.4.8.7, Safe Harbor.

  3. If taxes are required to be deposited on any day that is not a business day, the taxes will be treated as timely deposited if deposited on the first business day thereafter.

    Example:

    If a deposit is required to be made on a Friday and Friday is a legal holiday, the deposit will be considered timely if it is made by the following Monday (if that Monday is a business day). Semiweekly schedule depositors have at least 3 business days to make a deposit. If any of the 3 weekdays after the end of a semiweekly period is a legal holiday, an employer will have an additional day for each day that is a legal holiday to make the required deposit. For example, if a semiweekly schedule depositor accumulated taxes for payments made on Friday and the following Monday is a legal holiday, the deposit normally due on Wednesday may be made on Thursday (this allows 3 business days to make the deposit).

  4. For Form 941 tax periods beginning on or after January 1, 2010, the de minimis deposit exception was modified to allow employers to base the de minimis determination on the immediate preceding calendar quarter as a means to provide a safe harbor for employers regarding their deposit obligations.

    Example:

    The employer’s quarterly tax liability for the second quarter of 2010 is $2,450. In the third quarter of 2010, the tax liability is $2,550. Under the new Form 941 de minimis deposit exception, if the employer pays the $2,550 with the return for the third quarter of 2010, the amount would be considered timely deposited for that quarter.

    These regulations have no application to the One-Day rule in Treas. Reg. 31.6302–1(c)(3), which requires employers to make a deposit on the next business day if they accumulate $100,000 or more of employment taxes on any day during a deposit period. Therefore, if an employer accumulates $100,000 or more of employment taxes during a deposit period, the employer must make a deposit on the next business day even if the employer’s employment tax liability for the prior calendar quarter met the de minimis deposit exception.

  5. For the de minimis deposit exceptions for employment taxes (Form 941, Form 943, Form 944, Form 945, and Form CT-1), see IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

  6. Taxes that reach $100,000 or more within a deposit period, must be deposited in time to settle on the next business day for either the monthly or semi-weekly depositor. See IRM 20.1.4.8.6, $100,000/One-Day Rule.

20.1.4.8.1  (01-06-2012)
Extension of Time to Deposit for Form 941 Filers who Filed Form 944 in the Preceding Year

  1. An employer who was in the Employers' Annual Federal Tax Program (Form 944) in the preceding year, but will file Forms 941 instead for the current year, will be deemed to have timely deposited its (Form 941) January deposit obligation(s) under Treas. Reg. 31.6302-1(c)(1) through (4) for the first calendar quarter of the year in which it must file quarterly using Form 941 if the employer deposits the amount of such deposit obligation(s) by March 15th of that year.

    Example:

    Taxpayer F (a monthly depositor) was notified to file Form 944 to report its employment tax liabilities for the 2009 calendar year. F filed Form 944 on January 31, 2010, reporting a total employment tax liability for 2009 of $3,000. Because F's annual employment tax liability for the 2009 taxable year exceeded $1,000 (the eligibility requirement threshold), F was notified to file Form 941 for calendar year 2010. F accumulates $1,000 in employment taxes during January 2010. Because F is a monthly depositor, F's January deposit obligation is due February 15, 2010. F does not deposit these accumulated employment taxes on February 15, 2010. F accumulates $1,500 in employment taxes during February 2010. F's February deposit is due March 15, 2010. F deposits the $2,500 of employment taxes accumulated during January and February on March 15, 2010. Pursuant to Treas. Reg. 31.6302-1(c)(6), F will be deemed to have timely deposited the employment taxes due for January 2010, and, thus, the IRS will not impose a failure to deposit penalty under IRC 6656 for that month.

  2. For extended administrative waiver provisions see IRM 20.1.4.26.2 (3), Administrative Waivers.

20.1.4.8.2  (07-17-2015)
Lookback Periods for Employment Tax

  1. An employer is considered either a "monthly depositor" or a "semi-weekly depositor" for a calendar year based on an annual determination of the aggregate amount of employment taxes reported on the original return filings (TC 150 amounts) during the employer’s "lookback period."

    1. Form 941 — For quarterly return filers, the "lookback period" for each calendar year is the twelve-month period ending the preceding June 30. For example, the lookback period for calendar year 2014 is the Form 941 return filings during the period from July 1, 2012 to June 30, 2013 (which encompasses the quarters ending 201209, 201212, 201303, and 201306).

      Note:

      The lookback quarterly tax liability amounts for Form 941 filers can be accessed through use of command code BMFOL definer "K"

      .

    2. Form 941with an intervening Form 944 filed in the lookback period — If there is an intervening Form 944 filing in either year of the Form 941 lookback quarters, then the lookback period is defined as the second calendar year preceding the current calendar year. The lookback tax could be either the combined quarterly Form 941 tax amounts or Form 944 tax amount (depending on which type of return(s) posted). For example, the lookback period for a 2014 Form 941 filer who filed Form 944 in either 2012 or 2013 is calendar year 2012.

    3. Form 943 — The lookback period for employers who file Form 943 is the second calendar year preceding the current calendar year. For example, the lookback period for calendar year 2015 is calendar year 2013 (2013 Form 943 (TC 150) tax amount).

    4. Form 944 - The lookback period for employers who file Form 944 is the second calendar year preceding the current calendar year. For example, the lookback period for calendar year 2014 is calendar year 2012 (2012 Form 944 (TC 150) tax amount or 2012 quarterly Form 941 (TC 150) tax amounts).

  2. A new employer is treated as having employment tax liabilities of zero for any calendar quarter or year of the lookback period before the date the employer started or acquired its business.

  3. The deposit status information Computer Paragraph (CP) 136, CP 136B, CP 137, CP 137A, and/or CP 137B courtesy notices are sent each November to taxpayers that will change deposit frequencies from the current year (determined by the annual lookback analysis).

  4. Taxpayers should validate the information contained in the CP 136, CP 136B, CP 137, CP 137A, and/or CP 137B courtesy notices. If the lookback liability amount(s) listed on the notice differ from the taxpayer’s records, then it is the taxpayer’s responsibility to determine which deposit schedule to follow.

  5. The notice history on accounts that were issued a CP 136, 136B, 137, 137A, and/or 137B notice can be accessed through the use of Command Code BMFOL with definer "D" .

  6. Taxpayers should continue depositing, following the deposit schedule they were last issued, unless:

    • A deposit status information courtesy notice in (3) above is received, or

    • Their current circumstances warrant a change (e.g., incurring a $100,000 liability within a deposit period) or

    • An analysis of the lookback period shows that the deposit status has changed.

  7. The fact that the taxpayer and/or third party did not receive a deposit status information notice in any of the previous or subsequent years, or did not compare the lookback tax liability amount(s) listed on the deposit status information notice against their tax records, is not grounds for granting an abatement of the FTD penalty.

  8. Sufficient information is readily available (e.g., Publication 15, (Circular E) Employer's Tax Guide) for the taxpayer to determine the appropriate lookback period, whether the lookback threshold has been met or exceeded and whether the taxpayer has any extraordinary circumstances that would affect the deposit schedule currently being followed.

20.1.4.8.3  (01-06-2012)
Monthly Depositors

  1. If an employer reported employment taxes of $50,000 or less during the one year lookback period, the employer is a monthly depositor and generally must deposit employment taxes on a monthly basis during the calendar year.

  2. Under the monthly rule, each month’s taxes are required to be deposited on or before the 15th day of the following month.

  3. If the 15th of the following month falls on a Saturday, Sunday, or a legal holiday in the District of Columbia, the employer will have until the next business day to make a timely deposit.

    Exception:

    Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

  4. Monthly depositors whose tax reaches the de minimis amount to deposit must complete the monthly tax liability section of the tax return. For more information see IRM 20.1.4.6, De Minimis Exception to Deposit Requirements.

20.1.4.8.4  (07-17-2015)
Semi-weekly Depositors

  1. If an employer reported employment taxes of more than $50,000 during the lookback period, the employer must deposit using the semi-weekly rule. Under this rule, the day a deposit is due is determined by the day of the payroll.

    1. The deposit for a pay day of Wednesday, Thursday, and/or Friday must be made on or before the following Wednesday.

    2. The deposit for a pay day of Saturday, Sunday, Monday, and/or Tuesday must be made on or before the following Friday.

    3. The semi-weekly rule does not require an employer to make deposits twice a week (semi-weekly). Rather, the deposits are due based on a schedule which divides the calendar week into two (semi-weekly) sections.

    4. The semi-weekly depositor whose tax reaches the de minimis amount to deposit must submit a ROFTL schedule. For more information see IRM 20.1.4.6, De Minimis Exception to Deposit Requirements. Employers who file Form 941, Employer's Quarterly Federal Tax Return, must submit a Schedule B (Form 941), Report of Tax Liability for Semi-weekly Schedule Depositors. Employers who file Form 943, Employer's Annual Tax Return for Agricultural Employees must submit Form 943-A,Agricultural Employer's Record of Federal Tax Liability. Employers who file Form 944, Employer's ANNUAL Federal Tax Return, Form 945, Annual Return of Withheld Federal Income Tax, or Form CT-1, Employer's Annual Railroad Retirement Tax Return must submit Form 945–A, Annual Record of Federal Tax Liability. See IRM Exhibit 20.1.4-12, ROFTL Enclosures.

    5. Command Code FTDPN, in IRM 2.3.28 displays the deposit due dates taking into account non-business days including weekends, and legal holidays in the District of Columbia. FTDPN treats a statewide legal holiday as non-business days in 2011 and prior years.

  2. In the case of a return period that ends during a semi-weekly deposit period, the employer may be required to make two separate deposits. For example:

    1. The second calendar quarter return period ends on Thursday (June 30th), and the third quarter return period begins on Friday (July 1st).

    2. If the employer had a payroll on Thursday and another on Friday, this employer must make two separate deposits on the following Wednesday. One deposit is for the Thursday payroll (second quarter) and the other deposit is for the Friday payroll (third quarter).

20.1.4.8.5  (01-06-2012)
Rule For Semi-weekly Non-Business Days

  1. Treas. Reg. 31.6302–1(c)(2)(iii) provides that all semi-weekly depositors have at least three business days following the close of the semi-weekly period, to deposit employment taxes accumulated during the semi-weekly period.

  2. Saturdays and Sundays were considered in arriving at a due date for semi-weekly deposits which would allow at least three business days. However, because federal holidays do not fall on a regularly recurring schedule throughout the calendar year, the following procedures are to be followed in determining the due date:

    1. If one or more of the intervening days between the end of the semi-weekly period and the due date is a legal holiday in the District of Columbia, the deposit due date will be extended by the same number of days.

    2. If the deposit due date is on a legal holiday in the District of Columbia, the due date will be extended to the next day that is not a Saturday, Sunday, or legal holiday in the District of Columbia. For example, if a deposit is due on a Friday, but that Friday is a legal holiday in the District of Columbia, the deposit would be timely if received by the following Monday.

      Exception:

      Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

20.1.4.8.6  (01-06-2012)
$100,000/One-Day Rule

  1. Taxes on Form 941, Form 943, Form 944, Form 945, and Form CT-1 that reach $100,000 or more within a deposit period, must be deposited in time to settle on the next business day for either the monthly or semi-weekly depositor.

    1. A monthly depositor who incurs a $100,000 or more tax liability, when such liability is accumulated within one calendar month, immediately becomes a semi-weekly depositor for the remainder of the current calendar year and the following calendar year. For example, if a $100,000 tax liability is incurred on Wednesday, taxpayer becomes a semi-weekly depositor on Thursday.

    2. A semi-weekly depositor who incurs a $100,000 or greater tax liability, when such liability is accumulated within one semi-weekly period, will return to the semi-weekly deposit schedule the following day. For example, if a $100,000 tax liability is incurred on Wednesday, the taxpayer returns to being a semi-weekly depositor on Thursday.

  2. If the deposit due date for next-day depositors is a Saturday, Sunday, or legal holiday in the District of Columbia, the due date will be extended to the next day that is not a Saturday, Sunday, or legal holiday in the District of Columbia. For example, if a deposit is due on a Friday, but that Friday is a holiday in the District of Columbia, the deposit would be timely if received by the following Monday.

    Exception:

    Notice 2010-87 provides transitional relief for determining the timeliness of federal tax deposits (FTDs) under IRC 6302. The notice provides that the Internal Revenue Service will not assert penalties under IRC 6656 for FTDs due in calendar year 2011 that are untimely solely because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia. Therefore, statewide legal holidays are treated as non-business days for 2011 and prior.

20.1.4.8.7  (07-17-2015)
Safe Harbor

  1. No penalty is assessed if:

    1. Any deposit shortfall does not exceed the greater of $100 or 2 percent of the amount of taxes otherwise required to be deposited, and

    2. The deposit shortfall is paid or deposited by the shortfall makeup date. The deposit due date for the shortfall depends upon whether the taxpayer is a monthly or semi-weekly depositor. Only monthly depositors may pay the shortfall rather than deposit the shortfall amount.

  2. The shortfall make-up date for monthly depositors is the due date for the return period in which the underpayment occurs.

  3. The shortfall make-up date for semi-weekly/one-day rule depositors is the earlier of:

    1. The first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred or

    2. The due date of the return (for the return period of the tax liability).

      Example:

      a semi-weekly schedule depositor has a Form 941 deposit shortfall for a deposit due in July, the makeup date for the amount of the shortfall is the first Wednesday or Friday that falls on or after August 15th, which is the month following the month in which the original deposit was due.
      If however, a semi-weekly schedule depositor has a Form 941 deposit shortfall for a September payroll with deposit due in October, we apply the exception in paragraph (3) b) above and use the due date of the return (October 31st) as the shortfall makeup date and NOT the first Wednesday or Friday that falls on or after November 15th (the month after the month in which the original deposit was due), because November is later, not earlier, than the due date of the return (October 31st).

  4. Taxpayers do not have to apply safe harbor provisions to all deposits in a specific tax period. They may apply the provisions to certain deposits, while paying 100 percent of the others.

  5. Use of the safe harbor option does not change the order in which payments are applied or liabilities are satisfied. The impact of deposit periods must still be recognized when analyzing the funds deposited by the taxpayer and in determining which liability is to be satisfied first by the funds deposited by the taxpayer.

    1. Satisfying a liability before going on to the next liability means matching deposits, payments and/or credits to 100 percent or an appropriate safe harbor amount of the liability.

    2. For each liability, full satisfaction (100 percent) of the liability or safe harbor satisfaction is computed after consideration of all monies deposited on the same date.

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.8.8  (01-06-2012)
Computation of FTD Penalty For Employment Tax

  1. For tax periods beginning on or after January 1, 1993, see IRM Exhibit 20.1.4-4, Forms 941, 943, 944, 945, and CT-1 Deposit Requirements.

  2. To determine if a deposit is timely, compare the entry amounts on the ROFTL schedule with the deposits made. If the ROFTL schedule is incomplete, blank, or has a negative amount, then average the total tax.

  3. If there is a discrepancy on the ROFTL due to a line item adjustment, adjust the last liability regardless of the dollar amount.

  4. When the $100,000 One-Day Rule applies, see IRM 20.1.4.8.6, $100,000/One-Day Rule.

20.1.4.8.8.1  (01-06-2012)
Averaged Penalty

  1. Use the averaging method when the total tax exceeds the de minimis exception to deposit, and the total amount on the ROFTL schedule is not within ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ on Form 941, Form 943, Form 944, Form 945, or Form CT-1, or the ROFTL is missing, incomplete, blank, or has negative amounts.

    Note:

    The total tax equals the tax liability (TC 150 plus any TC 291, TC 290, TC 300 tax adjustments) reduced by any Advanced Earned Income Credit (AEIC) allowance (TC 766). The Education, Jobs and Medicaid Assistance Act of 2010 eliminated AEIC for tax years beginning after December 31, 2010.

  2. If there is a discrepancy on the ROFTL information due to adjustments for fraction of cents, sick pay, tips, or group term life insurance, adjust the last liability regardless of the dollar amount.

  3. The method of averaging depends on the type of depositor and the ROFTL information provided. See IRM Exhibit 20.1.4-3, FTD Averaging Methods.

  4. Apply deposits to the resulting averaged liabilities.

20.1.4.9  (07-17-2015)
Form 940

  1. Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, is an annual return used to report federal unemployment tax. For deposit purposes, divide each year into quarters.

  2. To show the correct liability for the deposit period, the taxpayer must list the tax liability in the ROFTL schedule if the total tax is more than $500.

  3. See IRM Exhibit 20.1.4-6, Form 940 Deposit Requirements, to determine if the taxpayer made timely deposits.

  4. For tax periods beginning on or after January 1, 2005, the deposit requirements are based on the amount of the tax liability incurred at the end of the deposit period.

    1. If the tax liability at the end of the first, second, or third calendar quarter is $500 or less, it is carried over to the next quarter.

    2. If the tax liability at the end of the fourth quarter is $500 or less, there is no requirement to deposit. The taxpayer can deposit the tax, pay the tax with a major credit card, or pay the tax with a check or money order with the return, by the return due date.

    3. Required federal tax deposits cannot be made by credit card.

    4. If the tax liability at the end of a calendar quarter is over $500, the taxes must be deposited by the last day of the following month.

  5. For tax periods beginning on or after April 1, 1991 and ending on or before December 31, 2004, the deposit requirements are based on the amount of the tax liability incurred at the end of the deposit period.

    1. If the tax liability at the end of the first, second, or third calendar quarter is $100 or less, it is carried over to the next quarter.

    2. If the tax liability at the end of the fourth quarter is $100 or less, there is no requirement to deposit. The taxpayer pays the tax with the return or deposits it by the return due date.

    3. If the tax liability at the end of a calendar quarter is over $100, the taxes must be deposited by the last day of the following month.

20.1.4.9.1  (01-06-2012)
Computing the FTD Penalty Form 940

  1. Refer to Form 940 deposit requirements discussed above to determine if the taxpayer made sufficient deposits.

  2. See IRM Exhibit 20.1.4-6, Form 940 Deposit Requirements, to determine if the taxpayer made timely deposits.

  3. Compare the taxpayer’s liability information from the ROFTL schedule with the deposits made. If these figures are not available, averaging is used.

  4. If there is an overstatement in the ROFTL schedule, regardless of the dollar amount, or an understatement on the ROFTL for the amount of the credit reduction adjustment, adjust the last liability. Then, compute the penalty as if for a valid ROFTL schedule.

20.1.4.9.2  (01-06-2012)
Averaged Penalty Form 940

  1. If the ROFTL schedule is overstated, see IRM 20.1.4.9.1 (4). Average the total tax when the ROFTL is incomplete, blank, or has a negative amount. The ROFTL schedule provided by the taxpayer on Form 940 must equal the tax reported on Form 940, ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . If the taxpayer is in a credit reduction state:

    1. Subtract the credit reduction amount (for tax periods with credit reduction) from the total FUTA tax.

    2. Divide the difference by 4 to get a quarterly breakdown.

    3. Add the credit reduction amount back into the fourth calendar quarter. Taxpayers determine the credit reduction amount in the fourth quarter. There is no deposit requirement until that period.

    4. DO NOT include the credit reduction amount in the total being averaged.

    5. Consider the posted deposits as payments against the resulting quarterly liabilities.

  2. Compute the penalty on under-deposits, late deposits, and direct payments. Assess the penalty, if appropriate.

20.1.4.10  (07-17-2015)
Form 720 Reporting Requirements

  1. Form 720, Quarterly Federal Excise Tax Return, and any related attachments, are used to report certain excise taxes. The return is divided into three parts.

    1. Part I reports taxes that are subject to deposit requirements.

    2. Part II reports taxes that are not subject to deposit requirements.

    3. Part III provides a computation of whether there is a balance due or an overpayment.

  2. The net tax liability for each class of tax is reported separately on Schedule A, Excise Tax Liability, of Form 720 by semi-monthly periods:

    • Regular method taxes reported on line 1, and

    • Alternative method taxes on line 2.

  3. Semi-monthly periods consist of two intervals within a month. The first semi-monthly period is the first 15 days of a month. The second semi-monthly period is the 16th day through the last day of a month.

  4. "Net tax liability" is the tax liability incurred during the semi-monthly period, plus or minus any applicable adjustments and claims for that period.

    • For communications and air transportation taxes (IRS Nos. 22, 26, 27, and 28), tax liability is treated as incurred in the semi-monthly period in which the tax is collected, or if the alternative method is elected, is considered as collected.

  5. Form 720, Schedule C, is used to report adjustments to previously reported liabilities and claims unrelated to liabilities in lieu of filing a Form 8849, Claim for Refund of Excise Taxes.

  6. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

20.1.4.10.1  (04-20-2010)
Form 720 Filing Requirements

  1. Taxes are identified by an "IRS No." (also known as "Abstract Numbers") on Form 720 and in IRS records. Only one Form 720 is filed for a calendar quarter.

  2. For all taxes, except ozone-depleting chemicals (ODC) floor stock tax (IRS No. 20), the return must be filed by the last day of the month following the end of the calendar quarter. The tax payment for the ODC floor stock tax, a Part II tax, is due by June 30th of each year and must be reported on the Form 720 due July 31st of each year.

  3. If any due date for filing a return falls on a Saturday, Sunday, or legal holiday in the District of Columbia, the taxpayer may file the return on the next business day.

20.1.4.10.2  (05-22-2009)
Payments Form 720

  1. Payment must be made by the return due date without extension.

20.1.4.10.3  (01-06-2012)
Deposits Form 720

  1. Taxes that are subject to deposit requirements are grouped together into the following two classes,

    • Regular method taxes

    • Alternative method taxes

  2. A deposit is due for each semi-monthly period in which a liability is incurred, except in the cases satisfying the de minimis exception to the deposit requirement. See IRM 20.1.4.10.5, De Minimis Exception to Deposit Requirements Form 720.

  3. The amount of each deposit of tax for a semi-monthly period must be at least 95% of the amount of the net tax liability for that period unless the taxpayer elected instead to use the safe harbor (1/6th rule) explained in IRM 20.1.4.10.6, Safe Harbor (1/6th Rule) for Deposits Form 720.

  4. Any underpayment of the liability for the current calendar quarter must be paid by the return due date without extension.

  5. In general, the underpayment must be paid with the return.

  6. An additional deposit must be made in September. For special rules for deposits in September, see IRM 20.1.4.10.7, Special Rules for Deposits in September Form 720.

  7. Beginning January 1, 2011, taxpayers are required to make their excise tax deposits for all of the excise taxes via EFT system. For information on the electronic funds transfer payment system requirements, see IRM 20.1.4.2.1, Electronic Funds Transfer (EFT), and IRM 20.1.4.2.2, Electronic Funds Tax Payment System (EFTPS).

20.1.4.10.4  (07-17-2015)
Deposit Rules Form 720

  1. Regular method, Line 1 of Schedule A.

    1. The Regular method applies to all excise taxes, except that taxpayers making deposits of the communication and air transportation taxes (IRS Nos. 22, 26, 27, and 28) have the option to make these deposits under the alternative method by using line 2 of Schedule A.

    2. The deposit of tax for a semi-monthly period is due by the 14th day following the end of the semi-monthly period. Generally, this is the 29th day of the month and the 14th day of the following month. If the 14th day or the 29th day is a Saturday, Sunday, or legal holiday in the District of Columbia, then the deposit is due the immediate preceding day which is not a Saturday, Sunday, or legal holiday. This is not the case for deposits due in September, see IRM 20.1.4.10.7, Special Rules for Deposits in September Form 720.

    3. The net tax liability for each semi-monthly period in the quarter is entered in line 1, Boxes A thru F of Schedule A.

  2. Alternative method, Line 2 of Schedule A.

    1. Only taxpayers depositing the communication and air transportation taxes (local telephone service and teletypewriter exchange service tax (IRS No. 22), transportation of persons by air tax (IRS No. 26), use of international air travel facilities tax (IRS No. 27), and transportation of property by air tax (IRS No. 28) may elect the alternative method.

    2. Under the Alternative Method, amounts considered as collected are reported on line 2 of Schedule A.

    3. See IRM Exhibit 20.1.4-7, Form 720 Return Due Dates.

  3. Under the alternative method:

    1. The tax included in amounts billed or tickets sold during a semi-monthly period is considered as collected during the first seven days of the second semi-monthly period following the semi-monthly period in which the amounts were billed or tickets sold.

      Example:

      The tax included in amounts billed between January 1 and January 15, 2015, is considered as collected during the period February 1 through February 7, 2015.

    2. The amount reported on Schedule A for each semi-monthly period is the tax considered as collected during that period.

      Example:

      The tax considered as collected during the period February 1 through February 7, 2015, is the amount reported for the period February 1 through February 15, 2015.

    3. The net tax liability for each semi-monthly period in the quarter is entered in line 2, Boxes M thru R of Schedule A.

      Example:

      The tax considered as collected during the period February 1 through February 7, 2015, is reported in Box O of Schedule A.

    4. The deposit of tax considered as collected for the first semi-monthly period of the month is due by the third business day after the seventh day of that semi-monthly period (generally the 10th day of that month). A business day does not include a Saturday, Sunday, or legal holiday in the District of Columbia.

      Example:

      The deposit for the semi-monthly period beginning on February 1, 2015, (this is a deposit of the tax included in amounts billed between January 1 and January 15, 2015), and considered as collected between February 1 and February 7, 2015, is due on February 10, 2015, a Wednesday.

  4. A taxpayer can change to the regular rule of computing deposits only at the beginning of a calendar quarter. The taxpayer must notify the IRS before a new choice is made so that adjustments may be made in order to properly reflect that taxpayer's collection of excise tax.

20.1.4.10.5  (04-20-2010)
De Minimis Exception to Deposit Requirements Form 720

  1. Deposits are not required if the net tax liability for the calendar quarter does not exceed $2,500.

  2. The $2,500 "de minimis exception" applies only to taxes listed in Part I, Form 720.

    Example:

    A return is filed reporting $1,950 in Part I taxes, and $4,000 in Part II taxes. Therefore, no deposits would be due against the total liability of $5,950. The $4,000 Part II taxes are not subject to deposit requirements, and the $1,950 Part I taxes are below the $2,500 "de minimis exception."

  3. To compute the $2,500 threshold, exclude taxes reported on a one-time filing, which are not subject to deposit. For example, no deposits are required for a one-time filing of gas guzzler tax (IRS No. 40). A taxpayer is eligible to make a one-time filing of Form 720 of the gas guzzler tax (IRS No. 40) if the taxpayer imported a gas guzzling automobile, does not import gas guzzling automobiles in the course of the taxpayer’s trade or business, and is not required to file Form 720 reporting excise taxes for the calendar quarter, except for the one-time filing. The taxpayer must check the "final return block" on the front of Form 720.

20.1.4.10.6  (01-06-2012)
Safe Harbor (1/6th Rule) for Deposits Form 720

  1. The safe harbor (1/6th Rule) applies separately to deposits under the regular method and alternative method.

  2. If the conditions of the safe harbor (1/6th rule) are met, a taxpayer that has made timely deposits by electronic funds transfer (EFT) of less than the full amount of net tax liability for each semi-monthly period in the calendar quarter, is considered to have satisfied the deposit requirement for the quarter. For information on the electronic funds transfer payment system requirements, see IRM 20.1.4.2.1, Electronic Funds Transfer (EFT) and IRM 20.1.4.2.2, Electronic Funds Tax Payment System (EFTPS). See also IRM 20.1.4.10.7, Special Rules for Deposits in September Form 720.

20.1.4.10.6.1  (07-17-2015)
Lookback Quarter Safe Harbor (1/6th Rule) Form 720

  1. The lookback quarter liability safe harbor (1/6th rule) applies to any entity that filed Form 720 for that class of tax for the second preceding calendar quarter (the lookback quarter). The 1/6th rule applies without regard to the amount of the liability for the current calendar quarter.

  2. To satisfy the deposit requirements under the 1/6th rule, the taxpayer must meet the following conditions:

    1. The deposit for each semi-monthly period in the current calendar quarter, must be at least 1/6th of the net tax liability of the lookback quarter, for the same class of tax.

    2. Each deposit must be timely made by EFT.

    3. Any underpayment of the liability for the current calendar quarter must be paid by the return due date without extension.

  3. In general, the underpayment must be paid with the return.

  4. If the taxpayer has elected the alternate method for the communications and air transportation taxes (IRS No. 22, 26, 27, and 28) then do not include these taxes when determining the net tax liability for the regular method.

  5. If a tax rate increase goes into effect for a calendar quarter, the following additional condition applies.

    1. The 1/6th rule does not apply for the first and second calendar quarters, beginning on or after the effective date of the increase, unless the deposit of taxes for each semi-monthly period in the calendar quarter is not less than 1/6th of the liability the taxpayer would have had for the look-back quarter, if the increased tax rate had been in effect during the look-back quarter.

    2. Thus, if tax rates are increased, taxpayers must deposit 1/6th of the amount that they would have been liable for in the look-back quarter, had the higher rate applied at that time.

  6. Use of the safe harbor (1/6th rule) is not permitted unless a tax was imposed throughout the look-back quarter. A separate determination is made for regular method and alternative method taxes.

    1. For regular method taxes, the tax liability cannot include any regular method tax that was not imposed at all times during the look-back quarter or a tax on a chemical not subject to tax at all times during the look-back quarter.

    2. For alternative method taxes, the tax liability cannot include any alternative method tax that was not imposed at all times during the look-back quarter and the month preceding the look-back quarter.

      See examples below.

      1. A taxpayer reported only regular method taxes (TC 150 adjusted by TC 29X) of $15,000 in the look-back quarter with credits of $3,000, resulting in a net tax liability of $12,000. Based on the net tax liability of $12,000, the required deposit (for each semi-monthly period) using the 1/6th rule in the current calendar quarter is $2,000. The tax can be deposited with the return.

      2. A taxpayer reports only regular method taxes (TC 150 adjusted by TC 29X) of $15,000 in the look-back quarter with credits of $18,000, resulting in a net tax liability of zero. Based on the net tax liability of zero, the required deposit (for each semi-monthly period) using the 1/6th rule in the current calendar quarter is zero.

      3. A taxpayer reported zero taxes (TC 150 adjusted by TC 29X) in the look-back quarter with credits of $3,000, resulting in a net tax of zero. The safe harbor 1/6th rule is not permitted on the net tax of zero (as allowed in example #2 above) because there was no tax imposed (TC 150 adjusted by TC 29X).

20.1.4.10.7  (05-22-2009)
Special Rules for Deposits in September Form 720

  1. An additional deposit is required during the third calendar quarter of each year in September for each class of tax.


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